Canada's Proceeds of Crime (Money Laundering) and Terrorist
Financing Act (the Act) obligates certain businesses with money
laundering vulnerabilities to identify clients, keep records, and
report prescribed transactions, among other things. We're often
asked by payment processors and transaction intermediaries whether
they have those responsibilities. We helpfully respond –
sometimes. Determining whether the obligations apply depends on
facts of the situation.
Is your institution subject to Canada's AML rules?
Some institutions are subject to the Act because of what they
are (e.g. a bank) while others are obligated because of what they
do (e.g. selling diamonds for cash). Since payment processors
aren't specifically mentioned as being obligated because of
their business type, the sections relating to activity based
obligations, particularly those related to money services business
(MSB) activity, become the most relevant. Specified MSB activities
remitting or transmitting Funds
issuing or redeeming negotiable instruments
foreign exchange dealing
What constitutes remitting or transmitting funds?
Remitting or transmitting funds involves the transfer or
execution of instructions for the transfer of funds. Exemptions
transfers using a credit or debit card, if the recipient has an
agreement with the payment service provider permitting such means
of payment for goods and services;
a transfer where the recipient withdraws cash from their
a transfer carried out by means of a direct deposit or a
pre-authorized debit ; or
a transfer carried out using cheque imaging and
Though ACH payments are not explicitly mentioned in the
exemptions, they would be included under the exemption of 'a
transfer carried out by means of a direct deposit or a
pre-authorized debit'. Some types of ACH payments may not
benefit from that exemption due to structure and purpose. For
instance, a client may request direct deposits of employee salaries
and also request separate payments to suppliers for the purchase of
goods (without using a credit or debit card). The direct deposit
would be considered an ACH payment exempt for any obligations under
the PCMLTFA while the supplier payments may be deemed EFTs with
corresponding legislative requirements. Even a few qualifying
transactions conducted in a year would qualify a payment processor
as a money services business.
What constitutes issuing or redeeming negotiable
Issuing and redeeming negotiable instruments is seldom
applicable to a payment processor, since it requires that
instruments are those of the entity, not of a third party.
Businesses that accept negotiable instruments as a form of payment
are considered to be cashing the negotiable instrument and not
redeeming it. The redemption would be conducted by the same entity
that issued the negotiable instrument and they would be subject to
all legislative requirements stemming from this.
What constitutes foreign exchange dealing?
Foreign exchange dealing is conducting transactions where
currency is exchanged for another (whether electronically, through
instruments, or physical currency), which may be effected through
ACH transfers. It does not include transactions where change is
provided in Canadian currency after the purchase of goods or
services (other than any of those in the above mentioned money
services business activities) with foreign currency. Any excess
funds provided in addition to the one(s) required to pay for the
product or service would be considered a foreign exchange. With the
expected passage of the Budget Implementation Act (the BIA), even
companies outside of Canada providing foreign exchange services to
people in Canada would be covered. The BIA may also result in
virtual currencies being considered currencies in Canada and
subject them to foreign exchange standards.
What do you do if you are covered?
Those payment processors considered to be MSBs because of their
activities are required to: maintain an updated registration with
the Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC), retain records of prescribed transactions, identify
customers in cases of prescribed transfers with a value of CAD
1,000 and more, report prescribed transactions to FINTRAC, and
develop/implement an antimoney laundering compliance program. Upon
registration as an MSB, it's likely you will be subject to a
FINTRAC compliance examination. Your compliance program should be
fully implemented and effective prior to examination.
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.
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