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Amended AML Regulations June 10, 2020 – Redlined Versions

The following red-lined versions have been created to reflect final amendments to Canadian anti-money laundering (AML) regulations published in the Canada Gazette on June 10, 2020.  Amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations will come into force on June 1, 2020. All other amendments will come into force on June 1, 2021. We have created industry specific blogs to make understanding the changes easier, which are located here.

Redlined versions of all the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations are listed below for download.

These documents are not official versions of the regulations. Official versions can be found on the Government of Canada’s Justice Laws Website.

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Please click the link below for downloadable PDF file.

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime July 2019 – Redlined_June 2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Please click the links below for downloadable pdf files.
PCMLTF_July_2019_Redlined_Full_July_2019 – Redlined_June 2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Please click the links below for downloadable pdf files.
PCMLTF_Suspicious_Transaction_Reporting_Regulations_July_2019 – Redlined_June 2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

Please click the link below for a downloadable PDF file.
PCMLTF_Registration_Regulations_July_2019 – Redlined_June 2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

Please click the link below for a downloadable pdf file.
PCMLTF_Administrative_Monetary_Penalties_Regulations_July_2019 – Redlined_June 2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Cross-Border Currency and Monetary Instruments Reporting Regulations

Please click the link below for a downloadable pdf file.
PCMLTF_Cross-Border_Currency_and_Monetary_Instruments_Reporting_Regulations_July_2019 – Redlined_June 2020

Need a Hand?

Whether you need to figure out if you’re a dealer in virtual currency, to put a compliance program in place, or to evaluate your existing compliance program, we can help. You can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

Amending the Amendments! 2020 AML Changes for Jewellers

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on June 10, 2020, further amendments to those amended regulations were published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The purpose of this round of amendments is to better align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs). The amendments come into force on June 1, 2021.

We have summarized the changes that will have an impact on Dealers in Precious Metals and Stones (DPMS) below.

PEP

The amendments will require DPMSs to make a Politically exposed persons (PEP) determination when they enter into a business relationship with a client. In addition, they will also be required to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a PEP.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process.

If a positive determination is made, the following records must be kept:

  1. the office or position, and the organization or institution, in respect of which the person is determined to be a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member of, or a person who is closely associated with, one of those persons;
  2. the date of the determination; and
  3. the source, if known, of the person’s wealth.

Beneficial Ownership

The amendments will require DPMSs to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following information for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Information establishing the ownership, control, and structure of the entity.

A record of the reasonable measures to confirm the accuracy of the information, when it is first obtained and in the course of ongoing monitoring of business relationships, must be retained.

We’re Here To Help

If you would like assistance in updating your compliance program and processes, or have any questions related to the changes, please get in touch!

Amending the Amendments!

Background

Back on July 10, 2019, the highly anticipated final version of the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. However, on February 15, 2020, further proposed amendments to those amended regulations was published in the Canada Gazette. To make reading these changes a little easier, we have created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

The Regulatory Impact Statement for this round of proposed changes states the following: “The proposed amendments to the regulations would strengthen Canada’s AML/ATF Regime, align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs); modifying the definition of business relationship for the real estate sector; aligning customer due diligence measures for casinos with international standards; aligning virtual currency record-keeping obligations with international standards; clarifying the cross-border currency reporting program; clarifying a number of existing requirements; and making minor technical amendments”. The proposed amendments are expected to come into force on June 1, 2021.

As with all proposed changes, there is a comment period. This comment period is much shorter than the last one, at only 30 days. For anyone interested in commenting on the proposed changes, comments are to be addressed to Lynn Hemmings, Director General, Financial Crimes and Security Division, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5 or email: fin.fc-cf.fin@canada.ca.

While these are proposed changes, guidance from FINTRAC related to the amendments to regulation would hopefully be seen ahead of the coming into force dates of the final version.

We have summarized what this could mean for your business below.

Money Services Businesses

PEP

The most significant proposed change for Money Services Businesses (MSB)s is related to Politically exposed persons (PEP) determinations. Currently, a PEP determination must be made for international EFTs of CAD 100,000 or more. The proposed regulations will require MSBs to make a PEP determination when the MSB enters into a business relationship with a person.

If you currently conduct list screening, PEP screening could easily be added to that process.

Dealers in Virtual Currency

Travel Rule

For dealers in virtual currency, there is an additional proposed requirement on top of the requirements that were published in the last round of AML changes.  The proposed amendments add the requirement for records to be kept for virtual currency transfers of CAD 1,000 or more.

The record must contain the following:

  1. include with the transfer, the name, address and, if any, the account number or other reference number of both the person or entity that requested the transfer and the beneficiary; and
  2. take reasonable measures to ensure that any transfer received includes the information referred to in paragraph (a) above.

