The National Initiative to Combat Money Laundering was launched in 1999 as part of the government’s ongoing effort to combat money laundering in Canada. Following the events of September 11, 2001, the initiative was expanded to include the fight against terrorist financing and has since been called the Anti-Money Laundering and Anti-Terrorist Financing Regime (the Regime).
The foundation of the Regime was built on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and its three sets of Regulations which were brought into force between 2001 and 2003. Under the Act, a specialized agency called the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) ensures compliance by collecting, analyzing and disclosing financial information and intelligence on suspected money laundering and terrorist financing activities. FINTRAC is authorized to disclose information to law enforcement and national security agencies but it acts at arm’s length from them.
The Act requires financial institutions, financial intermediaries, insurance companies, security dealers, foreign exchange dealers, money service businesses and others to keep record of and report certain types of transactions.
Bill C-25 Enhancements to the Regime
In order to keep Canada in line with new developments in international standards relating to money laundering and terrorist financing, the Department of Finance published a consultation paper in June 2005 that proposed several measures to enhance the Regime. In October 2006, the Minister of Finance tabled Bill C-25, which proposed the necessary amendments to the Act and Regulations and introduced two additional Regulations.
On June 27, 2007, the first set of amendments to the existing Regulations was published, introducing new client identification, record-keeping and transaction reporting requirements. In addition, new Registration Regulations were published. On December 26, 2007, the second set of amendments to the Regulations was published, bringing additional entities under the ambit of the Act. Also on this date, new Administrative Monetary Penalties Regulations were published which will come into force on December 30, 2008.
Below is a summary of some of the changes made to the Act and Regulations. Changes are either already in force, or will come into force on June 23, 2008; December 30, 2008; February 20, 2009 or September 28, 2009.
Changes Under the Act and Regulations
Application of the Act and Regulations
The amendments bring four additional business and professional sectors within the scope of the legislation: notaries public in British Columbia, dealers in precious metals and stones, real estate developers and lawyers.
With respect to lawyers, record-keeping and client-identification requirements will apply. However, in order to maintain client confidentiality, the reporting portions of the Act will not apply to lawyers providing legal services.
Record-Keeping, Reporting and Registration
As of June 23, 2008, entities under the Act must develop methods for undertaking risk assessments to identify and assess the risk that clients could use their services to facilitate money laundering or terrorist financing activities. Entities must also develop methods for ascertaining the identity of a client whenever there are reasonable grounds to suspect that a transaction is linked to money laundering or terrorist financing.
Furthermore, entities under the Act will be required to report not only suspicious transactions, but also suspicious attempted transactions. Suspicious transaction or attempted transaction reports must be kept for a period of five years.
Entities under the Act will also be required to monitor “politically exposed foreign persons” and must keep records of transactions involving such clients. For example, financial entities who determine that a politically exposed foreign person has a new or current account with them must take reasonable measures to establish the source of funds deposited, obtain the approval of senior management and conduct enhanced ongoing monitoring activities.
Finally, the establishment of a new registration system requires all persons and entities engaged in foreign exchange dealings and money services businesses to register with FINTRAC.
As of February 20, 2009, real estate developers will be required to put in place policies and procedures to ensure that they fulfil requirements under the Act. These include policies and procedures to address client identification, record keeping and, if applicable, reporting requirements. As of September 28, 2009, casinos, which are currently required to ascertain the identity of their clients when they disburse $10,000 or more in cash and to keep records, will also be required to report large disbursements to FINTRAC.
Bill C-25 and its related Regulations broaden the range of information that FINTRAC may disclose to law enforcement and national security agencies. The designated information that FINTRAC can provide in a case disclosure will now include:
- attempted transactions;
- any person or entity involved in importation or exportation transactions;
- the name, address, e-mail address and telephone number of each partner, director or officer of an entity involved in transactions;
- the fact that any persons or entities involved in transactions have relevant criminal records or charges;
- relationships between any persons or entities suspected on reasonable grounds to be involved in transactions and any other persons or entities;
- the fact that any persons or entities involved in transactions have a financial interest in the entity on whose behalf the transaction was made;
- the person whom FINTRAC suspects on reasonable grounds of directing the suspected money laundering or terrorist financing;
- the grounds on which a person or entity made a suspicious transaction report;
- the number and types of reports on which a disclosure is based;
- the number and categories of persons or entities who made the reports;
- the indicators relied upon by FINTRAC to justify a disclosure;
- the type of account involved in a financial transaction; and
- the name and address of all persons authorized to act in respect of the account.
Entities under the Act that do not comply with the Act and its Regulations are currently subject to criminal penalties and convictions that could result in a sentence of up to five years in prison, a maximum fine of $500,000, or both.
Under the new Administrative Monetary Penalties Regulations, which are to come into force on December 30, 2008, violations are classified into one of three categories: minor, serious and very serious. Maximum penalty amounts are specified for each category of violation as it relates to persons or entities. The maximum amount that can be imposed under the administrative monetary penalty scheme for violations classified as very serious is $500,000 for an entity and $100,000 for an individual. The scheme is intended to allow for penalties that are in proportion to the violation, leading to improved compliance with the Act.