Multi-lender loans require special consideration from the
standpoint of compliance with money laundering and anti-terrorist
financing ("AML/ATF") legislation. The challenge in a
multi-lender loan is to ensure that each lender complies with all
of its AML/AFT obligations, while avoiding unnecessary duplication
Canada's AML/ATF legislation in contained in the
Proceeds of Crime (Money Laundering) and Terrorist Financing
Act1(the "PCMLTFA") and the
regulations2 made under the Act (the
Under the PCMLTFA, each lender has a separate obligation for
borrower identification even though the borrower may already be an
identified customer of one of the lenders. The PCMLTFR allow a
financial institution to appoint another person to act as its agent
to ascertain identity and establish and maintain the appropriate
records, but only if the financial institution and agent have a
written agreement to this effect. Accordingly if some or all of the
syndicate lenders are relying on one of them for borrower
identification, this must be documented in writing to avoid a
breach of the Act by the delegating lenders.
Screening for Sanctioned Parties
If all lenders are domestic Canadian financial institutions, it
is possible for one among them to screen for sanctioned parties
under Canadian and UN sanctions applicable in Canada. If this is
the case, the agreement appointing an agent for ascertaining
identity should specifically mention that the agent will undertake
the screening as well. However, if there are foreign institutions
involved, such as foreign lenders lending into Canada from
off-shore, Schedule III foreign bank branches, or in some cases,
possibly a Schedule II foreign bank subsidiary, the foreign
sanctions legislation may also apply. The foreign institutions in
the syndicate may be required to do their own screening under their
domestic sanctions legislation. Similarly, a Canadian lender
screening for a syndicate that includes foreign lenders should take
steps to avoid giving the impression that it is undertaking any
screening under foreign legislation.
Politically Exposed Foreign Person ("PEFP")
Identification, Risk Assessment and Due Diligence
Subject to the specific PEFP identification, risk assessment and
due diligence policies of each lender, PEFP identification can be
included in a delegation to an agent. If so, is should be
documented. Each institution will have its own policies for risk
assessment and determining whether a high risk situation exists. If
one lender determines that a high risk situation exists, the
special measures to deal with the situation should be documented.
Similarly, where the PCMLTFR require on-going due diligence where
PEFPs are involved, the delegation and undertaking of these
measures should be documented.
Third Party Payments on Directions
Syndicated loans, especially in project finance, occasionally
include provisions requiring the lenders to pay draw downs to third
parties on behalf of the borrower. In these circumstances, the
third party recipient is subject to having their identity
ascertained as described in Borrower Identification above.
Therefore if one lender acts as agent of the others for this
identification, it too should be explicitly recognized in the
delegation to the agent. Payments to foreign third party
beneficiaries, especially in the developing world, carry an
increased risk under the Corruption of Foreign Public Officials
Act,3 particularly under the new facilitation
payment provisions that are soon to come into force. Lenders should
be particularly diligent to avoid remittances to fourth parties on
the direction of a borrower-related third party.
1 Proceeds of Crime (Money Laundering) and Terrorist
Financing Act, SC 2000, c 17, as amended
2 Proceeds of Crime (Money Laundering) and Terrorist
Financing Act Regulations, SOR/2002-184, as
3 Corruption of Foreign Public Officials Act, SC
1998, c 34, as amended
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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