The Federal government, in line with other states
internationally, is considering steps to strengthen the anti-money
laundering ("AML") legislative regime, specifically the
Proceeds of Crime (Money Laundering) and Terrorist Financing
Act. AML laws in Canada and elsewhere target payment
systems and financial institutions with reporting and transparency
A noteworthy issue on which the Government sought consultation
was the regulation of prepaid cards, such as gift cards and
reloadable travel cards. The main issuers of these cards are credit
card companies and other lenders, who service retailers offering a
branded gift card for shopping in their stores or on their
Following comments in the 2011 Interim Report of the Special
Senate Committee on Anti-Terrorism, the money-laundering potential
of retail gift cards, which are often non-traceable and resold
online at a discount, was noted as being a risk worth regulating.
The majority of chain retailers in Canada offer gift cards for
sale, and prepaid debit cards have largely replaced travellers
cheques as a means of traveling with money. These latter cards can
be refreshed and converted to cash at ATMs.
Consultation on what changes might be necessary to the AML
regime finished in March 2012. The Federal government sought
input from financial institutions on a variety of issues, including
whether to extend customer due diligence obligations to sellers of
The Government received 27 responses to its consultation
request, the majority of which were from recognizable financial
services sector participants and associations. The case against
extending AML regulation to prepaid cards was made in detail.
Generally, the low cash value of most gift cards (common ceilings
are $500 or $1000), their limited reusability, and the fact that,
on their face, they are only redeemable for goods or services, were
presented as reasons that prepaid cards are an ineffective means of
money-laundering. The secondary market for these cards, which
flourishes online (but costs the money-launderer in the form of a
discount on the face value of the card) was not widely
Reloadable charge cards and travel cards pose a more obvious
risk for money-laundering, particularly as the cards can be
purchased in one jurisdiction and converted to cash in another.
Industry responders noted that these types of cards are almost
exclusively the preserve of credit card companies and banks, who
are already subject to anti-money laundering regulation and client
identification requirements. The reload of these cards requires a
transfer of cash from an existing account, in contrast to the
relative anonymity of using gift cards (which are redeemed with
ease, and purchased as an ordinary retail transaction).
The Federal Government is also considering a reporting
requirement on individuals crossing the border or leaving the
country with monetary instruments -- including prepaid cards.
Responses noted that such a system would be impractical, as
cardholders may not know the balance of cards they have partially
used or received as a gift.
Although instituting due diligence requirements for prepaid
cards might appear to be an unrealistic imposition on retailers,
financial services providers, and the cardholders themselves, the
Federal government's December 2011 consultation paper notes
that the United States has already taken similar measures.
Having received the consultation responses, the Government's
task now is to seek a balance between easy commerce and fighting
crime in their attempt to firm up Canada's AML regime. If
reform of the Act is seen as a priority, a bill to amend it could
be expected as soon as the autumn 2012 legislative session.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).