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Sanctions This Week: April 4th-10th, 2016

OSFI

There were no updates released from OSFI this week.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released two updates to four sanction lists last week.  The lists that were updated include the following:

  • Counter Narcotics Designations;
  • Iraq-related Designations;
  • South Sudan Designations; and
  • Counter Terrorism designations.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.  The changes to the Counter Narcotics list included the removal of Caesar’s Park Hotel in Lebanon, and updates to numerous related entities and individuals.

See the Counter Narcotics, Iraq-related and South Sudan Designation updates on OFAC’s website.

See the Counter Terrorism update on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: March 28th-April 3rd, 2016

 

OSFI

On March 29th, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released the United Nations Security Council’s (UNSC) ISIL (Da’esh) and Al-Qaida sanctions update to the sanctions list, adding a single individual.

The individual is subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations.  The individual added is Saudi Arabian and holds a Qatari passport.  He is currently residing in Afghanistan and has led an Al-Qaida battalion in Afghanistan since at least mid-2010.Rodney_Money_Clothesline4

See the update on the United Nations (UN) website.

Go to the OSFI lists page.

 

 

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released two updates last week.  One was related to the removal of the Highly Enriched Uranium (HEU) Agreement Assets Control Regulations, and the second, was adding three individuals and two entities to the Counter Terrorism Designations Lists.  OFAC also released the 3rd Quarter FY2014 Report for licensing activities undertaken pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA).

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.  The additions mentioned above, related to the Counter Terrorism Designations update, were included due to the fact both the individuals and entities are linked to Al-Qaida and the Taliban.  They are all Pakistani nationals, with Saudi Arabian ID, and are reported to be currently residing in the UK.

See the Counter-Terrorism update on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: March 21-27, 2016

Rodney_Money_Clothesline4OSFI

There were no updates released from OSFI this week.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released two updates last week, related to the Zimbabwe, Counter-Terrorism and Non-Proliferation Designation Lists.  A total of three individuals and six entities were added to the respective lists.  OFAC also released the publication of Iran-related General License I and related FAQs.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.  All of the additions mentioned above were related to aviation, the names added were either connected to an avionics regime, or were the entity under which they were operating.  As for the Iran-related updates, in order to allow for more efficient processing of applications under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services, OFAC has issued General License I: Authorizing Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization Under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services.  OFAC also updated the Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions under JCPOA.

See the Zimbabwe update on OFAC’s website.

See the Counter-Terrorism and Non-Proliferation update on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

 

Sanctions This Week: February 29-March 6, 2016

OSFI

On March 2nd, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released the United Nations Security Council’s (UNSC) Al-Qaida and Taliban Regulations (UNAQTR) update to the consolidated list, underscoring recent information updates on 11 individuals and one entity.

The 11 individuals are subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations.  The individuals all have different nationalities, locations and expertise, but they have been tied to Al-Qaida.  The entity included is a Moroccan-led terrorist organization formed in August 2013, and were last known to be operating in the Syrian Arab Republic.

See the update on the United Nations (UN) website.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released one update last week, related to North Korea and Non-Proliferation Designation Lists updates.  A total of 11 individuals and five entities were added to both lists.  OFAC also released two updates where information related to two entities was changed.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.  The North Korean five entities added are all state-owned entities, who all have North Korean national defense objectives.  The 11 individuals are all high ranking persons within the five organizations.

See the update on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: February 22-28, 2016

OSFI

On February 23rd, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released the United Nations Security Council (UNSC) ISIL (Da’esh) and Al-Qaida Sanctions Committee’s update, underscoring recent information updates on five individuals.

The five individuals are subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations.  All of the updates relate to their most recent known location, 4 of which being, prison.  The final was a ‘last known address’ update for a Tunisian individual, though he was reported as ‘in detention’ in Tunsia, as at December 2009.

See the update on the United Nations (UN) website.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released two updates last week, but both related to settlement of alleged enforcement actions, or civil penalties related to alleged violations of the Cuban Assets Control Regulations (CACR).  The enforcement actions were on two entities, CGG Services S.A., formerly known as CGGVeritas S.A. (CGG France) and Halliburton Atlantic Limited (HAL) on behalf of itself and its affiliate, Halliburton Overseas Limited (HOL).

