Anti-Money Laundering
Consulting Services & Strategies

0 Items - Total: $0.00 CAD

Why bitcoin?

BitcoinAcceptedHereI’ve been asked the question enough times that I probably should have blogged about it a year ago, but the kicker for me was coming across an article that seemed to have no purpose but to question why an AML consulting firm would speak at the Bitcoin Expo.   The truth is that a few years ago, I may have approached the situation with the same type of skepticism. In those years, I’ve worked with excellent companies that are working hard to manage their risk (some of them in the absence of any law that would compel them to do so). I’ve not only come to believe that working with companies in the digital currency space is well-aligned with Outlier’s core mission (helping Canadian businesses to succeed), I’ve become enthusiastic about digital currency in general.

The First Bit

A longtime friend and client approached me about the digital currency aspects of his business. While I won’t go into great detail about the specifics (client confidentiality is important to me – and my clients), I will admit that my understanding of the space was rudimentary at best. If the request had come from someone that I knew and trusted less I may have taken a different approach to learning, but given the circumstances I wanted to know as much as I could as quickly as I could. I thought that the best way to learn would be to ask to be paid in bitcoin. This meant that I had to figure out how to set up a wallet, secure it, receive bitcoin and of course spend the bitcoin. What became clear to me very quickly were the advantages: bitcoin transactions were fast, cheap, traceable (by way of the blockchain’s public ledger) and irreversible.

Being a self-proclaimed AML nerd, I was surprised to see that I didn’t need to provide personal information to set up a wallet, though it was also clear to me that the idea of complete anonymity wasn’t accurate either. I hadn’t worked with any digital currency exchanges or brokerages yet, and I wasn’t quite sure what to do with my bitcoin, so I held it in my wallet and checked the price every few days. I was lucky at the time, the price shot up. I started exploring reputable vendors that accepted bitcoin (the list was a lot smaller at the time), settling on a tablet for my husband from a UK-based vendor as my first bitcoin purchase.

The transaction was fast, efficient, and reminded me that bitcoin was not as anonymous as the headlines would have had me believe. The vendor required relatively comprehensive information in order to deliver the tablet, and noted on the site that identification would be required by the delivery company in order to release the package. The cost of the tablet was less than the cost of the bitcoin that I received, but I decided to hold off on looking for things to spend it on right away. From that point, I’ve always held bitcoin (and later on a few other alt coins as well).

Brokerages, Exchanges and BTMs

Since that first transaction, I’ve worked with bitcoin exchanges, brokerages and BTM companies (as well as a few other wonderfully innovative business models that I can’t describe here) in Canada and in the United States. What I’ve experienced with these companies has been remarkably similar to traditional financial companies in many ways.

There is a real desire to understand the legislation and to do what’s needful.

There is a real desire to implement compliance without stifling innovation (especially when it comes to the customer’s experience).

There is a real desire to be part of the conversation with the people that write the laws, and the regulators that enforce it.

While I’ll admit that my sample is very biased (criminals are unlikely to hire a firm like mine), my experience in the digital currency community has been overwhelmingly positive.

Our Bit

I see the role of Outlier, and other professionals like us, as threefold. Our first task is to understand. Our next task is to provide valuable services and our final task is to act as advocates. These are sequential – the final two tasks cannot be done with any degree of competency without the first. Recently I’ve been approached by a number of very large firms asking how they can provide services to digital currency companies. I ask them the same question that 100% of the bitcoiners that I’ve worked with have asked me “Do you have bitcoin?” There is no teaching tool like experience, and right now digital currency is something that almost anyone with a computer and Internet access can experience.

This understanding translates into being able to truly add value for digital currency companies, but a point in time understanding won’t be enough. There are incredible innovations developing every day. I wasn’t involved deeply in the evolution of the Internet in the 1990s, but I imagine that it must have felt something like working in digital currency today. Ideas that add value for digital currency companies must support business innovation while teaching the traditions of compliance and sound risk management practices. As an AML professional, there is nothing more rewarding than working with clients that are pushing the boundaries of the possible, and helping them to do that without ending up on the wrong side of the law. The projects are exciting and more often than not, the aim is to benefit society as a whole.

It’s that excitement and those lofty goals that will make you an advocate. For Outlier, and for me personally, advocacy and education have been a labour of love. We speak at conferences, to merchants and traditional financial institutions, and we do what we can to connect policy makers to experts. We do all of this free of charge, because we believe that digital currency has great potential to do good. Like anything with value, it can be used to launder money, even though it’s not nearly as anonymous as some may believe it to be.  We’re not ignoring this, nor do we believe that it’s the whole story. Digital currencies like bitcoin can also be used to transfer funds quickly, efficiently (and in many cases without fees) to the people that need it most and to allow individuals more complete control over their funds in oppressive and corrupt regimes.

The Last Bit

Since that first payment, Outlier has always accepted payment in bitcoin, but conversations are always free. If you have questions, please feel free to contact us.

