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Strengthening Canada Anti Money Laundering and Anti Terrorist

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					Strengthening Canada’s
Anti-Money Laundering and
Anti-Terrorist Financing Regime



Consultation Paper
December 2011
Table of Contents
Preface............................................................................................................................................. 1
Proposals Relevant to Various Sectors ........................................................................................... 2
Introduction ..................................................................................................................................... 4
Chapter 1 - Strengthening Customer Due Diligence Standards.................................................... 10
Chapter 2 - Closing the Gaps ........................................................................................................ 19
Chapter 3 - Improving Compliance, Monitoring and Enforcement .............................................. 26
Chapter 4 - Strengthening Information Sharing in the Regime .................................................... 30
Chapter 5 - Countermeasures ........................................................................................................ 36
Chapter 6 - Other Proposals .......................................................................................................... 40
Chapter 7 - Technical Amendments ............................................................................................. 42
Annex A - List of Proposed Countermeasures ............................................................................. 43
Annex B - Proposed Definition of Foreign Entity ........................................................................ 49
List of Abbreviations .................................................................................................................... 50
Links to Important Documents ..................................................................................................... 51
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                              1

Preface
The Government of Canada is committed to a strong and comprehensive regime that is at the
forefront of the global fight against money laundering and terrorist financing, contributes to
public safety in Canada and around the world, and safeguards the integrity of Canada’s
financial system.

This paper sets out for public consultation and consideration the Government of Canada’s ("the
Government") proposals to strengthen Canada’s anti-money laundering (AML) and anti-terrorist
financing (ATF) legislative framework, which is administered through the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act (PCMLTFA). Its key objectives include:

•    reviewing Canada’s AML/ATF legislative framework in preparation for the upcoming
     Parliamentary review of the PCMLTFA as required by subsection 72(1) of the Act;
•    addressing the recommendations of an independent consultant included in the Report of the
     10-Year Evaluation of Canada’s AML/ATF Regime, released in March 2011;
•    responding to stakeholder concerns, raised by both the private sector and federal regime
     partners, particularly law enforcement and intelligence agencies;
•    meeting Canada’s international commitments by improving our compliance with the
     Recommendations of the Financial Action Task Force (FATF), the international standard
     setter in the area of AML and ATF;
•    responding to the interim report of the Special Senate Committee on Anti-Terrorism,
     entitled Security, Freedom and the Complex Terrorist Threat: Positive Steps Ahead;
•    responding to the final report of the Commission of Inquiry into the Investigation of the
     Bombing of Air India Flight 182, Air India Flight 182: A Canadian Tragedy; and
•    responding to the 2009 Privacy Commissioner of Canada’s Audit Report of the Financial
     Transactions and Reports Analysis Centre of Canada.

The proposals in this paper seek to maintain the balance between the need to deter and detect
money laundering and terrorist financing activities while protecting the privacy rights of
Canadians. The Government also recognises the need to minimize the compliance burden on the
private sector.

The Government is seeking the views of Canadians to ensure that the implications of the
proposals included in this paper are fully considered. The second Parliamentary review of the Act
will be undertaken shortly. This will provide an opportunity for additional improvements to the
PCMLTFA to be identified.

This document is available on the Department of Finance website (www.fin.gc.ca).
                                                    Strengthening Canada’s Anti-Money Laundering
2                                                              and Anti-Terrorist Financing Regime

Proposals Relevant to Various Sectors

                    Entities                                         Proposal Number
Financial institutions (banks, credit unions and        1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10,
caisses populaires, centrals, and trust and loan                     2.1, 2.2, 2.3, 2.6, 2.9,
                                                                             3.3, 3.4,
                   companies)                                                5.1, 5.2,
                                                                              6.1, 6.4
      Crown corporations that take deposits                            1.2, 1.8, 1.9, 1.10,
                                                                             2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
Life insurance companies, brokers and agents                   1.2, 1.4, 1.5, 1.6, 1.8, 1.9, 1.10,
                                                                   2.2, 2.3, 2.4, 2.5, 2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
                 Securities dealers                          1.2, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10,
                                                                             2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
             Money service businesses                             1.2, 1.5, 1.6, 1.8, 1.9, 1.10,
                                                                     2.1, 2.2, 2.3, 2.6, 2.9,
                                                                        3.1, 3.2, 3.3, 3.4,
                                                                             5.1, 5.2,
                                                                              6.1, 6.4
        Accountants and accounting firms                               1.2, 1.8, 1.9, 1.10,
                                                                           2.6, 2.8, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
             British Columbia notaries                                 1.2, 1.8, 1.9, 1.10,
                                                                             2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
    Real estate brokers, sales representatives or                      1.2, 1.8, 1.9, 1.10,
               real estate developers                                        2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
                      Casinos                                     1.1, 1.2, 1.4, 1.8, 1.9, 1.10,
                                                                             2.6, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
       Dealers in precious metals and stones                            1.2, 1.8, 1.9, 1.10
                                                                           2.6, 2.7, 2.9,
                                                                             3.3, 3.4,
                                                                             5.1, 5.2,
                                                                                6.1
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and Anti-Terrorist Financing Regime                                                                                3

                     Entities                                                Proposal Number
           Legal counsel and legal firms 1                                       1.2, 1.8, 1.9,
                                                                                   2.6, 2.8,
                                                                                   3.3, 3.4,
                                                                                   5.1, 5.2,
                                                                                      6.1
    Importers/exporters of currency or monetary                                       2.3,
                     instruments                                                      3.6
    Providers of prepaid access not subject to the                                  2.2, 2.3
                     PCMLTFA
      Administrative provisions (do not affect                                     3.5, 3.6,
                  reporting entities)                                  4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7,
                                                                                   6.2, 6.3,
                                                                                 7.1, 7.2, 7.3




1
  With respect to lawyers, the provisions of the PCMLTFA that apply to lawyers are in force but are inoperative as a
result of a court ruling and related injunctions. This ruling has been appealed. Accordingly, if any proposals are
implemented, they could apply to lawyers if future court decisions result in the legislation becoming operative in
respect of the legal profession.
                                                           Strengthening Canada’s Anti-Money Laundering
4                                                                     and Anti-Terrorist Financing Regime

Introduction
Money laundering and terrorist financing not only threaten the financial system, they create
incentives for crimes that may harm Canadians and threaten our quality of life. The potential
business and societal damages of these crimes underscore the need for a clear and
effective deterrent.

On November 7, 2011, the Department of Finance issued a “Consultation Paper on Proposed
Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
on Ascertaining Identity”. It proposes measures to enhance customer identification and due
diligence (CDD) 2. These proposals are regulatory in scope and address several deficiencies
identified by the FATF in its 2008 evaluation of Canada’s AML\ATF Regime.

This paper presents and seeks views on a number of additional proposed measures that would
further strengthen the Regime.

CANADA’S EVOLVING AML/ATF REGIME

The core elements of Canada’s AML Regime were originally set out in the Proceeds of Crime
(Money Laundering) Act (PCMLA) of 2000. In December 2001, following the passage of the
Anti-Terrorism Act, the scope of the PCMLA was expanded to include ATF measures and the
PCMLA was renamed the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(PCMLTFA).

The overarching objective of the PCMLTFA is to detect and deter money laundering and the
financing of terrorist activities, while facilitating the investigation and prosecution of these
crimes. These objectives thus place equal emphasis on preventing illicit funds from entering or
moving through Canada’s financial system and creating a paper trail to assist law enforcement in
detecting and prosecuting these crimes.

Part 1 of the Act requires financial intermediaries to meet customer identification, due diligence
and record-keeping obligations and to report suspicious and prescribed transactions relevant to
the identification of money laundering, terrorist financing and the possession of terrorist
property. Part 2 of the Act is administered by the Canada Border Services Agency (CBSA), and
requires the reporting of the importation and exportation of cash or monetary instruments of
$10,000 or greater.

Part 3 of the PCMLTFA establishes the Financial Transactions and Reports Analysis Centre of
Canada (FINTRAC), which became operational in October 2001. Its primary functions are to
receive reports under the PCMLTFA from reporting entities 3, to analyze those reports for

2
 The Department of Finance accepted comments for this consultation until December 16, 2011.
3
 Reporting entities include banks, credit unions and caisses populaires, centrals, trust and loan companies, securities
dealers, life insurance companies, brokers or agents, real estate brokers or sales representatives, real estate
developers, accountants and/or accounting firms, British Columbia notaries, money services businesses, casinos,
dealers in precious metals and stones, and agents of the Crown that accept deposit liabilities or sell money orders.
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                5

information relevant to money laundering and terrorist financing, to provide designated
information (e.g., account holder, transaction amount and date) to Canadian law enforcement
agencies and other agencies such as the CBSA, the Canada Revenue Agency (CRA) and the
Canadian Security Intelligence Service (CSIS) in specific circumstances, and to monitor and
ensure the compliance of reporting entities with the requirements of the Act.

In 2006, subsequent to a five-year Parliamentary review of the administration and operation of
the PCMLTFA, legislative amendments were implemented to enhance the Regime, address
stakeholder concerns, and make it more consistent with the FATF standards. For example,
measures were implemented to: enhance client identification, record-keeping and reporting
measures applicable to financial institutions and intermediaries; allow FINTRAC to disclose
additional information to law enforcement and intelligence agencies, and to make disclosures to
additional agencies; and establish a registration regime for money services businesses (MSBs).

Part 4.1 of the PCMLTFA, which came into force in December 2008, provided FINTRAC with
the legislative authority to issue administrative monetary penalties (AMPs). This tool supports
and enhances FINTRAC’s efforts to ensure compliance by reporting entities with the Act by
providing the flexibility for a measured and proportionate response to particular instances of
non-compliance.

In 2010, Part 1.1 was added to the PCMLTFA. This enables the Government to impose targeted
financial sanctions against jurisdictions, and foreign entities that lack sufficient or effective AML
and ATF measures in order to protect the integrity of Canada’s financial system. Part 1.1 is not
yet in force pending new regulations to clarify the application of the Minister’s powers. These
are proposed in Chapter 5 of this consultation paper.

SCOPE OF THE REVIEW

Domestic Considerations

AML/ATF STAKEHOLDERS

Discussions with Regime partners have generated proposals that could improve the Regime. The
proposals included in this paper are directed chiefly at building on and improving the
fundamentals of the Regime and strengthening the contributions of Regime partners to its
success. Various proposals would also respond to the concerns of private sector stakeholders
including the Public/Private Sector Advisory Committee, which is chaired by the Department of
Finance and includes representatives from both the private and public sectors.

10-YEAR EVALUATION OF CANADA’S AML/ATF REGIME

An independent consultant conducted the 10-Year Evaluation of Canada’s AML/ATF Regime,
which was released in March 2011 and is posted on the Department of Finance website 4. The
report concluded that the performance of the Regime had improved over the 10 years of its

4
    Report of the 10-Year Evaluation of Canada’s AML/ATF Regime
                                                 Strengthening Canada’s Anti-Money Laundering
6                                                           and Anti-Terrorist Financing Regime

operation and that it continues to support Government priorities. It also concluded that the
Regime has created an environment that is hostile to money laundering and terrorist financing,
thus making it more difficult and less profitable for criminals to undertake money laundering and
terrorist financing activities in Canada.

The report also identified areas of potential improvement. It recommended that the Department
of Finance lead discussions with Regime partners to determine future steps for continuing to
improve the Regime’s compliance with international commitments. It was recommended that
these discussions should include an examination of legislative barriers that may limit the ability
for Regime partners to effectively share information.

SPECIAL SENATE COMMITTEE ON ANTI-TERRORISM

The Special Senate Committee on Anti-Terrorism was established in 2010. In March 2011, the
Senate Committee released an interim report entitled Security, Freedom and the Complex
Terrorist Threat: Positive Steps Ahead.

