Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019: SOR/2020-112

Canada Gazette, Part II, Volume 154, Number 12

Registration

SOR/2020-112 May 20, 2020

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT

P.C. 2020-336 May 18, 2020

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 73(1) footnote a and paragraphs 73.1(1)(a) to (c) footnote b of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act footnote c, makes the annexed Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019.

Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019

Amendments

1 Subsection 1(1) of the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019 footnote 1 is replaced by the following:

1 (1) The definitions accountant, accounting firm, British Columbia notary corporation, British Columbia notary public, CICA Handbook, credit union central, dealer in precious metals and stones, electronic funds transfer, financial entity, financial services cooperative, jewellery, life insurance broker or agent, precious metal, precious stones, real estate broker or sales representative, real estate developer, SWIFT and trust company in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations footnote 2 are repealed.

2 (1) Subsection 22(2) of the Regulations is replaced by the following:

(2) The definitions business relationship, CICA Handbook, client information record, ongoing monitoring, physical presence and transaction ticket in subsection 1(2) of the Regulations are repealed.

(2) The portion of subsection 22(3) of the Regulations before the definition accountant that it enacts is replaced by the following:

(3) The definitions accountant, British Columbia notary corporation, dealer in precious metals and stones, deposit slip, electronic funds transfer, financial entity, financial services cooperative, funds, large cash transaction record, life insurance broker or agent, real estate broker or sales representative, receipt of funds record and trust company in subsection 1(2) of the Regulations are replaced by the following:

(3) Subsection 22(3) of the Regulations is amended by adding, after the definition financial entity that it enacts, the following:

financial services cooperative means a financial services cooperative that is regulated by An Act respecting financial services cooperatives, CQLR, c. C-67.3, other than a caisse populaire. (coopérative de services financiers)

(4) Subsections 22(7) to (10) of the Regulations are repealed.

(5) Subsection 22(15) of the Regulations is repealed.

(6) Subsection 22(18) of the Regulations is repealed.

3 Section 23 of the Regulations is amended by adding, after the section 4 that it enacts, the following:

4.1 For the purposes of these Regulations, a person or entity to which section 5 of the Act applies enters into a business relationship with a client at the earliest of the following events:

4 Section 25 of the Regulations is amended by replacing the subparagraph 12(s)(xi) that it enacts with the following:

5 (1) Subsections 27(1) to (3) of the Regulations are replaced by the following:

27 (1) The portion of subsection 11.1(1) of the Regulations before paragraph (a) is replaced by the following:

11.1 (1) Every person or entity that is required to verify an entity’s identity in accordance with these Regulations shall, at the time the entity’s identity is verified, obtain the following information:

(2) Subsection 27(7) of the Regulations is amended by replacing the subsections 11.1(1.1) and (2) that it enacts with the following:

(2) Every person and entity that is subject to subsection (1) shall take reasonable measures to confirm the accuracy of the information when it is first obtained under that subsection and in the course of ongoing monitoring of business relationships.

(3) Subsection 27(7) of the Regulations is amended by replacing the portion of the subsection 11.1(4) that it enacts before paragraph (a) with the following:

(4) If the person or entity is not able to obtain the information, to keep it up to date in the course of ongoing monitoring of business relationships or to confirm its accuracy, the person or entity shall take

6 (1) Section 28 of the Regulations is amended by replacing the subparagraph 14(1)(k)(xi) that it enacts with the following:

(2) Section 28 of the Regulations is amended by replacing the paragraph 29(b) that it enacts with the following:

(3) Section 28 of the Regulations is amended by adding, after the paragraph 36(c) that it enacts, the following:

(4) Section 28 of the Regulations is amended by replacing the subparagraph 36(g)(iv) that it enacts with the following:

(5) Section 28 of the Regulations is amended by replacing the subparagraph 36(h)(xi) that it enacts with the following:

7 Section 36 of the Regulations is amended by adding “and” at the end of the paragraph 74(2)(e) that it enacts and by adding the following after that paragraph:

8 (1) Section 38 of the Regulations is amended by replacing the subparagraph 86(a)(ii) that it enacts with the following:

(2) Section 38 of the Regulations is amended by replacing the portion of the subparagraph 86(a)(iii) that it enacts before clause (A) with the following:

9 (1) Section 40 of the Regulations is amended by adding, after the paragraph 95(1)(a) that it enacts, the following:

(2) Section 40 of the Regulations is amended by striking out “or” at the end of the paragraph 95(1)(e) that it enacts and by adding the following after that paragraph:

10 (1) Section 44 of the Regulations is amended by replacing the subparagraph 103(a)(iv) that it enacts with the following:

(2) Section 44 of the Regulations is amended by replacing the paragraph 105(7)(d) that it enacts with the following:

(3) Section 44 of the Regulations is amended by replacing the paragraph 109(4)(d) that it enacts with the following:

(4) Section 44 of the Regulations is amended by replacing the paragraph 112(3)(d) that it enacts with the following:

(5) Section 44 of the English version of the Regulations is amended by replacing the portion of the subsection 116(2) that it enacts before paragraph (a) with the following:

(2) A financial entity shall periodically take reasonable measures to determine whether either of the following persons is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person:

(6) Section 44 of the English version of the Regulations is amended by replacing the subsection 119(2) that it enacts with the following:

(2) A securities dealer shall periodically take reasonable measures to determine whether an account holder is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(7) Section 44 of the Regulations is amended by adding, after the subsection 120(2) that it enacts, the following:

(3) A money services business or a foreign money services business shall take reasonable measures to determine whether a person with whom they enter into a business relationship is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(4) A money services business or a foreign money services business shall periodically take reasonable measures to determine whether a person with whom they have a business relationship is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(5) If a money services business or a foreign money services business — or any of their employees or officers — detects a fact that constitutes reasonable grounds to suspect that a person with whom they have a business relationship is a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, one of those persons, the money services business or foreign money services business shall take reasonable measures to determine whether they are such a person.

(8) Section 44 of the Regulations is amended by adding, after the section 120 that it enacts, the following:

Other Businesses and Professions

120.1 (1) A British Columbia notary public, British Columbia notary corporation, accountant, accounting firm, real estate broker or sales representative, real estate developer, dealer in precious metals and precious stones or department or agent of Her Majesty in right of Canada or agent or mandatary of Her Majesty in right of a province shall take reasonable measures to determine whether a person with whom they enter into a business relationship is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(2) A British Columbia notary public, British Columbia notary corporation, accountant, accounting firm, real estate broker or sales representative, real estate developer, dealer in precious metals and precious stones or department or agent of Her Majesty in right of Canada or agent or mandatary of Her Majesty in right of a province shall periodically take reasonable measures to determine whether a person with whom they have a business relationship is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(3) A British Columbia notary public, British Columbia notary corporation, accountant, accounting firm, real estate broker or sales representative, real estate developer, dealer in precious metals and precious stones or department or agent of Her Majesty in right of Canada or agent or mandatary of Her Majesty in right of a province shall take reasonable measures to determine whether a person from whom they receive an amount of $100,000 or more, in cash or in virtual currency, is a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, one of those persons.

(4) If a British Columbia notary public, British Columbia notary corporation, accountant, accounting firm, real estate broker or sales representative, real estate developer, dealer in precious metals and precious stones or department or agent of Her Majesty in right of Canada or agent or mandatary of Her Majesty in right of a province — or any of their employees or officers — detects a fact that constitutes reasonable grounds to suspect that a person with whom they have a business relationship is a politically exposed foreign person, a politically exposed domestic person or a head of an international organization, or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, one of those persons, the person or entity shall take reasonable measures to determine whether they are such a person.