 

13cgDpcL9WRb7D4bYs4NBAc44HKSrTyGcf

Tipping QR Code

Canadian Digital Currency Regulation

BitcoinAcceptedHereLate last week, Canadian Bill C-31 received royal assent (meaning that it has been approved and will become Canadian law).  The bill covered many areas, one of which was anti money laundering (AML) and counter terrorist financing (CTF) requirements for Canadian businesses.  This included adding “dealers in digital currency” to the definition of money services businesses (MSBs).

It’s not yet clear when these changes will come into force, but we expect that there will be a period of at least six months before businesses need to be compliant.   You can read the final version of the bill here. In the mean time, we expect to see a consultation paper and draft regulations before final regulations are released.  The law will not come into effect until final regulations are released, and the regulations will clarify exactly what dealers in digital currency need to do to comply.

For businesses that operate in Canada or have Canadian customers (customers that are served in Canada – including via the web), this will mean registering with government agencies as an MSB, maintaining an AML and CTF compliance program, being compliant with the laws (which includes keeping records and identifying customers and reporting certain types of transactions), answering to the regulators and disclosing certain information to financial service providers.

Who Is a Dealer In Digital Currency?

Bill C-31 did not define dealers in digital currency.  Instead, the bill states that the definition will be included in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (Regulations).  Generally speaking, being a dealer in any type of good or service implies that you are selling something for profit.  The proposed definition is likely to appear in the initial consultation paper (expected this summer) as well as the draft version of the regulations.

It’s important to note that if you are dealing in digital currency today, but not engaging in any other MSB activities, you’re still not considered an MSB and you don’t have compliance obligations (yet).

MSB Registration

Dealers in digital currency will need to register as MSBs.  Anyone dealing with customers in Canada will need to register as an MSB with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).  The process involves contacting FINTRAC to provide initial information and gaining access to the MSB registration site.  There will be a number of questions about the owners of the business, senior officers, banking relationships and projected revenues.  While the process is not costly, it can take time (in particular if the regulator requires clarification).

MSBs serving customers in the province of Quebec are also required to be licensed with the Authorite des Marches Financiers (AMF).  Licensing related fees range from about CAD 607 to CAD 2428, excluding additional fees of CAD 202 per automated teller machine (ATM) operated in Quebec.  You can learn more about the Quebec licensing process here.

Dealers in digital currency will not be able to register as MSBs at this time, but should expect to do so once the final regulations have been issued.  The registration processes can take time, and it’s useful for businesses to start the process as early as possible in order to avoid being off side with the law.

Compliance Programs

AML and CTF Compliance Programs generally have five elements:

  • A Compliance Officer (the person who oversees compliance for the organization),
  • Policies and Procedures (documents that describe what you’re doing to comply),
  • A Risk Assessment (a document that describes the risk that your business could be used to launder money or finance terrorism, and the controls that you have in place to prevent this from happening),
  • Training (this is delivered at least annually to all staff that deal with customers or transactions), and
  • Effectiveness Reviews (like an audit for compliance, these are completed at least every two years).

Some dealers in digital currency may already have voluntary compliance programs in place.  These programs will most likely need to be updated when the final regulations are published.

Operational Compliance

In addition to having a documented AML & CTF compliance program, there are certain things that MSBs need to do in order to comply with the law.  Currently, these include identifying customers when the MSB:

  • receives the equivalent of CAD 10,000 or more in cash,
  • sells or cashes $3,000 or more of traveller’s cheques, money orders, or anything similar instruments,
  • exchanges currency of $3,000 or more for another currency,
  • sends or receives international money transfers of $1,000 or more, and/or
  • suspects that a transaction, or an attempted transaction, of any amount, is related to a money laundering offence or a terrorist financing offence.

Identification in this case is tightly defined as either the MSB or it’s representative looking at an original, valid (not expired) piece of government issued identification in person (via Skype or webcam doesn’t count) or using specific methods described in the Regulations.

MSBs are also required to keep specific types of records for at least five years, including customer and transactions records.  All records must be stored in such a way that they can be quickly retrieved if the regulator requires them (generally within 30 days of the date that the regulator makes the request).  In addition, MSBs are required to report certain transactions to FINTRAC and other agencies within set timeframes.

Like having a compliance program in place, these requirements don’t apply to dealers in digital currency yet, but it’s helpful for business owners to start thinking about the types of changes that may need to be made to IT systems and processes once regulations are released.

Penalties

The penalties for non-compliance can be significant, and may include either civil penalties, criminal penalties or both.  For instance, failure to report suspicious transactions can result in penalties up to CAD 2 million and/or 5 years imprisonment.

In addition, FINTRAC may publish penalties on its website.  While monetary penalties can be substantial, it is the publication of these penalties that can ultimately be more damaging to businesses.  Few banks or other financial service providers are willing to work with organizations that have published violations for non-compliance.

What’s Next For You?

If your business is likely to be considered a dealer in digital currencies, you will have an opportunity later this year to comment on the consultation papers and draft regulations.  It is unlikely that the sector will remain unregulated in Canada for long, but you will have an opportunity to voice your opinion about the proposed changes.