If the information required is not obtained, a determination of whether the transaction should be suspended or rejected will need to be made.

Given the nature of virtual currency transfers, it will be interesting to see how this requirement plays out, as currently, there are no technology solutions (that we are aware of) that would solve for this.

A reminder that dealers in virtual currency will be considered MSBs as of June 1, 2020. Check out our blog post for a full list of regulatory requirements related to dealers in virtual currency.

Real Estate

Business Relationship

One of the most significant proposed changes for real estate developers, brokers and sale representatives is related to the definition of a business relationship. Currently, a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

The proposed amendments will change that definition for real estate developers, brokers and sale representatives to only one transaction.

For business relationships, a reporting entity must:

  • keep a record of the purpose and intended nature of the business relationship;
  • conduct ongoing monitoring of your business relationship with your client to:
    • detect any transactions that need to be reported as suspicious;
    • keep client identification and beneficial ownership information, as well as the purpose and intended nature records, up-to-date;
    • reassess your clients risk level based on their transactions and activities; and
    • determine if the transactions and activities are consistent with what you know about your client;
  • keep a record of the measures you take to monitor your business relationships and the information you obtain as a result.

We will have to wait for guidance to see how ongoing monitoring obligations applies to the real estate sector if this change takes effect.

PEP

The proposed amendments will require real estate developers, brokers and sale representatives to make a Politically exposed persons (PEP) determination when they enter into a business relationship (as defined above) with a client. In addition, they will also be required to take reasonable measures to determine whether a client from whom they receive an amount of CAD 100,000 or more is a PEP.

Beneficial Ownership

The proposed amendments will require real estate developers, brokers and sale representatives to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Their role and/or ownership stake in the organization.

Given the obligation is to obtain, rather than verify, such information, we do not expect this requirement to be overly burdensome for the real estate sector.

Dealers in Precious Metals and Stones

PEP

Dealers in Precious Metals and Stones (DPMS)s will be required to make a PEP determination when they enter into a business relationship with a client. In addition, a DPMS will be required to take reasonable measures to determine whether a person from whom they receive an amount of CAD 100,000 or more is a PEP.

A reminder that a business relationship is defined as:

If a person or entity does not have an account with you, a business relationship is formed once you have conducted two transactions or activities for which you have to:

  • verify the identity of the individual; or
  • confirm the existence of the entity.

Given the definition of a business relationship, we do not expect this requirement to be overly burdensome. If you currently conduct list screening, PEP screening could easily be added to that process.

Beneficial Ownership

The proposed amendments will required DPMSs to comply with existing beneficial ownership requirements that apply to other reporting entities.

This means when identifying an entity, a reporting entity needs to collect the following for all Directors and individuals who own or control, directly or indirectly, 25% or more of the organization:

  • Their full legal name;
  • Their full home address; and
  • Their role and/or ownership stake in the organization.

Given the obligation is to obtain, rather than verify, such information, we do not expect this requirement to be overly burdensome for the DPMS sector.

We’re Here To Help

If you would like assistance in updating your compliance program and processes, or have any questions related to the changes, please get in touch!

Regulations Amending the Regulations February 15, 2020- Redlined Versions

The following red-lined versions have been created to reflect the amendments to Canadian anti-money laundering (AML) regulations published in the Canada Gazette on February 15, 2020. You can also read our article “Amending the Amendments!” for a summary of the proposed changes by industry.

Redlined versions of all the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations are listed below for download.

These documents are not official versions of the regulations. Official versions can be found on the Government of Canada’s Justice Laws Website.

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Please click the link below for downloadable PDF file.
Amending_the_Regulations_Amending_Certain_Regulations_Made_Under_the_Proceeds_of_Crime_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Please click the links below for downloadable pdf files.
PCMLTF_July_2019_Redlined_Full_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Please click the links below for downloadable pdf files.
PCMLTF_Suspicious_Transaction_Reporting_Regulations_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

Please click the link below for a downloadable PDF file.
PCMLTF_Registration_Regulations_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

Please click the link below for a downloadable pdf file.
PCMLTF_Administrative_Monetary_Penalties_Regulations_July_2019 – Redlined_Feb_2020

Proceeds of Crime (Money Laundering) and Terrorist Financing Cross-Border Currency and Monetary Instruments Reporting Regulations

Please click the link below for a downloadable pdf file.
PCMLTF_Cross-Border_Currency_and_Monetary_Instruments_Reporting_Regulations_July_2019 – Redlined_Feb_2020

Need a Hand?
Whether you need to figure out if you’re a dealer in virtual currency, to put a compliance program in place, or to evaluate your existing compliance program, we can help. You can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

Are Your Business Relationship Records Ready for FINTRAC?

