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2019 AML Updates for Credit Unions

Background

On July 10th, 2019 the final amendments to Canada’s anti-money laundering (AML) regulations, were published in the Canada Gazette.  Many of the changes are based on requirements set out by the Financial Action Task Force (FATF), an inter-governmental body that sets out international standards for combating money laundering and terrorist financing, as well as from certain amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) made through the Economic Action Plan 2014 Act, No. 1 and the Budget Implementation Act, 2017, No. 1.

For those that prefer to see the updates in context, we have created unofficial red-lined versions of the regulations, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the changes. There are three different “coming into force” dates that should be noted:

  • June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
  • June 1, 2020: changes related dealers in virtual currency (which do not directly apply to Credit Unions).
  • June 1, 2021: all other regulatory amendments.

Updated guidance from FINTRAC is expected to be seen ahead of the coming into force dates. Given the legislative changes, there will be adjustments to various FINTRAC policy interpretations so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you borrow content that we wrote and published publicly, we may think you’re a jerk but we’re not sending an army of lawyers).

What Does This Mean For Your Credit Union?

Changes to Canada’s AML regulations will have a direct impact on a Credit Union’s AML obligations, including the following:

  • Reporting;
  • Record keeping; and
  • Member identification.

Many changes will require adjustments in your IT systems to ensure that all necessary information is available to be included in FINTRAC reports, particularly those involving online transactions. If you’re not sure where to start please feel free to contact us. From a practical standpoint, while you do have some time to update your AML program, it is best to start budgeting and planning now.  It may also be prudent to discuss changes with your board of directors as well.

FINTRAC Reporting

This round of changes to AML regulations has a much greater focus on reporting including changes to the information that will need to be included in various reports. We have summarized the applicable changes below.

Certain reports will require information that was not originally included. These changes include information such as:

  • Purpose of transaction;
  • Source of cash or source of funds;
  • For online transactions:
    • Type of device used by person who makes request;
    • Number that identifies device;
    • Internet Protocol address used by device;
    • Person’s or entity’s user name; and
    • Date and time of when a person makes a request.

While most of these fields are mandatory, where fields are marked as optional, if an entity has the information (this may mean in the background of your IT systems), it is expected that it be included in the report. For full details on what has changed for FINTRAC report fields, we have created an unofficial redline which can be found here.

All changes related to reporting come into force on June 1, 2021.

STR Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC. The timeframe for submission was within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amend this to “as soon as reasonably practicable after measures have been completed to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing.”

This means that a report will be due shortly after a reporting entity has conducted their analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations and this should include a step in the process that clearly identifies when a determination is made that establishes reasonable grounds to suspect the transaction is related to money laundering or terrorist financing. A defined time for what “as soon as reasonably practicable” means should be documented as well to ensure reports are completed and submitted on time. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change (or clarification), related to Terrorist Property Reports, has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

EFT Reporting

The definition of an EFT has changed with the amended regulations and reads as such:

An electronic funds transfer means the transmission by any electronic, magnetic or optical means of instructions for the transfer of funds, including a transmission of instructions that is initiated and finally received by the same person or entity. In the case of SWIFT messages, only SWIFT MT-103 messages and their equivalent are included. It does not include a transmission of instructions for the transfer of funds:

    1. that is carried out by means of a credit or debit card or a prepaid payment product if the beneficiary has an agreement with the payment service provider that permits payment by that means for the provision of goods and services;
    2. that involves the beneficiary withdrawing cash from their account;
    3. that is carried out by means of a direct deposit or a pre-authorized debit;
    4. that is carried out by cheque imaging and presentment;
    5. that is both initiated and finally received by persons or entities that are acting to clear or settle payment obligations between themselves; or
    6. that is initiated or finally received by a person or entity referred to in paragraphs 5(a) to (h.1) of the Act for the purpose of internal treasury management, including the management of their financial assets and liabilities, if one of the parties to the transaction is a subsidiary of the other or if they are subsidiaries of the same corporation.

The definition now includes instructions initiated and received by the same person or entity, which means certain internal transfer transactions may be caught.

