On January 17, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) updated its guidance on suspicious transaction report (STR) requirements under Canada’s anti-money laundering and anti-terrorist financing (AMLTF) regime. The new guidance covers the following subjects:
A. What Is a Suspicious Transaction Report?
This publication outlines how to identify a suspicious transaction, what an STR is, and the important role that STRs serve in Canada’s AMLTF regime. It includes a useful framework for identifying suspicious transactions and determining whether they trigger the STR threshold. An STR must be filed if there are “reasonable grounds to suspect” that a transaction is related to the commission or attempted commission of a money laundering (ML) or terrorist financing (TF) offence. FINTRAC distinguishes among the following thresholds:
- A “simple suspicion” is a hunch or intuition that ML or TF is occurring. It doesn’t trigger a reporting obligation but could prompt a firm to assess similar transactions to see if there are other facts, context or ML/TF indicators (discussed in more detail below) to confirm the suspicion.
- If a firm, based on its assessment of facts, context and ML/TF indicators, concludes that it is possible that a transaction is related to the commission of ML or TF, then it has “reasonable grounds to suspect” ML or TF, and an STR must be filed.
- “Reasonable grounds to believe” exist when ML or TF probably is occurring, and the firm can present a set of verified facts that can be proven to support this suspicion. A firm need not, and should not, wait until it has a “reasonable grounds to believe” that ML or TF is occurring before it files an STR.
This publication also provides guidance on how FINTRAC assesses, and how firms can assess, their compliance with the STR requirements. FINTRAC suggests that firms consider the following elements, among others:
- Can the firm explain how its process for detecting, assessing and reporting suspicious transactions is reasonable, effective and consistent in light of the firm’s risk assessment?
- Although firms aren’t required to document their rationale for why they didn’t file an STR for an unusual transaction, such records “may be useful in the context of a FINTRAC assessment.” (In other words, expect an uncomfortable FINTRAC audit if you don’t create and retain this documentation.)
- Is the firm continuing to submit STRs for clients in respect of whom the firm has already submitted an STR (unless and until the firm determines that there are no longer reasonable grounds to suspect ML or TF)?
- Is the firm reviewing files to determine, among other things, that filing deadlines are being complied with, that STRs are sufficiently detailed, and that similar transactions are being treated consistently for assessment and STR purposes?
B. Reporting Suspicious Transactions to FINTRAC
This publication provides detailed guidance on how to complete STRs. It describes when a suspicious transaction must be reported, what FINTRAC expects to find in STRs, and how to submit reports using FINTRAC’s secure website F2R. Reports must be filed electronically if you have the capability; otherwise, they can be submitted on paper. Service providers can submit reports on a reporting entity’s behalf, but the reporting entity remains legally responsible for compliance.
This guidance also describes common STR deficiencies to avoid, such as using a higher threshold for reporting (such as “reasonable grounds to believe” that the transaction is related to commission or attempted commission of an ML or TF offence, instead of “reasonable grounds to suspect”), failing to list all of the relevant transactions and accounts, failing to list all parties to the transaction where the information is available, and/or failing to articulate the reasons for determining that there are reasonable grounds to suspect ML or TF.
C. ML and TF Indicators
FINTRAC has published industry-specific guides to ML and TF indicators, including guidance for “security dealers.” FINTRAC expects to see firms use these ML and TF indicators in their STR program but also stresses that these indicators are not an exhaustive list to support all suspicious scenarios.
FINTRAC emphasizes the importance of considering facts, context and ML/TF indicators when assessing a suspicious transaction. It is significant that the new guidance states:
“On its own, a single transaction or ML/TF indicator may not appear suspicious. However, this does not mean you should stop your assessment. Additional facts or context about the associated individual or their actions may help you reach the reasonable grounds to suspect threshold.”
This quote should be read together with the guidance in What is a suspicious transaction report?, which recommends that firms document their reasons for negating suspicions about a transaction. Read together, these guidance documents suggest that firms keep appropriate records of their reasons for not filing an STR in respect of transactions or situations where there is only a single ML/TF indicator present.