See OFAC’s recent actions page.

CGG France has agreed to pay $614,250 USD for numerous alleged violations of Cuban Sanctions, when they exported spare parts and other equipment from the United States to M/V Amadeus while the vessel operated in Cuba’s territorial waters.

See the update on OFAC’s website.

The enforcement actions against HAL were for alleged violations of Cuban Sanctions, by dealing in property in which Cuba, or a Cuban national, had an interest when they exported goods and services in support of oil and gas exploration and drilling activities within the Cabinda Onshore South Block oil concession in Angola. HAL knew, or should have known, they were dealing in property in which Cuba had an interest. HAL issued 19 invoices to the Consortium operator Cupet, a company with headquarters in Angola, related to these goods and services, and HAL primarily performed the services which were invoiced. OFAC determined that the alleged violations were voluntarily self-disclosed and constituted a non-egregious case. The total transaction value of the alleged violations was $1,189,752 USD. The statutory maximum civil monetary penalty for the alleged violations was $1,235,000 USD and the base penalty amount for the alleged violations was $423,202 USD.  HAL has agreed to pay $304,706 USD.

See the update on OFAC’s website.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Is Your MSB Ready for a FINTRAC Exam?

Rodney_MSB2
We get a lot of questions about examinations conducted by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). While we’re happy to be able to help our customers in their examinations (you can check out our free resources for FINTRAC exams here), the responsibility during the examination will rest with the money services business (MSB), mainly with the MSB’s Compliance Officer.

FINTRAC’s expectations have changed dramatically, since MSB’s were first required to comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations. In 2015, we noticed that there was a dramatic shift in focus of MSB examinations. FINTRAC’s examiners were much more interested in detailed procedures (documents that describe how MSBs are complying with the PCMLTFA and regulations), and the Risk Based Approach.

One of the most important things that MSBs can do to ensure that their AML compliance programs are up to date, and at the same time, prepare for FINTRAC examinations, is to read FINTRAC’s published guidance. Two important guidance topics published in 2015 are, the Risk-Based Approach Guide (this guide describes what is the risk-based approach) and the Risk-Based Approach Workbook for MSBs (this workbook is for MSBs looking to implement a risk-based approach). While guidance published by FINTRAC doesn’t carry the weight of law or regulation, it does provide valuable insight about FINTRAC’s expectations.

Another excellent source of information is FINTRAC’s published Policy Interpretations. These are FINTRAC’s official answers to questions asked by MSBs and other reporting entities.

In Person & Desk Examinations

Whether the FINTRAC exam is in person or desk (conducted by phone) examinations, they follow very similar formats. The key difference is the regulator’s ability to request additional operational data during onsite examinations.

It is ok for you to take notes throughout the examination process (and we recommend that you do). You are permitted to have a lawyer, consultant or other representative with you (if you do, FINTRAC will request that you complete the Authorized Representative Form in advance). While your representative cannot generally answer questions on your behalf, they can prompt you if you are nervous or stuck, and help you to understand what is being asked of you, if it is not clear.

If you do not speak English and/or French fluently, we highly recommend that you have a person present who can translate questions and responses for you.

If you are not certain what the examiner is asking for, you should always ask for clarification before answering.

For in person examinations, do not invite the examiner to have a pint, lunch or even a coffee. FINTRAC has very strict policies around bribery, to the extent that if I am out socially with an acquaintance who works for FINTRAC, I cannot pay for their tea. It may feel a little bit “over the top”, not to be able to extend these courtesies, but don’t be offended – it’s not you, it’s policy.

The Introduction

The examiner will provide a brief overview of the examination process as a formal opening to the examination. At the end of this introduction, the examiner will ask if you have any questions. At this point, it can be useful to provide a very brief (five minutes maximum) overview of your business.

Your introduction should reflect the materials that you have already submitted to FINTRAC (which ideally included an opening letter that described anything about the business that would not be readily apparent to the examiner, or anything that you believe could be misunderstood). Key facts about your business include:

  • Your corporate structure and ownership;
  • The types of products and services that are offered / types of transactions that are conducted;
  • Where your offices, agents and customers are located;
  • How you connect with and your customers; and
  • Anything significant that has changed since your last FINTRAC examination.

