Category: Anti-Money Laundering

Potential Extension of FINTRAC Requirements to the Mortgage Industry – There’s no Place Like Home

Registered dealers and advisers are well versed in the AML requirements contained in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The federal Department of Finance has recently released proposed amendments to regulations under the Act that would impact certain non-financial institution entities, including mortgage brokers, mortgage lenders and mortgage administrators.

The proposed amendments are a result of a number of studies and recommendations relating to the increased risk of money laundering in the real estate sector. A number of AML obligations, such as developing a compliance program, gathering prescribed KYC information (including beneficial ownership), keeping records, suspicious transaction reporting and monthly AML reports, would then apply. Penalties similar to those imposed on other sectors would also apply, which would range based on the harm done and the entity’s history of compliance. For example, the range of penalty for a very serious violation would be from $1-$500,000 per violation for an entity.

If adopted, the amendments would come into force 8 months after their publication in the Canada Gazette, Part II. FINTRAC would be expected to release additional guidance specific to the mortgage industry to assist with interpretation of the new requirements. The draft regulations are open for comment until March 20, 2023.

February 28, 2023

Now You See Me: New Ownership Transparency Requirements for Private Ontario Corporations

In the Ontario 2021 Fall Economic Statement the Government of Ontario announced its intention to address tax evasion, money laundering and other illicit financial activities through amendments to the Business Corporations Act (Ontario) (the Amendments). The Amendments will require privately-held Ontario corporations to record the identities and details of all individuals who exercise significant control over those corporations. Corporations that offer securities to the public and their wholly owned subsidiaries will be exempt from these requirements.

The information requirements will apply to an individual (referred to as an “individual with significant control”) who: a) owns, controls or directs 25% or more of the voting shares of the corporation or shares that are worth 25% or more of the fair market value of all outstanding shares of the corporation; or b) has direct or indirect influence over the corporation without owning at least 25% of the shares. A person would also be caught by these requirements if they own or control a significant number of shares jointly with other people.

The information required to be maintained by the corporation of each individual with significant control includes: their name, date of birth and address, jurisdiction of residence for tax purposes, date of becoming or no longer being an individual with significant control, a description of how the person has significant control, and a description of the steps the corporation takes to keep the information current each year. Updates to the information would be needed at least once during each financial year of the corporation and within 15 days of the corporation becoming aware of a change in the relevant information.

The Amendments are to be effective January 1, 2023 and would bring Ontario in line with other Canadian provinces. If you have any questions about the Amendments or how they may impact your business, please contact us.

February 28, 2022

Not Just a Status Update: New AML Requirements Applicable to Portfolio Managers and Dealers

As has been widely reported in the media, the Emergency Economic Measures Order under the Emergencies Act (Canada) had immediate consequences for registered firms. While the use of the Act has now ended, orders such as this one are a good reminder that firms must always be on the lookout for changes to the designated persons list and for new or amended economic sanctions.

Registrants were required under the emergency order to confirm if they were in possession or control of any property owned, held or controlled by a person or entity that was involved in the trucker blockade protests, or those supporting such protests. These persons were referred to as “designated persons” in the order. We understand that the RCMP provided certain institutions with lists of people who would fall within the definition of a “designated person”. In addition to all other AML obligations pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, including potentially the filing of suspicious transaction reports, firms had to screen their client lists against these new names. Certain technology solution-based service providers have uploaded these names to their data bases for name checking purposes. In the event a registrant finds out that they have a designated person as a client, a number of actions could be required, including potentially disclosing the existence of the property to the appropriate authorities.

In addition, on February 22 and February 24 the government announced that it would levy new economic sanctions on Russia as a result of its actions in the Ukraine under the Special Economic Measures (Russia) Regulations. These sanctions include a broad prohibition on persons in Canada from engaging in transactions (including financial dealings) in the specified regions and with the named individuals. We expect further sanctions may follow.