The report recommended that the definition of “monetary instruments” under the PCMLTFA be
expanded to recognize prepaid cards and mobile devices, and that consideration be given to
reducing the $10,000 threshold that currently applies to cash transactions and international
electronic funds transfers that must be reported to FINTRAC. The report also raised concerns
that the restrictions on FINTRAC disclosing to national security agencies its own analysis of
financial intelligence or written explanations justifying disclosures, requires CSIS to duplicate
this analysis.

AIR INDIA REPORT

The Commission of Inquiry into the Investigation of the Bombing of Air India Flight 182 was
established in May 2006 to examine the events surrounding the bombings, the subsequent
investigation into the bombing, and to identify remaining gaps in national security. The
Commission's final report, Air India Flight 182: A Canadian Tragedy, was released in
June 2010.

The report raised concerns that restrictions on information sharing, which are intended to protect
the privacy of Canadians, have hindered the legitimate need for information to be shared by
Regime partners, most notably the inability for FINTRAC to disclose its own analysis of a
particular case to another agency. As well, transactions involving the small sums needed to
finance terrorist acts are not likely to be discovered through the routine collection and processing
of information by FINTRAC and the CRA.

PRIVACY

The proposals and issues discussed in this paper seek to maintain a balance between the
legitimate need to gather intelligence to assist with deterring and detecting money laundering and
terrorist financing activities and to facilitate the investigation and prosecution of these offences
with, the privacy rights of Canadians under the Canadian Charter of Rights and Freedoms
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                 7

(Charter) and Canada’s privacy legislation. The proposed changes recognize that appropriate
safeguards to control the collection, use and disclosure of personal financial information should
be maintained, while still providing flexibility for the legislative framework to evolve with the
needs of public and private stakeholders and Canadian society in order to address new challenges
presented by emerging money laundering and terrorist financing activities and trends.

As well, to assure Canadians that their personal information is being appropriately managed by
FINTRAC, there is a legislative requirement for the Office of the Privacy Commissioner (OPC)
to perform, every two years, a privacy audit of the measures taken by FINTRAC to protect
information it receives or collects under the PCMLTFA. The OPC reports the results of such
reviews to Parliament. The most recent final audit report was released in 2009. In this report, the
OPC found that FINTRAC had robust security measures in place to protect personal information,
and its use and disclosure practices complied with the PCMLTFA and the Privacy Act. However,
the report did identify gaps in FINTRAC’s privacy management framework.

International Considerations

The FATF is the key inter-governmental body whose purpose is the development and promotion
of policies, both at national and international levels, to combat money laundering and terrorist
financing. The FATF has developed international standards in these areas through its Forty
Recommendations on Money Laundering and Nine Special Recommendations on Terrorist
Financing (40+9 Recommendations), which are regularly reviewed and updated to ensure
that they remain timely and relevant to the evolving threat of money laundering and
terrorist financing.

FATF member countries, including Canada, have made a political commitment to implement
these Recommendations. The Mutual Evaluation process is the primary instrument by which the
FATF monitors progress made by member governments to implement the Recommendations and
suggests areas for improvement. Canada was last evaluated in February 2008 and its progress in
meeting the FATF’s standards in specific areas has subsequently been monitored.

The Canadian Regime is in the top tier of FATF members in terms of compliance with the FATF
standards. However, enhancing Canada’s compliance with the standards remains a priority to
ensure that Canada remains a leader in the fight against money laundering and terrorist financing
and that our financial system is not vulnerable to abuse.

Outside of the FATF, the G20 has committed to lead by example in implementing the G20’s
Anti-Corruption Action Plan. As part of this work, the G20 has emphasized the use of AML
tools in the fight against corruption, and has supported updating and implementing the FATF
standards calling for, inter alia, due diligence for politically exposed persons. Canada has also
made commitments to the United Nations, the IMF and the World Bank, with respect to
implementing strong AML and ATF controls.

If implemented, the proposals contained in this paper would contribute to strengthening
Canada’s AML / ATF Regime. As such, they would contribute to improving Canada’s overall
compliance with the FATF’s 40+9 Recommendations on AML/ATF, thereby helping to
                                                          Strengthening Canada’s Anti-Money Laundering
8                                                                    and Anti-Terrorist Financing Regime

safeguard the integrity of the global financial system. It is important to note that money
laundering and terrorist financing methods are constantly evolving as criminals develop new
ways to exploit the financial system and legitimate businesses for their criminal purposes. As a
result, the international standards are also reviewed and updated from time to time. Indeed, the
FATF standards are currently being reviewed for the third time since they were first developed
following the creation of the FATF in 1989. While the revised standards are not yet approved,
the consultation process will allow for consideration of these in due course.

OBJECTIVES OF THE REVIEW

In this paper, the Government is putting forward a number of proposals that may be considered
for future legislative or regulatory amendments. The intention is to provide an opportunity for
stakeholders to react to these proposals, including for the benefit of the Parliamentary Committee
that will undertake a review of the administration and operation of the PCMLTFA in 2012, as
required under the Act.

The proposals in the paper are organized around the following key headings:

•     strengthening CDD standards;
•     closing gaps in Canada’s AML/ATF Regime;
•     improving compliance, monitoring and enforcement;
•     strengthening information sharing in the Regime;
•     introducing a list of potential countermeasures; and
•     other amendments.

The proposals will affect all persons and entities subject to the PCMLTFA (also known as
‘reporting entities’), that is:

•     financial entities (banks, credit unions and caisses populaires, centrals, trust and loan
      companies);
•     Crown corporations that take deposits;
•     life insurance companies, brokers and agents;
•     securities dealers;
•     money service businesses;
•     accountants and accounting firms;
•     lawyers 5;
•     British Columbia notaries;
•     real estate brokers, sales representatives and developers;
•     dealers in precious metals and stones; and
•     casinos.


5
 The provisions of the PCMLTFA that apply to lawyers are in force but are inoperative as a result of a court ruling
and related injunctions. This ruling has been appealed. Accordingly, if any proposals are implemented, they could
apply to lawyers if future court decisions result in the legislation becoming operative in respect of the legal
profession.
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                              9

Other amendments and issues for future consideration may also be proposed at a later time.
For example, it is anticipated that recommendations will be put forward subsequent to the
upcoming Parliamentary review of the PCMLTFA.
The Government recognizes that measures to enhance Canada’s AML/ATF legislative
framework should not place an undue burden on reporting entities, which are on the front lines of
the fight against money laundering and terrorist financing. Full consideration will be given to the
input and comments received, including in relation to potential compliance challenges that
reporting entities could face as a result of the proposals contained in this paper and the timing
of possible implementation.

HOW TO COMMENT
Closing date: All comments are requested by March 1, 2012.
Who may respond:
These consultations are open to anyone. Comments regarding any element of this paper are
invited and can be emailed to: fcs-scf@fin.gc.ca.
Also, written comments can be forwarded to:
Leah Anderson
Director, Financial Sector Division
Department of Finance
 L’Esplanade Laurier
20th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario, K1A 0G5

The Department of Finance will post submissions on its website, but only with the consent of the
submitting party. This would allow others, including the Parliamentary Committee that will be
conducting a review of the legislation early in 2012, access to comments. We ask that, in
providing your submission, you:

•    state whether you consent to posting your submission on the Department of Finance
     website; and

•    indicate whether you would like the Department of Finance to include your name and/or
     the name of the organization you represent with your submission when posting it on the
     Department of Finance website.

The Department of Finance will not post submissions that do not clearly provide consent to do
so. If you consent to the posting of your submission on the Department of Finance website,
please ensure to provide the submission electronically in PDF format or in plain text.

Once received by the Department of Finance, all submissions are subject to the Access to
Information Act (ATIA) and may be disclosed in accordance with its provisions.
                                                 Strengthening Canada’s Anti-Money Laundering
10                                                          and Anti-Terrorist Financing Regime

Chapter 1 - Strengthening Customer Due Diligence Standards
A cornerstone of Canada’s AML/ATF Regime is the obligation for reporting entities to ascertain
the identity of their clients and to keep records of the identification information and the steps
taken to acquire such information. Reporting entities who know their clients and their activities
are better able to correctly assess the money laundering and terrorist financing risk level of those
clients, to identify any transaction conducted by those clients that may be suspicious, and report
those suspicions. These measures have a strong prevention element that supports the deterrent
objective of the PCMLTFA as criminals and terrorist financiers will find it increasingly difficult
to place their funds into the financial system without notice. Similarly, these measures also
support the detection objective of the PCMLTFA as records of the client identification
information kept by reporting entities can provide valuable information to law enforcement when
conducting investigations related to money laundering and terrorist financing.

The FATF’s Recommendation 5, a core Recommendation, states that member countries should
implement measures to ensure that financial institutions are adequately able to identify their
customers when establishing business relations or carrying out occasional transactions.

As noted, on November 7, 2011, a consultation paper was released by the Department of Finance
proposing various regulatory measures, which are being considered to strengthen the CDD
provisions of Canada’s AML/ATF Regime and to respond to deficiencies previously identified
by the FATF with respect to Canada’s compliance with Recommendation 5. The proposals are
intended to improve the capacity of reporting entities to know their customers, increase their
ability to identify transactions potentially related to money laundering or terrorist financing, and
assist reporting entities to comply with their obligations under Canada’s AML/ATF Regime.

In addition to the measures in the November 7th consultation paper, other issues have been raised
by reporting entities and Regime partners related to CDD obligations under the Regime. This
Chapter describes proposed measures to address these concerns.

CLIENT IDENTIFICATION RECORDS FOR AUTHORIZED SIGNERS FOR BUSINESS ACCOUNTS

Paragraph 54(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing
Regulations (PCMLTFR) provides that financial entities are required to ascertain the identity of
at least three authorized signers of a business account. A similar requirement applies to casinos
under paragraph 60(a). However, there is no related requirement for either financial entities or
casinos to keep a record of the identity of those signers or the measures taken to ascertain their
identity. Where a suspicious transaction takes place, reporting entities are required to report,
where applicable, the name and identification information of both the person conducting the
transaction and the party on whose behalf the transaction is conducted. This includes
information as to the identity of the authorized signer conducting the transaction.
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and Anti-Terrorist Financing Regime                                                                                  11

Proposal 1.1

To ensure that financial entities and casinos have the necessary information available to include
in a suspicious transaction report, the Government is giving consideration to amending the
PCMLTFR to require financial entities and casinos that ascertain the identity of an authorized
signer to also keep a client identification record in respect of that signer.

ENHANCING CUSTOMER DUE DILIGENCE EXEMPTIONS FOR INTRODUCED BUSINESS

There are several situations in which one financial business may “introduce” (or refer) a client to
another financial business. For example, insurance brokers introduce their clients’ business
to insurance companies, and banks frequently introduce their clients to securities dealers.

The PCMLTFR recognizes only two specific “introduced business” scenarios where one
reporting entity can rely on the CDD performed by another reporting entity. These are under
subsection 56(2) and paragraph 62(1)(b) 6. In these two cases, the recipient reporting entities are
exempt from certain CDD requirements where these are believed to have been performed by the
introducer. These exemptions limit the duplication of procedures by reporting entities.

The FATF has recommended that reporting entities under Canada’s AML/ATF Regime
be required to take more responsibility for CDD in introduced business scenarios. Canada
received a Non-Compliant rating with the FATF’s Recommendation 9, which addresses
introduced business.