This synopsis must be very brief. If there is anything that is complex, it should be included as an explanation in your initial package (preferably in a simplified chart form – for example an ownership structure chart).

The examination will then begin. At the end of each section, the examiner will ask if you have any questions and let you know whether there are any deficiencies.

Part 1 – FINTRAC MSB Registration

In this part, FINTRAC will go through your MSB registration field by field and confirm that the information is accurate. The most common errors that we have seen are:

  • Not listing a trade name/operating name;
  • Not listing all relevant locations;
  • Listing bank accounts that are inactive or not listing bank accounts that are active;
  • Not including MSB or agent relationships (either buying from or selling to another MSB);
  • Incomplete ownership information; and
  • Senior Management and/or Compliance Officer information, that is out of date.

Although it is not technically part of the registration, some examiners will ask about the Compliance Officer’s responsibilities/duties at this stage.

Failure to update the MSB registration in the “prescribed form and manner” is the single most common deficiency for MSBs from 2008 to the present, accounting for deficiencies in 61% of examinations (according to FINTRAC data released in 2015).

Part 2 – Compliance Policies & Procedures

In this part, FINTRAC will ask questions about the policy and procedure documents that you have provided in advance of the examination. There are a few standard questions that are generally asked:

  • Who wrote the policies and procedures?
  • Were the versions submitted to FINTRAC the most recent versions?
  • When were they updated?
  • When and how do you identify your customers?
  • How do you ensure that identification is up to date?
  • How do you monitor transactions?
  • How do you recognize, document and monitor “business relationships” (note: this is any time that you have either an ongoing service agreement with a customer and/or your customer has performed two or more transactions that require identification).
  • What are indicators of a suspicious transaction?

The examiner will also ask a number of questions based on the documents that you have submitted, including questions about compliance-related processes.

Part 3 – Risk Assessment

In this part, FINTRAC will focus on your Risk Based Approach, asking specific questions about the Risk Assessment and related documents that you have provided in advance of your examination. Again, there are some common questions that are asked:

  • Do you have any high-risk customers or business relationships?
  • What factors do you consider in determining that a customer or business relationship is high risk?
  • How are customer due diligence and enhanced due diligence different (both generally, and in your processes and documentation)?

Most additional questions will be related to risk management processes. For example, it has been common in the last few months for examiners to ask if a customer or transaction could be rejected (“Yes, if it was outside of our risk tolerance.”)

This may also lead to questions about whether or not an Attempted Suspicious Transaction Report (ASTR) or Suspicious Transaction Report (STR) was filed. If there were reasonable grounds to suspect money laundering or terrorist financing, the answer should be yes, if not, you should explicitly say, “There were not reasonable grounds to believe that this event was related to money laundering or terrorist financing” then provide an explanation.

Part 4 – Operational Compliance & Reporting

In this part, the examiner will ask questions about specific transactions. Some of the cases that you must be ready to explain are:

  • A reportable transaction (generally an electronic funds transfer or EFT) was reported by another reporting entity;
  • A transaction matches an indicator of potentially suspicious activity (if there were reasonable grounds to suspect money laundering or terrorist financing, the answer should be yes, if not, you should explicitly say that “there were not reasonable grounds to believe that this event was related to money laundering or terrorist financing” then provide an explanation); and
  • Business relationships and ongoing monitoring (in particular, if this did not occur earlier in the examination).

During a desk examination, the examiners do not request additional materials.

During onsite examinations, it has become commonplace for examiners to request additional materials. These are generally related to:

  • Business relationships;
  • Ongoing monitoring (including the monitoring of business relationships),
  • High risk customers;
  • Enhanced due diligence; and
  • Other risk-based processes.

Be clear with the examiner about what can be extracted easily from your IT systems, and in the case that data cannot be extracted easily, be prepared to show the examiner an example (or several). If your system has an “auditor access” feature (generally read only access with search capability), it can be useful to set this up in advance of the onsite visit.

Exit Interview

Congratulations – you’ve made it to the finish line!

