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Don’t Share STRs or STR Data

Recently the Compliance Officer from a small reporting entity reached out to me to ask an uncomfortable question: should they provide copies of the Suspicious Transaction Reports (STRs) that they had filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to their financial services providers such as a credit union or bank?

This was a difficult situation for the reporting entity’s Compliance Officer because they were afraid of pushing back too much with the financial services provider. Like most non-bank reporting entities, they rely heavily on the services provided by the bank in order to be able to operate their business. Financial service providers, such as banks and credit unions, have the ability to close the accounts of businesses in Canada (often called de-risking), and it can be difficult for some types of reporting entities to establish new banking or payments relationships. The financial services provider in this situation has significantly more power than the reporting entity that is dependent on them.

My gut reaction was that the reporting entity should not disclose the contents of their STR reports, or provide copies. In Canadian legislation, disclosing the fact that an STR was made, or disclosing the contents of such a report, with the intent to “prejudice a criminal investigation” can be punishable as a criminal offence, with penalties of up to 2 years imprisonment (this is also known as “tipping off”). While there did not appear to be any intent to prejudice a criminal investigation in this case, it still seemed like a bad idea. I did a quick check-in with fellow AML geeks on LinkedIn. There are some great comments here, and I had a number of conversations in DMs and by phone. No one seemed to think that the reporting entity should be providing copies of STRs.

The question then became how to best empower the reporting entity to push back effectively. I submitted the following request to FINTRAC and to the Office of the Privacy Commissioner (OPC), both of which have mechanisms to allow Canadians and Canadian companies to ask the regulators to opine on matters free of charge:

One of our clients, a Canadian Money services business (MSB) has been asked by their financial services provider (bank/credit union) to provide copies of the suspicious transaction reports (STRs) and Attempted Suspicious Transaction Reports (ASTRs) that have been filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) on an ongoing basis. This struck us as being an overreach in terms of the information that should be disclosed to a service provider, and we are reaching out for an opinion on the appropriateness of these requests.

The financial service provider appears to be of the opinion that this is a reasonable request, and that they may close the MSB’s bank account if the STRs and ASTRs are not provided by the MSB.

I let both FINTRAC and OPC know that I had submitted requests to both. So far, only FINTRAC has responded. Their response is below in full (TL:DR: reporting entities should not share copies of STRs reported to FINTRAC).

Thank you for contacting the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s independent agency responsible for the receipt, analysis, assessment and disclosure of information in order to assist in the detection, prevention and deterrence of money laundering and the financing of terrorist activities in Canada and abroad.

I am writing further to your email of July 16th, 2020, wherein you requested clarification regarding the sharing of suspicious transaction reports (STRs) submitted to FINTRAC.

As you know, section 8 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that no person or entity shall disclose that they have made, are making, or will make a report under section 7, or disclose the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun.

The PCMLTFA sets out a regime in which the information contained in financial transaction reports sent to FINTRAC (including STRs) is protected from disclosure except in very limited circumstances. The Act also includes specific provisions aimed at protecting the personal information under FINTRAC’s control. For example, as you may be aware, the PCMLTFA is founded on a prohibition on disclosure (s. 55(1), PCMLTFA). Any disclosure of information or intelligence by FINTRAC must fall under one of the exceptions to this prohibition. Outside of these exceptions, FINTRAC is prohibited from disclosing the contents of financial transaction reports, or even acknowledging their existence.

While reporting entities (REs) are not subject to the same prohibitions, FINTRAC strongly believes that STRs should be regarded as highly sensitive documents, given the role FINTRAC plays in the fight against money laundering (ML) and terrorist activity financing (TF) in Canada, and the fact that STRs are a key source of FINTRAC’s intelligence holdings. From FINTRAC’s perspective, it is not in the public interest for REs to disclose financial transaction reports and the information contained therein. Even beyond this, the collection or disclosure of financial transaction reports, including STRs, without a valid purpose and authority, may infringe on legislated privacy protection obligations. Almost all information within financial transaction reports is personal information about an identifiable individual and is considered financial intelligence by

FINTRAC, collected for the sole purpose of reporting to FINTRAC. The potential harm that could occur from the disclosure of the information in these financial transactions reports is great, and includes compromising: (1) police and national security investigations that are both ongoing or could be undertaken in the future; (2) sources of the information/intelligence within the reports, placing those sources at risk of retaliation; and (3) FINTRAC’s compliance activities, given that data provided by REs is always provided in confidence and that confidence is expected to be maintained by all parties. FINTRAC relies on the information included within STRs to support disclosure of financial intelligence to police and other law enforcement and national security organizations, in the interest of detecting, preventing and deterring ML and TF.

Therefore, while your client (MSB) is not prohibited from sharing the STRs it has submitted to FINTRAC with its service provider (Bank/CU), unless it is with the intent to prejudice a criminal investigation, strong consideration should be given to the above.