Casinos

120.2 (1) A casino shall take reasonable measures to determine whether a person for whom they open an account is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(2) A casino shall periodically take reasonable measures to determine whether an account holder is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization, a family member — referred to in subsection 2(1) — of one of those persons or a person who is closely associated with a politically exposed foreign person.

(3) A casino shall take reasonable measures to determine whether any of the following persons is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, one of those persons:

(4) If a casino or any of their employees or officers detects a fact that constitutes reasonable grounds to suspect that an account holder is a politically exposed foreign person, a politically exposed domestic person, a head of an international organization or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, one of those persons, the casino shall take reasonable measures to determine whether the account holder is such a person.

(9) Section 44 of the Regulations is amended by replacing the portion of the subsection 121(1) that it enacts before paragraph (b) with the following:

121 (1) A financial entity, securities dealer or casino that determines under paragraph 116(1)(a), subsection 116(2) or (3), section 119 or subsection 120.2(1), (2) or (4) that a person is a politically exposed foreign person or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, a politically exposed foreign person shall

(10) Section 44 of the Regulations is amended by replacing the portion of the subsection 121(2) that it enacts before paragraph (b) with the following:

(2) A financial entity, securities dealer or casino shall also take the measures referred to in paragraphs (1)(a) to (c) if

(11) Section 44 of the Regulations is amended by replacing the subsection 121(3) that it enacts with the following:

(3) A financial entity, securities dealer or casino shall take the reasonable measures referred to in paragraph 116(1)(a) and subsections 116(3), 119(1) and (3) and 120.2(1) and (4) — and, if applicable, shall take the measures referred to in paragraphs (1)(a) and (b) — within 30 days after the day on which the account is opened or the fact is detected, as the case may be.

(12) Section 44 of the Regulations is amended by replacing the portion of the subsection 122(1) that it enacts before paragraph (a) with the following:

122 (1) A financial entity, life insurance company, life insurance broker or agent, money services business, foreign money services business or casino that determines under subparagraph 116(1)(b)(i) or (iii), paragraph 117(a) or 120(1)(a) or (2)(a) or subsection 120.2(3) that a person is a politically exposed foreign person or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, such a person shall

(13) Section 44 of the Regulations is amended by replacing the portion of the subsection 122(5) that it enacts before paragraph (b) with the following:

(5) A financial entity, life insurance company, life insurance broker or agent, money services business, foreign money services business or casino shall also take the measures referred to in paragraphs (1)(a) and (b) if

(14) Section 44 of the Regulations is amended by replacing the subsection 122(9) that it enacts with the following:

(9) A financial entity, life insurance company, life insurance broker or agent, money services business, foreign money services business or casino shall take the reasonable measures referred to in paragraphs 116(1)(b) and 117(a) and subsections 120(1) and (2) and 120.2(3) — and, if applicable, shall take the measures referred to in paragraphs (1)(a) and (b) or (2)(a) and (b) or subsection (3), as the case may be — within 30 days after the day on which the transaction is conducted.

(15) Section 44 of the Regulations is amended by adding, after the section 122 that it enacts, the following:

122.1 (1) A person or entity that determines under subsection 120(3), (4) or (5) or 120.1(1), (2) or (4) that a person is a politically exposed foreign person or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, a politically exposed foreign person shall

(2) A person or entity that determines under subsection 120.1(3) that a person is a politically exposed foreign person or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, a politically exposed foreign person shall

(3) A person or entity shall also take the measures referred to in paragraphs (1)(a) and (b) if

(4) A person or entity shall also take the measures referred to in paragraphs (2)(a) and (b) if

(5) The person or entity shall take the reasonable measures referred to in subsections 120(3) and (5) and 120.1(1) and (4) — and, if applicable, shall take the measures referred to in paragraph (1)(a) — within 30 days after the day on which they enter into the business relationship or the fact is detected, as the case may be.

(6) The person or entity shall take the reasonable measures referred to in subsection 120.1(3) — and, if applicable, shall take the measures referred to in paragraphs (2)(a) and (b) — within 30 days after the day on which the transaction is conducted.

(16) Section 44 of the Regulations is amended by replacing the portion of the subsection 123(1) that it enacts before paragraph (a) with the following:

123 (1) If a financial entity, securities dealer or casino obtains approval under subsection 121(1) or (2) to keep an account open, they shall keep a record of

(17) Section 44 of the Regulations is amended by replacing the portion of the subsection 123(2) that it enacts before paragraph (a) with the following:

(2) If a transaction that is conducted with a financial entity, money services business, foreign money services business or casino is reviewed under any of subsections 122(1) to (3) and (5) to (7), the financial entity, money services business, foreign money services business or casino shall keep a record of

(18) Section 44 of the Regulations is amended by adding, after the subsection 123(3) that it enacts, the following:

(4) If a person or entity takes any of the measures referred to in subsection 122.1(1) or (3), the person or entity shall keep a record of

(5) If a transaction that is conducted with a person or entity is reviewed under subsection 122.1(2) or (4), the person or entity shall keep a record of

(19) Section 44 of the Regulations is amended by adding, before the heading “Electronic Funds Transfers” before the section 124 that it enacts, the following:

Ongoing Monitoring

123.1 A person or entity referred to in section 5 of the Act that enters into a business relationship with a client shall periodically conduct, based on a risk assessment referred to in subsection 9.6(2) of the Act that is undertaken in accordance with paragraph 156(1)(c) of these Regulations, ongoing monitoring of that business relationship for the purpose of

(20) Section 44 of the French version of the Regulations is amended by replacing the subsection 124(4) that it enacts with the following:

(4) La personne ou entité visée au paragraphe (1) élabore, par écrit des principes et des mesures axés sur le risque qu’elle applique afin d’établir, lorsqu’elle reçoit un télévirement qui, malgré la prise de mesures raisonnables au titre de l’alinéa 9.5b) de la Loi, n’est pas accompagné des renseignements requis par l’alinéa 9.5a) de la Loi, si elle devrait suspendre ou refuser le télévirement et quelles mesures de suivi elle doit prendre.

(21) Section 44 of the Regulations is amended by adding, after the section 124 that it enacts, the following:

Virtual Currency Transfers

124.1 (1) A financial entity, money services business or foreign money services business that is required to keep a record under these Regulations in respect of a virtual currency transfer shall

(2) Every person or entity referred to in subsection (1) shall develop and apply written risk-based policies and procedures for determining, in the case of a virtual currency transfer received by them that, despite reasonable measures taken under paragraph (1)(b), does not have included with it any of the information required under paragraph (1)(a), whether they should suspend or reject the virtual currency transfer and any follow-up measures to be taken.

(22) Section 44 of the English version of the Regulations is amended by replacing the subsection 132(2) that it enacts with the following:

(2) A report that is required to be made under these Regulations in respect of a receipt of an amount in virtual currency shall be sent to the Centre within five working days after the day on which the person or entity receives the amount.

11 (1) Section 46 of the Regulations is amended by replacing the portion of the subsection 154(1) that it enacts before paragraph (a) with the following:

154 (1) Subparagraphs 86(a)(i) and (ii), paragraphs 87(a), 89(a) and (d), 94(a), 103(a) and 116(1)(a) and subsections 116(2) and (3), 119(1) to (3) and 120.2(1), (2) and (4) do not apply in respect of

(2) Section 46 of the Regulations is amended by replacing the portion of the subsection 154(2) that it enacts before paragraph (a) with the following:

(2) Sections 12 to 14, 22, 29, 43, 45 and 52, subsection 58(1), sections 64, 74, 82, 86 to 89, 92, 94, 96, 97 and 100, subsection 101(1) and sections 102 to 104, 116, 117, 119 to 120.2 and 123 do not apply in respect of

(3) Section 46 of the Regulations is amended by replacing the subparagraph 156(1)(c)(ii) that it enacts with the following:

(4) Section 46 of the Regulations is amended by replacing the subsection 156(2) that it enacts with the following:

(2) If the person or entity intends to carry out a new development or introduce a new technology that may have an impact on their clients, business relationships, products, services or delivery channels or the geographic location of their activities, they shall, in accordance with paragraph (1)(c), assess and document the risk referred to in subsection 9.6(2) of the Act before doing so.