In the mean time, it’s time to start thinking about what you’ll need to do in order to be compliant.  Who will your Compliance Officer be?  What changes will you need to make to your documents, systems and processes?  Although there are certain things that you won’t be able to do quite yet, you can organize your resources to be ready later this year.

If you’re concerned about the next steps and need a hand, please feel free to contact us anytime.  Conversation are always free, and if you choose to hire us for a project, we do accept payment in bitcoin.

13cgDpcL9WRb7D4bYs4NBAc44HKSrTyGcf

Tipping QR Code

Does Québec MSB Licensing Apply to Me?

We recently sought clarification from the Autorité des marchés financiers (AMF), Québec’s provincial regulator, on when money services businesses (MSBs) need to be licensed in Québec.  The Québec licensing process is completely separate from the federal MSB registration with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).  The full text of the response that we received appears below this blog entry.

Are You Required To Be Licensed in Québec?

To determine whether or not you need to be licensed in Québec, we’ve developed a chart:

Screen Shot 2014-05-19 at 2.08.51 PM

If you are offering any of the defined MSB services to people of organizations in Québec (including via the web) you are expected to be licensed as an MSB in that province.

The AMF has announced that digital currency exchanges and ATMs are also regulated under the MSB Act.

How Can You Become Licensed And What Does It Cost?

Before you apply for an MSB license, you must obtain a Québec Enterprise Number from the Enterprise Registrar.  This is a unique numeric identifier that you will use when dealing with Québec government agencies and business partners.  The registration process will cost approximately CAD 34.00 and will require you to provide documents such as your articles of incorporation.  We recommend that you speak with your tax professional about the implications of registering as an enterprise in Québec, as it is likely that you will need to consider this in future tax filings.  You can access the registration site here.

Next, you’ll need to apply for your Québec MSB license.  The AMF has developed a user guide that explains the process in plain language.  You must have a respondent (someone acting on your behalf) in the province of Québec.  If you do not have any physical operations in Québec, the respondent  can be a third party that you trust, such as a lawyer, paralegal, accountant, consultant  or other professional that will act on your behalf.  A licensing fee of CAD 650.00 applies to each category of product or service that you offer (except for ATMs).  This means that the total fee for this stage will range from CAD 650.00 to CAD 2600.00.

In addition, MSBs that operate ATMs will be required to pay a fee of CAD 216.00 per ATM machine (located in the province of Québec) later in the process.

In addition to these fees, specific security clearance fees are required.  These include CAD 121.00 for the enterprise and each of the following (that apply to your business):

  • The Respondent;
  • Officers;
  • Directors;
  • Partners;
  • Branch managers;
  • Any person or entity who directly or indirectly owns or controls the money-services business;
  • Employees working in Québec (unless they are not involved in any of the MSB business);
  • Mandataries (who are responsible for the money services offered on behalf of the MSB);
  • Officers of the mandataries;
  • Any lender that is not a financial institution; and
  • For any lender that is not a financial institution or a natural person, lender is not a natural person, its officers, directors or partners.

You must obtain consent and information from each of these individuals in order to complete the security clearance process.  You must also assemble and submit corporate documents for your MSB, including:

  • Business plan and description of business activities;
  • Financial statements;
  • Document showing legal structure of the business;
  • Document confirming appointment of respondent; and
  • Document showing corporate structure of the business.

You should expect the application process to take six to eight weeks if all of the forms are filled out completely and correctly.  It can take significantly longer if your applications are missing information or signatures.  We recommend looking over all of your documents carefully before you submit them and reaching out proactively to the AMF if you have questions about how to complete the application forms.

Need A Hand?

Many MSBs have successfully gone through this process on their own (you don’t need to hire a lawyer or consultant), but if you want a hand assembling your package and communicating with the AMF we’re happy to assist – please contact us.

Full Text Of AMF Response

As discussed earlier, any entity who executes from Québec or makes available the following money services for the people of Québec has to submit an application in order to have the Autorité des marchés financiers release a Money services business (MSB) licence:

  • Currency exchange;
  • Funds transfer (over the counter or internet);
  • Issue / redemption of traveller’s cheque, money order, bank drafts.
  • Cheque cashing
  • Operation of ATM

A corporation does not have to have an establishment, an address, a post office box or even a telephone line in Québec for it to be considered as carrying an activity in Québec as long as it conducts business for a profit. It is often the case for corporations acting in the funds transfer category.

 The first step towards registration for a MSB should first be registration as a corporate entity with the Registraire des entreprises (http://www.registreentreprises.gouv.qc.ca/). This will provide a corporation number (NEQ) to the registrant that will be required for application purposes.

 Afterwards will come the submission of the E-services access form by its appointed respondent (see section 5 of the MSB Act) along with a payment of 614$ for each money services category to appear on the licence.

 All info and documentation is available on our website (www.lautorite.qc.ca).

Return to Blog Listing


PROCESSING...