Canada: Canadian Government Publishes Wide-Ranging Amendments To Anti-Money Laundering Laws

The Canadian Department of Finance has published wide-ranging draft amendments to regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act 2018 (PCMLTFA) which will affect financial and non-financial entities that provide access to Canada’s financial system, including dealers in virtual currency and foreign money services businesses. The proposed amendments are subject to a 90-day review period. The final version of the amendments is expected to be published in the fall of 2018, with implementation 12 months later, in the fall of 2019. 

The objective of the proposed amendments is to bring Canada’s anti-money laundering and anti-terrorist financing regime (AML/ATF Regime) into line with international standards set by the Financial Action Task Force (FATF), an intergovernmental body of which Canada is a founding member, which promotes implementation of measures for combatting threats to the integrity of the international financial system. The FATF identified several deficiencies in its last evaluation of Canada in 2015 which have been addressed by proposed amendments in the following areas:

  • customer due diligence requirements are modernized and, in some respects, broadened
  • persons and entities dealing in virtual currency are regulated as money services businesses (MSBs)
  • foreign MSBs are subject to the Canadian AML/ATF Regime to the extent their activities are directed to Canadian customers
  • the deadline for filing suspicious transactions reports (STRs) is shortened from 30 days to 3 days
  • prepaid credit cards and similar open-loop payment products are treated as bank accounts
  • prior to launching new technologies, reporting entities are expected to assess the potential money laundering/terrorist financing risks posed by such technologies on their products and delivery channels
  • certain existing requirements are clarified and technical amendments are made

Customer due diligence

The proposed amendments provide flexibility for reporting entities when conducting customer due diligence:

  • Reliance on third parties and foreign affiliates. Reporting entities may rely on identity verification performed by a: (i) third party that is also a reporting entity under the PCMLTFA; or (ii) foreign affiliate, which should reduce duplication and improve efficiency amongst reporting entities. When relying on a third party or foreign affiliate, a reporting entity must immediately obtain the identity verification information and be satisfied that it is valid and current, and also have a written agreement in place with the third party pursuant to which all relevant information in the third party’s possession or control regarding the identified customer may be obtained within three days of a request by the reporting entity. In addition, when relying on a foreign affiliate, the reporting entity must conduct a risk assessment of the AML/ATF Regime in the jurisdiction of the foreign affiliate, and the foreign affiliate’s compliance with the regime.
  • Scans and photocopies. The current requirement for identity verification documents to be “original, valid and current” is replaced with a requirement for the document to be “authentic, valid and current,” providing flexibility for reporting entities to rely on scans and photocopies when their authenticity can be verified.
  • Exemption for low-risk customers. An exemption from certain customer due diligence requirements is provided for certain low-risk customers such as large, publicly traded companies, such that corporate identity verification documents no longer need to be collected, provided that the reporting entity: (i) is satisfied that the corporation exists and that every person who deals with them on behalf of the corporation is actually authorized to do so; and (ii) maintains a record of the grounds considered and information obtained about the corporation to determine that it is low-risk. In addition, all other recordkeeping, monitoring and reporting obligations of the reporting entity will continue to apply to clients determined to be low-risk.
  • Repeal of recordkeeping for unsuccessful reasonable measures. The proposed amendments repeal the requirement introduced in June 2017 for reporting entities to maintain records of reasonable measures taken to meet certain obligations – for example, when a client refuses to answer whether he or she is conducting a large cash transaction on behalf of a third party – based on stakeholder feedback that the requirement is too onerous.

The proposed amendments also introduce certain new or enhanced customer due diligence requirements:

  • Currency of entity identity verification documents. The proposed amendments stipulate that, when being used to verify the identity of an entity, a certificate of corporate status must be no more than one year old and other permissible documents (such as audited financial statements, articles of association or other record that proves its existence) must be the “most recent.”
  • Accuracy of Beneficial Ownership Updates. Reporting entities are required to verify the identity of all “beneficial owners” of an entity customer, defined as all natural persons that own or control 25% or more of the shares or other ownership interests in the entity, as well as all directors of a corporation and trustees and known beneficiaries of a trust. Further, they must keep such information up to date through ongoing monitoring. Currently, reporting entities are required to take reasonable measures to confirm the accuracy of such information when it is initially obtained and keep records of such reasonable measures. The proposed amendments clarify that reporting entities are also required to take reasonable measures – and keep track of those measures – to confirm the accuracy of updated information obtained through ongoing monitoring.
  • Loans by life insurance companies: The life insurance sector will be subject to the same recordkeeping, reporting and customer due diligence requirements as other financial entities when issuing loans, such as mortgages and loans against the amount of an insurance policy. This is a relatively new line of business for the life insurance sector and, consequently, had not been captured under the AML/ATF Regime.

Dealers in virtual currency

The PCMLTFA was amended in 2014 to apply to persons and entities engaged in the business of “dealing in virtual currencies”; however, the coming into force of those amendments was delayed pending development of updated regulations. The proposed amendments introduce a definition for virtual currency:

(a) a digital currency that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or

(b) information that enables a person or entity to have access to a digital currency referred to in paragraph (a).

This definition would capture well-known cryptocurrencies such as bitcoin and ether and is potentially broad enough to capture myriad other tokens, coins and cryptoassets which can be exchanged for funds, either directly or by way of an intermediate exchange.

Dealers in virtual currency that offer services to Canadian clients will generally be considered domestic MSBs or foreign MSBs under the AML/ATF Regime, and therefore subject to similar customer due diligence, recordkeeping, monitoring and reporting requirements as other reporting entities. Guidance published with the proposed amendments states that “dealing in” activities include virtual currency exchange services and value transfer services, which would likely include online trading platforms and brokerages/intermediaries for virtual currency transactions.