         Canada’s Mutual Evaluation Report (2008)

         When [introduced business] scenarios apply, there is no explicit requirement in the
         Regulations for financial institutions to obtain from the third party the necessary
         information concerning certain elements of the CDD process and satisfy themselves
         that copies of identification data are made available from the third party upon request
         without delay. The Regulations do not set out that the ultimate responsibility for
         customer identification and verification should remain with the financial institution
         relying on the third party.

In 2008, amendments were made to the PCMLTFR to allow for agents or mandataries to perform
certain CDD obligations on behalf of a reporting entity. This differs from the introduced
business exemptions in that it allows non-reporting entities to perform the CDD obligations on


6
  Subsection 56(2) exempts a life insurance company or life insurance broker or agent from ascertaining the identity
of a person where there are reasonable grounds to believe that the person’s identity has been ascertained by another
life insurance company or life insurance broker or agent in respect of the same transaction or of a transaction that is
part of a series of transactions that includes the original transaction. Paragraph 62(1)(b) exempts reporting entities
from ascertaining the identity of a client for the opening of an account for the sale of mutual funds where there are
reasonable grounds to believe that identity has been ascertained by a securities dealer in respect of either the sale of
mutual funds for which the account has been opened, or a transaction that is part of a series of transactions that
includes that sale.
                                                  Strengthening Canada’s Anti-Money Laundering
12                                                           and Anti-Terrorist Financing Regime

behalf of a reporting entity. Unlike the introduced business exemptions, there must also be a
contractual agreement in place between the parties for the agency relationship to exist.

The Government recognizes that the existing CDD exemptions for introduced business scenarios
may not cover all introduced business scenarios in the financial system. To minimize the
administrative burden on reporting entities and to level the playing field between different types
of reporting entities, existing introduced business exemptions could be considered for other
reporting entities receiving business from another reporting entity.

At the same time, the PCMLTFR does not require reporting entities that rely on an introduced
business exemption for CDD to obtain details about the information used to ascertain a client’s
identity (e.g., a driver’s licence number, if a driver’s licence was used to ascertain identity) or
keep a record of this information. This creates a risk that the information will be lost if the
relationship between the recipient and introducer is later terminated (e.g., if the introducer goes
out of business). These records contain valuable information that is essential to ensuring that
CDD and reporting obligations are met and may also be vital to law enforcement in the
investigation of a money laundering or terrorist financing offence.

Proposal 1.2

The Government proposes to review the current exemptions from CDD and record-keeping for
scenarios involving introduced business, in order to improve the continuity of record-keeping
and to clarify how responsibility for the CDD information is divided among the party introducing
the business and the party receiving the business. In addition, consideration will be given to
expanding the scope of introduced business scenarios that would qualify for an exemption from
certain CDD obligations.

The Government is seeking views from the industry on this issue, including the following
elements:

•    examples of “introduced business” scenarios where revising CDD and/or record-keeping
     requirements would eliminate a duplication of effort by the reporting entities involved;

•    current industry practices that may mitigate the risk of records being lost or destroyed in an
     “introduced business” scenario where the relationship between the recipient and introducer
     is terminated;

•    the feasibility of a reporting entity asking for and receiving documentation about the
     information used to verify a client’s identity from an introducer at the time of the
     commencement of the “introduced business” relationship; and

•    the feasibility of a reporting entity asking for and receiving documentation about the
     information used to verify a client’s identity from an introducer at the time when a
     relationship between the reporting entity and introducer is to be terminated.
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                13

NON-FACE-TO-FACE SITUATIONS

In consultation with various reporting entities, the Government introduced in 2007, non-face-to-
face client identification requirements that apply when a customer is not physically present at the
time the client identification requirements are triggered, and identity cannot be ascertained in
person by referring to a government-issued identity document. These measures, which allow for
the use of third party sources, were intended to ensure that CDD would remain as reliable as in
face-to-face situations, consistent with the recommendations of the FATF and of other
international core principle standard setters.

There is a rapidly increasing reliance on electronic means for product delivery in the financial
services industry, such as through mobile phone payments in the banking sector, as well as in
other sectors where services are increasingly being provided on line, such as the emergence in
Canada of an on-line casino sector.

The AML/ATF Regime has attempted to accommodate this evolution within the current
provisions of the PCMLTFA where possible. For example, it is recognized that a bank statement
provided electronically by a financial entity (e.g., downloaded by a client from their online
banking account), which includes the individual’s name and supporting deposit account
information, may be used to confirm that an individual has a deposit account under the non-face-
to-face identification requirements. This could then facilitate the ability for an individual to
confirm through an electronic medium that they have a deposit account, which is one of the
methods that can be used to ascertain identify in non-face-to-face situations.

New technologies and business models, however, are continually being developed by the
financial sector in order to respond to demands for faster, more flexible client services. These
services include non-face-to-face transactions and account openings where the customer cannot
be physically present at any stage in the process, such as over the Internet or through other
interactive computer services, and over the telephone or other electronic data transmissions.
Where there are insufficient safeguards in place to properly identify the individuals performing
the transactions, these new technologies and business models may give rise to money laundering
and terrorist financing risks. At the same time, emerging technology may represent an
opportunity to strengthen the application of digital identification and authentication in order to
provide a secure means of ascertaining identity without the need for a physical presence.

Advances in digital identification and authentication have been considered by the Task Force for
the Payments System Review, which is expected to make final recommendations to the Minister
of Finance by the end of the 2011. In reviewing the PCMLTFA, it will be important to consider
solutions offered by new technology that can help to mitigate ML /TF risks that may be
associated with these service delivery channels.

The Government would like to receive comments from financial institutions regarding the
security features that have been included in electronically provided bank statements and that
would assist with determining the authenticity of such a statement.
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Various reporting entities have identified components of the existing non-face-to-face
identification requirements that limit their ability to increasingly use evolving technologies to
deliver financial products and services, without requiring an individual or entity to physically
submit supporting documentation (e.g., a cleared cheque). This includes limitations with
independent data sources that may currently be relied upon by credit card companies and with
the requirement that a signature be provided by customers when opening an account.

Proposal 1.3

Non-face-to-face Customer Identification Measures for Credit Card Companies

The Government proposes to review the current non-face-to-face identification requirements for
credit card companies in response to concerns that have been raised related to the decreased
usefulness of the telecommunications directory as a reliable independent data source to ascertain
a client’s identity.

Alternative independent data sources or methods will be considered where consistent with the
policy intent of these measures. However, it is not intended that this review will provide
reporting entities with access to government databases that are currently restricted under other
legislation. The Government is seeking views from the industry on this issue, including the
following elements:

•    explanations as to why the credit card industry is unable to use the other non-face-to-face
     identification methods specified under Part B of Schedule 7 of the PCMLTFR;

•    explanations as to why financial institutions have not established a process to confirm
     directly to another financial intermediary that a client maintains a deposit account with that
     institution, where the client has consented to the disclosure of such information; and

•    information on other types of third party sources currently being used by credit card
     companies to assess account applications and whether these sources could be considered as
     an alternative to the telecommunications directory.

Proposal 1.4

Record of Signing Authority

The Government proposes to review the requirement that a hand-written signature card, or
electronic image of a hand written signature, must be maintained by reporting entities for record-
keeping purposes when accounts are opened.

Consistent with the objective of the PCMLTFA, a hand-written signature provides information to
law enforcement that may be used in the investigation and prosecution of money laundering and
terrorist financing offences. For example, this evidence may be used to assist with the
confirmation of an account holder’s identity or the involvement of an individual in the
transactions of an account. Any potential changes to this requirement must carefully balance the
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record-keeping burden that is imposed on reporting entities with the contribution of such
information to the successful investigation and prosecution of money laundering and terrorist
financing cases in the future.

The Government is seeking views from the industry on this issue, including:

•     clarification as to what kind of technological information reporting entities would propose
      to maintain where the authority for an account holder to give instructions in respect of an
      account would be established by electronic means; and

•     the ability for a reporting entity to provide another reporting entity with a copy of a client’s
      signature card, where a client has consented for that information to be shared.

POLITICALLY EXPOSED FOREIGN PERSONS

Politically exposed foreign persons (PEFPs) are defined in the PCMLTFA as persons who are, or
have been entrusted with prominent public functions such as heads of state, senior politicians,
senior government, judicial or military officials, senior executives of state-owned corporations
and important political party officials. As a result of their prominent and influential positions,
and their increased possible access to large financial sums, PEFPs are deemed to be at higher risk
of money laundering or terrorist financing activities. The PCMLTFA requires certain reporting
entities to determine whether a customer is a PEFP when they conduct designated financial
transactions or open designated accounts. Reporting entities are required to implement enhanced
measures in respect of their customers who are PEFPs.

The G20 has emphasized the use of anti-money laundering tools in the fight against corruption as
part of its work to implement the G20 Anti-Corruption Action Plan, and has supported updating
and implementing the FATF standards calling for, inter alia, due diligence for politically
exposed persons. In particular, FATF Recommendation 6 relating to the treatment of PEFPs
provides important guidance.

The Government has identified aspects of Canada’s PEFPs provisions that could be strengthened
in order to assist Canada’s important anti-corruption work, provide reporting entities with
increased tools to better know their customers and to take appropriate measures based on the risk
level of those customers, and to enhance Canada’s compliance with the current 7 FATF
Recommendation 6 on foreign politically exposed persons.




7
  Current FATF Recommendations refers to the FATF’s 40 Recommendations on Money Laundering and 9 Special
Recommendations on Terrorist Financing that were revised and adopted in June 2003 and used during the FATF’s
third round of mutual evaluations. The FATF’s evaluation of Canada’s compliance with these standards was
reported on by the FATF in February 2008.
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       FATF Recommendation 6

       Financial institutions should, in relation to politically exposed persons, in addition to
       performing normal due diligence measures:
       a) Have appropriate risk management systems to determine whether a customer is a
            politically exposed person;
       b) Obtain senior management approval for establishing business relationships with
            such customers;
       c) Take reasonable measures to establish the source of wealth and the source of
            funds; and
       d) Conduct enhanced ongoing monitoring of the business relationship.

Proposal 1.5

Amend the Definition of ‘Politically Exposed Foreign Person’ to Include Close Associates

The Government is giving consideration to amending the definition of ‘politically exposed
foreign person’ to include close associates of such a person.

 ‘Politically exposed foreign person’ is currently defined in the PCMLTFA as persons holding or
having held certain designated high-profile political positions, as well as the immediate family
members of those persons. The proposed amendment would provide that, in circumstances in
which reporting entities are required to take reasonable measures to determine if a customer is a
PEFP, they would also be required to take reasonable measures to determine whether that
customer is a close associate of a PEFP.

Proposal 1.6

Require Life Insurance Companies to Determine if Persons are PEFPs when Opening
Designated Accounts

The Government is giving consideration to requiring life insurance companies and life insurance
brokers and agents to take reasonable measures to determine if persons are PEFPs when opening
an investment or loan account for a client, or in respect of existing clients who have investment
or loan accounts. Where such persons are determined to be PEFPs, life insurance companies and
life insurance brokers and agents would be required to implement all relevant PEFP obligations.

As described later in Proposal 2.4 of this consultation paper, the Government is considering
expanding the events that would require life insurance companies and life insurance agents and
brokers to perform client identification and record-keeping requirements to include transactions
and accounts openings in respect of investment and loan products. The proposed amendment
above would follow as a result of Proposal 2.4. Proposal 1.5, if implemented, would also apply
to life insurance companies under this Proposal.
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Proposal 1.7

Amend Paragraph 54.2(b) and Subsection 57.1(2) of the PCMLTFR

The Government is giving consideration to amending paragraph 54.2(b) and subsection 57.1(2)
to clearly provide that reporting entities would be required to assess whether all existing account-
holders are PEFPs, where such a determination has not already been made.

