June 1, 2020 – STR, virtual currency, foreign MSB… See the summary of AML/CTF amendments coming into effect.

On July 10, 2019, the Canadian Government published Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019 (“Regulations 2019”).

The first amendment to come into force upon the date of registration of Regulations 2019, June 25, 2019, modified Article 64(1.4) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations which introduces the notion of document authenticity by replacing the term “original”. As such, the documents used to identify a client must be authentic, valid and current (rather than original, valid and current). To validate the authenticity of a document, particular attention will have to be given to security elements, such as holograms, bar codes, format and presentation of the document delivered by a competent authority. For more details, please refer to FINTRAC Interpretation Notice number PI-9976 .

Certain amendments will come into effect as of June 1, 2020, including:

1. Amendment to the delay for filing Suspicious Transaction Reports (STR)
2. Addition of the virtual currency sector as well as foreign currency services companies
3. Amendments to cross-border currency regulations
4. New infractions in administrative penalties regulations
5. New designated information

1. Amendment to the delay for filing Suspicious Transaction Reports (STR)

The delay for filing suspicious transaction reports is amended under Article 3(2).

The lead time was previously within 30 days after the day on which a fact respecting a transaction or an attempted transaction that constitutes reasonable grounds to suspect that it is related to the commission of a money laundering or a terrorist activity financing offence.

This lead time has been replaced by the use of the expression “as soon as practicable” after they have taken measures that enabled them to establish that there are reasonable grounds to suspect… the perpetration of such infractions.

Let’s point out that the first amendment proposed by the government mentioned a three-day lead time. After the round of consultation, this three-day lead time became “as soon as practicable”. We can therefore assume without fear that regulatory authorities want to see improvement in the production lead time of STRs and that this lead time is well under 30 days.

It is also important to look carefully at the statement that mentions the following: “after they have taken measures that enabled them to establish that there are reasonable grounds to suspect”. Any reporting entity will need to document, through an official process, what these measures are and most likely also document what helps establish the existence of reasonable grounds for suspicion.

Due to a lack of more recent guidelines on the subject, the reporting entity can refer to FINTRAC guidelines, more specifically What is a suspicious transaction report? and FINTRAC assessment manual to develop their own procedures.

Compliance teams will have to review their compliance manual, internal review and update the related procedures and processes

2. Virtual Currency and Foreign Money Service Businesses

Amendments to regulations are intended to reinforce the AML/CTF Canadian Regime, including through regulating Money Services Businesses (MSB) and companies dealing in virtual currency, Canadian and foreign.

As such, as of June 1, 2020, the 2014 legislative amendments for these companies will come into effect. The Act will require that these companies register as “Money Service Businesses” and comply with multiple legislative requirements, such as verifying the clients’ identity, detecting politically exposed persons, record keeping, reporting the reception of any amount of $10,000 or more, reporting international electronic funds transfer of $10,000 or more, reporting suspicious transactions and implementing a compliance program.

REMINDER

It is forbidden for the reporting entities mentioned in Article 5 of the Act to open or maintain an account for a person or entity considered an MSB that does not have a place of business in Canada (see section “What does Foreign mean” below) and who provides services directed to persons or entities in Canada, or to have a bank correspondent relationship with this person or entity, unless this person or entity is registered with the Centre pursuant to Article 11.1 of the Act

What does dealing in virtual currency mean?

The AML/CTF Act mentions that persons and entities who provide services, such as dealing in virtual currency, are bound by the Act and its regulations. AML/CTF regulations give this definition of virtual currency:

Virtual Currency Means:

So, whether it is dealing to exchange and transfer virtual currency or dealing to develop and maintain private keys, we can assume that such business are covered in the Act. When in doubt, it is preferable to verify with FINTRAC to avoid penalties or the implementation of a comprehensive and expensive compliance program that would not be required.

What does Foreign mean?

In the 2014 legislative amendments, we find the addition of these entities and the distinction between Canadian companies and foreign ones. In paragraph 5 h.1) of this amended Act, we can read the following:
persons and entities that do not have a place of business in Canada, that are engaged in the business of providing at least one of the following services that is directed at persons or entities in Canada, and that provide those services to their clients in Canada:
(i) foreign exchange dealing,
(ii) remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network,
(iii) issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity,
(iv) dealing in virtual currencies, or
(v) any prescribed service.

3. Amendments to the Cross-Border Currency Regulations and Registration Regulations

All the amendments planned for cross-border currency regulations will come into effect on June 1, 2020. Amendments include specifications, but also greater requirements to document origins, destinations, and transit. Any entity that must report under the cross-border currency regulations should pay particular attention to the new documentation requirements.

As for the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations amendments, they all come into effect on June 1, 2020, except the amendment requiring complete information concerning the person responsible for the compliance program which will come into effect in June 2021.

4. New Infractions in the Administrative Penalties Regulations

As of June 1, 2020, six (6) new violations considered very serious or serious will be added to the Administrative Penalties Regulations annex.

Ref ViolationArt. of the Law
1Very seriousNot providing the required report, the Suspicious Transactions Report (STR).7
2SeriousThe fact of not establishing and maintaining the targeted list, the list of clients for whom the entity has chosen not to produce the Currency Transactions Report (CTR).9(3)
3SeriousThe fact of opening an account for which they cannot verify the identity of the client in compliance with regulatory measures.9.2
4SeriousThe fact of opening or maintaining an account for a non-registered foreign MSB (including dealing in virtual currency) or having a correspondent bank relationship with them.9.31(1)
5SeriousThe fact of not getting the approval of senior management concerni+C6ng correspondent bank services.9.4(1)c)
6SeriousThe fact of not documenting their obligations and those of the foreign entity concerning correspondent bank services.9.4(1)d)

5. New Designated Information

Paragraphs 6(1) to (3) of Regulations 2019 also targets Suspicious Transaction Reporting Regulations.

The amendment that will come into effect on June 1, 2020, focuses on designated information that FINTRAC can divulge. This amendment adds the following designated information:

13A) iv) in the case of an entity that is involved in the transaction, attempted transaction, importation or exportation, the date of its registration or incorporation, its registration or incorporation number, and the jurisdiction and country of issue of that number,
However, it is only on June 1, 2021, that reporting entities will have the obligation to add this information to their reports.

Last update:  The Canadian Government published on February 15 2020, a draft regulation amending some of the previously announced changes.  These announced changes may have an impact on section 4 of this article and they also target many other changes to be analyzed.  We shall produce another article when these changes are finalized.

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