(5) Section 46 of the Regulations is amended by replacing the subparagraph 157(b)(ii) that it enacts with the following:

12 Sections 47 to 49 of the Regulations are replaced by the following:

47 Schedules 1 to 3 to the Regulations are replaced by the Schedules 1 to 4 set out in Schedule 1 to these Regulations.

48 Schedule 4 to the Regulations, as enacted by SOR/2002-184, is renumbered as Schedule 5.

48.1 Schedule 5 to the Regulations is amended by replacing the references after the heading “SCHEDULE 5” with the following:

(Paragraph 8(1)(g) and subsections 131(3) and 152(1) and (3))

49 Schedules 5 to 8 to the Regulations, as enacted by SOR/2002-184, are replaced by the Schedule 6 set out in Schedule 1 to these Regulations.

13 (1) Section 60 of the Regulations is amended by replacing the item 3 of Part C of Schedule 1 that it enacts with the following:

(2) Section 60 of the Regulations is amended by replacing the item 2 of Part D of Schedule 1 that it enacts with the following:

(3) Section 60 of the Regulations is amended by adding, after the item 5 of Part D of Schedule 1 that it enacts, the following:

14 (1) Section 70 of the Regulations is amended by replacing the items 3 to 5 of Part C of Schedule 2 that it enacts with the following:

(2) Section 70 of the Regulations is amended by replacing the items 8 to 13 of Part C of Schedule 2 that it enacts with the following:

15 Section 73 of the Regulations is amended by repealing the item 8 of Part D of Schedule 2 that it enacts.

16 (1) Section 74 of the Regulations is amended by replacing the item 3 of Part E of Schedule 2 that it enacts with the following:

(2) Section 74 of the Regulations is amended by replacing the item 2 of Part F of Schedule 2 that it enacts with the following:

(3) Section 74 of the Regulations is amended by adding, after the item 5 of Part F of Schedule 2 that it enacts, the following:

17 Section 80 of the Regulations is replaced by the following:

80 Part B of Schedule 3 to the Regulations is amended by replacing item 2 with the following:

18 Section 83 of the Regulations is amended by replacing the section 2 that it enacts with the following:

2 For the purposes of subsection 54.1(3) of the Act, identifying information means the information set out in Parts A and C of Schedule 1 and the dates when a person’s or entity’s registration is revoked or expires and when a registered person or entity ceases an activity.

19 Sections 106 to 108 of the Regulations are replaced by the following:

105.1 The heading before section 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations 5 is replaced by the following:

Definition

106 Section 2 of the Regulations is repealed.

107 (1) Paragraph 3(b) of the Regulations is replaced by the following:

(2) Section 3 of the Regulations is amended by striking out “and” at the end of paragraph (c) and by repealing paragraph (d).

108 Subsection 4(1) of the Regulations is replaced by the following:

4 (1) Each violation is classified as a minor, serious or very serious violation, as set out in column 2 of Part 1 of the schedule and in column 3 of Parts 2 and 3 of the schedule.

20 Sections 113 to 118 of the Regulations are replaced by the following:

113 Items 2 and 3 of Part 4 of the schedule to the Regulations are replaced by the following:

Item

Column 1

Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Column 2

Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

Column 3



Short-form Description

Column 4


Classification of Violation

2

11.13

4(b) and 5

Failure of an applicant or a registered person or entity to submit a notification of a change to the information contained in an application, or of newly obtained information, in the prescribed manner and with the prescribed information

serious

114 The schedule to the Regulations is replaced by the schedule set out in Schedule 2 to these Regulations.

21 Subsection 119(3) of the Regulations is replaced by the following:

(3) Section 3, subsections 6(1) to (3) and sections 50 to 98, 100 to 105 and 111 to 113 come into force on the day on which subsection 256(2) of the Economic Action Plan 2014 Act, No. 1, chapter 20 of the Statutes of Canada, 2014, comes into force.

22 The schedule to the Regulations is numbered as Schedule 1.

23 The Regulations are amended by adding, after Schedule 1, the Schedule 2 set out in the schedule to these Regulations.

Coming into Force

24 These Regulations come into force on the day on which they are registered.

SCHEDULE

(Section 23)

SCHEDULE 2

(Section 114)

SCHEDULE

(Sections 3 and 4)

PART 1
Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Item

Column 1

Provision of Act

Column 2

Classification of Violation

1

7

Very serious

2

9(3)

Serious

3

9.2

Serious

4

9.31(1)

Serious

5

9.4(1)(c)

Serious

6

9.4(1)(d)

Serious

7

9.4(2)

Serious

8

9.5(a)

Minor

9

9.5(b)

Minor

10

9.6(3)

Serious

11

9.7(1)

Serious

12

9.7(2)

Serious

13

9.7(4)

Minor

14

9.8(1)

Serious

15

11.1

Serious

16

11.12(1)

Serious

17

11.13(1)

Serious

18

11.14(1)

Serious

19

11.17(1)

Serious

20

11.19

Serious

21

11.2

Serious

22

11.43

Very serious

23

11.44(1)

Very serious

24

11.44(2)

Serious

25

62(2)

Serious

26

63.1(2)

Serious
PART 2
Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Item

Column 1


Provision of Act

Column 2


Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

Column 3


Classification of Violation

1

9(1)

7(1)(a)

Minor

2

9(1)

7(1)(b)

Minor

3

9(1)

7(1)(c)

Minor

4

9(1)

7(1)(d)

Minor

5

9(1)

8(3)(a)

Minor

6

9(1)

8(3)(b)(i)

Minor

7

9(1)

8(3)(b)(ii)

Minor

8

9(1)

8(3)(b)(iii)

Minor

9

9(3)

9(a)

Minor

10

9(3)

9(b)

Minor

11

6

10

Minor

12

6

11

Minor

13

6

12

Minor

14

6

13

Minor

15

6

14(1)

Minor

16

6

15(1)

Minor

17

9.4(1)(a)

16(2)

Minor

18

9.4(1)(e)

16(3)

Serious

19

9(1)

18

Minor

20

9(1)

19

Minor

21

6

20

Minor

22

6

21

Minor

23

6

22

Minor

24

6

23

Minor

25

9(1)

25

Minor

26

9(1)

26

Minor

27

6

27

Minor

28

6

28

Minor

29

6

29

Minor

30

9(1)

30(1)(a)

Minor

31

9(1)

30(1)(b)

Minor

32

9(1)

30(1)(c)

Minor

33

9(1)

30(1)(d)

Minor

34

9(1)

30(1)(e)

Minor

35

9(1)

30(1)(f)

Minor

36

6

31

Minor

37

6

32

Minor

38

9(1)

33(1)(a)

Minor

39

9(1)

33(1)(b)

Minor

40

9(1)

33(1)(c)

Minor

41

9(1)

33(1)(d)

Minor

42

9(1)

33(1)(e)

Minor

43

9(1)

33(1)(f)

Minor

44

6

34

Minor

45

6

35

Minor

46

6

36

Minor

47

6

37

Minor

48

9(1)

39

Minor

49

9(1)

40

Minor

50

6

41

Minor

51

6

42

Minor

52

6

43

Minor

53

9(1)