At this point, the examiner will sum up the findings (if there are any), and read a standard disclosure statement. For most of us, the disclosure statement is terrifying, as it talks about penalties. This is standard process – do not be alarmed. When the examiner has finished, you may ask if a penalty is being recommended (if you’re a worrier, please do this). Not all FINTRAC examiners will provide guidance at this stage, but it doesn’t hurt to ask.

The examiner will let you know when to expect a formal letter (generally within 30 days of the end of an examination).

After the Examination

You will receive a formal letter that details FINTRAC’s findings, as well as whether or not an Administrative Monetary penalty (AMP) is being recommended. In the case that there is a potential penalty, we recommend taking action as soon as possible). In most cases, FINTRAC does not require MSBs to submit an action plan (but your bank might still require that you do this, and it’s a good idea to keep a record of the actions that you’ve taken to correct any deficiencies).

Need a Hand?

If you are an MSB that needs compliance assistance preparing for an FINTRAC exam, remediating findings, or setting up an AML compliance program, please contact us.

AML “Clearance Certificates” are a Scam

If you’ve received an email, letter or call telling you that a larger than usual sum of money is headed your way, but before it can be delivered to your bank, you are required to get a clearance certificate, you are being set up for a scam.

SCAM

The Setup

The scam goes by many names, but the setup is almost always the same…

Step 1: The Sexy Promise

The scammers need you to want to talk to them. To pique your interest, they’ll promise something that they think you will want. In most cases, it’s not a crazy sum of money that will be sent to you – most people would immediately recognize that as a scam. Instead, it will be a reasonable sum that is nonetheless attractive for your business.

In the most sickening cases that we’ve seen, the scammers have focused on charities by posing as potential donors. Outlier has even received a request for a clearance certificate from a “prospective client overseas.”

Step 2: The Legitimate Power

The scammers will claim that the certificate is being requested by a legitimate organization. Some of the scams that we’ve seen have said that certificates are required by:

  • Financial Transactions and Reports Analysis Centre of Canada (FINTRAC),
  • Financial Crimes Enforcement Network (FinCEN),
  • Office of the Currency Controller (OCC).
  • Securities Exchange Commission (SEC),
  • S. Department of Homeland Security,
  • International Monetary Fund (IMF), and
  • Financial Action Task Force (FATF).

None of these agencies issue, require, or have any other involvement with clearance certificates. In fact, if you call any of these agencies to ask about clearance certificates, they will tell you that you are likely the victim of a scam.

Step 3: The Real Threat

The type of “clearance certificate” that the scammers will ask for varies, but it’s usually something that most businesses have at least read about in the news, like “anti-money laundering” or “anti-terrorism.” It’s always something that sounds like it could be a real threat, although definitely not the type of threat that you would pose. Sometimes the requests will be phrased in a way that’s meant to make you feel a little bit indignant (“Why would this person think I’m a money launderer or a terrorist?!?)…

This is all part of the scam. If you’re emotional, you may not be thinking clearly, and it helps the scammer to build rapport with the victim. The scammer may offer consolations like, “Of course, I know that you’re not a criminal, but according to the * insert the authority from step 2 here * we must take these precautions…”

Step 4: Solving the Problem

The scammer is trying to collect as much information (especially financial information) as possible. The scammer will ask for your details directly (all for the purpose of obtaining the certificate, of course) or helpfully suggest a site for a “company” that can help you get your certificate.

Generally, this site requires a credit card payment (these may range from a few hundred to several thousand dollars). In more sophisticated scams, the site’s fine print states that the certificates are “not authorized by any government or international body” and that there are absolutely no refunds. This means that even if the victim reports the scam to their credit card company, they may not be able to issue a refund.

Step 5: Profit

At this stage, the scammers have the victim’s banking and/or credit card information. They may use this to conduct transactions (like draining the bank account or paying for things with the credit card), or simply sell the information on the dark web to other scammers.

Don’t Get Caught Up

It can be hard to believe that someone that you’ve been corresponding with, someone that seems like they could be good for business, is really just a scammer. It’s difficult, and embarrassing – but the sooner you exit the situation, the better off you are.

While you should report the incident (more about that below), it can be dangerous to attempt to bait the scammer to get more information about them (and the information that they provide is likely to be false in any case). Do collect as much information from your existing correspondence with the scammer (including screen captures and/or links to any websites that the scammer has provided you with), as these will be helpful in reporting the scam.