In addition, all reporting entities that receive $10,000 or more in virtual currency will have recordkeeping and reporting obligations.

Foreign money services businesses

The PCMLTFA was amended in 2014 to introduce foreign MSBs as a category or reporting entity; however, the coming into force of those amendments was delayed pending development of updated regulations. The proposed amendments will require foreign MSBs to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and be subject to the same compliance requirements as domestic MSBs, with slightly less onerous recordkeeping requirements. Money services businesses include foreign exchange dealing, money transferring and/or cashing or selling money orders, travelers cheques or anything similar and, upon the adoption of the proposed amendments, dealing in virtual currencies. Because MSBs without a place of business in Canada can access Canadian customers through the Internet and the use of financial technology (FinTech), regulation of foreign MSBs is necessary to level the playing field with Canadian MSBs and ensure that all businesses which provide access to Canada’s financial system are subject to the AML/ATF Regime.

The proposed amendments will authorize FINTRAC to levy administrative monetary penalties (AMPs) on foreign MSBs that are found to be non-compliant and to revoke the registration of foreign MSBs that fail to pay their AMPs. Financial entities will be prohibited from opening or maintaining an account for, or having a correspondent banking relationship with, an unregistered foreign MSB.

Reporting deadline for suspicious transactions

The proposed amendments will require reporting entities to file a suspicious transaction report within three days after measures have been taken to enable them to establish that there are reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering or terrorist financing offence. Guidance published with the proposed amendments states that, in practice, this means that the deadline is three days after completion of the analysis that establishes reasonable grounds for suspicion. Currently, STRs must be filed 30 days after the reporting entity detects a fact that constitutes reasonable grounds for suspicion, and industry practice generally interprets this deadline to permit time for an analysis to be conducted after the suspicious fact is detected with the report filed three days after suspicion is confirmed. The proposed amendment clarifies the expectation for STRs to be filed promptly.

Prepaid payment products

The proposed amendments would ensure that prepaid credit cards and similar open-loop prepaid payment products, which are not necessarily connected to a bank account, will be treated as bank accounts under the AML/ATF Regime and will be subject to the same customer due diligence, recordkeeping, monitoring and reporting requirements as those imposed on reporting entities offering bank accounts. Issuers of closed-loop payment products the use of which is restricted to a particular merchant or group of merchants, such as a shopping-centre gift card, are outside the scope of this proposed amendment.

Use of technologies

All reporting entities are required to conduct periodic risk assessments of their vulnerability to money laundering and terrorist financing activities as part of their compliance programs. The risk assessment criteria currently prescribed under the AML/ATF Regime, specifically the reporting entity’s business relationships, products, delivery channels and geographic locations, will be clarified to provide that risks associated with the use of new technologies prior to their launch must be considered in the assessment of products and delivery channels.

Clarification of existing requirements and technical amendments

  • Transactions over $10,000 and 24-hour rule. The proposed amendments clarify that multiple transactions performed by an individual within a 24-hour period are considered a single transaction for reporting purposes when they total $10,000 or more, and that only one report should be submitted to capture all transactions within a 24-hour period that collectively meet or surpass this threshold. This new formula is expected to simplify the way reporting entities submit reports under the 24-hour rule by eliminating the need to back out transactions of over $10,000 from the aggregation calculation.
    The proposed amendments also clarify that the 24-hour rule applies to a recipient of cash deposits and/or transfers in an aggregate amount of $10,000 or more over a 24-hour period, and that the large cash transaction reporting requirements apply to all aggregate transactions of $10,000 or more, regardless of corporate structure.
  • Sources of wealth of politically exposed persons. The proposed amendments would require reporting entities to take reasonable measures to determine the sources of wealth of politically exposed persons. Presumably, this requirement would also be covered by the Criminal Code (Canada) prohibition against dealing with proceeds of crime. The proposed amendments would require that the amount of a client’s accumulated funds or wealth should appear to be reasonable and consistent with the information provided, and doubts about the origin of such funds or wealth would have to be satisfied before a reporting entity proceeds with the relationship or permits transactions to occur.
  • Wire transfer records. Currently, reporting entities are required only to send a wire transfer to document information about the transaction. Under the proposed amendments, reporting entities that are intermediaries in a transaction or that send or receive a wire transfer would be required to identify, keep records of, and include information about the transaction. The stated purpose of this change is to help ensure this information remains with the wire transfer throughout the payment chain, and ensure that reporting entities have all of the relevant transaction information to detect and report suspicious transactions.
  • Registration renewals by money services businesses. Currently, MSBs must renew their registration with FINTRAC every two years on the anniversary of the original registration and provide supporting documentation of the renewal. The proposed amendments will permit MSB registrations to be renewed at any time during the two-year period and eliminate certain information from the renewal submission (e.g., fax number).
  • Managing general agents are not reporting entities. The proposed amendments clarify that life insurance companies that are managing general agents (MGAs) facilitating transactions between other life insurance companies which are themselves reporting entities are not reporting entities when acting in such capacity.
  • Dealers in precious metals and stones. Exemptions for low-risk activities for dealers in precious metals and stones (e.g., manufacturing jewellery) would be expanded to capture other types of manufacturing processes that may also involve the use or consumption of precious metals and stones (e.g., diamonds used to manufacture drill bits), consistent with the original policy intent.
  • Accountants. The proposed amendments clarify that accountants who only act as a trustee in bankruptcy services or as an insolvency practitioner would not be subject to the requirements of the Act.

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.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions