On February 15, 2022, in response to the events related to the
Canadian truckers' convoy, the Canadian government issued a
proclamation under the Emergencies Act and passed an
Emergency Economic Measures Order (Order) thereunder. The Order
impacts the financial services industry in several ways.
The order came into effect on February 15,
2022.
Specifically, the Order provides a prohibition on financial
institutions, securities dealers and money services businesses from
dealing with "designated persons" and requires them to
determine on a continuing basis if they are in possession or
control of any property of a designated person.
There is also a new requirement that requires entities that provide
a platform to raise funds or virtual currency through donations and
payment service providers in certain circumstances, to register as
money services businesses with the Financial Transactions and
Reports Analysis Centre of Canada (FINTRAC) and submit reports to
FINTRAC as required under the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act (PCMLTFA).
The details of the Order are as follows:
1. Prohibition of Dealing with a Designated Person
The Order provides a definition of a "designated person" and, similar to Canadian sanctions legislation, provides that certain prescribed entities must, upon the commencement into force of the Order cease:
- dealing in any property, wherever situated, that is owned, held or controlled, directly or indirectly, by a designated person or a by a person acting on behalf of a designated person;
- facilitating any transaction relating to such property;
- making available any property (including funds or virtual currency) to or for the benefit of a designated person or to a person acting on behalf of or at the direction of a designated person; or
- providing any financial or other related services to or for the benefit of any designated person or acquire any such services from or for the benefit of any such person.
While the language above parrots the language used in Canadian
sanctions legislation, its scope is much broader. It refers to
property of a designated person "wherever situated" and
includes property "held" by a designated person or a
person acting on behalf of a designated person, as well as persons
who are acting on the direction of a designated person. As such,
the scope of the prohibition on dealing with property of a
designated person extends beyond the traditional prohibitions on
dealing with designated persons under Canadian sanctions
laws.
In respect of who is a designated person, the Order defines a
designated person as an individual or entity that is engaged,
directly or indirectly, in any activity prohibited by sections two
to five of the Emergency Measures Regulation. This
activity includes participating in a public assembly that may
reasonably be expected to lead to a breach of peace by certain
methods, traveling to or within an area where any such assembly is
taking place, or using, collecting, providing, making available or
inviting a person to provide property to facilitate in any such
public assembly for the purpose of benefitting any person who is
facilitating or participating in such activity.
2. Duty to Determine
In addition to the prohibition on dealing with a designated
person, the Order requires financial entities as defined under that
are subject to the PCMLTFA, certain insurance companies, securities
dealers (as defined in the PCMLTFA) and domestic and foreign money
services businesses, to determine on a continuing basis, whether
they are in possession or control of property that is owned, held
or controlled by or on behalf of a designated
person. Moreover, this duty to determine also extends to
entities that provide a payment platform to raise funds or virtual
currency through donations, and entities that perform certain
payment functions.
The "payment functions" that are noted in the Order are
almost identical to the payment functions defined in the Retail
Payments Activities Act (RPAA) that cause a person to be a
"payment service provider" under the RPAA. The
payment functions defined in the Order are as follows:
- the provision or maintenance of an account that, in relation to an electronic funds transfer, is held on behalf of one or more end users;
- the holding of funds on behalf of end users until withdrawn or transferred by the end user or transferred to another individual or entity;
- the initiation of an electronic funds transfer at the request of an end user;
- the authorization of an electronic funds transfer or the transmission, reception or facilitation of an instruction related to an electronic funds transfer; or
- the provision of clearing and settlement services.
Accordingly, any entity that falls within the definition of a
payment service provider under the RPAA and any fundraising
platform (along with financial entities, securities dealers and
money services businesses) are immediately required to continuously
determine if they are in possession or control of property owned,
held or controlled by a designated person.
In terms of what the requirement to "continuously
determine" means, we note that for federally regulated
financial institutions, the Office of the Superintendent of
Financial Institutions (OSFI) in its instruction guide sets out
OSFI's expectations with respect to the screening obligation
under Canadian sanctions legislation, including the frequency and
scope of the required screening, which provides some context.
Specifically, OSFI expects that screening be conducted weekly at a
minimum, and more frequently where circumstances dictate. Larger
federal financial institutions are expected to screen their records
daily. OSFI also expects that federal financial institutions apply
the foregoing search measures to recorded beneficial owners of
clients and other third parties.
Entities that are in possession or control of the property of a
designated person, or who have any information about a transaction
or proposed transaction in respect of property of a designated
person, are required to report to CSIS and to the RCMP. Regulated
entities under the PCMLTFA should also consider the activity of
designated persons for the purposes of filing suspicious
transaction reports with FINTRAC.
3. Requirement to Register as a Money Services Business
The Order also requires payment service providers and
fundraising platforms to register with FINTRAC as money services
businesses if they are in possession and control of property
that is owned or controlled by or on behalf of a designated
person. As such, not every payment service provider or
fundraising platform needs to register; the requirement only
applies to those that actually have possession or control of the
property of a designated person. As such, payment service providers
and fundraising platforms are required at the outset to determine
if they are in possession and control of the property of a
designated person and, if they make that determination, they are
they required to register with FINTRAC.
Once a payment service provider or fundraising platform registers
with FINTRAC, they are required to file suspicious transaction
reports, terrorist property reports, large cash transaction reports
(C$10,000 plus in 24 hours), cross border electronic funds transfer
reports (C$10,000 plus in 24 hours), and the receipt of large
virtual currency transactions (C$10,000 plus in 24 hours).
While the Order and the invoking of the Emergencies Measures
Act is significant for many reasons, from a financial services
perspective, it signals an expansion of what types of entities
will, going forward, likely be subject to the money services
provisions of the PCMLTFA. FINTRAC has historically taken the
view that those entities involved in payment processing are not
subject to regulation under the PCMLTFA as money services
businesses. It now appears that payment service providers will
in fact be regulated as money services businesses; likely once the
RPAA comes into effect.
Applicable entities would be well advised to consult with legal
counsel regarding the application or effect of the legislation on
their other obligations under applicable law or contract.
The proclamation expires after 30 days unless an extension is
confirmed within specific timelines by both the House of Commons
and the Senate.
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