But if You Did, Protect Yourself

If you have already provided some, or all, of your financial details, it’s in your best interest to act quickly.   Contact your financial institution(s) and let them know what’s happened. They will be able to close your existing accounts, issue new accounts and review your recent transaction history with you.

Report It

At any point, you can report the scam to the Canadian Anti-Fraud Centre either online or by phone (1-888-495-8501).

Need A Hand?

While Outlier is not a law enforcement or investigative agency, we do conduct staff training sessions, including training related to common scams and how to recognize them. You can get in touch with us at info@outliercanada.com or by using the online form.

Above And Beyond What?

It seems that every time I’m at a conference or event related to compliance, I hear people talking about going “above and beyond” the requirements. Something about this statement has always seemed wrong to me. It wasn’t until recently that I understood why: most of us aren’t getting the basics right.

FINTRAC Examination Data

 

Most Of Us Are Failing At The Basics

This is not an indictment of Compliance Officers and the tremendous effort that goes into compliance. It’s a simple statistical fact.

We crunched some numbers by industry for anti-money laundering (AML) compliance in Canada based on information obtained from the regulator through an access to information request in 2014. The rate of examinations for which there were no deficiencies (across all reporting entity types) was 17 percent. While we congratulate the savvy few that met this bar, that leaves 83 percent of reporting entities that failed to meet the basic requirements in some way.

While these results are specific to examinations conducted by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), it’s not unreasonable to assume that the results can be generalized to compliance more broadly.

Shift The Focus

Before anyone can go “above and beyond” the fundamentals should be solid. One of the most painful reviews (like an audit for compliance) that I’ve conducted was a classic case of going above and beyond while completely missing the mark on baseline compliance. The reporting entity had great technology and related risk ranking metrics. The methods that they used to understand customer behavior involved machine learning and geo-location data at each login, analyzed over time. It was a great risk management strategy, except that they hadn’t identified a single customer in accordance with the law. Not a single one…

Ironically, in working to design measures that went beyond the basic compliance requirements, they found themselves so far outside of what was allowable under the law that had an examination been conducted by a regulator at the time, they could have been facing a very hefty penalty (as was the case for Ripple Labs in the USA).

Rework

Consequently, they spent a good deal of time and money updating their systems and identifying customers. In some cases, customers were lost. The (re)identification process was frustrating for people that believed that they had already completed everything that was needful in order to transact freely. There were updates to process documents and IT systems that took place over the course of months, and a good deal of frustration at the rework involved.

A competent third party or in house expert can be useful in assisting with system and process design, provided that they are able to understand your business model, basic compliance requirements and how to achieve these in the most elegant way possible.

Keep It Simple (Seriously)

At a recent conference, I was listening to a speaker whom I consider a model for what not to do, both functionally and ethically. As he sweepingly gestured towards an overly complex chart, he stared into the blank faces of his audience and proclaimed “It’s ok if you don’t get it. That’s not the point. The point is that I should look impressive. Are you impressed?” I was not.

Which model fits your needs?

Which model fits your needs?

Remember that the people that are usually fulfilling your compliance requirements are your frontline staff. Would they be able to use the model to the left to risk rank your customers?

While it can be tempting to create complex rating systems, it’s important to understand that your compliance program should be functional. If the system that you’ve created is too complex for your staff to understand and adhere to, it will fail. Whether you’re hiring someone external or creating your program in-house, remember to keep it as simple and easy to follow as possible.

Ask, Check, Test

One of the many arguments that I’ve heard for going above and beyond is that this is helpful when dealing with regulators and banking service providers. While I agree that this can certainly be the case, it’s a moot point if the basic requirements are not met.

In my experience, both regulators and bankers are candid – when asked – about where their expectations are set. There is no real appetite on the part of either to create a set of secret standards related to going above and beyond. From a practical perspective, this means that reporting entities should be focused on understanding the basic requirements, and seeking clarification as needed.

Effectiveness reviews can also be a useful tool in this regard, provided that the reviewer or auditor is well versed in local compliance requirements. Similarly, internal testing should be geared towards baseline requirements to ensure that these are being met.