48

Minor

54

9(1)

49

Minor

55

6

50

Minor

56

6

51

Minor

57

6

52

Minor

58

9(1)

54

Minor

59

9(1)

55

Minor

60

6

56

Minor

61

6

57

Minor

62

6

58(1)

Minor

63

9(1)

60

Minor

64

9(1)

61

Minor

65

6

62

Minor

66

6

63

Minor

67

6

64

Minor

68

9(1)

66

Minor

69

9(1)

67

Minor

70

6

68

Minor

71

6

69

Minor

72

9(1)

70(1)(a)

Minor

73

9(1)

70(1)(b)

Minor

74

9(1)

70(1)(c)

Minor

75

9(1)

70(1)(d)

Minor

76

9(1)

71

Minor

77

6

72(1)

Minor

78

6

73

Minor

79

6

74

Minor

80

9(1)

78

Minor

81

9(1)

79

Minor

82

6

80

Minor

83

6

81

Minor

84

6

82

Minor

85

6.1

84

Minor

86

6.1

85(1)

Minor

87

6.1

86

Minor

88

6.1

87

Minor

89

6.1

88

Minor

90

6.1

89

Minor

91

9.4(1)(a)

90(a)

Minor

92

9.4(1)(a)

90(b)

Minor

93

9.4(1)(a)

91(a)

Minor

94

9.4(1)(a)

91(b)

Minor

95

6.1

92

Minor

96

6.1

94

Minor

97

6.1

95(1), (3) or (4)

Minor

98

6.1

96

Minor

99

6.1

100

Minor

100

6.1

101(1)

Minor

101

6.1

101(3)

Minor

102

6

101(4)

Minor

103

6.1

102

Minor

104

6.1

103

Minor

105

6.1

104

Minor

106

6

108

Minor

107

6

109(5)

Minor

108

6.1

111(2)

Minor

109

6

112(4)

Minor

110

6.1

114(2)

Minor

111

9.3(1)

116(1)(a)

Minor

112

9.3(1)

116(1)(b)

Minor

113

9.3(1)

116(2)

Minor

114

9.3(1)

116(3)

Minor

115

9.3(1)

117

Minor

116

9.3(1)

119(1)

Minor

117

9.3(1)

119(2)

Minor

118

9.3(1)

119(3)

Minor

119

9.3(1)

120(1)

Minor

120

9.3(1)

120(2)

Minor

121

9.3(1)

120(3)

Minor

122

9.3(1)

120(4)

Minor

123

9.3(1)

120(5)

Minor

124

9.3(1)

120.1(1)

Minor

125

9.3(1)

120.1(2)

Minor

126

9.3(1)

120.1(3)

Minor

127

9.3(1)

120.1(4)

Minor

128

9.3(1)

120.2(1)

Minor

129

9.3(1)

120.2(2)

Minor

130

9.3(1)

120.2(3)

Minor

131

9.3(1)

120.2(4)

Minor

132

9.3(2)

121(1)(a)

Minor

133

9.3(2)

121(1)(b)

Minor

134

9.3(2)

121(1)(c)

Minor

135

9.3(2.1)

121(2)

Minor

136

9.3

121(3)

Minor

137

9.3(2)

122(1)(a)

Minor

138

9.3(2)

122(1)(b)

Minor

139

9.3(2)

122(2)(a)

Minor

140

9.3(2)

122(2)(b)

Minor

141

9.3(2)

122(3)

Minor

142

9.3(2)

122(4)(a)

Minor

143

9.3(2)

122(4)(b)

Minor

144

9.3(2.1)

122(5)

Minor

145

9.3(2.1)

122(6)

Minor

146

9.3(2.1)

122(7)

Minor

147

9.3(2.1)

122(8)

Minor

148

9.3

122(9)

Minor

149

9.3

122(10)

Minor

150

9.3(2)

122.1(1)(a)

Minor

151

9.3(2)

122.1(1)(b)

Minor

152

9.3(2)

122.1(2)(a)

Minor

153

9.3(2)

122.1(2)(b)

Minor

154

9.3(2.1)

122.1(3)

Minor

155

9.3(2.1)

122.1(4)

Minor

156

9.3(2.1)

122.1(5)

Minor

157

9.3(2.1)

122.1(6)

Minor

158

6

123(1)

Minor

159

6

123(2)

Minor

160

6

123(3)

Minor

161

6

123(4)

Minor

162

6

123(5)

Minor

163

  

123.1

Minor

164

  

124.1(1)

Minor

165

  

124.1(2)

Minor

166

9(1)

125

Minor

167

9(1)

131(1)

Minor

168

9(1)

131(2)

Minor

169

9(1)

132(1)

Minor

170

9(1)

132(2)

Minor

171

9(1)

132(3)

Minor

172

6.1

134(1)

Minor

173

6

134(2)

Minor

174

6

134(3)

Minor

175

6.1

135(1)

Minor

176

6

135(2)

Minor

177

6

135(3)

Minor

178

6.1

136(1)

Minor

179

6

136(2)

Minor

180

6

136(3)

Minor

181

6.1

137(1)

Minor

182

6

137(2)

Minor

183

6

137(3)

Minor

184

6.1

138(1)

Minor

185

6.1

138(2)

Minor

186

6

138(3)

Minor

187

6.1

138(4)(a)

Serious

188

9.6(3)

138(4)(b)

Serious

189

6

138(5)

Minor

190

6

139

Minor

191

6

144

Minor

192

6

145

Minor

193

6

146(1)

Minor

194

6

148(1)

Minor

195

6

149

Minor

196

9.6(1)

156(1)(a)

Serious

197

9.6(1)

156(1)(b)

Serious

198

9.6(1)

156(1)(c) and (2)

Serious

199

9.6(1)

156(1)(d) and (e)

Serious

200

9.6(1)

156(1)(f) and (3)

Serious

201

9.6(1)

156(4)

Serious
PART 3
Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Item

Column 1


Provision of Act

Column 2


Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

Column 3



Classification of Violation

1

7

9(1)

Serious

2

7

9(2)

Serious

3

7.1

10

Very serious

4

7 and 7.1

12

Serious

5

6

12.1(1)

Minor

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: The Canadian Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) Regime must continually be updated to remain responsive to emerging risks and evolving international standards. Since 2016, Canada’s AML/ATF Regime has undergone in-depth reviews led by Parliament and Canada’s international peers. In November 2018, the House of Commons Standing Committee on Finance (FINA) conducted the five-year parliamentary review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and made 32 recommendations to strengthen the AML/ATF Regime. In 2018 and 2019, a series of expert reports commissioned by the Government of British Columbia further highlighted the vulnerability of the casino and real estate sectors to money laundering. Furthermore, in June 2019, the Financial Action Task Force (FATF) finalized its standards to clarify the application of AML/ATF requirements on virtual assets and virtual asset service providers. Regulatory changes footnote 3 are needed to address the FINA Committee’s recommendations, strengthen Canada’s AML/ATF Regime and ensure its measures are aligned with the FATF standards.

Description: The amendments to the regulations strengthen Canada’s AML/ATF Regime, align measures with international standards and level the playing field across reporting entities by applying stronger customer due diligence requirements and beneficial ownership requirements to designated non-financial businesses and professions (DNFBPs); modifying the definition of business relationship for the real estate sector; aligning customer due diligence measures for casinos with international standards; aligning virtual currency record-keeping obligations with international standards; clarifying the cross-border currency reporting program; clarifying a number of existing requirements; and making minor technical amendments.