These situations by nature change rapidly and must be watched closely. We frequently help clients with their AML obligations, even if some of them are time-limited in scope. If you have any questions about these or any other AML requirements, please reach out to a member of our team.

February 28 2022

Changes to AML Rules – Effective on June 1, 2021

On June 1, 2021, amendments to the regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act took effect. The amendments to the regulations were accompanied by revised and new FINTRAC guidance dated June 1, 2021. The amendments have the effect of closing gaps in the existing rules and addressing technological developments. Portfolio managers and exempt market dealers should review the revised guidance, consider if their policies and procedures should be updated and consider if their account opening forms should be revised.

By way of example only, the following are certain areas on which portfolio managers and exempt market dealers should focus attention. First, there is a new requirement to report a large virtual currency transaction, which should be reflected in a firm’s written policies and procedures. Second, the scope of the definitions of politically exposed persons and heads of international organizations was changed and there is a new requirement to gather the phone number of anyone uncovered during a third-party determination, which can both impact account opening forms. Finally, there is more prescriptive guidance in respect of beneficial ownership of entities and ongoing monitoring, which could warrant a change in how a firm conducts account monitoring.

June 30, 2021

How Often Should a Registered Firm Conduct Ongoing Monitoring of Their Clients’ Accounts for the Purposes of Complying with Their Anti-Money Laundering (AML) Requirements?

Answer: While it may be considered industry standard to conduct ongoing monitoring annually, FINTRAC allows registrants to determine the frequency with which a registrant will monitor its clients’ accounts. Accordingly, every firm should have policies and procedures that reflect what they have determined to be a reasonable process for conducting ongoing monitoring. In general, the frequency of ongoing monitoring will depend on the types of services provided to the clients, the type of relationship the firm has with its clients, and the risk level of the clients.

Of course, FINTRAC rules can not be viewed in isolation, and registrant firms must also consider the requirements set out in the Client Focused Reforms Amendments to NI 31-103 and Companion Policy 31-103CP (CFR Amendments) relating to know-your-client (KYC) information which come into force at the end of the year. For managed accounts, a review should occur at least every 12 months; if the registrant is an exempt market dealer (EMD), the review should occur within 12 months before making a trade for, or recommending a trade to, the client.  In any other case, reviews are expected to occur no less frequently than once every 36 months.

For any high-risk client, FINTRAC would expect monthly or quarterly monitoring, as well as the close monitoring of all of that client’s transactions.

We recommend that firms make explicit note of the fact that AML information was considered as part of the client’s information update. For more specific guidance regarding what other information should be collected from clients as part of the AML ongoing monitoring requirements, please do not hesitate to contact us.

May 31, 2021

FINTRAC Updates its Guidance on Conducting AML Risk Assessments

One of the five core requirements of a registered firm’s anti-money laundering and anti-terrorist financing (AMLTF) compliance program is to conduct a risk assessment of its business activities and relationships. The business-based risk assessment must assess the risks linked to a registered firm’s business activities and the relationship-based risk assessment must assess the risks linked to the nature and type of business of a registered firm’s clients. During an audit, FINTRAC may review these risk assessments, in part to verify if they consider certain risk factors. The risk assessments are not to be confused with the requirement to complete an independent two-year effectiveness review, which is a separate obligation that must be completed by registered firms every two years.

In January of 2021, FINTRAC published updated risk assessment guidance to include legislative amendments from June 2017 and legislative amendments that will come into force on June 1, 2021.

The key take away for registered firms is that you should review your risk assessments to ensure that the following are included among the risk factors that are considered: new developments, technologies and the activities of any affiliates. Registered firms should review the updated risk assessment guidance and reach out to their usual lawyer for assistance, as applicable. The updated risk assessment guidance can be found here. For any questions, please contact Chris Tooley or a member of our team.

