On November 30, 2024, draft amendments were published for public consultation ("Amendments"), prescribing how certain financial crime measures contained in the Federal Budgets from 2022 to 2024 will be implemented. Submissions regarding the draft Amendments may be made to Canada's Department of Finance by December 30, 2024.
Impact of the Amendments - What you need to know
Highlights of the Amendments include the following:
- Factoring, cheque-cashing, leasing and financing (motor vehicle and high-end luxury goods) businesses have to comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA") as of October 1, 2025.
- To combat trade-based money laundering, as of October 1, 2025, declarations must be made to the Canada Border Services Agency as to whether goods being imported or exported are proceeds of crime or are related to money laundering, terrorist financing, or sanctions evasion and that the goods are in fact being imported or exported in order to address so-called "phantom shipments". New record-keeping requirements will also apply to importers, exporters, producers and certain suppliers, distributors and consumers of the goods. There is a new administrative monetary penalty regime providing for the imposition of civil fines of up to the declared or fair market value of the goods or the value of the financial transaction purporting to pay for the goods.
- Regulated entities under the PCMLTFA can choose to share information without knowledge and consent of the individual for AML/anti-terrorist financing and sanctions evasion purposes, with oversight by Canada's Privacy Commissioner. Participating entities must develop and submit codes of practice to the Privacy Commissioner for approval. Once approved, anyone who believes an entity has not complied with a code of practice may file a complaint to the Commissioner.
- Reporting entities must not only obtain beneficial ownership in the course of its know-your-customer procedures, but also consult with the federal beneficial ownership registry and report any "material" discrepancies to the Director under the Canada Business Corporations Act.
- While newly regulated entities will need to establish a compliance program in accordance with the PCMLTFA, existing reporting entities to the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") are expected to update their policies and procedures to comply with any new requirements that apply to their business.
Earlier this year, we outlined key measures in Canada's Federal Budget that would significantly change the country's federal anti-money laundering ("AML") rules (see Budget 2024: Financial Institutions Update) and how these changes interfaced with Canada's economic sanctions and trade regulatory regimes (see Evasive Maneuvers – New Reporting Obligations and Enforcement Tools for Canada's Economic Sanctions Regime).These Amendments implement some of the changes set out in these key measures.
Generally speaking, these Amendments account for Cullen Commission findings and track recommendations of the Financial Action Task Force ("FATF"), the international standards setting body leading global action to combat money laundering, terrorist financing and proliferation financing. Canada's next FATF evaluation is planned to occur in 2025.
Factoring, Cheque-Cashing, Leasing & Financing (Motor Vehicle and High-End Luxury) Services
When the Amendments come into law, the following defined businesses will become reporting entities to FINTRAC:
factor means a person or entity that is engaged in the business of factoring, with or without recourse against the assignor.
financing or leasing entity means a person or entity that is engaged in the business of financing or leasing of
- property, other than real property or immovables, for business purposes;
- passenger vehicles1 in Canada; or
- property, other than real property or immovables, that is valued at $100,000 or more.
Cheque-cashing services will be treated as a money services business ("MSB") activity. This means cheque-cashing service providers must first register as domestic or foreign MSBs with FINTRAC, and existing MSBs that offer customers the ability to cash a cheque immediately and hold-free, for a fee, will need to update its MSB registration to include cheque-cashing activity.
The requirements and exemptions that will apply to these companies generally align with those applicable to existing reporting entities, which include:
- establishing an AML/ATF compliance program that consists of written policies and procedures in accordance with the PCMLTFA and FINTRAC requirements
- designate an individual responsible for the implementation of the compliance program
- conduct a risk assessment of its business activities
- train relevant personnel
- report suspicious transactions
- keep records (generally, for 5 years)
- no less than every 2 years, evaluate the compliance program's effectiveness
- respond to FINTRAC inquiries and examination requests
Of note is that factors and financing/leasing companies must keep details of payments as well as assess and record the financial capacity of individuals/entities with whom it contracts. We expect FINTRAC will issue guidance on how reporting entities can satisfy these new requirements.
For cheque-cashing, identity verification and record keeping requirements apply when cashing a series of cheques totaling $3,000 or more.
