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Anti-money laundering compliance in the money ... - Grant Thornton


									Fall 2012 benchmarking report

Anti-money laundering compliance in
the money services business industry
From the practice leader

                                                  We believe the experience and                I am pleased to present our Anti-
                                              knowledge we’ve gained over the past         money laundering compliance in the
                                              few years has placed us in a unique          money services business industry: 2012
                                              position to offer insight into the status    benchmarking report. We hope that it will
                                              of the industry’s anti-money laundering      be used to benefit organizations across the
                                              compliance. This benchmarking report         money services and financial institutions
                                              reflects the culmination of public           industry, as we believe it brings forward
                                              research, as well as the knowledge           information that was not easily accessible.
                                              we’ve gained by completing over 150          We hope this report assists you with
                                              anti-money laundering compliance             understanding today’s compliance
                                              program-related engagements. These           benchmark, the goals for tomorrow
                                              were focused particularly on the money       and in the ongoing fight against money
                                              services business (MSB) industry as          laundering and terrorist financing.
                                              well as others including securities
                                              dealers, financial institutions, online
The anti-money laundering team at Grant       transaction processing organizations,
Thornton LLP has had the opportunity to       trust companies, and government
work with money services businesses—          organizations. What’s apparent from
large, small and everything in between—       our research and experience is that the
from all across Canada over the past few      anti-money laundering compliance
years. It has given us great opportunity to   programs of money services businesses
meet those who are connected with             are now starting to deliver the desired      Jennifer Fiddian-Green
people, cultures and communities from all     results. However, it is also apparent that   CA.IFA, CFI, CAMS, CMA, CFE
over the world. In our experience the         many MSBs need to start focusing on the      Partner
money services business industry is highly    identification of potentially suspicious     Grant Thornton LLP
entrepreneurial, dynamic, diverse and         transactions—perhaps this is simply
serves the needs of many Canadians and        an evolution of the compliance regime
Canadian residents-to-be.                     exercise now that the rest of the program
                                              elements are in place.


Introduction                                                              4
    Purpose                                                               4
    Methodology                                                           5
Profile of the MSB population                                             6
    Types of services offered by the MSBs                                 6
    Geographical regions served by the MSBs                               6
    Types of clients served by the MSBs                                   7
    Customer interaction types                                            7
    Size of the MSB: number of locations, employees, use of agents        7
    Documented contracts with agents                                      7
    Agent monitoring: background due diligence and regular site visits    8
    Review of AML compliance program                                      8
Compliance program elements                                               8
    Policies and procedures                                               8
    Compliance officer                                                    9
    The risk assessment                                                   9
    Training                                                             10
    Testing as part of training                                          10
    Recordkeeping                                                        11
    Transaction processing system                                        11
    Transaction reporting (large cash and electronic funds transfers)    12
    Suspicious transactions                                              12
    Terrorists and designated individuals                                13
Public notice of administrative monetary penalties                       14
About Grant Thornton LLP                                                 15


Every year around the world, large                              “self-banked” in communities across                           this report can help both MSB and
amounts of funds are generated from                             the country. These services are targeted                      financial institutions by establishing
illegal activities including drug trafficking,                  by and vulnerable to money laundering                         today’s benchmark and tomorrow’s
tax evasion, people smuggling, theft, arms                      and those wishing to finance terrorism.                       goals for AML compliance programs.
trafficking and corrupt practices. Money                        FINTRAC reports indicate that MSBs                            Specifically, to assist:
laundering—the process of concealing the                        are the second most used sector for                           •	 with identifying and evaluating the
source of illegally obtained money—plays                        money laundering and terrorist financing                          prevalence of compliance practices
a crucial role in allowing criminals to                         schemes after financial institutions,                             found within the MSB industry;
continue to perpetrate these crimes.                            and that transactions through MSBs                            •	 in determining the impact that specific
Money laundering and terrorist financing                        represent 36% of all case disclosures                             practices can have on a compliance
is a global phenomenon, with the                                made by FINTRAC to law enforcement.2                              program’s effectiveness;
estimated amount of money laundered                             A rigorous and effective anti-money                           •	 MSBs with establishing effective
globally in any one year ranging from                           laundering and terrorist financing                                compliance practices and to determine
2–5% of global GDP, or US$800 billion                           deterrence program is a critical success                          the relative standing of their
to US$2 trillion.1                                              factor for today’s MSB organizations.                             organization within the industry;
     In Canada, the Proceeds of Crime                                                                                         •	 MSBs in managing their relationships
(Money Laundering) and Terrorist                                Purpose                                                           with financial institution partners; and
Financing Act (PCMLTFA) created                                 This benchmarking report was created                          •	 regulators in understanding the
the Financial Transaction and Reports                           with the goal of providing MSBs and                               industry’s compliance practices and to
Analysis Centre of Canada (FINTRAC),                            financial institution organizations—both                          evaluate the pace at which changes in
Canada’s financial intelligence unit. Over                      with AML compliance objectives—a                                  the industry are progressing.
the past decade, regulated organizations                        critical tool to assist in evaluating the
across the country have worked to                               results of an AML compliance program
protect the integrity of Canada’s financial                     review and any planned program changes.
systems by implementing programs to                             It is our experience that the AML
comply with the PCMLTFA and its                                 compliance programs of MSB
regulations and by reporting transactions                       organizations are just now starting to
to FINTRAC.                                                     deliver the rigour and effectiveness that
     Two popular services offered by                            serve to protect Canada’s financial
money services businesses (MSBs), foreign                       systems from abuse by those with illegal
exchange and money remittance service                           funds or criminal intent. We believe that
providers, play a vital role in providing
financial services to the “unbanked” and                        2 “Money Laundering and Terrorist Financing Trends in
                                                                  FINTRAC Cases Disclosed Between 2007 and 2011,”
1 “Money-Laundering and Globalization,” United Nations Office     FINTRAC Typologies and Trends Reports (April 2012):
   on Drugs and Crime:   
   money-laundering/globalization.html                            eng.asp