This article is focused on business relationships that are not account-based (which means that if you are a financial institution or a securities dealer that only conducts transactions with your customers in the context of the accounts that they hold with you, you can skip this one).

Over the past few months, I have assisted some of my clients with their Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) examinations.  While I cannot generally answer questions on my clients’ behalf during these meetings, I can help them prepare for the examination, understand what the examiner is asking for, and redirect them if they stray off track (provided that they have signed an Authorizing_or_Cancelling_a_Representative form). While the businesses examined were quite different in size and complexity, their examinations have been similar, particularly when it came to questions about business relationships.  

For certain types of reporting entities, including money services businesses (MSBs), real estate businesses, and dealers in precious metals and stones (DPMSs) (which are the focus of this article), during each on-site review, the FINTRAC examiner requested a list of all the “Business Relationships” for the review period. Certain information was requested, which was the same in each instance, and included the following:

  • The purpose and intended nature of the business relationship (sometimes called PINBR for short);
  • The risk rating;
  • The date the reporting entity entered into a business relationship with the customer; 
  • The records of any ongoing monitoring (or enhanced measures for high risk business relationships) that has been conducted; and 
  • The last time the customer information was reviewed/updated.

In most cases, this information was not requested in advance.  This meant that it needed to be provided to the examiner while the examiner was on-site (typically a single business day).  For some reporting entities, obtaining this information was not something that their recordkeeping systems were set up to do easily.

Quick Review – What is a Business Relationship?

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a Business Relationship as:

Any relationship with a client, established by a person or entity, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) If the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or

(b) If the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.

If you’re not entirely certain what that means, FINTRAC’s guidance on Business Relationship Requirements provides additional clarification:

You enter into a Business Relationship when you conduct two or more transactions where you have to:

    1. ID an individual; or
    2. Confirm the existence of an organization.

Specifically, conducting the following transactions or activities that require you to identify an individual or confirm the existence of an entity:

  • Remittances or transmissions of $1,000 or more (for MSBs);
  • Foreign currency exchange of $3,000 or more (for MSBs);
  • Issuing or redeeming negotiable instruments of $3,000 or more (for MSBs);
  • Large cash transactions (for all reporting entity types);
  • Suspicious transactions and attempted suspicious transactions (for all reporting entity types);
  • Activities which trigger a receipt of funds record (for Real Estate);
  • Virtual currency exchange transactions of $1,000 or more (for MSBs as of June 1, 2020);
  • Large Virtual Currency Transactions Reports (for all reporting entities as of June 1, 2020); and
  • Activities which trigger the creation of a client information record (it’s probably worth mentioning here that these will also trigger a third party determination):
    • Entering into an ongoing service agreement with a customer that is an entity (for MSBs); and/or
    • Entering into a purchase or sale agreement (for Real Estate).

In its simplest form, a business relationship means that a client or customer has done two things that cause identification requirements to be triggered.

Business Relationship Recordkeeping & Monitoring

When you establish a Business Relationship with a customer, you have three things to do.  

First, determine and record the “purpose and intended nature” of the Business Relationship. Some examples provided in the FINTRAC guidance are: 

For MSBs:

  • Foreign exchange for travel or purchase of goods; 
  • Funds transfers for family support or purchase of goods; 
  • Buying/cashing money orders or traveller’s cheques; 

For Real Estate businesses:

  • Purchasing or selling residential property;
  • Purchasing or selling commercial property;
  • Purchase or selling land for commercial use;

For DPMSs:

  • Purchasing or selling jewellery;
  • Purchasing or selling precious metals (for example, gold, silver, platinum, or palladium); and
  • Purchasing or selling precious stones (for example, diamonds, sapphires, emeralds, tanzanite, rubies, or alexandrite).

Next, you need to conduct ongoing monitoring of all Business Relationships, based on the level of risk.  This seems to be where the biggest stumbling blocks are for reporting entities. The purpose of ongoing monitoring is to ensure the following:

  • Detect any transactions that need to be reported as suspicious;
  • Keep identification and beneficial ownership information, as well as the purpose and intended nature records, up-to-date;
  • Reassess the risk level based on their transactions and activities; and 
  • Determine if the transactions make sense given the nature and purpose recorded.

It is not enough just to conduct the monitoring, you must be able to produce some type of record that proves that you’ve done the monitoring. The record should be specific about what was done, and what conclusions were drawn.

If there is something out of the ordinary, expect that the FINTRAC examiner will ask questions. For example, if a customer has indicated that the purpose and intended nature of the business relationship is “fund transfer for family support” but it is clear that payments are being made that are related to the purchase of goods, questions will be raised. It is expected that information about the purpose and intended nature of the business relationship is updated if it has changed – and that you will ask questions when the actual transaction patterns are different than what you expected.

