Critical amendments to Canada's anti-money laundering rules

Recent changes to Canada’s anti-money laundering and anti terrorist financing (AML/ATF) legislation – the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), specifically concerning politically exposed persons, beneficial ownership, real estate practitioners and casinos.

This blog will look at the recent changes regarding these obligations and the resulting effect on reporting entities.

Beneficial ownership

Certain reporting entities are expected to determine the beneficial owners of an entity at the onboarding stage. This will normally involve, depending on entity type (i.e. corporation, trust or non-incorporated companies), obtaining information pertaining to the entity’s ownership structure such as names and addresses of all the directors, beneficial owners, trustees, beneficiaries, settlors and partnerships.

A beneficial owner, according to FINTRAC[1], is an individual who directly or indirectly owns or controls 25 percent or more of a corporation or an entity other than a corporation or trust.

Current guidelines on beneficial ownership

Based on the May 1, 2018 changes, only financial entities (banks and credit unions), securities dealers, life insurance and money services businesses are expected to comply with the beneficial ownership obligations.

Changes to beneficial ownership

With the June 10, 2020 changes, the beneficial ownership obligations now extend to B.C. notaries, casinos, accountants and accounting firms, real estate brokers or sales representatives, real estate developers, dealers in precious metals and precious stones and agents of the crown.

This is expected to extend the due diligence requirements for beneficial ownership to the remaining reporting entities within the purview of the PCMLTFA.

What did not change

The PCMLTFA obligations still dictate that reporting entities should obtain information that describes the ownership, control and structure of the entity, including corporations and trusts when an account is opened, or certain transactions that require the confirmation of the existence of an entity completed. 

The information required includes names of directors, trustees and beneficial owners as well as their addresses. These entities are also required to take reasonable measures to confirm the accuracy of the information obtained and keep records of the information obtained and the measures taken to confirm its accuracy.

Politically exposed persons (PEPs)

Per the PCMLTFA and associated regulations, a PEP is an individual who has been entrusted with a prominent public function. This position can make PEPs susceptible to the commission of money laundering and other predicate offences such as bribery and corruption.

Current guidelines on PEPs

Prior to June 10, 2020, only financial entities (banks and credit unions), securities dealers, life insurance and money services businesses were expected to comply with the PEP obligation which mandates these reporting entities to identify politically exposed persons and develop enhanced due diligence measures to mitigate the risk of maintaining the relationship.

Changes to the PEP obligations

With the June 10, 2020 changes, the PEP obligation now extends to B.C. notaries, casinos, accountants and accounting firms, real estate brokers or sales representatives, real estate developers, dealers in precious metals and precious stones and agents of the crown.

What did not change

The obligations still dictate that the reporting entities must take reasonable measures to determine whether a person is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, or a family member or close associate of one of these people, when the following activities are triggered:

• An account is opened
• Periodic review of a business relationship
• An international remittance (incoming and outgoing) request of $100,000 or more is made

Single Rule Concept for Real Estate Practitioners

Current guidelines for real estate practitioners

Based on the current FINTRAC Guidelines, real estate practitioners are expected to fulfill certain obligations, including the ongoing monitoring obligations – only when a business relationship has been established.

According to these guidelines, a business relationship is established only when a client conducts two or more transactions or activities for which they must verify the identity of the individual or confirm the existence of the entity. This means that clients can conduct a single transaction (Single Rule) and avoid triggering the reporting and record keeping obligations as well as the requirement to maintain a business relationship.

Changes to the real estate practitioners’ guidance

Per the June 10, 2020 amendments, the Single Rule concept will no longer apply as real estate practitioners are now expected to establish a business relationship with a client once a transaction has been initiated.

Casinos – $3,000 Rule

Current guidelines on casinos

Prior to June 10, 2020 changes, casinos were not required to verify the identity of customers when $3,000 was received in cash (known as the “3k rule”). They were only required to verify the identity of individuals and confirm the existence of entities when certain activities were triggered such as account opening, signature card creation, extension of credit of $3,000 or more, etc.

Changes to the 3K rule

With the June 10, 2020 amendment, casinos are now expected to verify the identity of customers when they receive cash of $3,000 or more in a single transaction. This means that a receipt of funds record is required if the casino receives a cash amount of $3,000 or more from a person or entity in a single transaction, unless the transaction is carried out by a financial entity or public body or by a person acting on behalf of a financial entity or public body.

Other changes made to the AML regulations include…

Virtual Currency (VCs) and the Travel Rule

As new reporting entities, VCs are now expected to comply with the travel rule which will expect VCs to convey the information of beneficiaries and originating parties when a transaction is initiated between two reporting entities or financial institutions. This rule is for reporting entities who transfer funds on behalf of other entities.

Risk assessment

While reporting entities have been apprised by the need to consider the risk of new technologies in their respective AML set ups, the PCMLTFA now makes this a regulatory obligation. All reporting entities must assess and document the risks related to new technologies before these technologies are implemented. These can include new AML software, AML CRMs and third-party tech support.

Record keeping obligations - authorized employees

Prior to June 10, 2020, securities dealers opening a business account were required to keep a record of all the employees authorized to operate the account. This has now been amended.

Securities dealers are now expected to keep a record of a maximum of three authorized employees to access a business account. These details will include name, address, occupation and date of birth.

For more on how these changes will impact your business, contact Rob Fowlie, CPA, CA, CFE, IFA, Forensics and Litigation Support, at 416.515.3802 or [email protected].

[1] Financial Transactions Reports and Analysis Centre of Canada.