Canada: FINTRAC Issues New Administrative Monetary Penalties Policy And New Tools In Respect Of Compliance And Its Examination Process

Last Updated: February 15 2019
Article by Ana Badour and Nancy J Carroll

Most Read Contributor in Canada, March 2019

On February 7, 2019, the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") issued a new Compliance Framework and Assessment Manual, as well as a revised Administrative Monetary Penalties ("AMP") Policy (together with sample penalty calculation) and a notice on Voluntary Self-Declaration of Non-Compliance

These new tools provide significantly more insight into the examination and penalty assessment process of FINTRAC and follow the 2016 Federal Court of Appeal decision in Canada v. Kabul Farms Inc. (and other similar decisions).  In that case, the Federal Court of Appeal struck down a $6,000 AMP assessed by FINTRAC for three violations by a money services business of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) (the "PCMLTFA").  The court found that the use by FINTRAC of an unpublished formula to assess the amount of an AMP raised procedural fairness concerns. 

Compliance Framework

The Compliance Framework is a new tool providing a high level concise graphical overview of (i) FINTRAC's guiding principles (being transparency, engagement and clarity), (ii) the entities subject to the PCMLTFA, (iii) the key obligations under the PCMLTFA and (iv) the pillars of FINTRAC's compliance program (assistance, assessment and enforcement).

The Compliance Framework outlines FINTRAC's outreach to assist reporting entities with their compliance through its on-line publications, policy interpretation, Helpline and technology support Helpdesk. It also summarizes FINTRAC's processes for compliance examinations and determining AMPs.

Assessment Manual

The Assessment Manual is a new tool that provides reporting entities with a detailed overview of the approaches and methods used by FINTRAC during the examination process. Reporting entities should carefully review this manual as it provides a helpful roadmap, both in preparing for an examination by FINTRAC and in conducting self-assessments of compliance.

The Assessment Manual notes that FINTRAC will aim to take a holistic approach to findings during an examination, focusing less on technical non-compliance and more on the soundness of the compliance program as a whole. It explains that FINTRAC's goal in making its assessment findings is to make fair and balanced decisions based on what FINTRAC believes a reasonable, experienced and knowledgeable person in the reporting entity's business sector would have determined based on the particular facts. FINTRAC indicates that it will explain its findings to the reporting entity during the examination and offer the opportunity to provide additional information for FINTRAC's consideration.

The Assessment Manual provides valuable insight on how FINTRAC conducts its risk-based compliance examinations. The section on how FINTRAC assesses Suspicious Transaction Reports is particularly helpful and may assist reporting entities in their risk assessment and business relationship monitoring.  The Assessment Manual sets out exactly what reporting entities may expect during a compliance examination, including precisely what FINTRAC will focus on and how it will conduct its assessment in each specific area of compliance being tested.

The Assessment Manual is presented as an "evergreen" document that FINTRAC expects to update through consultations with reporting entities as its assessment methods evolve and the PCMLTFA changes.

AMP Policy

The revised AMP policy sets out the following principles applicable to the AMP program:

  • objectivity (FINTRAC will make an objective assessment based on facts and circumstances);
  • reasonableness (FINTRAC will exercise professional judgment assessing relevant facts and circumstances when assessing an AMP);
  • transparency (reporting entities will be provided with FINTRAC's findings and observations and be given an opportunity to respond before the findings are finalized);
  • fairness (reporting entities will have a fair opportunity to respond and to understand the case for an AMP);
  • consistency (FINTRAC will follow policies and procedures to ensure consistency of penalty amounts) and;
  • documentation (FINTRAC will document the information used to support its analysis).

AMP Assessment

FINTRAC has the discretion to determine whether to issue an AMP and may issue one where it has "reasonable grounds to believe" a reporting entity has violated the PCMLTFA or its regulations.  FINTRAC may use AMPs where there have been repeated non-compliance, significant issues of non-compliance or a high impact on FINTRAC's mandate or the objectives of the PCMLTFA and its regulations.

AMP Amount

The Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Penalties Regulations (Canada) set out the following monetary ranges for AMP amounts:

  • "Minor" violation: $1-$1,000 per violation
  • "Serious" violation: $1-$100,000 per violation
  • "Very serious" violation: $1-$100,000 per violation for an individual and $1-$500,000 per violation for an entity

FINTRAC will take into account the following in determining the amount of an AMP: (1) the purpose of the AMPs, which is to encourage compliance, rather than punish, (2) the harm done by the violation, and (3) the reporting entity's history of compliance.

In assessing the AMP amount, FINTRAC will complete a two step process: (1) assessing the harm done, and (2) assessing the compliance history and making a non-punitive adjustment. 

  • Step 1 – Harm done assessment: In the first step, FINTRAC will determine whether the violation is a failure in whole or in part of a requirement. Where the failure is in whole, FINTRAC will generally issue a penalty that is the maximum set out by the regulations.  Where the failure is only part of a requirement, FINTRAC will determine the AMP based on the part that is non-compliant and the extent of the failure (where the extent of the failure will be assessed based on the impact of the failure on FINTRAC's mandate or the objectives of the PCMLTFA and its regulations). 
  • Step 2 – Compliance history and non-punitive adjustment: FINTRAC will review the compliance history and will typically reduce a penalty by two-thirds for a first time violation, one-third for a second time violation and not at all thereafter.

Public Notice

FINTRAC may publish details of an AMP where:

  • A "very serious" violation has been committed;
  • The final penalty amount is equal to or greater than $100,000; or
  • The person has previously been subject to an AMP.

If publishing the AMP, FINTRAC may publish the name of the person, their business sector, the nature of the violation, the city where the business is located and the AMP amount. 

Sample Penalty Calculation

Seeking to ensure that reporting entities understand its AMP program, FINTRAC has published examples of how it would calculate an AMP for failure to report large cash transactions and for missing, incomplete or inadequate information in a large cash transaction report. These sample calculations provide insight into how FINTRAC applies its criteria for assessing the harm resulting from certain violations of the PCMLTFA.

Voluntary Self-Declaration of Non-Compliance

FINTRAC has now established a formal process for the voluntary self-declaration of non-compliance and strongly encourages such declaration. FINTRAC has emphasized that its ultimate goal is to enhance compliance. It wants reporting entities that have identified shortfalls in reporting, client identification, record keeping or implementing their compliance program to file the required reports and address compliance issues without delay.

Any voluntary self-declaration of non-compliance should include (1) the name of the reporting entity and contact details of the individual submitting the voluntary self-declaration of non-compliance, (2) for reporting issues: the number of reports impacted, type, and the time period during which the issues occurred, as well as the reason why the reports were not submitted, were late, or incorrect and other related details, (3) for other issues: the period of time during which the issues occurred, the reason for their occurrence; and (4) a plan to resolve the issues and submit all outstanding (or incorrect/incomplete) reports, including measures and timelines for corrective action.

Importantly, FINTRAC states that: "When the voluntarily declared non-compliance issue is not a repeated instance of a previously voluntarily disclosed issue, and when this declaration has not been made after a reporting entity has been notified of an upcoming examination, we will work with the entity to resolve the issue and will not propose an administrative monetary penalty related to the submission." 

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