It is this final step, keeping a record of the measures taken to monitor your business relationships and the information you obtain as a result, that is most crucial to successful examination results. 

The additional information collected about the customer is used to compare your expectations for that relationship, with the transactions that customer is conducting.  

Here are a few examples, broken down by industry:

MSBs

If the nature and purpose provided was foreign exchange for travel, does it make sense that the customer returns every other day with $2,700 in cash?   

DPMSs

If the nature and purpose provided was purchasing jewellery as a wedding gift, does it make sense that the customer returns every month on the same day to make a new purchase?

Real Estate

If the nature and purpose provided was the purchase of a first-time owner-occupied home, does it make sense that the customer purchases another owner-occupied home shortly after?  

In each of the scenarios above, it is quite clear that the activities don’t align with the nature and purpose of the business relationship collected. This doesn’t automatically make it suspicious, but certainly leaves some questions that need answering. When you question the customer about the discrepancy, be sure you’re taking notes.  This does not have to be a complete reiteration (though it can be), but simply a brief synopsis of the conversation, any additional information collected and/or adjustments made to the customer’s risk rating. It should be written in a way that would be clear to someone from outside of your business that is reading the notes two years later.

Recording these types of discussions is paramount to evidence that you’re meeting your ongoing monitoring obligations because, in the compliance world, if you can’t prove it… it never happened.

FINTRAC Exam Readiness Tool for Business Relationships

We’ve made a quick checklist to help you prepare for your FINTRAC examinations.

Question Response & Action Plan
Can I generate a list of my business relationships for the examination period?
Is there a risk rating recorded for each business relationship?
Do I have evidence of ongoing monitoring being conducted?
Do I have evidence of enhanced due diligence and enhanced transaction monitoring for high risk business relationships?
Do I have the date of when I entered in the business relationship with each customer?
Is there a record of the last time the customer information was reviewed and/or updated?

 

Need a Hand?

Outlier has created a FINTRAC Examination Preparation Package, and it can be downloaded for free here.  FINTRAC has also provided information on their assessment manual, which details the approach and methods it uses to conduct compliance examinations

For additional information, assistance, or a review of your FINTRAC Examination submission package (the information requested by FINTRAC for an examination), you can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.  At Outlier, we firmly believe that good compliance is good business.

FINTRAC Identification Guidance

Background

On July 10th, 2019, the final amendments to Canada’s anti-money laundering (AML) regulations were published in the Canada Gazette.  One of the welcomed changes that came into force immediately upon publication was related to identification. On November 14th, 2019, FINTRAC published guidance related to “Methods to verify the identity of an individual and confirm the existence of a corporation or an entity other than a corporation.” This is good news considering the range of identification methods has been broadened, and a step forward in digital identification methods. The updated methods are designed to make it easier to identify customers that are not physically present.

As defined under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), reporting entities have to identify their customers in certain situations (specific information on when customers need to be identified is outlined in FINTRAC’s guidance on “When to identify individuals and confirm the existence of entities”). The identification guidance outlines ways to verify the identity of an individual, and how to identify corporations or entities other than corporations (such as a partnership).

Identification Methods For Individuals

There are three ways in which an individual can be identified:

  • Government-issued photo identification method;
  • Credit file method; and
  • Dual-process method.

Government-Issued Photo Identification Method

Under this method, an organization can use an authenticvalid and current government-issued photo identification document, issued by either a federal, provincial or territorial government in order to be used to verify the identity of an individual. Foreign government-issued photo identification can be accepted if it’s equivalent to a Canadian document such as those listed in the guidance.

The photo identification document used to verify identity must:

  • indicate the individual’s name;
  • include a photo of the individual;
  • include a unique identifying number; and
  • match the name and appearance of the individual being identified.

If a customer is physically present, an organization can authenticate an identification document by looking at the characteristics on the physical document such as security features.

If the customer is not physically present, the authentication of the identification document must be determined by using technology capable of assessing the document’s authenticity. The guidance makes it clear that it is not sufficient to view a person and an identification document through video conference or similar. Meaning, a selfie while holding your driver’s license is not sufficient for identification purposes.

Whatever method is selected by an organization, the process to authenticate a photo identification document, and how the organization will confirm that it is authentic, valid and current, must be documented.

Credit File Method

Under this method, an organization can use valid and current information from a Canadian credit file to identify an individual.

The Credit File must:

  • be from a Canadian credit bureau (credit files from foreign credit bureaus are not acceptable);
  • have been in existence for at least three years; and
  • match the name, address and date of birth that the individual provided.

To rely on a credit file, the search must be completed at the time an organization is verifying the individual’s identity, and can be completed via an automated system or the use of a third party vendor.