Paragraph 54.2(b) and subsection 57.1(2) of the PCMLTFR require financial entities and
securities dealers, respectively, to take reasonable measures, based on the level of risk they have
assessed, to determine whether persons who are existing account holders are PEFPs. The effect
of these provisions is that, where customers have been identified as low risk, reporting entities
are not required to determine whether those customers are PEFPs.

LOWER RISK SITUATIONS

Section 62 of the PCMLTFR exempts reporting entities from conducting customer identification
and due diligence measures when they conduct certain transactions or interact with certain types
of clients deemed to be at low risk of money laundering or terrorist financing. These exemptions
exist primarily in respect of products that are well regulated and structured in such a way to
make money laundering difficult (such as structured settlements, registered retirement savings
plan accounts or corporate demutualization) or clients who are well-regulated and subject to
stringent legislative disclosure obligations (regulated entities such as financial institutions, life
insurance companies and pension funds, and public entities such as cities, townships and
governments or agencies of the Crown).

Proposal 1.8

Extend Exemptions to Include Listed Corporations

The Government is giving consideration to extending paragraph 62(2)(m) of the PCMLTFR to
all corporations whose shares are traded on a Canadian or other foreign stock exchange
designated by the Minister under subsection 262(1) of the Income Tax Act.

Under existing requirements, reporting entities are not required to keep records when conducting
transactions with public bodies or corporations with a minimum of $75 million net assets whose
shares are traded on a Canadian or other designated stock exchange (paragraph 62(2)(m) of the
PCMLTFR). Listed corporations are considered to be at lower risk for money laundering and
terrorist financing as they are subject to stringent disclosure obligations outside of the
PCMLTFA.

ONGOING DUE DILIGENCE

Reporting entities have the obligation to confirm the existence of a corporation for which they
open an account or conduct a financial transaction. Currently, under the PCMLTFA, the
existence of a corporation is confirmed by referring to: a corporation’s certificate of corporate
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status; a record that is required to be filed by the corporation annually under the applicable
provincial securities legislation; or any other record that ascertains its existence as a corporation
(such as its published annual report or a letter or notice of assessment from a government).
However, the PCMLTFA does not specify how current these documents must be in order to
qualify as proof of the existence of a corporation.

Proposal 1.9

The Government is giving consideration to amending the PCMLTFA to specify that any
document that is used as proof of the existence of a corporation must be no more than one year
old. For greater certainty, it is proposed that acceptable certificates of corporate status could be
those that are issued by the competent authority under whose laws the corporation exists.

This proposal would better ensure that corporations do exist at the time they open an account or
conduct a financial transaction.

IDENTIFICATION OF THIRD PARTIES

The PCMLTFR requires reporting entities to take reasonable measures to collect third party
information where a required client information record is created, or where a client conducts
large cash transactions or opens an account.

The existing legislative requirement for third party determination is often misunderstood by
reporting entities because of conflicting understandings of the term “third party.” For the
purposes of the PCMLTFR, it is intended that third parties are those who provide instructions,
whereas many reporting entities have interpreted third parties as being those who carry out those
instructions.

It is essential to collect information on individuals who are the potential owners of illicit funds,
as anonymity of ownership and control can facilitate money laundering and terrorist financing, as
well as complicate the seizure of the proceeds of crime during investigations.

Proposal 1.10

The Government is giving consideration to amending the provisions that establish the third party
determination requirements, under the PCMLTFR, to replace the term “third party” with
“instructing party”.

This amendment would clarify for reporting entities the information that FINTRAC requires.
The Government is seeking industry views on whether this change in terminology will provide
clearer guidance as to what is required.
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Chapter 2 - Closing the Gaps

ELIMINATING THE ELECTRONIC FUNDS TRANSFERS THRESHOLD

Reporting entities are currently required to report to FINTRAC any electronic funds transfer
(EFT) of $10,000 or more entering or leaving Canada. These reports are a useful tool to help
FINTRAC identify instances of suspected money laundering or terrorist financing.
The $10,000 threshold for reporting EFTs may not be optimal. For example, while money
laundering frequently involves large sums of money, cases of terrorist financing may involve
smaller amounts of money. The appropriateness of the existing threshold was recently
questioned by the Special Senate Committee on Anti-Terrorism in its interim report. The final
report of the Commission of Inquiry into the Investigation of the Bombing of Air India Flight
182 similarly noted the limitations that a $10,000 threshold may present in detecting cases of
terrorist financing.
       Interim Report of the Special Senate Committee on Anti-Terrorism

       The Canadian model for combating terrorist financing is presently based on the
       approach used for money laundering, which in particular targets cash financial
       transactions and electronic funds transfers of $10,000 or more. The Committee feels
       that this threshold, provided for in the PCMLTFA, will result in too many transactions
       related to terrorist financing going undetected.

       Air India Flight 182: A Canadian Tragedy

       Terrorist financing can involve much smaller sums than are typically involved in
       money laundering. The money is processed or transferred in ways that seek, not to
       disguise its criminal origins, but to disguise its purpose of funding terrorism.
       Techniques that may work well to identify money laundering, such as a focus on
       transactions over $10,000, may not work as well to identify those transactions
       indicative of terrorist financing.
Other jurisdictions are also moving toward lower thresholds. In Australia, all international EFTs
must be reported to the Australian Transaction Reports and Analysis Centre. In the United
States, the Financial Crimes Enforcement Network has issued a notice of proposed rulemaking,
whereby banks would report all international EFTs and money transmitters would report all
international EFTs of $1,000 or more.
At the same time, eliminating the $10,000 threshold would require financial entities, casinos and
MSBs to increase the number of reports they send to FINTRAC. It would also require an
extension of CDD obligations to ensure that financial entities, MSBs and casinos identify all
clients remitting or transmitting funds internationally; currently this is only required for
transactions in excess of $1,000. The consideration of any change to the existing thresholds
would need to balance the privacy rights of individuals and access to financial services for
consumers, with the need to combat money laundering and terrorist financing.
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Proposal 2.1

The Government is giving consideration to eliminating the threshold at or above which
international EFTs must be reported to FINTRAC. This would require financial entities, casinos
and MSBs to report all EFTs entering or leaving Canada.

The Government is seeking views on this issue, including the following elements:

•    operational impacts for reporting entities associated with eliminating the threshold;

•    given existing CDD thresholds and other relevant factors, the implications of applying
     different thresholds for different types of transactions or reporting entities (e.g., a higher
     threshold for MSBs than for financial entities as per the U.S. model); and

•    examples of any current industry practices, trends, or requirements in other jurisdictions
     where operations would be relevant to the discussion of an eliminated threshold.

PREPAID ACCESS

Prepaid access encompasses a range of payment technologies, from prepaid cards (such as retail
gift cards, or open-loop prepaid cards that could be used to withdraw thousands of dollars from
automated teller machines (ATMs) worldwide) to mobile payment devices. A financial product
is considered prepaid access if it allows customers to load funds to a product that can then be
used for purchases and, in some cases, access to cash or person-to-person transfers. Prepaid
access does not include credit or debit products.

Prepaid access is sold by a wide range of businesses, not all of which are subject to reporting
requirements under the PCMLTFA. The characteristics of prepaid access could allow for its use
in money laundering or terrorist financing schemes. For example, prepaid access devices may
offer anonymity, which could make it difficult to trace the origin of funds after a prepaid access
device has been purchased. As well, the ability to load significant sums of money onto a single
prepaid card could provide a less conspicuous means to transport large monetary amounts than is
the case for cash.

There have been increased calls by law enforcement and others to address the potential money
laundering and terrorist financing risks posed by prepaid access. Canada’s Special Senate
Committee on Anti-Terrorism recommended that the Government examine whether to define
prepaid access as monetary instruments under the Cross-border Currency and Monetary
Instruments Reporting Regulations. This would result in an obligation for individuals to report
the importation or exportation of $10,000 or more in prepaid access products.
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       Interim Report of the Special Senate Committee on Anti-Terrorism

       The Committee recommends that the federal government examine, particularly in
       anticipation of the statutory review mandated for 2011, the usefulness … to include, in
       the definition of “monetary instruments,” prepaid cards and mobile communications
       devices that are used to transfer funds. To that end, the government shall carry out a
       “cost-benefit” analysis, giving consideration, for example, to costs for the private
       sector, protection of personal information, and the operational capacity of the
       Financial Transactions and Reports Analysis Centre of Canada.

The FATF has also made note of the lack of CDD requirements for prepaid access products.

       Canada’s Mutual Evaluation Report (2008)

       The Royal Canadian Mounted Police (RCMP) acknowledge that such gift cards
       represent a serious money laundering option, especially in the absence of any money
       laundering control at retail locations … but there remains nothing in force at the
       financial institution level that requires them to implement policies and procedures
       addressing new technologies when face to face identification is not possible.

The United States has recently taken action on prepaid access. In July 2011, the Financial
Crimes Enforcement Network passed a final rule requiring providers of certain types of prepaid
access to perform CDD, keep customer information and transaction records, have an anti-money
laundering program, and report suspicious activities and large cash transactions. In October
2011, the Financial Crimes Enforcement Network formally sought input on making certain
prepaid access devices subject to cross-border reporting requirements.

The Government is examining two potential ways to mitigate the possible money laundering and
terrorist financing risks posed by prepaid access.

Proposal 2.2

CDD Measures for Providers of Prepaid Access

The Government proposes to review CDD requirements to determine whether to extend these
measures to prepaid access devices.

The purpose would be to mitigate potential money laundering and terrorist financing risks
associated with the anonymity provided through some of these products. The Government is
seeking views on this potential course of action, including the following elements:

•    types of prepaid access devices that should or should not be covered (including the
     rationale for including or excluding them);
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•    who among the several parties involved in providing a prepaid card (e.g., financial
     institution, payment network, program operator, retailer) should bear the responsibility for
     the various CDD requirements; and

•    operational impacts for reporting entities associated with potential CDD requirements.

Proposal 2.3

Recognizing Prepaid Access for Cross-Border Currency Reporting Purposes

The Government is examining the issue of expanding the definition of monetary instrument for
the purpose of cross-border currency reporting under the Cross-Border Currency and Monetary
Instruments Reporting Regulations to include prepaid access.

The Government is seeking views on this issue, including the following elements:

•    types of prepaid access that should or should not be defined as a monetary instrument
     (including the rationale for including or excluding them);

•    potential obstacles that would prevent, and potential solutions that would allow, border
     services officers to identify and determine the value of prepaid access products (e.g., ability
     to recognize or read prepaid cards at the border); and

•    privacy considerations.

CUSTOMER DUE DILIGENCE AND RECORD-KEEPING REQUIREMENTS FOR LIFE INSURANCE
COMPANIES AND LIFE INSURANCE AGENTS AND BROKERS

The PCMLTFR requires life insurance companies and life insurance brokers and agents to
identify their customers, keep certain records, and report large cash transactions of $10,000 or
more to FINTRAC.

The PCMLTFR specifies that the client identification requirements for life insurance companies,
agents and brokers are triggered when a client purchases an immediate or deferred annuity or a
life insurance policy for which the client may pay $10,000 or more over the duration of the
annuity or policy. This provision was intended to impose requirements on the life insurance
industry related to those products that they offered and were considered to be vulnerable to
money laundering activities. Certain exemptions to the client identification requirements were
implemented to recognize situations that, at the time, were deemed to be low-risk within these
product offerings.

The current requirements imposed on life insurance companies and life insurance brokers and
agents related to customer identification may fail to adequately address the money laundering
risks of the financial products that are now commonly provided in this industry. For example,
there is no legislative requirement for life insurance companies, brokers and agents to perform
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customer identification requirements with respect to loans they offer. These requirements are
legislated for other reporting entities. As well, varying practices exist across insurance
companies with respect to whether the existing CDD requirements apply to insurance-based
investment products, such as segregated funds.