Recent examples of new sectors that have become regulated by FINTRAC are armored car businesses and mortgage companies and brokers (effective as of July 1 and October 11, 2024, respectively). White-label ATM service providers, unrepresented real estate parties, and title and mortgage insurers are also lined up to become FINTRAC-regulated.
Importing and Exporting Declaration and Record-Keeping Requirements
The Amendments include the new Proceeds of Crime (Money Laundering) and Terrorist Financing Reporting of Goods Regulations (the "Reporting Goods Regulations"), the proposed text of which is available here. The Reporting Goods Regulations are proposed to come into force on October 1, 2025 and will implement new Part 2.1 (Reporting of Goods) of the PCMLTFA that was discussed in our client alert Evasive Maneuvers – New Reporting Obligations and Enforcement Tools for Canada's Economic Sanctions Regime. They build on the substantive measures set out in the new Part 2.1, including the ability for the CBSA to seize and cause the forfeiture of goods where they have reasonable grounds to believe that goods are proceeds of crime or are related to money laundering, the financing of terrorist activities or sanctions evasion.
These additional changes seek to address not only goods that are related to money laundering, terrorist financing or sanctions evasion, but also target "phantom shipments", which the Regulatory Impact Analysis Statement accompanying the Amendments (the "RIAS") describes as occurring where "no goods are shipped, but payments are made claiming to settle an invoice for a trade and no customs declarations are filed". These "phantom shipments" support money laundering, and so have become an area of focus for Canadian regulators.
They also seek to address a perceived gap in the Canada Border Services Agency's ("CBSA") ability to address money laundering, terrorism financing and sanctions. The RIAS notes that:
[C]urrently, the CBSA can compel records such as receipts, invoices for the purposes of determining compliance with the Customs Act, but they cannot compel these documents for the purposes of detecting and deterring money laundering, terrorist financing and sanctions evasion under the PCMLTFA. This results in a gap that can be exploited by bad actors who, as long as they follow customs laws and regulations, will never be stopped on the goods they are shipping because they are not required to fulfill any sort of reporting obligation that relates to money laundering, terrorist financing, or sanction evasion related to goods.
The Reporting Goods Regulations set out the specifics for the new reporting requirement under the yet to be implemented subsection 39.02(1) of the PCMLTFA, which will require importers and exporters of goods to declare to the CBSA:
- "whether the good are proceeds of crime as defined by subsection 462.3(1) of the Criminal Codeor are goods related to money laundering, to the financing of terrorist activities or to sanctions evasion; and
- that the goods are actually being imported or exported, as the case may be."
The Reporting Goods Regulations makes clear that, as expected, these additional declarations will be made in the same time and manner as the other declarations required upon importation or exportation of goods pursuant to sections 12 and 95 of the Customs Act. It is anticipated that additional declaratory statements will be added to the relevant forms required on import and export to reflect these Amendments.
The Reporting Goods Regulations also includes significant record-keeping requirements for information associated with these additional declarations. In addition to the requirements imposed on the importers and exporters, it also imposes record-keeping requirements on other actors involved in the import and export of goods, including customs bonded warehouses, sufferance warehouses, as well as producers, suppliers, distributors and consumers of the goods that have competed a certificate or origin to support preferential tariff treatment under a free trade agreement. Generally, these records are similar to the kinds of records required to be maintained to support other declarations under the Customs Act and, pursuant to the Reporting Goods Regulations, must be maintained for six years.
The Reporting Goods Regulations also provides for the application of administrative monetary penalties ("AMPs") for contraventions of these new declaration and record keeping requirements set out in the PCMLTFA. If a violation is voluntarily disclosed to the CBSA and there are no reasonable grounds to believe that the violation was intentionally committed, the AMP is limited to a maximum of $500 per violation. However, if that is not the case, the AMP can be significant, amounting to the greater of: (a) the fair market value of the imported or exported goods, (b) the declared value of the imported or exported goods, and (c) the value of the financial transaction purporting to pay for the goods being imported or exported. Importantly, appropriate due diligence is not a defence to the issuance of an AMP.