January 29, 2021

Get Ready to Report Suspicious Transactions “As Soon As Practicable”

In July 2019, we reported that the Canadian Government had finalized amendments (Amendments) to regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA Regulations). The Amendments provided for implementation in phases. The burden-relieving amendments (such as those permitting the use of electronic means to verify identity) came into effect in July 2019. A second set of amendments is scheduled to come into effect on June 1. These include, among other things, amendments that tighten up the deadline for submitting suspicious transaction reports (STRs) to FINTRAC.

  • Out with the Old: Currently, a reporting entity has 30 days to file an STR, measured from the day it detects a fact about a financial transaction or attempted financial transaction that constitutes reasonable grounds for suspicion (RGS) that the transaction is related to the commission or attempted commission of a money laundering or terrorist financing offence.
  • In with the New: Effective June 1, a reporting entity will have to file the STR as soon as practicable after it has taken measures enabling it to establish that it has reached the RGS threshold.

FINTRAC has revised its guidance What is a Suspicious Transaction Report? and Reporting Suspicious Transactions to FINTRAC (collectively, the New Guidance). Set to take effect on June 1, the New Guidance states that:

As soon as practicable should be interpreted to mean that you have completed the measures that have allowed you to determine that you reached the RGS threshold and as such the development and submission of that STR must be treated as a priority report. FINTRAC expects that you are not giving unreasonable priority to other transaction monitoring tasks and may question delayed reports. The greater the delay, the greater the need for a suitable explanation.

Other changes in the New Guidance are primarily stylistic or provide more detailed explanations of such matters as the importance of STRs to FINTRAC’s mandate (and why they need to be detailed and timely), examples of how context affects an assessment of potentially suspicious transactions, and the factors that FINTRAC is likely to consider if it reviews a reporting entity’s practices to determine whether it submitted an STR or STRs as soon as practicable.

AUM Law can help you implement the new requirements by, for example, updating your compliance manual to reflect the new requirements and providing training to your employees. Please do not hesitate to contact us.

April 30, 2020

FINTRAC Signals Flexibility to Reporting Entities Affected by COVID-19

On March 25, FINTRAC issued a notice (Notice) indicating that it is committed to working constructively with businesses (Reporting Entities) subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) to minimize the impact of ongoing anti-money laundering and anti-terrorist financing (AMLTF) requirements while Reporting Entities are experiencing challenges due to the disruptions caused by COVID-19. FINTRAC had four main messages:

  • Reporting: Reporting Entities should give priority to submitting suspicious transaction reports (STRs), as required.
  • Verification of Identity: Some provincial governments are extending the validity of various identification documents to avoid in-personal renewal visits. If a person presents a document or information affected by such a decision, the Reporting Entity must still determine the authenticity of that document or information but can, until further notice, consider the document or information valid and current.
  • Compliance Assessment and Enforcement: For now, FINTRAC does not plan to initiate any new examinations and plans to limit its other interactions with Reporting Entities to: (1) completion of existing examinations situations relating to reporting issues; and (2) requests for guidance.
  • If Non-Compliance Is Unavoidable: In the Notice, FINTRAC stressed the importance for Reporting Entities of documenting the reasons for any situation where the Reporting Entity cannot meet a reporting or other regulatory obligation for reasons beyond its control. The Reporting Entity should document the reason for not meeting the obligation (g. employee responsible for fulfilling an obligation affected by COVID-19) and, where possible, any measures taken to mitigate the non-compliance. Firms are also encouraged to submit a voluntary self-declaration of non-compliance via email, when they can, and such a notification will be taken into account in future compliance activities.

If your firm is experiencing challenges complying with your obligations under the PCMLTFA or your monthly AMLTF reporting obligations to securities regulators, AUM Law can help. For example, we can prepare and file on your behalf your monthly AMLTF reports with securities regulators. And if you are facing an instance of potential or actual non-compliance with your obligations, we can advise you on how to document the issues, develop mitigation strategies and liaise with regulators on your behalf as needed.

March 31, 2020