On March 26, 2020, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) issued a message for reporting entities (REs) subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
While FINTRAC indicated that REs are expected to meet all of their obligations, FINTRAC acknowledges that certain financial institutions may have to reassign and reprioritize their internal resources in response to the COVID-19 situation (which in turn could affect their ability to meet certain obligations under the PCMLTFA). As a result, FINTRAC indicates that it will take these challenging circumstances into consideration when it is assessing a RE’s compliance with its anti-money laundering (AML) obligations.
In that respect, the FINTRAC message provides that where a RE’s employees may be affected by COVID-19 impacting a RE’s ability to meet a given obligation, the RE should keep a record indicating why this is the case and include any measures being taken to mitigate the non-compliance risk.
Not surprisingly, FINTRAC indicates that submitting suspicious transaction reports (STRs) should be given the utmost priority, and if a RE is unable to submit reports in the usual fashion, it should notify FINTRAC through a designated e-mail address. FINTRAC also reminded REs that where they are unable to submit timely reports to FINTRAC for reasons beyond their control, they should file voluntary self-declarations of non-compliance, when they are able.
The message from FINTRAC is encouraging. While they expect REs to comply with their obligations under the PCMLTFA, there is an implicit understanding that given the circumstances, full compliance may not be entirely possible in these circumstances. However, REs should not view this as a “carte blanche” opportunity to avoid compliance obligations. Rather, FINTRAC expects REs to keep records of how COVID-19 is impacting a RE’s obligation to comply with the PCMLTFA and where possible, implement mitigating measures to address the deficiency. The filing of STRs should remain a priority for REs and REs should file voluntary declarations of non-compliance when they are able.
In the message, FINTRAC specifically addresses verification of identity and the fact that government offices may be closed for individuals to renew their identity documents (so that they may have expired). In that regard, FINTRAC indicates that until further notice, REs will continue to be required to determine the “authenticity” of a government-issued photo ID document, but until further notice, can consider the document to be valid and current.
As such, if REs are having difficulties complying with their obligations because of how COVID-19 uniquely affects them, the following would be examples of good practices:
Document, document, document. REs should ensure that they have documented internal memos as to the challenges they are facing and why and where compliance measures may be lacking. FINTRAC has indicated that it will take the current circumstances into account when assessing a RE’s compliance with the PCMLTFA. Having said that, a RE will still need to show FINTRAC that it had a challenge, addressed it and documented the how and why. Without having this documented, it will be more difficult to justify non-compliance, especially in light of this published guidance.
Have a follow-through plan. If a RE entity is unable to fulfill its obligations during this unprecedented period, when a semblance of normality resumes, REs who were unable to comply with certain aspects of the AML regime, should have plans on when and how they will remedy the deficiencies. The plan can include targeted dates to obtain missing information and a plan to de-market clients after a certain date if they do not provide information that was required in the normal course.
Risk mitigation measures. Depending on the circumstances, if a client has been onboarded without full “know your client” having been completed, consider treating such clients as high-risk during this “holding period” until full verification can be undertaken.
Prioritize the review of unusual transaction reports and the filing of STRs. From an intelligence perspective, FINTRAC has continually stressed how important the filing of STRs is in allowing it to carry out its mandate. As such, resources should be reallocated during this period to ensure that these obligations continue to be met. FINTRAC will appreciate the effort.
These are unprecedented times for all of us, but protecting Canada’s financial system from being used for money laundering and terrorist financing still should remain a priority for REs.