The RIAS anticipates that additional guidance will be issued by the CBSA prior to implementation of the reporting and record-keeping obligations under the Reporting Goods Regulation. It specifically states that the "CBSA will update information on its website by September 1, 2025, and raise awareness of the changes with importers and exporters in advance of the coming into force date of the regulations". The RIAS also references the CBSA's Departmental Memorandum, which may indicate that a new memorandum is forthcoming to address the new reporting requirements and other measures set out in the Reporting Goods Regulations.
CBCA Reporting Obligation: Beneficial Ownership Discrepancy
The Amendments propose another step towards a national approach to beneficial ownership transparency in Canada for AML purposes, which ultimately adds to reporting entities' know-your-customer procedures.
Currently, businesses regulated by FINTRAC are already required to obtain and verify the accuracy of beneficial ownership information of their corporate/entity clients and apply enhanced due diligence and monitoring procedures for business relationships that they identify as high-risk. At the same time, in January 2024, Canada launched a public, searchable beneficial ownership registry of corporations incorporated under the Canada Business Corporations Act ("CBCA").
As a result of the Amendments, a FINTRAC reporting entity who engages with a CBCA corporation must not only obtain beneficial ownership information and take reasonable measures to confirm the information's accuracy on an ongoing basis, the regulated entity would also need to compare that information against the CBCA beneficial ownership registry and report any "material" discrepancy it finds.
Specifically, once a reporting entity identities a "material discrepancy" between the information they obtained and what is in the public registry for a CBCA corporation, they must report the discrepancy to the Director under the CBCA within 15 days, along with details about the reporting entity, and keep a copy of any acknowledgment of receipt of the report.
The Amendments do not define what constitutes "material discrepancy", however, it excludes discrepancies including spelling errors, minor variations in name and address, and the presence of service address in one source and a residential address in the other.
Voluntary Information Sharing Framework and Exposure to Complaints
The need for safe harbor provisions protecting corporations and entities who share information without the knowledge and consent from individuals for AML purposes has been a focal point in discussions aimed at strengthening Canada's AML regime, including a recommendation in the Final Report of the Cullen Commission.
The Amendment proposes to permit private FINTRAC reporting entities (as opposed to public entities, such as government or regulators) to share information with other reporting entities to assist in the detection of suspected money laundering activity. The framework is voluntary. If reporting entities choose to take part in the information-sharing framework, they must develop and submit Codes of Practice to the Office of the Privacy Commissioner of Canada ("OPC"). These Codes of Practice must address the disclosure, collection and use of personal information in a manner that the OPC considers to sufficiently address Canada's federal privacy law.
The OPC has the authority to request additional information or changes be made to submitted Codes of Practice, as well as reject a Code. Once a Code is approved, it must be reapproved by the OPC every five years.
Curiously, the Amendments entitle anyone to file a complaint with the OPC if they believe a reporting entity has not complied with an approved Code of Practice. If the information sharing framework is meant to provide a "safe harbor" for reporting entities to disclose information for regulatorily approved purposes, it leaves very little incentive to participate if entities risk facing complaints.
For companies that take part in the information sharing framework and are in receipt of such information, they would also have more information to accurately assess customer risk profiles.
Next Steps
Businesses that do not already have processes and controls in place to account for money laundering and terrorist financing risks should be aware that creating, establishing and implementing an AML/ATF compliance program in accordance with the PCMLTFA and FINTRAC requirements take time, resources and in many cases, input from AML specialists. Failure to do so, and to do so up to regulatory standards, risks enforcement actions that include monetary penalties issued against the company.
The measures proposed in the Amendments pertaining to factoring companies, cheque-cashing business, financing and leasing companies, import and export reporting, and beneficial ownership discrepancy reporting are set to come into force on October 1, 2025. We encourage businesses that may be impacted by the Amendments to participate in the consultations and submit their views to the Department of Finance in advance of the December 30, 2024 deadline for submissions.
Footnote
1 "Passenger vehicle" is defined to mean a motor vehicle designed or adapted primarily to carry up to a maximum of 10 individuals. It excludes medical or fire response emergency vehicles, police vehicles, utility trucks and hearses.
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