Rationale: The amendments will result in an estimated $18,069,097 (present value [PV]) in costs over a 10-year period in 2018 dollars. There are substantial qualitative benefits associated with the amendments that cannot be monetized due to the lack of available or reliable data to accurately measure reputational, economic and national security benefits. The amendments will address money laundering concerns raised by the Government of British Columbia by applying a more stringent approach to the regulation of the casino and real estate sectors, address Recommendation 8 (expanding politically exposed persons, heads of international organizations, and beneficial ownership requirements to DNFBPs) from the 2018 federal parliamentary review, and improve compliance with FATF international standards. Meeting these standards improves the integrity of the global AML/ATF framework and positively impacts Canada’s international reputation. It also contributes to regulatory efficiencies with other countries’ AML/ATF regimes, making it easier for Canadian businesses to operate internationally.

Issues

Canada’s AML/ATF Regime, which was first established in 2000–2001, must regularly adapt and evolve to changes in its operating environment and changes to international standards. Actions to counter money laundering and terrorist financing have long been recognized as powerful means to combat crime and protect the safety and security of Canadians. Regulatory changes are needed to continue to address gaps in Canada’s Regime, address recommendations made through the parliamentary review and reports commissioned by the Government of British Columbia and align the Canadian Regime with international standards.

Background

Canada’s AML/ATF Regime

The core elements of Canada’s AML/ATF Regime are set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act). The Act applies to designated financial and non-financial entities (known as “reporting entities”), footnote 4 which provide access to the financial system and may therefore be susceptible to abuse by criminals seeking to integrate the proceeds of their crimes into the legitimate economy.

The Act sets out obligations that broadly fall into the following four categories: record-keeping, verification of identity of designated persons and entities (e.g. clients with whom the reporting entities conduct business), reporting of suspicious and other prescribed financial transactions (e.g. large cash transactions), and the establishment and implementation of an internal compliance program. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) set out how reporting entities are to fulfill these obligations.

Reports commissioned by the Government of British Columbia

In September 2017, the Attorney General of British Columbia (B.C.), Minister David Eby, appointed Peter German to conduct an independent review of allegations of money laundering in B.C. casinos. German’s first report, Dirty Money, was released in July 2018 and found that large scale, transnational money laundering has been occurring in B.C. casinos, highlighting the “Vancouver Model” for laundering money. German made 48 recommendations, many of which relate closely to those made by the FINA Committee during the 2018 federal parliamentary review, as described below. Minister Eby later mandated German to produce a follow-up report on money laundering relating to real estate, luxury cars and horse racing to verify concerns raised in his original report about the scale and scope of organized crime and money laundering activities in those three sectors. The provincial Minister of Finance also tasked an expert panel to review the B.C. real estate sector and recommend what action can and should be taken to better tackle money laundering. The panel looked at how money was laundered through gaps in consumer protection, compliance and enforcement of existing laws, and standards in financial services regulations, among other areas. German’s second report, Dirty Money – Part 2, and the expert panel’s report were released in May 2019 and highlighted evidence of money laundering in the real estate sector. In its report, the expert panel acknowledged the difficulty in measuring money laundering, but estimated $7.4 billion in money laundering activity in British Columbia in 2018, of which $5.3 billion was laundered through B.C. real estate. The report provided 29 recommendations, many of which also related closely to those made by the FINA Committee. These amendments to the Regulations herein will address some of the expert panel’s recommendations by increasing the strength of oversight on the casino and the real estate sectors.

2018 parliamentary review

To ensure that the AML/ATF Regime remains robust and effective, the administration and operations of the Act are reviewed by a committee of Parliament every five years. The FINA Committee launched a statutory review of the Act in February 2018 and published its report in November 2018. The report makes 32 recommendations to strengthen the Regime by addressing legislative and regulatory gaps, enhancing the exchange of information and privacy rights of Canadians, strengthening intelligence capacity and enforcement, and modernizing the Regime overall.

The amendments will specifically address Recommendation 8, which states that all reporting entities, including DNFBPs such as the real estate sector, that are now exempt from the obligation of identifying beneficial ownership (BO) be required to do the following:

These amendments will also strengthen Canada’s compliance with the FATF standards for DNFBPs, where Canada was rated non-compliant in 2016.

FATF and guidance on virtual assets

Canada is a founding member of the FATF, an intergovernmental body that sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist activity financing and other related threats to the integrity of the international financial system. Although the standards set by the FATF are not legally binding, as a member, Canada is obligated to implement them and to submit to a peer evaluation of their effective implementation.

Not meeting this commitment could lead to a number of sanctions, from enhanced scrutiny measures to public listing, and, in the extreme, suspension of membership from the FATF. Furthermore, non-compliance could cause reputational harm to Canada’s financial sector and subject Canadian financial institutions to increased regulatory burdens when dealing with foreign counterparties or when doing business overseas.

In 2015, the FATF published a guide for the analysis of risks related to virtual currencies and stressed the responsibility of countries to implement effective regulation and supervision, with dissuasive sanctions, of activities related to virtual currencies. In 2018, the FATF amended its Recommendation to explicitly subject virtual asset service providers to AML/ATF obligations. On June 21, 2019, the FATF finalized and adopted its analysis and guidance in the context of virtual assets to help national authorities better understand and develop the regulation and supervision of these activities. Due to the timing of its release, the last set of regulatory amendments did not fully address the FATF standards, as the scope was purposely limited so as not to overstep international standards as the FATF was finalizing its analysis and guidance.

The modified FATF Recommendation requires countries to assess and mitigate the risks associated with virtual asset activities and service providers, licence or register service providers and subject them to supervision or monitoring by competent national authorities, and implement sanctions and other enforcement measures when reporting entities fail to comply with their obligations. The threat of criminal and terrorist misuse of virtual assets is serious and urgent, and the FATF expects all countries to take prompt action to implement the FATF recommendations in the context of virtual asset activities and service providers. The FATF will monitor implementation of the new requirements by countries and service providers and conduct a review in June 2020.

In the Canadian context, the last set of amendments to the Regulations (SOR/2019-240) introduced new virtual currency reporting and record-keeping obligations, which align with the FATF Recommendation. The regulatory amendment clarified that domestic and foreign businesses that are “dealing in virtual currency (VC)” will be considered money services businesses (MSBs). These “dealing in” activities include virtual currency exchange services and value transfer services. As required of all MSBs, persons and entities dealing in VCs will need to fulfill all AML/ATF obligations, including implementing a full compliance program and registering with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). These obligations will come into force in June 2020. In addition, any reporting entity in any sector that receives $10,000 or more in VC (e.g. receiving deposits or any form of payment) will have record-keeping, identification and reporting obligations. These obligations will come into force in June 2021.

One of the outstanding issues that the amendments will address is the “travel rule”. The FATF Recommendation requires member countries to apply the travel rule that currently exists for electronic funds transfers to VC transfers. The travel rule is a long-standing customer due diligence requirement for banks and other financial institutions to include certain client information when transferring funds between financial institutions on behalf of their customers. The amendments will extend the travel rule requirements to VC transfers in alignment with the FATF Recommendation.

Objective

The amendments will

Description

The amendments will address gaps that exist in Canada’s AML/ATF Regime, update the requirements for DNFBPs to perform customer due diligence, level the playing field across all reporting entities, respond to the recommendations from the parliamentary review and reports commissioned by the Government of British Columbia, and help further align the Canadian AML/ATF Regime with the FATF recommendations.

For example, PEP or HIO determination will be required

DNFBPs will be exempted from conducting PEP determination for certain exempted low-risk bodies (for example, a corporation or trust that has minimum net assets of $75 million and whose shares or units are traded on a Canadian stock exchange is considered low-risk because a corporation on its own as an entity cannot be a PEP).