Also related to EFT reporting, the final amendments removes the language commonly known as the “first in, last out” rule. This means that the first person/entity to ‘touch’ the funds for a transaction incoming to Canada, or the last person/entity to ‘touch’ the funds for a transaction outgoing from Canada, had the reporting obligation (as long as the prescribed information was provided to them). The update will change the reporting obligation to whoever maintains the customer relationship.

Large Virtual Currency Transaction Reporting

If you plan to conduct transactions involving virtual currencies such as bitcoin, you will be required to report the receipt or the sending of amounts of CAD 10,000 or more in a virtual currency to FINTRAC. These basically are the same as Large Cash Transaction reporting obligations, including making a determination if the person from whom the virtual currency is received is acting on behalf of a third party, and will require reporting entities to maintain a Large Virtual Currency Transaction Record.

Most of the recordkeeping requirements for virtual currency are very similar to Large Cash Transaction requirements.

The 24-Hour Rule

Multiple transactions performed by, or on behalf of, the same customer or entity, or are for the same beneficiary, within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. This would mean that only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. If you use software to automatically detect these types of transactions, you should begin discussions with your IT department or software provider to determine the time and resources that will be required to update the detection process.

For example, currently, a Large Cash Transaction Report must be submitted either for single transactions of CAD 10,000 (or more), or for multiple transactions of less than CAD 10,000 each that add up to CAD 10,000 or more in a 24-hour period. This can result in situations where two reports are filed for transactions taking place in a 24-hour period.

Cash deposit of CAD 12,000 – LCTR #1 for CAD 12,000
Cash deposits of CAD 5,000 and CAD 6,000 – LCTR #2 for CAD 11,000

Using the same example, under the new rules we would have:
Cash deposits of CAD 12,000, CAD 5,000 and CAD 6,000 – Single LCTR for CAD 23,000

We can expect to see guidance from FINTRAC ahead of the enforce date. If you have questions prior to this,  it is possible to write to FINTRAC to request a policy interpretation.

Compliance Program

In addition to the process changes, including reporting changes discussed above, there are some other changes that you will need to make to your compliance program.

Training

The amended regulations have introduced a new requirement to institute and document a plan for ongoing compliance training.  This differs from the current requirement to develop and maintain a written training program.

In practice, this means that in addition to documenting all of the training that has already been completed, you will need to clearly document future training plans. Be sure staff is receiving training on process changes that are applicable to their roles.

Risk Assessment

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. The final amendments require all reporting entities to assess the risk related to products and their delivery channels, as well as the risk associated with the use of new technologies, prior to public release.

This has been a best practice since the requirement to conduct a risk assessment came into force, but this change makes this a formal requirement. This will require strong communication and closer cooperation between compliance officers and teams involved in the development of new products or services.

Records of Reasonable Measures

The requirement to keep records related to reasonable measures to obtain certain information, has been removed with this round of changes. It is important to note that credit unions must still take reasonable measures and it is only the requirement to keep a record of the measures used that has been repealed. 

Identification

The range of identification methods that can be used will be broadened. This is good news, especially for credit unions that are using identification methods for members who are not physically present.

Prior to this round of changes, there was a requirement that when members are identified, the document and/or data that you collect must be in its “original” format. The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic”, valid and current. This would allow for scanned copies of documentation, and/or for software that can authenticate a person’s identification document. This change came into force on June 26, 2019.

Other changes to the identity verification requirements are as follows:

  • For credit file verification (single source), the credit file information must now be derived from more than one source (i.e. cannot contain only one trade line on the credit file);
  • For the dual source method, when relying on a credit report as part of a dual source, the credit file must have been in existence for at least six months. Additionally, the person or entity that is verifying the information cannot be a source (i.e. you cannot be a tradeline of the credit file).

In addition, there are provisions that allow a credit union to rely on the identification conducted previously by other reporting entities. If this method is used to identify a member, the credit union 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 as soon as feasible.

If you have members that are publicly traded trusts, credit unions will be required to obtain names and addresses of all persons who own or control, directly or indirectly, 25% or more of the units of the trust.

Politically Exposed Persons (PEPs)

The amended regulations add some new requirements related to PEPs, which are as follows:

  • You must obtain the “source of wealth” of a PEP; and
  • If a PEP is a head of an international organization, the person will continue to be treated as a PEP for five years after they have held the position.