Further, certain life insurance annuities and policies that are currently exempt from client
identification requirements are at risk of being abused by criminals and should be subject to
these requirements under the PCMLTFR.

Proposal 2.4

The Government is giving consideration to amending the PCMLTFR to expand the client
identification and record-keeping requirements applicable to life insurance companies and life
insurance brokers and agents beyond the specified purchase of annuities and life insurance
policies.

   •   Client identification and record-keeping requirements would apply to transactions and
       accounts openings for investment and loan products offered by life insurance companies,
       agents and brokers that are not currently captured under the PCMLTFR. The
       requirements would be comparable to those currently imposed by the PCMLTFA on other
       financial entities and securities dealers.

   •   Eliminating the exemption for income tax purposes and the $10,000 threshold for the cost
       of an annuity or policy would result in the requirements applying to more annuities and
       life insurance policies that may provide opportunities for money laundering.

By expanding the client identification requirement to capture more financial products offered by
life insurance companies, agents and brokers, the Government would close a gap in the coverage
of the current Regime and create a level playing field for entities conducting similar transactions
on behalf of clients.

LARGE CASH TRANSACTION REPORTS

The introduction of illicit cash into the financial system remains an important means through
which criminals can launder funds. Reporting entities are required to report to FINTRAC
whenever they receive $10,000 or more in cash. These large cash reporting requirements are a
critical tool to assist reporting entities and law enforcement agencies in detecting potential
money laundering activities.

These requirements should be revisited to address existing gaps and to ensure that reporting
entities report to FINTRAC those transactions that involve financial products at risk of being
used for criminal purposes.
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24                                                           and Anti-Terrorist Financing Regime

Proposal 2.5

Extending Large Cash Transactions Reporting Obligations in the Life Insurance Sector

The Government is giving consideration to amending the PCMLTFR to limit the exemptions for
large cash transaction reporting by life insurance companies and life insurance agents and
brokers to only those transactions where the origin of funds may be easily identified and
determined to be of low risk for money laundering, specifically those identified in paragraphs
62(2)(c) to (f) of the PCMLTFR.

Life insurance companies and life insurance broker and agents are provided with exemptions for
reporting large cash transactions for specified transactions where the risk of money laundering
activities is negligible because they relate to a well regulated product and the origin of funds for
these transactions may be traced with certainty to a specific low-risk source. However, life
insurance companies and life insurance agents and brokers have also been provided with
exemptions where the origin of funds to purchase specified financial products is unknown and,
as such, there is a risk that they will be used for criminal purposes.

Proposal 2.6

Expand the Application of Large Cash Transaction Obligations

The Government is giving consideration to amending the PCMLTFR to provide that reporting
entities would be required to record and report large cash transactions of $10,000 or more, even
where the cash would be received on behalf of the reporting entity by an agent or affiliated
entity.

This amendment would ensure that the chosen delivery channel does not lead to an unintentional
exemption for reporting entities from their obligations to submit large cash transaction reports.

DEALERS IN PRECIOUS METALS AND STONES AND ACCOUNTANTS

Dealers in precious metals and stones (DPMS) and accountants are currently subject to the
PCMLTFA when they provide services or undertake activities that are specified in the
PCMLTFR. Various activities are also explicitly exempted in the Regulations to provide greater
clarity. Certain activities performed by DPMS and accountants currently trigger reporting
requirements beyond the original policy intent.

The Government is giving consideration to amending the PCMLTFR to exclude from reporting
requirements additional activities undertaken by the DPMS and accountant sectors.
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and Anti-Terrorist Financing Regime                                                                 25

Proposal 2.7

Clarifying Reporting Obligations for the DPMS Sector

The Government is giving consideration to amending the PCMLTFR to exclude from reporting
requirements activities undertaken by the DPMS sector related to the sale or purchase of metals
and stones that are used in the manufacturing process.

The characteristics of the above activities are similar to those of other activities performed by
DPMS that would not trigger reporting requirements. As such, the proposed amendment would
ensure a consistent application of requirements for these entities.

Proposal 2.8

Clarifying Reporting Obligations for the Accountant Sector

The Government is giving consideration to amending the PCMLTFR to exclude from reporting
requirements activities undertaken by the accountant sector when providing trustee in bankruptcy
services.

The characteristics of the above activities are similar to those of other activities performed by
accountants that would not trigger reporting requirements. As such, the proposed amendment
would ensure a consistent application of requirements for these entities.

CLARIFYING THE 24-HOUR RULE

Reporting entities are required to file various reports for certain transactions performed by, or
disbursements received by, individuals and entities. The PCMLTFR sets out these single
transactions to include both individual transactions above $10,000 as well as multiple
transactions each under $10,000 but totalling $10,000 or greater undertaken by an individual
within a 24-hour period. There are deficiencies with the current descriptions of a single
transaction under the PCMLTFR, which limit the transactions that must be reported to
FINTRAC, contrary to the objectives of the Regime.

Proposal 2.9

The Government is giving consideration to amending the description of “single transaction” in
the PCMLTFR to include all transactions, regardless of their amount, conducted on behalf of the
same person or entity within a 24-hour period where the combination of those transactions would
total to at least $10,000.

This amendment would provide greater certainty for reporting entities with respect to reporting
multiple transactions.
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26                                                         and Anti-Terrorist Financing Regime

Chapter 3 - Improving Compliance, Monitoring and Enforcement

MONEY SERVICES BUSINESS REGISTRATION

MSBs have been required to register with FINTRAC since June 2008. In order to apply to
register, an MSB must provide identifying information and specified business-related details.
Once the initial registration has been accepted, the MSB’s registration must be renewed
approximately every two years, on a date specified by regulations.

A recent review of the MSB registration and renewal process has identified measures that could
simplify the registration requirements, while still ensuring that they remain effective.

Proposal 3.1

Simplifying MSB Renewal and Registration Requirements

The Government is giving consideration to amending the Proceeds of Crime (Money
Laundering) and Terrorist Financing Registration Regulations (PCMLTFRR) to reduce the type
of information requested from MSBs applying to register with FINTRAC.

This would ensure that only information that supports the goals of the AML/ATF Regime would
continue to be collected from MSBs. As well, this amendment would revoke the requirements in
the PCMLTFRR specifying the timing of MSB registration renewal. This would simplify the
MSB renewal process and provide flexibility as to when within a two-year period an MSB must
renew its application.

Proposal 3.2

Updating the Eligibility Requirement for MSB Registration

The Government is giving consideration to amending the PCMLTFA to ensure that individuals
who have been convicted under certain repealed acts are also excluded from registering as
MSBs. These acts would include the PCMLA, the Narcotic Control Act, and Parts III and IV of
the Food and Drug Act.

The PCMLTFA does not allow individuals convicted under specified legislation to register as an
MSB. However, current provisions do not reference convictions under repealed, older versions
of relevant legislation.

UPDATING THE COMPLIANCE PROGRAM

The PCMLTFA establishes a compliance program that provides FINTRAC with the tools to
encourage compliance by reporting entities with their obligations under the Act. This includes the
capacity to impose appropriate penalties and sanctions on individuals and entities that are non-
compliant with the PCMLTFA and its regulations, consistent with FATF Recommendations. The
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program provides for a graduated approach, which provides FINTRAC with flexibility to
consider a range of tools that would be appropriate to ensure compliance.

       FATF Recommendation 17

       Countries should ensure that effective, proportionate and dissuasive sanctions, whether
       criminal, civil or administrative, are available to deal with natural or legal persons
       covered by…[the FATF Forty Recommendations] that fail to comply with anti-money
       laundering or terrorist financing requirements.

Proposed changes have been identified that could ensure that enforcement efforts and the
administrative monetary penalties regime continue to be effective and efficient in promoting
compliance with the PCMLTFA and its regulations.

Proposal 3.3

Non-Compliance with Reporting Obligations

The Government is giving consideration to amending the PCMLTFA to provide FINTRAC with
an additional tool to ensure that FINTRAC receives the reports that entities are required to
submit under the Act.

Reporting entities may be subject to an administrative monetary penalty when failing to comply
with a reporting obligation under the PCMLTFA. For example, this could include a failure to
submit a suspicious transaction report, a large cash transaction report, an EFT report or a terrorist
property report. Currently, proceedings to address non-compliance with a reporting requirement
would typically cease upon payment of the penalty.

The proposed change would enable FINTRAC to direct a reporting entity to file a missing report
that is required under the Act and that they have failed to report, even where an initial penalty has
been imposed. Where the reporting entity subsequently fails to comply with the request for the
report to be filed, FINTRAC would be entitled to impose additional penalties until such time as
the reporting entity complies with FINTRAC’s request by filing the report.

REQUIRING THE DOCUMENTATION OF REASONABLE MEASURES

Reporting entities may be required to take reasonable measures to obtain particular information
or to make a specific determination when performing due diligence. Examples of obligations
based on reasonable measures include third party determination at the time of a large cash
transaction and account opening, ongoing monitoring of high risk financial transactions, and
identification of an individual for an suspicious transaction report. There is no legislative
requirement for reporting entities to keep a record of those “reasonable measures” that they have
taken, unless they obtain information or make a determination that would then trigger record
keeping obligations.
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28                                                          and Anti-Terrorist Financing Regime

Proposal 3.4

The Government is giving consideration to requiring reporting entities to document and keep a
record of any “reasonable measures” they are required to take under the Act.

This would assist FINTRAC with its monitoring and ensure the compliance of reporting entities
with the requirements of the PCMLTFA.

UPDATING REPORTING FORMS

The PCMLTFA and its regulations prescribe the specific information that reporting entities are
required to provide for various reporting and registration purposes under the Act. This narrowly
defines the information that is required to be included on the form templates provided to
reporting entities and limits the Government’s ability to customize the forms to the specific or
unique needs of individual industries. As well, the time involved to implement proposed
changes to these forms, no matter how small or pro forma, may be lengthy as any modifications
must go through the regulatory process and receive Governor-in-Council approval before they
can be brought into effect.

Proposal 3.5

The Government is giving consideration to amending the PCMLTFA to provide the Minister of
Finance with the authority to update the information requirements contained in reporting and
registration forms that reporting entities are required to use when registering or submitting
reports to FINTRAC.

This would allow these forms to be updated in a timelier manner, to better reflect the needs of
both FINTRAC as well as those of reporting entities.

CROSS-BORDER CURRENCY REPORTING

Part 2 of the PCMLTFA establishes the rules regarding the cross-border movement of currency
and requires individuals or entities to report to a CBSA officer the importation or exportation of
currency or monetary instruments over $10,000. The PCMLTFA currently requires individuals
who have completed a cross-border currency report to respond truthfully to questions posed by a
CBSA officer with respect to the information contained in the report. CBSA officers have
indicated that it would be beneficial for them to also be provided with the authority to pose
questions to individuals related to their compliance with the obligations of the PCMLTFA, even
when a report has not been completed. This would assist CBSA officers in performing their
duties and responsibilities as specified under the PCMLTFA.
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and Anti-Terrorist Financing Regime                                                            29

Proposal 3.6

The Government is giving consideration to amending Part 2 of the PCMLTFA to provide the
authority to CBSA officers to question passengers arriving in or departing from Canada with
respect to their responsibilities under the Act and to compel passengers to answer these questions
truthfully.