When using the Credit File method, organizations must keep a record of the following information:

  • the individual’s name;
  • the date they consulted or searched the credit file;
  • the name of the Canadian credit bureau or third party vendor holding the credit file; and
  • the individual’s credit file number.

The guidance clarifies that sometimes information found within the credit file may contain variations of the name or address provided by a customer. In these cases, it’s up to the organization to determine whether the information in the credit file is a match to the information collected from the individual.

Dual-Process Method

Under this method, an organization can use valid and current information from two reliable sources. Under the dual-process method, an organization can verify an individual’s identity by referring to any two of the following options:

  • information from a reliable source that includes the individual’s name and address;
  • information from a reliable source that includes the individual’s name and date of birth; or
  • information that includes the individual’s name and confirms that they have a deposit account, credit card or other loan account with a financial entity.

In order to qualify as reliable, the sources should be well-known and considered reputable. There must be two sources providing the information, and the information cannot come from the individual whose identity is being verified, nor can it come from the organization doing the verification. For example, reliable and independent sources can be the federal, provincial, territorial and municipal levels of government, crown corporations, financial entities or utility providers.

A Canadian credit file can be used as one of the two sources required to verify the identity of an individual. so long as the credit file has been in existence for at least six months.

The organization must keep a record of the following:

  • the individual’s name;
  • the date they verified the information;
  • the name of the two different sources that were used to verify the identity of the individual;
  • the type of information consulted (for example, utility statement, bank statement, marriage licence); and
  • the number associated with the information (for example, account number or if there is no account number, a number that is associated with the information, which could be a reference number or certificate number, etc.).

Identification Methods For Organizations

The guidance details how to confirm the existence of a corporation, or an organization that is not a corporation. This can be done by referring to a paper or electronic record that was obtained from a source that is accessible to the public such as:

  • For corporations:
    • its certificate of incorporation;
    • a certificate of active corporate status;
    • a record that has to be filed annually under provincial securities legislation; or
    • any other record that confirms the corporation’s existence, such as the corporation’s published annual report.
  • For organizations that are not corporations:
    • a partnership agreement;
    • articles of association; or
    • any other record that confirms its existence as a legal entity.

If an organization refers to a publicly accessible electronic record to confirm the existence of a corporation or of an entity other than a corporation, a record must be retained including the corporation/entity’s registration number and the source of the electronic version of the record. If a paper record is used, a copy should be retained. At a minimum, for all organization types, an organization must collect and keep a record of the following:

  • their full legal name;
  • the organization’s structure;
  • the organization’s principal business;
  • the organization’s physical address; and
  • information about the organization’s directors and beneficial owners.

Other Identification Considerations

The guidance details how a domestic or foreign affiliate, an agent or a mandatary can be used to verify the identify of a customer. If this method is used, it is important for organizations to remember that, legally, they are responsible for verifying a customer’s identity, even though they are relying on someone else to do it. Organizations should obtain the identification information from the other entity and have a written agreement in place requiring the entity doing the identification to provide the identification verification as soon as feasible.

The guidance details how to identify children under 12 years of age (organizations must verify the identity of a parent, guardian, or tutor) and how to identify children between the ages of 12 and 15. For this age range, organizations can verify identity by using one of the prescribed methods to verify an individual’s identity and where not possible, relying on certain  information from the child’s parent, guardian, or tutor, and information that includes the child’s name and date of birth.

The guidance also reminds organizations that while the personal information that they are collecting is protected by the Personal Information Protection and Electronic Documents Act (PIPEDA), personal information that is required to be included in reporting to FINTRAC does not have to be disclosed to the Office of the Privacy Commissioner of Canada. It is important that organizations remember that safeguarding is a key consideration for all personal information collected in the normal course of business.

Conclusion

The most significant change for identification standards is related to the Government-Issued Photo Identification Method. A wording change from “original” to “authentic”, that was found in the prior version of the regulations, now allows for scanned copies of documentation, so long as it can be authenticated. It is noteworthy that the guidance gives clarity to all methods that can be used. Where further clarity is warranted, organizations can contact FINTRAC for a policy position related to the identification guidance. This can be done free of charge by emailing guidelines-lignesdirectrices@fintrac-canafe.gc.ca. This can also be done on a no-names basis by a lawyer or consultant on your behalf.

We’re Here To Help

If you have questions related to the identification changes, or need help updating your identification processes, you can get in touch using the online form on our website, by emailing us at info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

2019 AML Changes For DPMSs

Background

On July 10th, 2019, the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. This article is intended to give a high-level summary of the amendments as specific to DPMSs. If you’re the type that likes to read original legislative text, you can find it here. We also created a red-lined version of the regulations, with new content showing as tracked changes, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the amount of changes. There are three different “coming into force” dates that should be noted:

  • June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
  • June 1, 2020: changes related dealers in virtual currency (which do not apply to DPMSs).
  • June 1, 2021: all other regulatory amendments.