Under FATF standards, casinos are required to implement customer due diligence measures, including determining and verifying identification, when customers engage in financial transactions of $3,000 or more. To align with international standards, the amendments will specify that casinos must verify the identity of individuals when they receive $3,000 or more in a single transaction. For example, under the amendments, casinos will have to verify the identity of any individual who uses $3,000 or more in cash to buy chips to play at the casino. The amendments will apply a more stringent approach to the casino sector given the heightened money laundering risks and vulnerabilities and improve the effectiveness of the AML/ATF Regime by enhancing the quality and scope of information that FINTRAC discloses to law enforcement, which should better assist them in their investigations.

The amendments will help address new emerging risks, and align VC record-keeping obligations with international standards.

The amendments will improve compliance, monitoring and enforcement efforts.

Finally, the following technical amendments are also adopted:

Regulatory development

Consultation

In February 2018, the Department released a discussion paper intended to support Parliament’s 2018 review of the Act and its consideration of issues relating to money laundering and terrorist activity financing in Canada. The Department sought input from stakeholders in response to the paper to support the development of forward policy and technical measures that would lead to legislative changes or inform the Department’s longer-term approaches to Canada’s AML/ATF Regime. For example, one section entitled “Expanding the Scope of the PCMLTFA to High Risk Areas” identified expanding requirements for DNFBPs in relation to PEPs, HIOs, and beneficial ownership as a practical next step to close regulatory gaps.

More than 60 submissions were received from a wide range of reporting sectors and industry associations representing financial entities (banks, credit unions and trust companies), life insurance companies, securities dealers, MSBs, accountants, lawyers, casinos, real estate agents, and dealers in precious metals and precious stones. A large majority of the submissions indicated support for the proposed measures, while some submissions included recommendations for additional changes. The Department had follow-up meetings with private sector representatives to discuss their submissions and their comments were taken into consideration when drafting these amendments.

The proposed amendments were also broadly discussed at the Advisory Committee on Money Laundering and Terrorist Financing. footnote 5 Stakeholders were further consulted on this proposal at in-person meetings from November 2019 to January 2020.

While some reporting entities expressed concerns about the implementation costs associated with some of the proposed amendments (e.g. those associated with updating their procedures, policies and systems and training their staff), overall they were supportive of the intent and need for these changes.

Publication in Part I of the Canada Gazette

The amendments were published in the Canada Gazette, Part I, on February 15, 2020, followed by a 30-day comment period that ended on March 16, 2020. At the outset of the pre-consultation comment period, the Department of Finance proactively engaged key stakeholder groups (i.e. DNFBPs, MSBs) to obtain their initial feedback and address their questions and concerns regarding the amendments in advance of the receipt of their anticipated in-depth commentary/written submissions at the end of the consultation period.

The Department of Finance, in collaboration with FINTRAC, hosted two in-person consultation sessions in Ottawa with reporting entity sectors impacted by the amendments. The first consultation took place ahead of the amendments being prepublished in the Canada Gazette Part I with 30 participants representing all reporting entity sectors, while the second consultation was a roundtable discussion of the draft amendments at a meeting of the Advisory Committee on Money Laundering and Terrorist Financing with 35 participants representing all reporting entity sectors. At both sessions, stakeholders had the opportunity to seek clarification on the draft version of the amendments, as well as voice any concerns. At the end of the consultation period, the Department received seven unique submissions from reporting entities (i.e. financial entities, securities dealers, money services businesses, accountants, casinos, real estate developers and sales agents).

The policy intent of the amendments was generally well received by stakeholders, who expressed support for strengthening Canada’s anti-money laundering and anti-terrorist financing regime. Stakeholders also expressed concerns with respect to implementation, the coming into force date, privacy rights, administrative burden, the balance between prescriptive and risk-based regulatory requirements, and the potential for negative impacts to Canadian consumers. These are outlined below.

The constructive engagement from industry during the prepublication consultations has enabled the Department of Finance and FINTRAC to better understand the practical implications of the amendments. As a result of the feedback received, the Department of Finance, in collaboration with FINTRAC, has made changes to the draft version of the amendments to address concerns raised by stakeholders.

Changes following prepublication
1. Business relationship

Comments from financial entities, securities dealers: As the regulations were restructured to improve the readability of the text, the feedback received on this component of the draft regulations indicated that many of the reporting entities believed the changes in drafting could be interpreted as removing certain exemptions and recommended reinstating the explicit exemptions from forming a business relationship when opening certain low-risk accounts.

Change: The policy intent is to continue exempting low-risk accounts from the formation of a business relationship, and the exceptions that were previously included in the definition of business relationship have been reinstated to provide certainty to industry. For example, the amendments now explicitly state that sales of certain group life insurance policies are exempt from forming a business relationship. This revision does not constitute a change in policy, but rather a clarification to address a drafting error.

2. Record-keeping obligations

Comments from financial entities, securities dealers: Financial institutions are currently required to keep records on who is authorized access to a businesses’ bank account. Stakeholder feedback received indicated that these record-keeping requirements were not equally applicable to financial entities and securities dealers.

Change: Securities dealers will now have to keep records of no more than three persons, as opposed to all persons, authorized to access a business account, consistent with the requirement for financial entities.

Comments from financial entities: The feedback received indicated that the verification of identity in respect of a credit card or a prepaid payment product account, as well as its timing, was inconsistently applied between similar products. The amendments required that the identity be verified when a credit card is issued, while the requirement for identity verification for prepaid payment products was tied to activation. This was inconsistent as there could be a lag between when a credit card is issued versus when it is activated.

Change: The amendments have been modified to be consistent across similar products. The amendments now require identity verification once a credit card is activated, instead of when it is issued, to match prepaid payment product accounts.

3. PEP determination

Comments from casinos: The feedback received indicated that PEP determination could be burdensome to casinos as it is time-consuming and is considered intrusive towards the nature of interaction with patrons considering the required inquiries on family and close associates of PEPs. The identification of a PEP’s family members and close associates can be time-consuming at a gaming establishment during account opening and may encourage patrons to stop making accounts given the intrusive information being asked.

Change: It is critical to consider family members or close associates of PEPs, as it is an established trend that criminals carrying out, or directing, criminal activity will distance themselves from the proceeds of that crime as much as possible until they have laundered the money. FINTRAC has observed that many criminals rely on family members or other personal relationships to conduct transactions on their behalf in order to create this distance until they can establish a safe way to spend these assets. While the PEP requirements cannot be relaxed due to the FATF Standards and the money laundering risks posed by casinos, the same exemptions, which currently apply to financial entities, will be extended to the DNFBPs, MSBs and casinos. Under these exemptions, reporting entities do not have to conduct a PEP determination for certain low-risk bodies and accounts (such as a corporation or trust that has minimum net assets of $75 million and whose shares or units are traded on a Canadian stock exchange, which is unlikely to be a PEP).

Summary: While reporting entities have expressed concerns with regards to the coming into force date and the implementation costs associated with the proposed amendments (e.g. those associated with updating their procedures, policies and systems and training their staff), overall they are supportive of the intent and need for these changes.

Modern treaty obligations and Indigenous engagement and consultation

No impacts have been identified in respect of the Government’s obligations in relation to Indigenous rights protected by section 35 of the Constitution Act, 1982, or its modern treaty obligations.

Instrument choice

Canada’s AML/ATF Regime is entrenched in legislation and regulations. To close gaps and align with FATF standards, amending the Regulations is the most effective way to simultaneously keep pace with international standards and technological advances, strengthen the AML/ATF regime and harmonize requirements while limiting burdens to industry.