Opportunities & Innovation

Going above and beyond for its own sake (in terms of compliance) is neither required, nor particularly good business.

This is not to say that reporting entities should avoid innovation. Rather, these efforts should be focused and prioritized on finding the most cost-effective and efficient ways to meet baseline compliance requirements, and mitigating risk.

Changing compliance legislation can also provide opportunities for innovation, in particular where there are public consultations. This type of dialogue with lawmakers allows stakeholders to suggest alternatives that may mitigate risk in new and innovative ways. It provides an opportunity to showcase new technologies and processes that solve common compliance problems with greater efficiency (although they may not fit into the current regulatory paradigm).

Need A Hand?

We believe that good compliance is good business. If you have questions, please feel free to contact us.

Proposed PCMLTFR Updates

Screen Shot 2015-07-08 at 4.03.31 AM

We’ve created a marked-up version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) that reflects the draft amendments posted in the Canada Gazette on July 4th, 2015.

Here’s a printable and downloadable PDF file: PCMLTFR Mark-Up (July 4, 2015 Draft Amendments)

If you would like a copy of the file in Microsoft Word, please contact us.

Need A Hand?

At Outlier, we believe that it is important to participate in decisions that affect you and your business.  If you would like someone to look over your submission before you make comments to the Department of Finance, you can get in touch with us free of charge.  We will look over your submission and make suggestions, without any cost to you.  If you need a hand, please feel free to contact us.

Unpublished FINTRAC Penalties

Jonathan Krumins, Vice President, vCAMLO

Today’s guest blogger is Jonathan Krumins, Vice-President, AML Risk & Compliance, at vCAMLO Solutions Inc. vCAMLO provides anti-money laundering (AML) and anti-terrorist financing (ATF) support to Canadian credit unions. You can learn more about vCAMLO at www.vcamlo.ca.

Background

Reporting entities (REs) often ask us about penalties, in particular when they are published publicly. Since 2009, The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued Administrative Monetary Penalties (AMPs) against persons and entities that were found to have violated the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and its associated Regulations. In many cases up to 2013, FINTRAC has published details on its website about each penalty, including the name of the person or entity, the dollar amount of the AMP, as well as the cited deficiencies. The AMP area of their website has two sections – a list of all published penalties, as well as a running total of AMPs imposed since December 30, 2008, divided by sector.

As of June 26, 2013, FINTRAC changed its policy regarding public notice of AMPs, so that they would be published if one or more of the following criteria are met:

  • The person or entity has committed a very serious violation; or
  • The base penalty amount is equal to or greater than $250,000, before adjustments are made in consideration of the person or entity’s compliance history and ability to pay; or
  • Repeat significant non-compliance on the part of the person or entity.

AMPs can only be published once the appeals process is exhausted, which can take years to complete. This process can include an appeal to FINTRAC’s director, and a subsequent appeal to the Canadian Federal court.

Understanding this context is vital for RE Compliance Officers. While trend information related to published and unpublished penalties is not likely of interest to frontline staff, understanding these patterns is useful in fielding questions from Senior Management and the Board of Directors.

We have conducted an analysis of data published on the FINTRAC’s website which shows a trend of an increasing number of unpublished AMPs since 2013. These unpublished AMPs were primarily imposed on the Credit Union/Caisse Populaire and Money Service Business (MSB) sectors.

Methodology

We have made all calculations using information available as of April 20, 2015. We examined publicly available information on FINTRAC’s webpage, using the running total of AMPs by sector and the list of public AMPs. We also examined a summary of AMPs as of October 2014 obtained by Outlier through an Access to Information request. Our analysis focuses only on the sectors that have received AMPs, either published or unpublished: Credit Unions (including Caisses Populaires), MSBs, Real Estate Brokers, Securities Dealers and Casinos.

In addition, we accessed “cached” versions of FINTRAC’s website to review past versions in order to include six public AMPs that were issued between August 19, 2009 and April 26, 2010. In accordance with FINTRAC policy, these were removed from FINTRAC’s website after the five year public notice period had expired. We have included this historical data in order to provide a full view of the penalties issued. It is noteworthy that there are likely additional penalties in the process of being appealed (this information cannot be made available until the appeals process is complete).