This does give regulated entities some time to get their AML compliance programs updated and in order, but we recommend that you start budgeting and planning now.

Updated guidance from FINTRAC is expected to be seen ahead of the coming into force dates. Given the legislative changes, there will be changes to FINTRAC policy interpretations as well so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

What Does This Mean For My Business?

Changes to Canada’s AML regulations will have a direct impact on DPMS AML obligations, including the following:

  • Reporting;
  • Customer identification; and
  • Compliance Program requirements.

While there are quite a number of changes, only some will have more of an impact on DPMSs. We’ve summarized the changes that will impact DPMSs below.

Defining a DPMS

The recent amendments has changed the definition of a DPMS slightly to read:

(1) A dealer in precious metals and precious stones, other than a department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province, that buys or sells precious metals, precious stones or jewellery, for an amount of $10,000 or more is engaged in an activity for the purposes of paragraph 5(i) of the Act. A department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province carries out an activity for the purposes of paragraph 5(l) of the Act when they sell precious metals to the public for an amount of $10,000 or more.

(2) The activities referred to in subsection (1) do not include a purchase or sale that is carried out in the course of or in connection with manufacturing a product that contains precious metals or precious stones, extracting precious metals or precious stones from a mine or polishing or cutting precious stones.

(3) For greater certainty, the activities referred to in subsection (1) include the sale of precious metals, precious stones or jewellery that are left on consignment with a dealer in precious metals and precious stones. Goods left with an auctioneer for sale at auction are not considered to be left on consignment.

Neither the PCMLTFA, nor the Regulations, define consignment. As understanding of the term can vary, we hope to see this defined in upcoming FINTRAC guidance.

Certain activities that were already exempt from the DPMS designation, including manufacturing jewellery, extracting precious metals or precious stones from a mine, and cutting or polishing precious stones, has been 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). This is described as being consistent with the original policy intent.

FINTRAC Reporting

Large Virtual Currency Transaction Reporting

If you accept, or plan on accepting, payments using virtual currencies like bitcoin, these will be treated similar to cash payments. For any payments valued at CAD 10,000 or more, made by or on behalf of the same person or entity within a 24-hour period, you will need to identify the customer, and submit a report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

24-hour Rule

The final regulations clarify that multiple transactions performed by, or on behalf of, the same customer or entity within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For DPMSs, this would apply to recipients of CAD 10,000 or more in cash or virtual currency.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or requested transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amended this to “’as soon as reasonably practicable’ after measures have been completed to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing”.

This means that a report will be due shortly after a reporting entity conducts an analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change related to Terrorist Property Reports has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

Information Included in Reports to FINTRAC

Certain information is required in reports to FINTRAC. The final regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. Some of the additional data fields are:

  • every reference number that is connected to the transaction;
  • type of device used by person who makes request online;
  • number that identifies device;
  • internet protocol address (IP address) used by device;
  • person’s or entity’s user name; and
  • date and time of person’s online session in which request is made.

These fields require significantly more data to be included in reports, especially for transactions that are conducted online. Such changes may mean working with your IT folks to ensure you are retaining the necessary data in a format that will be easy to extract.

For full details on what has changed for FINTRAC report fields, we have created unofficial redline which can be found here.

Customer Identification

Currently, there is a requirement that when customers are identified, the document and/or data that you collect must be in its “original” format. The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic”, valid and current. This would allow for scanned copies of identification documents, so long as authentication of the identification documents takes place.

In addition, there are provisions that allow reporting entities to rely on the identification conducted previously by other reporting entities. If this method is used to identify a customer, the reporting entity must immediately obtain the identification information from the other reporting entity, and have a written agreement in place requiring the entity doing the identification to provide the identification verification as soon as feasible.

Reasonable Measures

In cases where DPMSs were required to keep records related to reasonable measures to obtain certain information (such as third-party determinations for large cash transactions), the requirement has been removed with this round of changes. It is important to note that you must still take reasonable measures where necessary, and it is only the requirement to keep a record of the measures used that has been repealed.

New Products & Technology Channels

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. With this round of changes, all reporting entities will be required to assess the risk related to their products and delivery channels, as well as the risk associated with the use of new technologies, prior to release.

This has been a best practice since the requirement to conduct a risk assessment came into force but this change makes this a formal requirement.

Training Program

While training is a current obligation, the current revisions introduce an additional requirement, for all regulated entities, in which there must be a documented plan for the ongoing compliance training program, and delivery of that training. In practice, this means that in addition to documenting the training that has been completed, you will need to clearly document future training plans.