Without these regulatory changes, Canada’s AML/ATF Regime would become increasingly outdated over time, enabling criminals to harness more economic and social power and increasing the likelihood of criminal activity. This would compromise the integrity of Canada’s financial system and the security and safety of Canadians at home and abroad. Furthermore, if Canada’s regulatory regime is not aligned with FATF standards, this would have significant adverse consequences for Canada.

The FATF continues to monitor Canada’s progress to address priority actions identified in its 2016 evaluation. Not aligning with FATF standards could lead to a number of sanctions, from enhanced scrutiny measures to public listing and, in the extreme, suspension of membership from the FATF. Furthermore, non-compliance could cause serious reputational harm to Canada’s financial sector and subject Canadian financial institutions to increased regulatory burden when dealing with foreign counterparts or when doing business overseas. Therefore, forgoing regulatory modernization would ultimately be more costly to Canadian businesses in the absence of necessary regulatory change.

During the policy development of these proposed measures, a wide range of regulatory options were considered. Some were determined to go beyond international standards, and others were determined to be too burdensome to industry. Accordingly, a risk-based and incremental approach was taken to ensure the proposed measures still capture the policy intent within an appropriate scope.

Regulatory analysis

Benefits and costs

Costs

As a result of these amendments, reporting entities are expected to carry an estimated $17,163,957 (PV) in compliance costs and $905,140 (PV) in administrative costs for an estimated $18,069,097 (PV) in total costs over a 10-year period (or $2,572,632 annually). Approximately 18 006 reporting entities will be affected, all of them businesses.

These costs primarily stem from the provision of additional information to FINTRAC if asked in a compliance examination, associated updates that will be required to reporting entities’ internal policies and procedures, and internal information management and information technology (IM/IT) system changes that will be required to support the implementation of these amendments.

While there have been a number of changes between the draft and final versions of the amendments, this variance does not affect the costing estimates. This is because much of the relief provided by the changes to the draft amendments alleviates compliance burden stemming from the Act, and was therefore not monetized (e.g. the time no longer required to determine and record PEP determination for low-risk bodies) nor included in the Cost-Benefit Analysis presented in the RIAS published at the pre-publication stage. Furthermore, stakeholders have informed Department of Finance officials that the costs associated with updating IM/IT systems and internal procedures are the same despite any reductions in reporting requirements reflected in the final version of the amendments. Reporting entities advised that the costs are generally fixed for large IM/IT updates that serve to map the various elements of the amendments, and that reducing the number of mandatory fields might only marginally reduce the costs. While implementation of the amendments will be phased in, reporting entities will begin assuming costs immediately in preparation for their coming into force one year later.

Benefits

The amendments will strengthen Canada’s AML/ATF Regime and improve its effectiveness by improving customer due diligence standards; closing regulatory gaps; enhancing compliance, monitoring and enforcement efforts; and aligning the Canadian Regime with international standards.

Money laundering and terrorist activity financing have criminal and economic effects and contribute to facilitating and perpetuating criminal activity. Money laundering and terrorist activity financing harm the integrity and stability of the financial sector and the broader economy, and threaten the quality of life of Canadians. Money laundering damages the financial institutions that are critical to economic growth (through internal corruption and reputational damage), causes economic distortions by impairing the legitimate private sector, reduces productivity by diverting resources and encouraging crime and corruption; distorts the economy’s international trade and capital flows (through reputational damage and market distortions) to the detriment of long-term economic development, and reduces tax revenue as it becomes more difficult for municipal, provincial and federal governments to collect revenue from related transactions which frequently take place in the underground economy. At the same time, there are substantial qualitative benefits associated with the amendments that cannot be monetized due to the lack of available or reliable data to accurately measure the reputational, economic and national security benefits that will result from the implementation of the regulatory changes.

A strengthened AML/ATF Regime helps to combat money laundering and terrorist activity financing threats while protecting Canadians, the integrity of markets and the global financial system, and increases the investment attractiveness and competitiveness of Canada. The amendments will support the stability, utility and efficiency of the financial sector framework by strengthening the Regime and combating financial crime. All Canadians will benefit from a stable, efficient, and competitive financial sector that services and drives economic growth.

Strong AML/ATF policies help deter and detect money laundering and terrorist activity financing offences. The amendments will enhance the quality and scope of FINTRAC disclosures of financial intelligence to law enforcement and disclosure recipients, which will better assist them in their investigations. The additional information on PEPs, HIOs and beneficial ownership will better equip FINTRAC to enhance financial intelligence disclosures that law enforcement will use to detect and prosecute more money laundering cases.

Furthermore, the amendments will positively respond to the recommendations made by the FINA Committee, the Peter German reports and the report by the Expert Panel on Money Laundering in B.C. real estate, and address the money laundering vulnerabilities described in each report. The amendments will address money laundering vulnerabilities in high-risk sectors that have key gatekeeper roles in financial transactions, such as the real estate sector.

The amendments will also improve Canada’s compliance with FATF international standards, which will be considered during the next on-site FATF evaluation. Meeting these standards will improve the integrity of the global AML/ATF framework, positively impact Canada’s international reputation, and may lead to regulatory efficiencies with other countries’ AML/ATF regimes, making it easier for Canadian businesses to operate internationally. Furthermore, meeting these standards will help ensure Canada is not flagged as a jurisdiction of concern by the FATF for lack of action to address key AML/ATF deficiencies and ultimately prevent other countries from levying sanctions on Canada. Such reputational, economic and national security impacts cannot be quantified.

Cost-benefit statement
Consolidated cost-benefit statement

The cost-benefit analysis uses the following key assumptions for the monetization of impacts:

Cost-benefit statement
Quantified impacts (in dollars)

Quantified impacts

Stakeholder Group

Year 1

Year 5

Year 10

Annualized Value

Total PV

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Compliance costs (IM/IT systems updates)

Industry

$12,429,744

$0

$0

$1,769,716

$12,429,744

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Compliance costs (policies and procedures updates)

Industry

$4,734,213

$0

$0

$674,045

$4,734,213

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Administrative costs

Industry

$98,973

$75,505

$53,834

$105,900

$743,800

Modifying the definition of business relationship for the real estate sector — Administrative costs

Industry

$211,047

$16,100

$11,479

$22,582

$158,605

Aligning customer due diligence measures for casinos with international standards — Administrative costs

Industry

$364

$278

$198

$389

$2,735

Aligning virtual currency record-keeping obligations with international standards

Industry

$0

$0

$0

$0

$0

Making minor amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations

Industry
Travellers

$0

$0

$0

$0

$0

Total

$17,474,341

$91,883

$65,511

$2,572,632

$18,069,097
Qualitative impacts
Positive impacts

A strong and effective AML/ATF Regime acts as a deterrent to crime and therefore improves the safety of Canadians and the integrity of Canada’s financial system. In turn, this increases confidence in Canada’s financial system, making it an attractive place to invest and do business. Investors seek investment opportunities in locations that have a relatively low crime environment and that are politically and economically stable, among other factors. The willingness of businesses and individuals to invest in Canada could be negatively affected if Canada were viewed as weak on combating money laundering and terrorist activity financing or if Canada were to have a reputation for being a safe haven for raising terrorist funds. A strong reputation with regard to an effective AML/ATF Regime helps Canadian financial institutions avoid burdensome regulatory hurdles and additional costs when dealing with their foreign counterparts or doing business overseas.

Small business lens

It is estimated that approximately 18 006 businesses will be impacted by the amendments, over 99.7% of them small businesses. The total incremental administrative and compliance costs imposed on small businesses are estimated at $17,833,169 ([PV], $2,539,042 annualized average), which is equivalent to $994 (PV) per small business impacted.

