Recently, the House of Common’s Standing Committee on Finance released its report titled, “Confronting Money Laundering and Terrorist Financing: Moving Canada Forward” (the “Report”). The Report was released pursuant to the Standing Committee’s mandate under Standing Order 108(2), which directed the Committee to study the Proceeds of Crime (Money Laundering) and Terrorist Financing Act1 (“PCMLTFA”) and was issued pursuant to the consultation paper issued earlier in this year in respect of the PCMLTFA (the “Consultation Paper”).
Accordingly, the Standing Committee on Finance provided the following recommendations to the Government of Canada.
Beneficial Ownership and Politically Exposed Persons
The Report recommends that the Government of Canada work with provinces and territories to create a pan-Canadian beneficial ownership registry for all legal persons and entities, who have at least a 25% total share ownership or voting rights, and amend the PCMLTFA to require all reporting entities to identify beneficial owners, determine if their customers are politically exposed persons or are associated with any, and prohibit opening accounts or completing financial transactions until beneficial ownership has been ascertained. It also recommended that the Government consider prohibiting or licensing nominee shareholders.
With respect to politically exposed person, the Report recommended clarifying the statutory definition of “politically exposed persons” and move to a risk-based model of compliance for “politically exposed persons”.
Expansion of Scope of the PCMLTFA
The Consultation Paper raised the issue of whether the scope of the PCMLTFA should be expanded. The Report recommends the following expanding the scope as follows:
- Legal professionals and other professionals - The legal profession should be brought within the scope of the PCMLTFA, subject to constitutional limitations, to ensure that lawyers are subject to the Canadian standards set by PCMLTFA protect against money laundering and terrorist financing. The Report also recommends adopting a similar model to the UKs Office of Professional Body Anti-Money Laundering supervision (including with respect to Canadian self-regulated professions).
- Armoured cars and white label ATMs - The PCMLTFA should be to ensure that armoured cars and white label ATMs are subject to the AML/ATF regime.
- Real estate - The PCMLTFA should be amended to extend the requirements for real estate brokers, sales representatives and developers to mortgage insurers, land registry and title insurance companies.
- Sellers of luxury items – The PCMLTFA should be amended to make companies selling luxury items to be subject to reporting requirements.
Exchange of Information and Privacy
The Report also included a number of recommendations relating to the sharing and exchange of information, and privacy matters. Namely, the Report recommended the following:
- Amending privacy laws to allow regulators to examine the professional record of conduct of security dealers and their employees;
- Amending the Privacy Act to better facilitate money laundering investigations and provide more resources to law endorsement and prosecutors in the AML/ATF contexts;
- Determining whether the “third agency rule”2 would assist in investigating/detecting money laundering and terrorist financing in Canada; • Establish a round table partnership with industry leaders who are investing in technology that tracks suspicious activities;
- Consider emulating the UK’s model of a Joint Money Laundering Intelligence Taskforce in Canada; and
- Consider tabling legislation that would allow the sharing of AML/ATF information between federally regulated financial institutions, provided that Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) is notified at each occurrence.
The Report also considered the issue of de-risking and recommended that the Government of Canada implement necessary requirements to banking to determine a “low-risk threshold”. This follows from witnesses of the report who highlighted the trend of certain financial institutions ending their relationships with money services businesses because of the perceived added risks of anti-money laundering that these entities can attract. Witnesses of the report stated that increased information sharing between reporting entities could lead to more de-risking from institutions as they seek to protect their financial interests, leading to the recommendations on information sharing noted above. These Report also urged for more consideration and due diligence when considering potential customers for banking services, instead of outright de-risking or denial.
Strengthening Intelligence Capacity and Enforcement
The Report also included recommendations aimed at strengthening the capacity and enforcement powers of FINTRAC, namely recommendations to:
- Expand the FINTRAC mandate to provide greater focus and powers;
- Amend the Criminal Code to better facilitate money laundering investigations and provide more resources to law endorsement and prosecutors in the AML/ATF contexts;
- Amend the PCMLTFA to enable law enforcement agencies to utilize geographic targeting orders;
- Consider giving holders of bearer shares a fixed period to convert them to registered instruments;
- Make it a criminal offence for an entity or individual to structure transactions to avoid reporting requirements; and
- Partner with provinces and territories to develop a national view of AML.
Casinos and Gaming
The Report included a number of recommendations targeted to the casino and gaming industry, namely recommendations to:
- Expand FINTRAC oversight to ensure that all gaming operators and their employees are trained in anti-money laundering legislation;
- Establish an information sharing regime through FINTRAC and provincial gambling authorities to increase the accuracy of reporting; and
- Enhance the direct reporting system of casinos to FINTRAC.
The Report also recommended that:
- Crypto-exchanges be regulated at the point that fiat currency is converted, classifying them as money service businesses at such point;
- A regulatory regime for crypto-wallets should be established to ensure that proper identification is required, and that true ownership of wallets is known to the exchanges and law enforcement; and
- Licensing regime should be established for crypto-exchanges modelling the State of New York’s current regime, i.e. the “BitLicense”.
The Report recommended that the Government update reporting regulations for financial institutions to include bulk online purchasing of store gift cards or prepaid credit cards.
Suspicious Activity Reporting
The Report recommended that the Government:
- Clarify directions and streamline the reporting structure of Suspicious Transaction Reports; and
- Change FINTRAC’s Suspicious Transaction Report to resemble the Suspicious Activity Reports used in the UK and US.
If these recommendations come into force, the current AML/ATF regime could be significantly expanded. Businesses operating in the affected industries, in particular those in financial services, gaming and cryptocurrency, as well as those in industries proposed to be brought within the scope of the PCMLTFA, should monitor these developments closely.