On December 21, 2011, the Canadian government released its consultation paper Strengthening Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime (Consultation Paper), which contains proposals to strengthen the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act).
Several of the proposals relate to emerging payment technologies, and the timing of these proposals appears intended, in part, to correspond with the forthcoming release of the report of the Task Force for the Payments System Review.2 If implemented, these proposals would have a significant impact on the payments and cards industry in Canada. All industry participants, including retailers and telecommunications providers that are not currently subject to the Act, should seriously consider submitting comments on these proposals before the expiry of the comment period on March 1, 2012.
Overview of Key Proposals
To keep up with emerging payment technologies, the government is examining ways to mitigate the money-laundering and terrorist-financing risks posed by prepaid access. Prepaid access encompasses a range of payment technologies, from prepaid cards (such as retail gift cards or open-loop prepaid cards that can be used to withdraw funds from ATMs) to mobile payment devices. A financial product is considered prepaid access if it allows customers to load funds onto a product that can then be used for purchases and, in some cases, access to cash or person-to-person transfers. Prepaid access does not include credit or debit products. Prepaid access devices pose a risk because they are sold by a wide range of businesses, not all of which are subject to reporting requirements under the Act; these devices offer anonymity, which makes the origin of the funds difficult to trace; and they facilitate the transportation of large monetary amounts by enabling significant sums of money to be loaded onto a single prepaid card.
The government is considering whether to extend customer identification and due diligence (CDD) requirements to prepaid access devices. It is also seeking views on which types of prepaid access devices should or should not be covered and views on who should bear the responsibility for the various CDD requirements (that is, who among the several parties involved in providing prepaid cards, e.g., financial institutions, payment networks, program operators and retailers). The government is also seeking views on the operational impacts for reporting entities.
Record of Signing Authority
In a further effort to keep up with emerging technologies, the government is proposing to review the requirement that reporting entities maintain an account holder’s handwritten signature card, or electronic image of a handwritten signature, for record-keeping purposes. The government is requesting industry views on this issue, including clarification on what kind of technological information the reporting entities would propose to maintain when electronic means are used to establish an account holder’s authority to give instructions regarding an account. The government also wants to find out how a reporting entity would provide another reporting entity with a copy of a client’s signature card if a client has consented for that information to be shared.
Non–face-to-face Customer Identification Measures for Credit Card Companies
With more and more Canadians preferring cellular phone service to land lines, the current non–face-to-face identification measure permitting reliance on a telecommunications directory is becoming less effective. The government is seeking industry views on other types of third-party sources currently being used by credit card companies to assess account applications; it also wants to know whether these sources could be considered an alternative to the telecommunications directory. Further, it would like to know why financial institutions have not established a process to confirm directly to another financial intermediary that a client maintains a deposit account with that institution.
Cross-Border Monetary Instruments/International Electronic Funds Transfer Thresholds
The government is also seeking views on expanding the definition of “monetary instruments” under the Act to include prepaid card and mobile devices, and views on reducing the $10,000 reporting threshold for monetary instruments being carried across the border and international electronic fund transfers. This raises issues such as how border services officers could identify and determine the value of prepaid access products such as prepaid cards. It also raises privacy considerations.
For further details, please see the Consultation Paper.