This would be similar to the authorities that are already provided to CBSA officers under the
Customs Act, which better enables them to perform their duties and responsibilities as specified
under that Act.
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30                                                           and Anti-Terrorist Financing Regime

Chapter 4 - Strengthening Information Sharing in the Regime
The PCMLTFA established FINTRAC to operate independently from law enforcement agencies,
and put in place strict controls governing the collection, use and disclosure of personal financial
information. These safeguards were intended to provide a balance between implementing an
effective regime that is able to uncover criminal activity, while ensuring that the privacy rights of
individual Canadians are protected.

FINTRAC may only disclose information in ways specifically permitted in the PCMLTFA.
Namely, the information may be disclosed only to Canadian law enforcement agencies, CSIS,
other government agencies designated by legislation and foreign partners with which a
memorandum of understanding has been established. Information can only be disclosed when
established legal thresholds have been met. Further, the type of information that may be
disclosed is limited to “designated information”, as specified in the Act.

Since the implementation of Canada’s AML/ATF Regime, these restrictions to information
sharing have been revisited various times to respond to stakeholder concerns. However,
stakeholders have identified additional types of information that, if disclosed, would increase the
usefulness of the financial intelligence they receive from FINTRAC. As such, additional
improvements to information sharing could be considered, without jeopardizing the privacy
rights of individuals.

       The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

       Finance should lead an Interdepartmental Working Group with representation from
       Regime partners to determine future steps for continuing to improve the Regime’s
       compliance with international commitments and to examine the following key issues:

       •     Regime-related legislation and regulations (PCMLTFA and related enabling
             legislation of Regime partners) that may be constraining information sharing
             with the aim of identifying possible solutions that may require either legislative/
             regulatory amendments or operational changes to remove barriers to effective
             and efficient Regime operations.

EXPANDING THE INFORMATION CONTAINED IN FINTRAC DISCLOSURES

The designated information that FINTRAC is able to disclose to law enforcement and other
agencies with respect to specific cases has been expanded since the implementation of the
AML/ATF Regime. This expansion has recognized the value of information collected by
FINTRAC to law enforcement and CSIS in pursuing investigations, by providing new facts or
leads for investigators in ongoing investigations.
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and Anti-Terrorist Financing Regime                                                              31

However, Regime partners have identified additional types of information that could further
improve the utility of FINTRAC disclosures in pursuing investigations. This issue was raised in
the final report of the Commission of Inquiry into the Investigation of the Bombing of Air India
Flight 182 and by the Special Senate Committee on Anti-Terrorism.

       Air India Flight 182: A Canadian Tragedy

       The lack of authority in the PCMLTFA for FINTRAC to disclose information beyond
       designated information, including its own analysis of the basic financial data, is a
       significant deficiency. If FINTRAC’s analysis were automatically included in its
       disclosures of designated information, recipients could make better and more timely
       use of the disclosure, and the links between FINTRAC and its counterterrorism
       partners would be strengthened.

       Interim Report of the Special Senate Committee on Anti-Terrorism

       FINTRAC‘s work against terrorist financing must be more integrated with that of the
       other agencies so as to provide them with the most useful financial intelligence and to
       avoid duplication of effort. Under the PCMLTFA, FINTRAC cannot currently, of its
       own accord, disclose its own analyses of financial intelligence in specific cases, or
       written explanations justifying disclosure, to national security agencies. As a result,
       law enforcement agencies and CSIS must re-analyse the intelligence received and
       essentially repeat any analysis that FINTRAC has already done.

Proposal 4.1

Expanding Designated Information

The Government is giving consideration to expanding the current list of designated information
that FINTRAC can disclose to law enforcement and intelligence agencies to also include:

•    an individual’s gender and occupation;
•    the grounds for suspicion developed by international partner Financial Intelligence Units;
•    information contained in the narrative section of cross-border seizure reports;
•    a description of the actions taken by reporting entities when making a suspicious
     transaction report; and
•    information setting out the “reasonable grounds to suspect” that FINTRAC has determined
     would enable it to make a disclosure.

The objective of expanding the information available in FINTRAC disclosures is to enhance the
critical identifiers and investigative links that law enforcement and intelligence agencies can use
to further money laundering and terrorist financing investigations while respecting the privacy
and Charter rights of Canadians.
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32                                                          and Anti-Terrorist Financing Regime

Proposal 4.2

Expanding Information in Intelligence Products

The Government is giving consideration to allowing FINTRAC to identify foreign individuals
and entities in the intelligence products it provides under section 58 of the PCMLTFA to law
enforcement, government institutions, or a foreign agency that has similar powers and duties, in
those cases where the identification of the individual or entity would be important to the context
of the financial intelligence.

Under section 58, FINTRAC may provide intelligence products to broadly inform stakeholders
on the areas of money laundering and terrorist financing (rather than disclosures related to a
specific individual or case). Expanding the information available in these intelligence products
would improve the value of these products by providing additional information to better
understand the context of broad developments in this area. This could assist partners in linking
the financial intelligence provided by FINTRAC to other intelligence they have in
their possession.

Providing the authority for FINTRAC to identify foreign individuals and entities in these
intelligence products would be an extension to an existing disclosure authority in Part 1.1 of the
Act, which is not yet in force. Specifically, under Part 1.1, FINTRAC may, at the request of the
Minister, disclose information, including information that identifies a foreign entity, to
authorities specified by the Minister for the purpose of carrying out ministerial powers and duties
under Part 1.1 of the Act.

INFORMATION SHARING TO DETECT AND DETER THE FUNDING OF TERRORISM THROUGH
REGISTERED CHARITIES

The CRA Charities Directorate administers the scheme for the registration of charities under the
Income Tax Act. The Charities Directorate contributes to the Government’s efforts to combat
terrorist financing by undertaking activities aimed at preventing organizations with ties to
terrorism from obtaining registration and detecting and revoking the registration of already
registered charities with ties to terrorism.

The Charities Directorate receives information from various government institutions, where
appropriate, to assist it with its responsibilities for preventing the exploitation of registered
Canadian charities to finance terrorist activities, including from CSIS, the RCMP and FINTRAC.
The PCMLTFA specifies the specific circumstances that would require FINTRAC to disclose to
the CRA information suspected to be relevant to money laundering or terrorist financing
offences. It is intended that, in general, disclosures would be permitted where they would be of
assistance to the CRA’s decision-making process regarding whether to grant or revoke a
charitable registration.

The CRA Charities Directorate has cited the importance of these tactical disclosures by
FINTRAC in identifying previously unknown or suspect targets. However, the CRA has also
identified limitations in the existing PCMLTFA disclosure provisions which, if amended, would
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and Anti-Terrorist Financing Regime                                                                 33

better assist the Directorate with its responsibilities of administering and enforcing the charities
registration system. The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime
echoed this concern.

       The Report of the 10-Year Evaluation of Canada’s AML/ATF Regime

       Improved information sharing, as noted by the Auditor General in 2004 and still cited
       by the Regime partners in 2010 as needing further effort, has the potential to improve
       the efficiency and effectiveness of Regime operations. Some Regime partners have
       highlighted a number of areas where information sharing among the partners could be
       more open, in their view, without jeopardizing privacy or national security. Those areas
       follow: ...

       •     The PCMLTFA does not contain provisions that permit CBSA to share
             information with CRA-Charities.

Proposal 4.3

Disclosures of Charities Information by the CBSA

The Government is giving consideration to amending Part 2 of the PCMLTFA to allow the
CBSA to disclose to the CRA Charities Directorate cross-border seizure reports related to
forfeited currency or monetary instruments suspected to be linked to the activities of a charity.

The proposed amendment would allow the CBSA to proactively disclose directly to the CRA
information obtained at the border that could assist with the determination of a charity’s
registration status.

Proposal 4.4

Disclosure of Information on Charities by FINTRAC

The Government proposes to review the provision that enables FINTRAC to disclose to the CRA
information related to registered charities in order to facilitate its ability to provide proactive
disclosures.

The PCMLTFA requires FINTRAC to disclose information to the CRA to assist with its
responsibilities to administer and enforce both the tax system and the registration system for
charities under the Income Tax Act. With respect to the latter, the PCMLTFA generally requires
FINTRAC to disclose designated information to the CRA where, in addition to suspicions of
money laundering and terrorist financing, there are reasonable grounds to suspect that the
information is relevant to determining whether a registered charity has ceased to comply with its
registration requirements or whether a person or entity, which FINTRAC has reasonable grounds
to suspect has applied to be a registered charity, is eligible to be registered as such.
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34                                                             and Anti-Terrorist Financing Regime

The proposed amendment would seek to clarify the conditions under which FINTRAC would
disclose to the CRA related to the activities of a charity in order to facilitate its ability to provide
proactive disclosures.

DISCLOSURES TO SUPPORT BORDER SERVICES

The PCMLTFA currently requires that FINTRAC disclose information to the CBSA when, in
addition to a suspicion of money laundering or terrorist activity financing, it also determines that
the information would be relevant to supporting the CBSA to perform its specified
responsibilities related to administering immigration and customs programs.

The CBSA has identified situations where FINTRAC disclosures could provide more
information that would improve the efficiency of its investigations related to border services that
support the Government’s national security priorities.

Proposal 4.5

Disclosures of Customs Information

The Government is giving consideration to amending paragraph 55(3)(e) of the PCMLTFA to
require FINTRAC to disclose information relevant to a money laundering or terrorist financing
offence to the CBSA where it would also be relevant to an offence related to illegal exportations.

This would address a gap in the current provisions by ensuring that disclosures made by
FINTRAC would be consistent with the CBSA’s responsibilities related to administering
programs for both the importation and exportation of goods that are prohibited, controlled or
otherwise regulated.
Proposal 4.6

Disclosures to Support National Security Initiatives

The Government is giving consideration to amending the PCMLTFA to require FINTRAC to
disclose designated information to the CBSA where there would be reasonable grounds to
suspect that it would be relevant for the purpose of managing the access of people and goods to
and from Canada that pose a threat to national security.

This amendment would increase the utility of FINTRAC’s disclosures to the CBSA by providing
financial information in a timely manner that could assist the CBSA with its responsibilities for
detecting and preventing potential threats to national security. This would recognize that where
a threat to national security is suspected at the border, the potentially lengthy process involved in
first establishing reasonable grounds for suspecting money laundering or terrorist financing may
delay the receipt of relevant information from FINTRAC and, as a result, decrease its usefulness
to the CBSA for protecting Canadians.
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and Anti-Terrorist Financing Regime                                                             35

DISCLOSURES OF INFORMATION BY FINTRAC

The PCMLTFA currently requires that FINTRAC disclose information to an appropriate police
force where there are reasonable grounds to suspect that designated information would be
relevant to investigating or prosecuting a money laundering or terrorist financing offence.

It is possible that information collected by FINTRAC could also assist with investigations where
an individual’s life is in danger. Precedents exist in other government legislation, whereby it is
recognized that exceptions to very strict disclosure conditions should be permitted where it is
related to the imminent danger of physical injury or death of an individual.

Proposal 4.7

The Government is giving consideration to allowing FINTRAC to disclose to a police force
information that would assist with an investigation for the purpose of preventing the death of, or
imminent physical injury to, an individual.
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36                                                          and Anti-Terrorist Financing Regime

Chapter 5 - Countermeasures
COUNTERMEASURES

Amendments to the PCMLTFA were introduced as part of Budget 2010. These amendments
introduced two new authorities for the Minister of Finance:

•    the authority to issue directives that require reporting entities to take countermeasures in
     respect of transactions originating from or destined to designated foreign jurisdictions and
     foreign entities; and

•    the authority to recommend that the Governor-in-Council issue regulations limiting or
     prohibiting reporting entities from entering into transactions originating from or destined to
     designated foreign jurisdictions and foreign entities.