This change comes into force on June 1, 2021, and will likely result in IT system changes related to record keeping and monitoring.

Prepaid Products

If you offer Prepaid Payment Products, the amended regulations now include new obligations for prepaid cards that are issued by financial entities. The obligations are similar to those that apply to regular member accounts, and comes into force on June 1, 2021.

The regulations apply to any prepaid payment product that is tied to an account, that permits funds or virtual currency that total CAD 1,000 or more to be added to the account within a 24-hour period, or where a balance of CAD 1,000 or more will be maintained.

Records that will have to be maintained are as follows:

  • a record of the name and address of each holder of a prepaid payment product account and each authorized user, the nature of their principal business or their occupation and, in the case of a person, their date of birth;
  • if an account holder is a corporation, a copy of the part of its official corporate records that contains any provision relating to the power to bind the corporation in respect of the prepaid payment product account or the transaction;
  • a record of every application in respect of the prepaid payment product account;
  • a prepaid payment product slip in respect of every payment that is made to the prepaid payment product account;
  • every debit and credit memo that it creates or receives in respect of the prepaid payment product account;
  •  a copy of every account statement that it sends to a holder of the prepaid payment product account; and
  • a foreign currency exchange transaction ticket in respect of every foreign currency exchange transaction that is connected to the prepaid payment product account.

There are also record keeping obligations where an international electronic funds transfer of CAD 1,000 or more has been conducted through the prepaid product. Additionally, a prepaid payment product slip, similar to a deposit slip, must be maintained.

Similar to member accounts, you will also have to keep account applications and any foreign currency transaction information related to the prepaid product. A PEP determination is to be made when the prepaid product account is opened, and when a payment of CAD 100,000 or more is made to a prepaid product account.

We’re Here To Help

If you would like assistance in updating your compliance program and/or processes, or have any questions related to the changes, you can get in touch using our online form on our website, by emailing info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

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 anti-terrorist financing (ATF) 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 & ATF compliance generally, please feel free to contact us.

Proposed AML Updates for Credit Unions (2018)

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

On June 9, 2018, draft amendments to Canada’s AML regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) were published in the Canada Gazette.

These changes are not yet in force, and are open to public comment until September 9, 2018.

They will come into effect 12 months after the finalized amendments are published (date to be determined).

The proposed changes are based on requirements set out by the Financial Action Task Force (FATF), an inter-governmental body that sets out international standards for combating money laundering and terrorist financing, as well as from certain amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) made through the Economic Action Plan 2014 Act, No. 1 and the Budget Implementation Act, 2017, No. 1.

From a practical standpoint, you should consider what changes will be required to your record keeping, reporting processes, and IT systems once the amendments come into effect, and what resources would be required. It would be prudent to discuss this with your board of directors as well. While it can be useful to start allocating resources (particularly if your IT systems need to be updated), it makes sense to wait until the final version of the changes has been published.

If you have thoughts on the proposed changes, you should consider submitting these either directly to the Ministry of Finance, or through your Credit Union Central.

Why Do These Changes Matter to Credit Unions?

The proposed changes will have a direct impact on a Credit Union’s AML obligations, including reporting, record keeping, and member identification. They will require additional training of staff, changes to record keeping and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reporting processes. They will likely require changes in your IT systems to ensure that all necessary information is available to be included in FINTRAC reports, particularly those involving online transactions.

FINTRAC Reporting

This round of changes to AML regulations has a much greater focus on reporting, including shorter a deadline for reporting STRs, changes to the contents of the reports themselves changes to calculation of 24 hour large cash reports, and the introduction of new reporting requirements for transactions involving virtual currencies such as bitcoin.

STR Filing

The proposed changes will shorten considerably the filing period for a Suspicious Transaction Report. The current filing deadline for STRs is within 30 days:

“after the day on which the person or entity or any of their employees or officers detects a fact respecting a financial transaction or an attempted financial transaction that constitutes 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 will be changed to a new standard of 3 days:

“3 days after the day on which the reporting entity completes the analysis that establishes that there are reasonable grounds to suspect that the transaction was related to the commission of a money laundering or terrorist activity financing offence”

Report Contents

Many additional pieces of information will be required to be collected and submitted to FINTRAC. You should begin to evaluate where this information is stored (ex: banking system, other databases such as lending software, reports provided by your banking system provider or Credit Union Central, or paper file).