Published AMPs vs. Unpublished AMPs

By analyzing the list of published penalties, compared to the running total of AMPs, it appears that there have been a significant number of unpublished penalties:

FINTRAC AMPs

Credit Unions

Credit Unions have received the largest number of unpublished penalties, both in terms of number and dollar amount. Credit unions have received 3 published AMPs, totalling $246,690. They have also received an additional 11 unpublished AMPs, totalling $405,855.

Trend analysis: This appears to be a significant increase in overall enforcement action by FINTRAC in the Credit Union sector. The total number of penalties against Credit Unions have increased sharply to 14, which means that Credit Unions now have the second largest number of listed AMPs (published and unpublished), behind MSBs. All penalties against Credit Unions since 2013 were unpublished. This data can also be interpreted to mean that FINTRAC’s enforcement efforts against Credit Unions have increased since 2013, however it is important to remember that AMPs are listed on FINTRAC’s website after they are finalized, which can mean a significant gap between when an AMP was issued and when it is listed, especially if there is an appeal involved.

Money Service Businesses (MSBs)

MSBs have received 22 published penalties, totalling $527,510. They also have received eight unpublished penalties, totalling $68,520. Interestingly, a $12,880 penalty that was published against an MSB on July 11, 2013 no longer appears on FINTRAC’s website.

Trend analysis: MSBs continue to be the leading sector in terms of receiving AMPs, although similar to the other sectors examined, the majority of AMPs that were against MSBs from late 2013 through to 2015 were unpublished.

Real Estate Brokers

Real Estate Brokers have received three published penalties totalling $40,520 compared to three unpublished penalties totalling $25,960.

Trend Analysis: Real Estate Brokers have received relatively few published and unpublished penalties in comparison to the Credit Union and MSB sectors. The number of unpublished penalties (compared to the number of published penalties) is consistent with trends across all sectors.

Securities Dealers

Securities Dealers have received four published penalties totalling $565,180 compared to one unpublished penalty of $21,480.

Trend Analysis: Securities Dealers have received relatively few published and unpublished penalties in comparison to the Credit Union and MSB sectors.

Casinos

Casinos have never received a published AMP, however FINTRAC’s website shows an unpublished AMP of $56,700 issued against a casino. This may be surprising to anyone that has read about BC Lottery Corporation, however, AMPs are not part of these records until the appeals process has been exhausted (and there have been successful appeals).

Trend analysis: It is difficult to establish a trend based on a single data point, however this unpublished AMP shows that the Casino sector is no longer unaffected by FINTRAC penalties.

What Does This All Mean?

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Note: The dates on the above graph represent when FINTRAC’s website was analyzed to calculate the total number of penalties, with the exception of October 2014, which is the “as of” date of an AMP listing received in a Freedom of Information request. Data for unpublished AMPs is only available since 2013.

As of June 2013, FINTRAC began to apply the updated standard for publicly listing AMPs. Since this change, unpublished penalties comprise approximately 42% of all issued AMPs by amount and 43% by number. While this is excellent news for REs that are concerned with the negative media and other reputational risk related to published penalties, it will make it more difficult to assess the reasons that REs are receiving penalties. The specific violations that led to a penalty are only made public by FINTRAC when the AMP is published. In order to ensure that our Credit Union clients are well-informed about industry trends related to penalties, vCAMLO will be requesting additional information and performing trend analysis. Stay tuned!

Your Best Defence

To avoid AMPs, it is essential to constantly test for weaknesses in your compliance regime. Conduct rigorous effectiveness testing (this is required at least every two years), and consider more frequent testing. Finally, ensure that immediate steps are taken to remediate deficiencies received in FINTRAC exams. Deficiencies that re-appear in follow-up exams are taken seriously by FINTRAC, and can lead to penalties, published or not.

Need a Hand?

vCAMLO: If you are a credit union or MSB, and have any questions related to financial compliance, or if you are interested in AML Support Services, please contact us for a complimentary 30 minute compliance discussion.

Outlier: If you need assistance reviewing your technology solution or FINTRAC reporting to be certain that you’re meeting the standard described in this blog, or just someone to chat with to make sure that you’re on the right track, please contact us.

 

 

 

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