Both the directive and the regulation making authorities allow the Minister to take steps to
protect the integrity of Canada’s financial system from foreign jurisdictions and foreign entities
that are deemed to be high risk for facilitating money laundering and terrorist financing.
The two new authorities for the Minister have not yet been brought into force. The new
Ministerial authorities would be brought into force in conjunction with the regulatory
amendments detailed in this paper.

In order to clarify the application of the Minister’s new authorities, the Government proposes to
implement regulations that will provide greater detail and certainty to reporting entities and other
stakeholders as to how the use of these powers will be undertaken. These regulatory
amendments would:

•    prescribe a list of specific countermeasures that the Minister, when issuing a directive, can
     require reporting entities to take in respect of a designated foreign jurisdiction or foreign
     entity;

•    define the term ‘foreign entity’, in order to provide further guidance to reporting persons
     and entities as to the types of entities that may form the subject of a directive or a
     regulation limiting or prohibiting business; and

•    update the existing Proceeds of Crime (Money Laundering) and Terrorist Financing
     Administrative Monetary Penalty Regulations (PCMLTFAMPR) to allow for administrative
     monetary penalties to be issued to reporting entities that are in violation of a directive or
     a regulation.

Application of Countermeasures

One new Ministerial authority permits the Minister of Finance to issue directives to reporting
entities subject to the PCMLTFA. A directive permits the Minister to deem that a foreign
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                37

jurisdiction or foreign entity is at heightened risk for facilitating money laundering and terrorist
financing in the following circumstances:

•    an international body or organization has called on its members to take measures on the
     grounds that the foreign jurisdiction or entity’s AML/ATF measures are ineffective or
     insufficient, or

•    the Minister is of the opinion that the ineffectiveness or insufficiency of the jurisdiction or
     entity’s AML/ATF measures could cause an adverse impact or reputational risk to the
     integrity of Canada’s financial system.

When a directive is issued, the Minister may require that a reporting entity implement designated
countermeasures when conducting financial transactions originating from or destined to that
designated jurisdiction or entity.

These countermeasures, which reporting entities may be required to implement, would fall into
any of the following six categories:

•    verification of client identity;
•    exercise of CDD, including ascertaining the source of funds of a transaction, the purpose of
     a transaction, or the beneficial ownership or control of any entity;
•    monitoring of financial transactions or accounts;
•    record keeping and retention;
•    financial transaction reporting; and
•    compliance.

The application of the Minister’s directive authority will be clarified through regulations that
would aim to provide greater detail and certainty as to what types of countermeasures may be
implemented. These regulations would prescribe a list of specific proposed countermeasures that
the Minister may require reporting persons and entities to undertake when a directive is issued.
The list of proposed countermeasures is provided later in this chapter.

The prescribed list of proposed countermeasures is not exhaustive, but it is designed to cover the
majority of circumstances that could arise when intervention in the form of a directive is deemed
necessary.

As noted earlier, the prescribed list of proposed countermeasures does not constitute the entirety
of the Minister’s new powers. In the most serious cases, the Minister may recommend that the
Governor-in-Council issue regulations limiting or prohibiting transactions with designated
foreign jurisdictions or foreign entities. Regulations made under these circumstances will not be
further discussed in this Chapter as they would only be made on a case-by-case basis, and only
when necessary.
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38                                                          and Anti-Terrorist Financing Regime

Scope of Countermeasures

Countermeasures are designed to be enhancements of reporting entities’ existing obligations
under the PCMLTFA. They would apply to the same range of activities to which reporting
entities’ legislative obligations already apply; namely, prescribed financial transactions, account
openings, signing of signature cards and any other relevant legislated or regulated activity.

The terms of each directive would set out in detail exactly what countermeasures reporting
entities would be required to undertake and the circumstances in which those new obligations
would become applicable. For instance, a directive would clearly state the frequency at which
countermeasures would be required to be undertaken, the threshold at which such
countermeasures would apply and any other relevant information necessary to assist reporting
entities to comply with their obligations.

Countermeasures are not designed to apply beyond the scope of the transactions and activities
that are regulated under the PCMLTFA. Notwithstanding the use of such terms as ‘all
transactions’ or ‘any transaction’, any individual directive or countermeasure issued by the
Minister would be intended only to apply to those classes or types of transactions that are subject
to the PCMLTFA. Reporting entities would not be required to apply countermeasures to classes
or types of transactions that are not already covered by legislation or regulation, such as cheque
cashing.

Similarly, reporting sectors would not be required to apply countermeasures beyond the scope of
the products and activities that are already covered by existing legislation. If the provisions of
the PCMLTFA do not provide that a reporting sector should comply with certain classes of
obligations, that reporting sector would likewise not be required to implement a countermeasure
that applies to those same obligations.

For instance, the PCMLTFR does not require certain reporting sectors (such as accountants,
dealers in precious metals and stones, and real estate brokers and developers) to report
international EFTs. Consequently, a directive would not require these sectors to comply with a
countermeasure setting out an enhanced EFT reporting requirement.

Depending on the context in which it is issued, not every directive would necessarily apply to all
reporting sectors uniformly. For example, if the circumstances so require, a given directive
could apply only to financial entities, money services businesses and securities dealers, but
would not apply to casinos and dealers in precious metals and stones. In order to avoid any
uncertainty, the text of each directive would specify which transactions, activities and reporting
sectors are covered. A list of proposed countermeasures is set out in Annex A of this paper.

Proposal 5.1

The Government proposes to implement regulations that will list specific countermeasures that
the Minister, when issuing a directive, could require reporting entities to take in respect of a
designated foreign jurisdiction or foreign entity, as set out in Annex A.
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and Anti-Terrorist Financing Regime                                                               39

DEFINITION OF ‘FOREIGN ENTITY’

The Minister’s new authorities are designed to protect the integrity of Canada’s financial system
from foreign jurisdictions and foreign entities that are deemed to be at high risk for facilitating
money laundering and terrorist financing. Reporting entities may be required to take specified
countermeasures in respect of transactions originating from or destined to a particular foreign
jurisdiction or foreign entity.

A definition of ‘foreign jurisdiction’ was part of the amendments to the PCMLTFA that were
introduced through Budget 2010. These legislative amendments also provide that the definition
of ‘foreign entity’ is to be prescribed by regulation. A proposed definition of ‘foreign entity’ is
provided in Annex B.

The prescribed definition would limit the scope of a ‘foreign entity’ to the same range of sectors
and professions as those domestic sectors that are subject to the PCMLTFA pursuant to section 5
of the Act. These are the sectors that have been identified as being at highest risk for money
laundering and terrorist financing, and as a result, if misused for these purposes, could pose a
risk to the stability of Canada’s financial system.

The regulatory definition does not include branches and subsidiaries of Canadian entities or
Canadian entities operating overseas, as these entities are already required to develop and apply
policies and procedures consistent with the record-keeping, client identification and compliance
program obligations of the PCMLTFA under sections 9.7 and 9.8.

Proposal 5.2

The Government proposes to define the term ‘foreign entity’ as set out in Annex B.
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40                                                            and Anti-Terrorist Financing Regime

Chapter 6 - Other Proposals
In addition to the proposals outlined in the preceding chapters, the Government is giving
consideration to a number of other related amendments to the PCMLTFA and the PCMLTFR.

PROPOSAL 6.1 BROADENING THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS
Reference: PCMLTFA, section 7

The Government is giving consideration to broadening the requirement to report suspicious
transactions to encompass activities conducted for the purpose of a financial transaction.

The legislation currently requires reporting entities to report suspicious transactions. The
PCMLTFA provides that a suspicious transaction is any financial transaction that occurs or is
attempted in the course of a reporting entity’s activities that gives rise to a suspicion of money
laundering or terrorist financing.

Under this proposal, the PCMLTFA would be amended to set out that a suspicious transaction is
any financial transaction that occurs or is attempted, including an activity undertaken for the
purpose of a financial transaction, in the course of a reporting entity’s activities that gives rise to
a suspicion of money laundering or terrorist financing. This would clarify that reporting entities
would be required to submit a suspicious transaction report if, for example, an account
application were considered suspicious.

PROPOSAL 6.2 SUBMITTING REPORTS TO FINTRAC
Reference: PCMLTFA, subsection 12(5)

The Government is giving consideration to requiring the CBSA to submit cross-border currency
reports to FINTRAC both physically and electronically.

The legislation currently requires the CBSA to submit to FINTRAC completed and incomplete
cross-border currency reports they receive from individuals. Though it is not a legislative
requirement, in practice, the CBSA has been providing FINTRAC with both the paper copies of
these reports and the electronic transmission of the information included in these reports. This
facilitates FINTRAC’s data collection by providing reportable information in a format that may
be queried. This proposal would formalize this existing operational arrangement.
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                   41

PROPOSAL 6.3 AMENDING THE THRESHOLD FOR NON-COMPLIANCE DISCLOSURES
Reference: PCMLTFA, subsection 65(1)

The Government is giving consideration to replacing the term “ is evidence of” with “would be
relevant to” in order to clarify the threshold that would enable FINTRAC to disclose compliance-
related information to law enforcement by more broadly referencing information that it suspects
on reasonable grounds would be relevant to investigating or prosecuting specified compliance-
related offences.

The existing threshold for disclosing compliance information to law enforcement is inconsistent
with the scope of FINTRAC’s mandate; it is not responsible for investigating or prosecuting
contraventions of the provisions of the PCMLTFA. As a result, while FINTRAC may make a
determination on the relevance of information it collects to investigating and prosecuting certain
offences, it is unable to determine whether that information could be used as evidence.

PROPOSAL 6.4 AMENDING OBLIGATIONS RELATED TO CLIENT CREDIT FILES
Reference: PCMLTFR, paragraphs 14(i) and 30(a)

The Government is giving consideration to amending CDD and record-keeping requirements to
clarify that financial entities are required to create a client credit file when they enter into a credit
arrangement with a client, and to repeal the obligation for MSBs to maintain a client credit file.

Currently, financial entities are required to keep a client credit file, as defined by the Act, where
it is created in the normal course of business. Certain reporting entities have interpreted this
requirement as providing unintended exemptions for creating client credit files and for
maintaining records of these files. For greater clarity, this amendment would clarify that
financial entities are required to both create, and keep records of, a client credit file when
entering into a credit arrangement with a client.

As well, this amendment would recognize that MSBs do not conduct credit arrangements and,
therefore, should be excluded from this record-keeping requirement.
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42                                                         and Anti-Terrorist Financing Regime

Chapter 7 - Technical Amendments
The Government is also proposing a number of technical amendments.

LEGISLATIVE AMENDMENTS

Proposal 7.1   Subsection 36(1.1) and paragraph 55(3)(d)

Add a reference to immigration related offences described under section 91 of the Immigration
and Refugee Protection Act (IRPA).

The legislation currently allows FINTRAC to disclose information to the CBSA, and enables the
CBSA to share cross-border reporting information internally, when it would be relevant in the
administration of immigration legislation. This proposal would ensure that immigration offences
recently recognized under an amended IRPA would also be recognized under the PCMLTFA for
the purpose of information sharing.

Proposal 7.2   Paragraph 40(d)

Add a reference to “the financing of terrorist activities” with respect to FINTRAC’s
responsibilities to enhance public awareness and understanding of specified matters.

This amendment would ensure that FINTRAC’s responsibilities with regard to enhancing public
awareness and understanding shares the same scope as other aspects of FINTRAC’s mandate.

REGULATORY AMENDMENTS (PCMLTFR)

Proposal 7.3   Paragraphs 14(n) and 14.1(g)

Amend paragraphs 14(n) and 14.1(g) by replacing any reference to paragraph 67.1(b) with
paragraph 67.1(1)(b).

