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Fraud & Reasonable Grounds to Suspect

One of the themes that was prevalent in Canadian AML for 2021 was the relatively low bar represented by “reasonable grounds to suspect” (RGS) and the types of transactions for which FINTRAC expected suspicious transaction reports (STRs) to be filed. One of our astute colleagues worked with us to craft some specific scenarios (the full version, including FINTRAC’s response, can be viewed here), and FINTRAC’s response seems to confirm a significant shift in position from previous discussions. Specifically, STRs are expected in cases of fraud, including cases in which the reporting entity’s client is believed to be the victim of fraud.

Here is a scenario that we asked about:

Scenario 2

A client reaches out to notify us that they sent the virtual currency to another party who promised them a generous short-term return. The client never received the promised funds and believes they have been defrauded. We review the customer account activity and do not find any anomalous activity either prior to or after the client sent the virtual currency to the wallet provided by the fraudster. The client appears to have sent their own funds to the fraudster and there is no account activity corresponding to any irregular transactions, including money mule indicators. Our client is simply a victim of fraud.

Based on strictly these facts, context and indicators, we have not reached reasonable grounds to suspect any money laundering or terrorist financing offences by our client. There may be downstream suspicion related to the wallet where the fraudulently obtained funds were sent but we do not have any suspicion based solely on our client’s transactions which include the transmission of virtual currency to that other wallet. We do not have any information or suspicion related to the other wallet except for the knowledge that our client’s virtual currency was sent to it.

Given the above, we believe no STR would be required. Could you please confirm our position? If the position taken here does not seem correct, please provide an underlying rationale.

And an excerpt from FINTRAC’s response:

In scenario 2, an STR should be submitted if the reporting entity reached reasonable grounds to suspect that the transaction or attempted transaction is related to fraud.

Not Just for Virtual Currency

While the scenario that we’ve provided is specific to virtual currency, the implications of this policy interpretation are not limited to transactions that involve virtual currencies. Every reporting entity type will deal with suspected and confirmed cases of fraud that touch their business models.

Why Does It Matter

To really get to why this matters so much, we need to first look at the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which is where the requirement is first defined in Section 7:

Transactions if reasonable grounds to suspect

7 Subject to section 10.1, every person or entity referred to in section 5 shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or

(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

This is important as the provision of the PCMLTFA (the section number) is what’s listed in the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, where potential penalties are defined. Violations of Section 7 of the PCMLTFA are considered “very serious”. In turn, a “very serious” violation can lead to a penalty of up to $500,000 – for each instance.

If you’re a quantitative type quietly working out the rough number of fraud cases that your reporting entity has had recently, multiplying by $500,000, and feeling a bit nervous, you are not alone.

What’s Next?

While guidance and policy interpretations do not carry the force of law, this is often a distinction without a difference. Might a reporting entity take an appeal to federal court and win? Perhaps…though under the existing rules, that reporting entity’s name will be published (required where the violation is considered to be “very serious”), which for some reporting entities would have significant consequences, including the loss of vital banking partner relationships. Further, the cost of competent representation in a federal appeal process is well beyond the means of most small and mid-sized reporting entities.

Industry associations will, no doubt, continue to lead important conversations with FINTRAC and seek clarification for their members.

In the meantime, for most Canadian reporting entities, the most pragmatic decision will likely be to devise internal guidelines that include reporting STRs related to fraud cases.

Need a Hand?

If you want to make updates to your compliance program to reflect this new policy interpretation, or assistance with Canadian AML generally, please contact us.

FINTRAC Alert – Laundering the Proceeds of a Romance Scam

Quick Overview

On April 11th, 2019, FINTRAC published an Operational Alert issued in part with the Canadian Anti-Fraud Centre.  The information provided related to laundering the proceeds of romance scams and mass marketing fraud. The publication provided an explanation of what constitutes a romance scam, some common indicators that may be present and transaction patterns or flow of funds that may suggest fraud.

What Does it Mean?

The suspicious indicators provided by FINTRAC list circumstances or activities that might signal potential cases of individuals caught in a romance scam or the subject of a mass marketing fraud.  This does not mean that if one or more of the indicators are present that the transaction is definitely suspicious and must be reported to FINTRAC. It is meant to ensure that you are aware of the potential that suspicious activity may be taking place.  In that context, if you are involved in customer’s transactions, whether on the front lines or in back office, you must be aware of the indicators in the alert.  If you do encounter a transaction that may be considered unusual, you should attempt to collect additional information that will aid in the Compliance Officer’s decision to report it or clearly document why it was not considered suspicious. Where the Compliance Officer makes the decision to report the transaction to FINTRAC as suspicious, be sure to include “Project CHAMELEON” or “#CHAMELEON” in Part G—Description of suspicious activity in the STR. This will help to facilitate FINTRAC’s disclosure process.

What Now?

In order to ensure familiarity for anyone who interacts with customers and their transactions, the list of FINTRAC’s indicators should be included in your ongoing AML compliance training program.  Furthermore, the indicators should also be included in your procedure manuals, allowing easy access to the information.  Finally, the indicators should be incorporated into your Risk Assessment documentation.  Specifically, when determining customer risk and the controls used to effectively mitigate potential risks.

We’ve made it easier for you to integrate this content into your program by putting the indicators in a Word document for you.

Need a Hand?

Outlier has taken the list of indicators provided by FINTRAC and formatted them into an easy to use Microsoft Word document, which can be found here.  This should allow companies to easily update their documentation and ensure they are sufficiently monitoring for potential instances of romance scams or mass marketing fraud. If you aren’t sure what to do with this information and would like some assistance, 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.


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 or by using the online form.

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