We’re Here To Help

If you would like assistance in updating your compliance program and processes, or have any questions related to the changes, please get in touch using our online form on our website, by emailing info@outliercanada.com or by calling us toll-free at 1-844-919-1623.

2019 AML Updates – Redlined Versions

The following red-lined versions have been created to reflect the changes to Canadian anti-money laundering (AML) regulations published in the Canada Gazette on July 10th, 2019.  A redlined version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), reflecting the changes published in Bill C-97 which received Royal Assent on June 21, 2019, is also included below.

These documents are not official versions of the regulations. Official versions can be found on the Government of Canada’s Justice Laws Website.

 

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Please click the link below for a downloadable pdf file.

PCMLTFA_July_2019_Redline

 

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Please click the links below for downloadable pdf files.

PCMLTFR_July_2019_Redlined_Full

PCMLTFR_July_2019_Redlined_Schedules Removed

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Please click the link below for a downloadable pdf file.

PCMLTF_Suspicious_Transaction_Reporting_Regulations_July_2019_Redlined

Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

Please click the link below for a downloadable pdf file.

PCMLTF_Registration_Regulations_July_2019_Redlined

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

Please click the link below for a downloadable pdf file.

PCMLTFR_Administrative_Monetary_Penalties_Regulations_July_2019_Redlined

Cross-Border Currency and Monetary Instruments Reporting Regulations

Please click the link below for a downloadable pdf file.

PCMLTFR_Cross-Border_Currency_and_Monetary_Instruments_Reporting_Regulations_July_2019_redline

 

Need a Hand?

Whether you need to figure out if you’re a dealer in virtual currency, to put a compliance program in place, or to evaluate your existing compliance program, we can help. You can get in touch using our online form, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

Are On Demand Products Right For You?

For certain industries, including dealers in precious metals and stones (DPMSs) and real estate, Outlier’s on-demand products are anti-money laundering (AML) and counter terrorist financing (CTF) programs that you can buy, customize online using our set up wizard, and download in fully customizable formats.

These can be purchased as single elements (Policies & Procedures, Risk Assessments, Training, Compliance Effectiveness Reviews) or bundled to save you money.

Why On Demand Products

Outlier’s Founder, Amber D. Scott, noticed two things that made her believe that on-demand products could help Canadian reporting entities. First, for many small and medium sized businesses, there are very similar business models and risk profiles. Second, many businesses don’t have the means to pay for consulting services but have the same obligations as larger reporting entities. She had a vision of creating a model that could level the playing field by making it easier for these businesses to create plain language documents in an affordable way.

Are On Demand Products Right For You?

While we’ve worked to keep the on demand products as plain language as possible, they will still require you to be able to read and understand the content and adjust them for your business model and compliance processes. You’ll also need to review and update them regularly (once a year – no matter what, and more often if Canadian laws and/or your business models change).

These program elements can save you money by providing a customizable framework for you to work with, but you’ll need to put in the time and effort to customize them and keep them up to date.

What If You Download A Product And Need Help?

If you’ve downloaded on demand products and you’re stuck, we can help. Please contact us and let us know what you need. In your request, include the product that you’ve purchased and describe the problem that you’re trying to solve. We’ll get back you within two business days. If you need help sooner, please mark your request as urgent, and we’ll do our best to get back to you sooner.

Is Outlier The Only Company That Can Help?

There are a number of professionals in Canada that can help you customize your program, including consultants, lawyers and Compliance Officers working in your field. Using Outlier’s on demand product doesn’t mean that we’re the only people that can work with you, in fact, we believe that competition makes us all better at what we do.

How Do I Buy On Demand Products?

You can buy our on demand products through this website using a credit card. Start by selecting the type of reporting entity that you are to view the products that are currently available.

If you’re looking for something that doesn’t seem to be on the list, please contact us.

Don’t Panic: June 2018 AML Update for DPMSs

As you may have heard, in 2018 the Department of Finance released draft updates to Canada’s anti-money laundering (AML) and counter terrorist financing (CTF) legislation. If you’re the type that likes to read the original legislative text, you can find it here.

For the rest of us, we’ve summarized the proposed updates and what they might mean for your business below.

Why is it a draft?

Publishing proposed amendments as a draft provides reporting entities like dealers in precious metals and stones (DPMSs), our industry associations like the Canadian Jewellers Association (CJA) and members of the general public, the opportunity to read the draft and suggest changes. There is a 90-day window from the original June 9th, 2018 publication date during which comments are accepted (meaning that comments should be submitted to the Department of Finance by early September).

After this, the Department of Finance will take the comments, synthesize them, request additional clarification where needed, and draft a final version of the amendments. The final version is likely to look fairly similar to the draft, with some changes. From the date that the final version is published, we expect that reporting entities will have 12 months to adjust their compliance programs and operations.

