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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.

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.

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