A comparison of current and proposed FINTRAC report fields can be found here: Download Table

These changes include information that was not previously required to be collected by credit unions, such as:

  • “Purpose of transaction” (for LCTRs),
  • “Purpose of electronic funds transfer” (for EFTRs), and
  • Source of cash or source of funds.

For transactions that are performed online, additional fields will be required in EFTRs and STRs:

  • Type of device used by person who makes request online,
  • Number that identifies device,
  • Internet Protocol address used by device [mandatory field],
  • Person’s user name, and
  • Date and time of person’s online session in which request is made [mandatory field].

Additional “Know Your Client” information will be required in all reports (if on file). A selection follows:

  • Personal accounts: reports will include fields for alias, e-mail address, and name, address and phone number for the member’s employer.
  • Business accounts: reports will include fields for type and number of document or information used to identify an entity, information respecting ownership, control and structure of the entity, name of each beneficial owner, name, address, e-mail address and phone number for each director.
  • Trust accounts: reports will include fields for name, address, e-mail address and phone number of each trustee, name and address of each settlor of trust, name, address, e-mail address, and telephone number of each beneficiary of trust.

The 24-Hour Rule

The formula for calculating 24 hour reports for Large Cash Transaction Reports is being changed. If you use software to automatically detect these types of transactions, you should begin discussions with your IT department or software provider to determine the time and resources that would be required to update the detection process.

Currently, a Large Cash Transaction Report must be submitted either for single transactions of $10,000 (or more) or for multiple transactions of less than $10,000 each that add up to $10,000 or more in a 24 hour period. This can result in situations where 2 reports are filed for transactions taking place in a 24 hour period.

For example:

 

Cash deposit of $12,000 cash – LCTR #1 for $12,000

Cash deposits of $5,000 and $6,000 cash – LCTR #2 for $11,000

The new calculation will consider all cash deposits that add up to $10,000 or more in a 24 hour period to be included in a single report.

 

Using the same example above, under the new rules we would have:

Cash deposits of $12,000, $5,000 and $6,000 – Single LCTR for $23,000

Virtual Currency Reporting

If you offer (or plan to offer) accounts that hold virtual currencies such as bitcoin, you will be required to report the receipt or the sending of amounts of $10,000 or more in a virtual currency to FINTRAC in two new report types; “Report with Respect to Receipt of Virtual Currency” and “Report with Respect to Transfer of Virtual Currency.”

Third Party Determinations

Similar to the existing requirement to conduct a Third Party Determination during an LCTR, you will need to make a similar determination when you are required to report an incoming Electronic Funds Transfer or Receipt of Virtual Currency.

If you have separate fraud and AML teams, it may be worth considering whether or not the AML team should alert the fraud team to third parties, particularly where these don’t make sense, or where it appears that your member may be a victim of fraud.

Training Program

The amended regulations have introduced a requirement to institute and document a plan for ongoing compliance training. This differs from the current requirement to develop and maintain a written training program.

In practice, this means that in addition to documenting all of the training that has already been completed, you will need to clearly document future training plans.

Risk Assessment Updates

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 credit unions 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. This may require closer cooperation between compliance officers and other teams involved in the development of new products or services.

Identification Methods

The range of identification methods that can be used will be broadened. This is good news, especially for credit unions that are using non-face-to-face identification methods.

Currently, there is a requirement that when members 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 member 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 a credit union to rely on the identification conducted previously by other reporting entities. If this method is used to identify a member, the credit union 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.

Public Comments

Public comments about the proposed changes will be accepted by the Ministry of Finance until September 9, 2018. They must be submitted in writing, as follows:

Attention: Lisa Pezzack

Director General, Financial Systems Division

Department of Finance

90 Elgin Street

Ottawa, Ontario, K1A 0G5

Email: fin.fc-cf.fin@canada.ca

If you have thoughts on the proposed changes, you should consider submitting these either directly to the Ministry of Finance, or through your Credit Union Central.

Need a Hand?

