As regulators have stepped up enforcement activity for money laundering offences, resulting in some eye-popping fines, it seems a good time to review the obligations of accountants and accounting firms under anti-money laundering legislation.
Like lawyers, the accounting profession is subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA or the Act), the principal federal statute which contains measures to detect and deter money laundering and terrorist financing. The application of PCMLTFA to the legal profession has been suspended pending the outcome of a constitutional challenge which has now been heard at the Supreme Court of Canada. Not so with accountants; the Act applies today without exception to all members of the profession. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is the federal agency which administers and enforces the Act, and FINTRAC can and does conduct audits of accounting firms to assess compliance with the Act. (The Act, the regulations made under the Act, and the policy statements, guidance notes and notices issued by FINTRAC are referred to herein as the "AML Rules".)
The application of the AML Rules and the mandated anti-money laundering compliance procedures to accountants is relatively narrow. They only apply when the accountant engages in the following activities on behalf of an individual or an entity:
- receiving or paying funds;
- purchasing or selling securities, real property or business assets or entities; or
- transferring funds or securities by any means.
The easiest way to think about it is that the AML Rules are engaged whenever the accountant or the firm is conducting client facilitation activities for or on behalf of a client. They do not apply with respect to the receipt of fees for professional services. But, for example, if the accounting firm remits taxes to CRA on behalf of a client, even as a "one-off", or handles monies in connection with a mortgage financing, or a purchase or sale of property, then the AML Rules will apply in respect of those transactions.
Even if the level of client facilitation activity is very limited, ad hoc or occasional, FINTRAC's expectation is that the firm have a compliance program in place. Such a program consists, at a minimum, of:
- up-to-date and appropriate AML policies and procedures which have been approved by a senior management;
- the appointment of a compliance officer for AML;
- a written risk assessment which documents the money laundering/terrorist financing risks to the firm, with mitigation measures that the firm has adopted with respect to the assessed risks;
- ongoing training on AML to firm members and employees (and documented evidence of participation in such training programs); and
- an independent review of the effectiveness of the firm's AML compliance program, at least every two years.
None of this has to be elaborate, but all of these elements are expected to be present.
Furthermore, accountants have both record-keeping and reporting obligations under the AML Rules. Prescribed reports must be made of large cash transactions, suspicious transactions and certain international electronic funds transfers. If the firm has grounds to suspect that it may be in possession of terrorist property, a report must be filed and it may be necessary to alert law enforcement.
Following a period of outreach and education, FINTRAC is now very firmly in enforcement mode. Accounting firms should not be surprised to receive a letter from their local FINTRAC examiner requesting copies of documentation evidencing compliance with the AML Rules. Significant fines can be imposed if the FINTRAC review discloses failure to comply; furthermore, FINTRAC can and will make public disclosure, including on its web site, of entities found to be in violation.
We have observed that while client identification and verification procedures are generally well observed, many firms have not kept their written policies and procedures up to date. Also, we see firms that have not conducted satisfactory risk assessments nor had the independent review completed as required. We recommend that accounting firms take a moment to review their AML compliance regimes to ensure that they reflect the most recent amendments of the AML Rules.
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.