If you would like a PDF copy of the complete question and policy position for your due diligence files, or to provide to an external party that is requesting copies of your STRs, or information about their content, you can download it here.

Response from FINTRAC – Re_ Sharing Copies of STRs_ASTRs

A version of this Q&A is also now posted on FINTRAC’s website (PI-10662).

The response from OPC, in contrast, was underwhelming. In essence, they will investigate specific complaints, but they will not issue advanced rulings. That said, if any service provider is insisting that copies of STRs must be shared with them, a complaint to the OPC may be an option.

Response from the Office of the Privacy Commissioner of Canada – INFO-084075

Need a hand?

If you have AML or privacy-related questions, 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.

Is Your MSB Ready for a FINTRAC Exam?

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.

Suspicious Transaction Reporting in 2015

At the Canadian Institute’s 14^th Annual AML Forum, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reviewed its expectations for suspicious transaction reporting. FINTRAC emphasized that suspicious transaction reports (STRs) are vital to the agency’s mandate as Canada’s financial intelligence unit (FIU) and ongoing collaboration with law enforcement agencies. While reporting entities (REs) in Canada have been required to report transactions for quite a few years, we’ve had many questions from REs about what FINTRAC expects and looks for in examinations. FINTRAC’s most recent guidance is useful in tuning your technology, enhancing your processes, and asking the right questions at industry association meetings.

What is FINTRAC Looking for in STRs?

When FINTRAC conducts compliance examinations, they will be applying three tests to STR data, including:

Entity Practitioner: FINTRAC will look for transactions that are similar to those involved in STRs that you have reported. If there are similar transactions or transaction patterns that have not been reported to FINTRAC, there should be an explanation for the difference. Where possible, this explanation should be documented.
Sector Practitioner: FINTRAC will compare the number and type of STRs submitted by similar entities. The size and type of business are taken into consideration.
Reasonable Practitioner: FINTRAC will analyze a sample of reported STRs and unreported transactions against relevant guidance. In this case, relevant guidance means the suspicious transaction indicators from FINTRAC’s Guideline 2 that are applicable to your business.

These are terms that we’re likely to hear more about over the coming months, and there are compliance program adjustments (most of them relatively simple) that can be made to ensure that you’re meeting this standard.

Tune Your Technology

Most REs use software solutions to detect potentially suspicious transactions. Almost all transaction monitoring software uses some type of rules-based system to determine when alerts should be generated. These rules should, at minimum, reflect the indicators that are applicable to your business. Not all of the indicators from FINTRAC’s Guideline 2 will be applicable to your business. Where possible, you should document the decisions that you make about your transaction monitoring rules, including the rationale for those decisions.

The most sophisticated software platforms have machine learning functions. These can take the decisions that have been made about previous alerts and use this information to refine how the program works. For example, if a particular pattern of transactions was deemed to be suspicious, the program may look for similar patterns.

If you’re not using software that does this on its own, don’t panic. You can review the STRs that you’ve submitted to FINTRAC to determine whether your transaction monitoring rules are tuned to reflect the types of money laundering and terrorist financing threats that you’ve previously encountered. This should be done on a regular basis (for example, as part of your Risk Assessment updates). If you have an STR that is related to a pattern that you don’t have a rule to cover, you may want to do this sooner, rather than waiting for the next scheduled update.

Train Your Staff

Over the years, I’ve heard many Compliance Officers express frustration about not knowing whether or not STR data has been useful to FINTRAC or law enforcement. To close this gap, I’ve looked for articles and speakers from FINTRAC and law enforcement that could provide meaningful information about the type of information that is most useful. The same principle applies to your staff.

You can use existing cases (you’ll want to remove any personal information for training purposes) to demonstrate the type of transactions that you want your staff to escalate to compliance for review. Existing cases from the media, and end to end cases provided by training companies like TAMLO, are also excellent resources. Keeping your annual training fresh is a challenge, and using your STRs as cases is one way to do that, while also meeting FINTRAC’s expectations.

Refine Your Audits & Effectiveness Reviews

Are your auditors and/or reviewers using the same tests that FINTRAC is using to assess your compliance? If you’re not certain, ask.

If you perform self-assessment testing, you may want to include these tests as well.

As of 2015, all AML Compliance Effectiveness Reviews performed by Outlier will use these three key tests to assess STR data.

Ask Your Industry & Working Groups for More

Most REs have excellent industry associations and working groups such as the Canadian Banker’s Association (CBA), Canadian MSB Association (CMSBA) or the Canadian Jewellers Association (CJA). These groups are excellent resources and can help you understand STR trends across your industry. If you’re not a member, you may still be able to attend regular conferences or events.

Need A Hand?

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

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