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 vCAMLO or Outlier.

 

Canada’s 2017 Budget & PCMLTFA Updates

Greetings fellow compliance geeks!

As you may know, Canada’s latest budget bill contains a number of amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). We’ve created a marked up version of the PCMLTFA to help you work through and understand the changes, and you can access it using the link below with this caveat: you are welcome to use and share this markup, but you may not charge money for access to it. Information should be free.

Yes, I get it, give me access!

If you prefer a copy of the markups in Microsoft Word, please contact us.

Analysis Notes

The biggest takeaway from these amendments is related to section 5 (e.1), which adds “trust companies incorporated or formed by or under a provincial Act that are not regulated by a provincial Act” as being federally regulated entities. This has been a loophole in Canadian legislation for a long time, and was called out in Canada’s most recent mutual evaluation by the Financial Action Task Force (FATF). If you’re company falls into this category, it’s time to start thinking about anti money laundering (AML) compliance. If you have business arrangements (clients, suppliers, etc.) that are unregulated provincial trusts, there are a few early steps that you might want to consider:

  • Re-assess the AML risk that these provincial trust companies pose;
  • Reach out to ask if they have a Compliance Officer and an AML program (in some cases, you will be pleasantly surprised); and
  • Consider whether or not additional controls are required to mitigate the risk posed.

The additional information that’s changing includes a lot of items that most us would consider housekeeping, like changing foreign country to foreign state in a number of places, and adding bullet points to what is considered “prescribed information:”

  • the name, address, electronic mail address and telephone number of every trustee and every known beneficiary and settlor of a trust referred to in paragraph (a);
  • the name, address, electronic mail address and telephone number of each person who owns or controls, directly or indirectly, 25 % or more of an entity referred to in paragraph (a), other than a trust; and
  • information respecting the ownership, control and structure of an entity referred to in paragraph (a).

The only piece there that will be new (at least in terms of requirements) is the “electronic mail address” (email) for beneficial owners. If you’re not already collecting this information, it’s time to think about how to get started. If you’re collecting the email address, but its optional, consider making it a required field.

The modifications also give the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) the ability to share information with the Department of National Defence and the Canadian Forces where there are reasonable grounds to believe that there is a threat. Presumably, this would include contexts like a terrorist attack on Canada. It’s somewhat surprising that this was not already in place.

There have also been changes to the things about which “the Governor in Council may, on the recommendation of the Minister, make any regulations that the Governor in Council considers necessary for carrying out the purposes and provisions of this Act, including regulations…” These are interesting in thinking about what may be next in line for additional regulation:

  • respecting dealing in virtual currencies;
  • respecting the keeping of records referred to in section 6;
  • respecting the verification of the identity of persons and entities referred to in section 6.1; (d) respecting the reports to the Centre referred to in section 7 and subsections 7.1(1) and 9(1);
  • respecting the determination of whether a person is a person described in any of paragraphs 9.3(1)(a) to (c);
  • respecting the measures referred to in subsections 9.3(2) and (2.1);
  • respecting the measures referred to in subsection 9.4(1);
  • respecting the program referred to in subsection 9.6(1);
  • respecting the special measures referred to in subsection 9.6(3);
  • respecting the registration referred to in sections 11.1 to 11.2;
  • respecting the reports referred to in subsection 12(1); and
  • prescribing anything that by this Act is to be prescribed.

The only truly interesting point here is dealing in virtual currency, which also came up in Bill C-31 which passed in 2014. This bill, also called the Economic Action Plan 2014 Act, No. 1, has not been fully implemented. Some of its provisions (including those specifically related to including dealing in virtual currency under the definition of money services businesses) are also being amended. In the markups, these changes are highlighted in blue rather than in yellow to distinguish between the two.

Finally, there is a change to the definition of a head of an international organization. This one seems a bit nitpicky to me, but if you’re in the process of updating your documentation for the changes that are coming into force in June of this year, you might want to consider this as well. Head of an international organization (HIO) means a person who, at a given time, holds — or has held within a prescribed period before that time — the office or position of head of an international organization that is established by the governments of states or the head of an institution of any such organization.

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If you have questions about these changes, the changes coming into force in June of this year, or AML compliance in general, please contact us.

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