Practically speaking, this means that you should start thinking about what this means to you and your business now. However, while it can be useful to start teeing up resources (especially if you think that your IT systems need to be updated), it often makes sense to wait until the final version has been published to make changes. If you have thoughts on the proposed changes, it also means that you should consider submitting these, either independently or through an industry association. CJA members should contact Carla Adams (carla@canadianjewellers.com).

What does it mean for my business?

While there are quite a number of proposed changes (the draft is about 200 pages in length), some are likely to have more of an impact on DPMSs than others. We’ve summarized the changes that we expect to have the most impact here.

Large Virtual Currency Transaction Reporting

If you accept payments using virtual currencies like bitcoin, these will be treated similarly to cash payments. For any payments valued at CAD 10,000 or more made by or on behalf of the same person or entity in a 24-hour period, you will need to identify the customer and submit a report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Non-Face-To-Face Customer Identification

Currently, there is a requirement that when customers are identified using the dual process method, the document and/or data that you collect is in its “original” format. This has been interpreted to mean that if the customer receives a utility bill in the mail, they must send you the original paper (not scanned or copied) document. The word “original” will be replaced with “authentic” (meaning that so long as you believe that the utility bill is a real utility bill for that person, it doesn’t need to be the same piece of paper that they received in the mail).

In addition, there are provisions that would allow reporting entities to rely on the identification conducted previously by other reporting entities. If this method is used to identify a customer, the reporting entity must immediately obtain the identification information from the other reporting entity and have a written agreement in place requiring the entity doing the identification to provide the identification verification within 3 days of the request.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction or requested transaction is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. This was changed in the last round of amendments that came into force last year, and the proposed new wording would be another significant change:

The person or entity shall send the report to the Centre within three days after the day on which measures taken by them 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 offence or a terrorist activity financing offence.

This means that a report would be due three days after the reporting entity conducts an investigation or does something else that allows them to reach the conclusion that there are reasonable grounds to suspect.

Information Included In Reports to FINTRAC

Certain information is required in reports to FINTRAC. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. Some of the additional proposed data fields are:

  • every reference number that is connected to the transaction,
  • every other known detail that identifies the receipt (of cash for large cash transactions),
  • type of device used by person who makes request online,
  • number that identifies device,
  • internet protocol address (IP address) used by device,
  • person’s user name, and
  • date and time of person’s online session in which request is made.

These fields may require significantly more data to be included in reports, especially for transactions that are conducted online.

New Products & Delivery Channels

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. A proposed amendment would require all reporting entities to assess the risk related to assess the risk of products and their delivery channels, as well as the risk associated with the use of new technologies, prior to their launch.

This has been a best practice since the requirement to conduct a risk assessment came into force, but this change would make this a formal requirement.

Defining a DPMS

The proposed amendments would change the definition of a DPMS slightly to read:

(1) A dealer in precious metals and precious stones, other than a department or an agent or mandatary of Her Majesty in right of Canada or of a province, that buys or sells precious metals, precious stones or jewellery for an amount of $10,000 or more is engaged in an activity for the purposes of paragraph 5(i) of the Act. A department or an agent or mandatary of Her Majesty in right of Canada or of a province carries out an activity for the purposes of paragraph 5(l) of the Act when they sell precious metals to the public for an amount of $10,000 or more.

(2) The activities referred to in subsection (1) do not include a purchase or sale that is carried out in the course of or in connection with manufacturing a product that contains precious metals or precious stones, extracting precious metals or precious stones from a mine or polishing or cutting precious stones.

(3) For greater certainty, the activities referred to in subsection (1) include the sale of precious metals, precious stones or jewellery that are left on consignment with a dealer in precious metals and precious stones. Goods left with an auctioneer for sale at auction are not considered to be left on consignment.

Neither the PCMLTFA nor the Regulations define consignment. This may need to be addressed, as the understanding of the term can vary.

Exempt Low Risk Activities

Certain activities are currently exempt from the DPMS designation, including manufacturing jewellery, extracting precious metals or precious stones from a mine, and cutting or polishing precious stones. The exempt activities 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). This is described as being consistent with the original policy intent.

What’s next?

If you would like to make a comment about the proposed changes to the Department of Finance during the comment period (which closes in early September), the contact person is:

Lynn Hemmings

Acting Director General

Financial Systems Division

Financial Sector Policy Branch

Department of Finance

90 Elgin Street

Ottawa, Ontario

K1A 0G5

Email: fin.fc-cf.fin@canada.ca

If you would like to submit comments via an industry association, and you are a member of CJA, please contact carla@canadianjewellers.com.

If you have questions about AML & CTF compliance generally, please feel free to contact us.

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