This amendment would clarify the reference to the relevant paragraph.
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and Anti-Terrorist Financing Regime                                                               43

Annex A - List of Proposed Countermeasures
A. ENHANCED VERIFICATION OF THE IDENTITY OF ANY PERSON OR ENTITY

Frequency of Customer ID

1.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.   Ascertain the identity of every person opening such an account or conducting such a
          transaction in accordance with paragraph 64(1)(a) of the PCMLTFR;

     b.   Confirm the existence of and ascertain the name and address of every corporation for
          which an account is opened or that conducts such a transaction in accordance with
          section 65 of the PCMLTFR, including ascertaining the names of the corporation’s
          directors; or

     c.   Confirm the existence of every entity, other than a corporation, for which an account
          is opened or that conducts such a transaction, in accordance with section 66 of the
          PCMLTFR

     on the first occasion of the transaction after the directive or at any time thereafter as
     specified by the Minister.

2.   Require any person or entity who confirms the existence of a corporation or entity in
     accordance with sections 65 and 66 of the PCMLTFR to refer to a specified number or type
     of records issued within a specified time from the date of verification, that demonstrate the
     continued existence and active operation of the corporation or entity.

Methods of Ascertaining Customer ID

3.   Require any person or entity who ascertains the identity of a person in accordance with
     paragraph 64(1)(a) of the PCMLTFR to refer to a specified number or type of documents
     used to ascertain the identity of a person.

4.   Require that any person or entity who ascertains the identity of a person to do so only in
     accordance with paragraph 64(1)(a) of the PCMLTFR.
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44                                                         and Anti-Terrorist Financing Regime

Information on Directors or Beneficial Ownership

5.   Require any person or entity to whom section 11.1 of the PCMLTFR applies to:

     a.   obtain and take reasonable measures to ascertain the name, address and occupation of
          all persons who own or control, directly or indirectly,

           i.     10 per cent or more of the shares of the corporation; or
          ii.     10 per cent or more of the entity;

     b.   obtain and take reasonable measures to ascertain the name, address and occupation of
          all persons who own or control, directly or indirectly,

           i.     5 per cent or more of the shares of the corporation; or
          ii.     5 per cent or more of the entity; or

     c.   ascertain the name and address and obtain the occupation of every director of the
          corporation and ascertain the identity of all persons who own or control, directly or
          indirectly, the corporation or entity;

     and keep a record of such information and the measures taken to acquire it.

6.   Require any person or entity to whom section 11.1 of the PCMLTFR applies, where the
     confirmation is in respect of a trust, to

     a.   ascertain the name and address and obtain the occupation of every beneficiary and
          settlor of the trust funds; and

     b.   ascertain the name and address and obtain the occupation of every trustee of the trust

     and keep a record of such information.

Third Party Identification

7.   Require any person or entity to whom section 8, 9 or 10 or paragraph 14(m), 30(e) or 43(f)
     or subsection 44(1) of the PCMLTFR applies to:

     a.   Determine whether the individual or entity conducting the transaction or opening the
          account is acting on behalf of a third party; and

           i.     If the individual or entity conducting the transaction or opening the account is
                  acting on behalf of a third party, take reasonable measures to ascertain the
                  identity of the third party or confirm its existence; or
          ii.     If the individual or entity conducting the transaction or opening the account is
                  acting on behalf of a third party, ascertain the identity of the third party or
                  confirm its existence; and
Strengthening Canada’s Anti-Money Laundering
and Anti-Terrorist Financing Regime                                                                45


     b.   Keep a record of the measures taken to ascertain or confirm such information.

Correspondent Banking Relationships

8.   Require any financial entity that enters into a correspondent banking relationship where the
     customer of the foreign financial institution has direct access to services provided under the
     correspondent banking relationship, to:

     a.   Ascertain whether the foreign financial institution has, in respect of those of its
          customers that have direct access to accounts of the financial entity, met requirements
          that are consistent with requirements of the Act with respect to ascertaining identity
          and measures for ascertaining identity; and

           i.       Obtain the relevant customer identification data; or
          ii.       Take reasonable measures to ascertain the customer identification data for
                    those customers of the foreign financial institution that will have direct access
                    to its accounts; and

     b.   keep a record of the measures taken to obtain or ascertain that customer information
          data.

B. EXERCISE OF CUSTOMER DUE DILIGENCE

Special Attention

1.   Require any person or entity who is required to perform a risk assessment in accordance
     with subsection 9.6(2) of the PCMLTFA to:

     a.   take into account any FATF advisory issued in respect of a specified foreign
          jurisdiction as part of its risk assessment;

2.   Require any person or entity who is required to establish and implement a compliance
     program in accordance with section 9.6 of the PCMLTFA to:

     a.   treat transactions originating from or destined to a specified foreign entity or foreign
          jurisdiction, or accounts held by a specified entity or a person in a specified foreign
          jurisdiction as high risk for the purposes of subsection 9.6(3) of the PCMLTFA;

     b.   implement the special measures prescribed in section 71.1 of the PCMLTFR; and

     c.   keep a record of the measures taken to implement the prescribed special measures.

3.   Require any person or entity to whom section 5 of the PCMLTFA applies to:
                                               Strengthening Canada’s Anti-Money Laundering
46                                                        and Anti-Terrorist Financing Regime

     a.   have senior management review and approve any specified transaction for the
          purposes of detecting reportable transactions under section 7 of the PCMLTFA; and

     b.   keep a record of the name of the member of senior management who has approved
          the transaction and the date of the review and approval.

Transaction Information

4.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.   take reasonable measures to determine the purpose of any specified transaction; and

     b.   keep a record of the information obtained and the measures taken to obtain such
          specified information

5.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.   determine the purpose of any specified transaction; and

     b.   keep a record of the information obtained and the measures taken to obtain such
          specified information

6.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.   take reasonable measures to determine the source of funds of any specified
          transaction; and

     b.   keep a record of the information obtained and the measures taken to obtain such
          specified information

7.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.   determine the source of funds of any specified transaction; and

     b.   keep a record of the information obtained and the measures taken to obtain
          such information
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and Anti-Terrorist Financing Regime                                                                   47

Correspondent Banking Relationships

8.   Require any financial entity that enters into a correspondent banking relationship with
     foreign financial institutions located in a specified foreign jurisdiction or with a specified
     entity to:

     a.   Conduct enhanced ongoing monitoring of all specified transactions conducted in the
          context of the correspondent banking relationship for the purpose of detecting
          suspicious transactions;

     b.   Ascertain from the financial regulator in the foreign financial institution’s jurisdiction
          whether there are any criminal, civil or administrative penalties that have been
          imposed on the foreign financial institution in respect of AML/ATF requirements,
          and if so, consider terminating the relationship; or

     c.   Obtain senior management approval to establish a new correspondent relationship;

     And keep a record of the measures taken to meet these obligations.

Third Party Identification

9.   Require any person who has determined, in accordance with sections 8, 9 or 10 of the
     PCMLTFR, that any person or entity undertaking any transaction is acting on behalf of a
     third party, or any person keeping a record under paragraph 14(m), 30(e) or 43(f) or
     subsection 44(1) to:

     a.   Have senior management review, or review and approve the transaction for purposes
          of detecting suspicious transactions and keep a record of the name of the member of
          senior management who has reviewed or approved the transaction and the date of the
          review or approval;

     b.   Take reasonable measures to obtain information as to the purpose of the transaction;
          or

     c.   Take reasonable measures to obtain information as to the source of transaction funds
          for the transaction;

     And keep a record of the measures taken to meet these obligations.
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48                                                         and Anti-Terrorist Financing Regime

C. MONITORING OF ANY FINANCIAL TRANSACTION OR ACCOUNT

1.   Require any person or entity to whom section 5 of the PCMLTFA applies to:

     a.    conduct enhanced ongoing monitoring of any designated transactions; and

     b.    keep a record of the measures undertaken to conduct such ongoing monitoring.

2.   Require any person or entity to whom section 8, 9 or 10 of the PCMLTFR applies and who
     has determined that an individual or entity conducting a transaction or opening an account
     is acting on behalf of a third party, to:

     a.    conduct enhanced ongoing monitoring of the activities in respect of the account for
           purposes of detecting suspicious transactions; and

keep a record of the measures undertaken to conduct such ongoing monitoring.

D. RECORD-KEEPING

1.   Any person or entity to whom section 5 of the PCMLTFA applies shall keep a record of any
     specified transaction originating from or destined to a specified jurisdiction or entity.

E. REPORTING

1.   Any person or entity to which section 9 of the Act applies shall report to the Centre any
     transaction, as specified by the Minister.

Note: The type of information to be reported would be specified in the directive itself.
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and Anti-Terrorist Financing Regime                                                            49

Annex B - Proposed Definition of Foreign Entity
The Minister of Finance may issue directives or recommend that the Governor-in-Council issue
regulations in respect of transactions originating from or destined to foreign jurisdictions and
foreign entities. The Government is proposing to define ‘foreign entity’ for the purposes of these
powers. A foreign entity would be one that meets the following three criteria:

1.   engaged in the business, or carrying on the activity of any of the following:

     •     providing financial services including lending money and accepting deposits;
     •     insuring risks, such as a life insurance company or life insurance broker or agent;
     •     providing trust and loan services including acting as a formation agent of legal
           persons or acting as a trustee, executor, administrator, liquidator or guardian of
           property;
     •     a dealer in securities or other financial instruments, or supplier of portfolio
           management services or investment advisory services;
     •     foreign exchange dealing, of remitting funds or transmitting funds by any means or
           through any person, entity or electronic funds transfer network, or of issuing or
           redeeming money orders, traveller’s cheques or other similar negotiable instruments;
     •     providing legal services to the public;
     •     providing accounting services to the public;
     •     selling or purchasing of real estate;
     •     buying or selling precious metals, precious stones or jewellery; or
     •     a casino, or an on-line casino,

2.   incorporated or formed or operating in a country other than Canada, including any branch
     or subsidiary of that entity; and

3.   not otherwise subject to the Act.
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50                                                    and Anti-Terrorist Financing Regime

List of Abbreviations
AML - Anti-money laundering
ATF - Anti-terrorist financing
ATI Act - Access to Information Act
ATM - Automated teller machines
CBSA - Canada Border Services Agency
CDD - Customer due diligence
Charter - Canadian Charter of Rights and Freedoms
CRA - Canada Revenue Agency
CSIS - Canadian Security Intelligence Service
DPMS - Dealers in precious metals and stones
EFT - Electronic funds transfer
FATF - Financial Action Task Force
FINTRAC - Financial Transactions and Reports Analysis Centre of Canada
IRPA - Immigration and Refugee Protection Act
MSB - Money services businesses
OPC - Office of the Privacy Commissioner
PCMLA - Proceeds of Crime (Money Laundering) Act
PCMLTFA - Proceeds of Crime (Money Laundering) and Terrorist Financing Act
PCMLTFAMPR - Proceeds of Crime (Money Laundering) and Terrorist Financing
Administrative Monetary Penalty Regulations
PCMLTFRR - Proceeds of Crime (Money Laundering) and Terrorist Financing Registration
Regulations
PCMLTFR - Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
PEFP - Politically exposed foreign person
RCMP - Royal Canadian Mounted Police
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Links to Important Documents

10-Year Evaluation of Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime

2009 Audit Report of the Financial Transactions and Reports Analysis Centre of Canada
(Privacy Commissioner of Canada)

Air India Flight 182: A Canadian Tragedy (Final Report of the Commission of Inquiry into the
Investigation of the Bombing of Air India Flight 182)

Financial Transactions and Report Analysis Centre Annual Report 2011


Financial Action Task Force Recommendations

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations


Security, Freedom and the Complex Terrorist Threat: Positive Steps Ahead
(Interim Report of the Special Senate Committee on Anti terrorism)

				
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