Small Business Lens Summary

Number of small businesses impacted

17 948

Number of years

10

Base year for costing

2018

Compliance costs

Annualized Value ($)

Present Value

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Compliance costs (IM/IT systems updates)

$1,754,596

$12,323,545

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Compliance costs (policies and procedures updates)

$669,717

$4,703,812

Total

$2,424,313

$17,027,357

Administrative costs

Annualized Value ($)

Present Value

Expanding requirements for DNFBPs in relation to PEPs, HIOs, and BO — Administrative costs (additional documents for FINTRAC exam)

$92,145

$647,191

Modifying the definition of business relationship for the real estate sector — Administrative costs (additional documents for FINTRAC exam)

$22,238

$156,190

Aligning customer due diligence measures for casinos with international standards — Administrative costs (additional documents for FINTRAC exam)

$346

$2,430

Total

$114,729

$805,811

Total cost (all impacted small businesses)

$2,539,042

$17,833,169

Cost per impacted small business

$141

$994

These costs stem from the provision of additional documents to FINTRAC if asked in a compliance examination, the associated updates that will be required to report entities’ internal policies and procedures, and internal IM/IT system changes that will be required to support the implementation of these amendments.

The Department is not able to provide a flexibility analysis for small businesses because the amendments are being made to comply with FATF standards that, while not legally binding, Canada is obligated to follow. Furthermore, the Regulations and Canada’s obligations to meet the FATF’s international standards are non-discretionary in nature, with clear implementation guidelines. The Department recognizes that businesses, irrespective of size, will require time to implement these changes and will therefore provide 12 months of transition time (i.e. delay in coming into force) for businesses to comply with the new requirements. While this does not constitute a special consideration for small businesses alone, it should be noted that impacts on businesses have been considered when establishing compliance requirements.

One-for-one rule

Canada’s obligations to meet the FATF’s international standards are non-discretionary in nature due to the potential for punitive consequences in the event Canada fails to meet them. Other jurisdictions’ perception of Canada has tangible impacts on Canadian businesses. If Canada is not aligned with the FATF standards or is perceived by its international peers as making insufficient progress on its AML/ATF Regime generally, there could be negative reputational consequences for Canada’s financial sector that could ultimately lead to increased costs for Canadian financial institutions. By its nature, including the need to be aligned with FATF standards and effectively detecting and deterring crimes, Canada’s legislative and regulatory framework for combating money laundering and terrorist activity financing imposes an unavoidable burden on reporting entities.

The total net annualized administrative cost increase for affected businesses is estimated at $68,426. The annualized administrative cost increase per affected business is estimated to be $147. These costs were estimated by using the Treasury Board Secretariat’s Regulatory Cost Calculator and the relevant monetization parameters for the one-for-one rule reporting. The cost estimates are measured in 2012 Canadian dollars, and are discounted back to 2012 as required under the Red Tape Reduction Regulations.

The Regulations Amending the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019 amend the following five existing regulations through the one amending regulation:

The administrative burden associated with these amendments stems from the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. While the amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations (CBCRs) are discretionary in nature, they do not increase or decrease administrative burden for businesses.

As Canada is required to make the majority of these amendments to comply with FATF standards, the amendments that impose an administrative burden (i.e. all except those being made to the CBCRs) are considered non-discretionary in nature and are therefore exempt from the requirement to offset under the one-for-one rule. This means that an equal amount of administrative burden will not have to be offset two years after these amendments are made.

Regulatory cooperation and alignment

Canada’s AML/ATF Regime is largely consistent with international standards set by the FATF with the exception of some notable gaps, which the current amendments will address. The amendments align with the FATF standards and mirror the language in certain FATF standards, guidance, and recommendations. Although the standards set by the FATF are not legally binding, as a member, Canada is obligated to implement them and to submit to a peer evaluation of their effective implementation. Canada’s last mutual evaluation took place in 2015–2016, and the subsequent report outlined a number of deficiencies, which the last set of amendments to the Regulations in 2019 were intended to address. In an effort to continue with this progress, and in light of emerging risks in the operating environment, the amendments serve to continue to support Canada’s alignment with FATF standards.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that the amendments would not result in positive or negative environmental impacts. Therefore, a strategic environmental assessment is not required.

Gender-based analysis plus

A gender-based analysis plus (GBA+) assessment was undertaken for these amendments. The results indicate that by strengthening and modernizing Canada’s AML/ATF Regime, the amendments will reduce potential threats to Canada’s economic development and its financial security, increase investment attractiveness and competitiveness, and benefit the overall economy by contributing to the stability of the Canadian financial system, benefiting both men and women. Any crime that generates profit can be a precursor to money laundering, including drug offences, fraud, and human trafficking. As such, these measures target a broad array of crimes, for which the gender, age and socio-economic status of the victims vary greatly. As a result, these measures have the potential to advance gender-specific objectives, e.g. by targeting prostitution rings, yet are expected to be gender neutral on balance.

Privacy impacts

FINTRAC requires a certain volume, and specific types, of financial transaction information in order to be able to produce actionable financial intelligence for law enforcement partners. The Regime aims to strike the right balance between the privacy rights of Canadians and the policy objectives of Canada’s AML/ATF Regime. Clear principles for the protection of privacy are set out in FINTRAC’s governing legislation, which respects the Canadian Charter of Rights and Freedoms and the Privacy Act, and are reinforced by FINTRAC’s own operational policies and security measures. Under the Act, FINTRAC can only make a disclosure of designated information to appropriate police forces and prescribed law enforcement and security agencies. Furthermore, the legislation clearly states what information may be disclosed and sets out specific thresholds that must be met before FINTRAC is able to disclose it. Furthermore, pursuant to subsection 72(2) of the Act, the Privacy Commissioner is required to conduct a biennial review of the measures taken by FINTRAC to protect information it receives or collects, and to report the results of these audits to Parliament.

Implementation, compliance and enforcement, and service standards

Under the Act, FINTRAC is designated as Canada’s financial intelligence unit and the regulator responsible for administering and enforcing the Act and regulations.

FINTRAC’s responsibilities include the overall supervision of reporting entities to determine compliance with the Act and regulations. Under the Act, reporting entities are required to comply with FINTRAC’s information demands and to give all reasonable assistance when FINTRAC carries out its compliance responsibilities.

FINTRAC will update its guidance to set out its expectations for how obligations are to be met as well as undertake possible outreach activities to ensure reporting entities are aware of the new obligations. FINTRAC will be responsible for enforcing the obligations and will include them into their compliance examinations and processes. Should non-compliance be identified, FINTRAC will impose administrative monetary penalties or take other enforcement actions.

There have been other recent amendments to these Regulations, which had a phased implementation strategy and staggered coming into force dates. The prohibition on the use of scanned or photocopied documents was repealed and took effect upon registration in June 2019. The 2014 legislative amendments for virtual currency dealers will come into force on June 1, 2020, which will require virtual currency dealers to register as MSBs and comply with other legislative obligations, such as suspicious transaction reporting and implementing a compliance program. The remaining amendments related to VC dealers’ obligations will come into force on June 1, 2021. The amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations will come into force on June 1, 2020.

In light of this, the transition period and coming into force dates of the amendments will align with the previous regulatory amendments. The amendments to the previous amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations will come into force on June 1, 2020. All other amendments amending the previous regulatory amendments will come into force on June 1, 2021, giving stakeholders 12 months to comply with the new requirements and apply the required changes to their systems. This transition period is intended to limit impacts on industry and avoid any unnecessary costs where possible. The phased-in approach of these changes will also help facilitate industry readiness for the coming into force of the regulatory amendments and reduce costs to implement the changes.

Contact

Lynn Hemmings
Director General
Financial Crimes and Security Division
Financial Sector Policy Branch
Department of Finance Canada
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Email: fin.fc-cf.fin@canada.ca