Methodology                                    was used to assist with determining the
The information used within this report        prevalence of specific characteristics and
is the aggregation of knowledge that           practices. In several areas throughout this
the AML team at Grant Thornton has             benchmarking report we measured the
obtained by performing over 150 AML-           number of MSBs out of the benchmarking
related engagements, including over 100        population that had deficiencies in specific
different MSB organizations for                areas. Deficiencies are defined specifically
compliance with the PCMLTFA and                as items or areas where the MSB’s
regulations. This report also incorporates     documentation, process or reporting was
information obtained from publicly             not sufficient to meet the requirements of
available sources.                             the PCMLTFA and its regulations.
     The data used to compile this                  In evaluating the effectiveness of
benchmarking report has been reviewed          the various MSB compliance program
to ensure that the confidentiality of each     elements, different measures were used
individual entity is maintained, and that      to measure different characteristics
the inclusion of information could not be      depending on the available information.
used to identify an individual business or     For example, the use of an automated
MSB organization. Only overall summary         versus manual transaction processing
statistics for the population of data          system was used to understand the
available to us or subset (as appropriate of   occurrence, or effectiveness of identifying
the population) were used.                     transactions suspicious of money
     In determining the prevalence of a        laundering which were then subsequently
characteristic or practice in the industry     reported to FINTRAC. Whereas, we
we only included information which we          reviewed whether or not employee
assessed as being reasonable to rely on.       testing as part of an MSB’s training
The same MSB may have been reviewed            process was effective by comparing this
more than once and only the last instance      practice against the level of record keeping
of review results was used. Furthermore,       deficiencies identified.
information from AML reviews as well
as risk assessment assistance engagements

Profile of the MSB population

This section of the report provides                             SERVICES OFFERED BY THE MSBS INCLUDED IN THE BENCHMARKING POPULATION
                                                                PERCENTAGE OF MSBS OFFERING
background information to help the user
understand the profile of the MSBs
included in the benchmarking population.

Types of services offered by the MSBs                           50%

The majority of MSBs included in the                            40%

benchmark population provide money                              30%

remittance services and close to half of the                    20%
population provide currency exchange                            10%
services. Other services provided include                       0%
cheque cashing, money orders, and                                           Remittance    Foreign       Remittance     Cheque        Money order      Payday
payday loans. Many of the MSBs provide                                                    exchange      as an agent    cashing                        loans

multiple of these services. This population
                                                                                                 TYPE OF SERVICE
is fairly reflective of the data reported by
FINTRAC3 in Money Laundering and
Terrorist Financing (ML/TF) Typologies                          quarter of all of the MSBs that provide      Money remittance services-regions
and Trends for Canadian Money Services                          money remittance services) provide           served by the MSBs
Businesses (MSBs) – July 2010 wherein                           remittance services broadly to regions                  Europe    Africa 8%
                                                                around the world—either using                           1%
MSBs were reported as predominantly
providing money remittance services                             established global networks or using their                                     Non-specific
                                                                own proprietary networks. Half of the                                          26%
(75%) and foreign exchange services (70%).
     The graph to the right shows                               MSBs in the benchmark population, who        Asia
the services offered by the MSB                                 provided remittance services, served or
benchmarking population (note that                              delivered funds to and from Asian
                                                                                                                                              Middle East 5%
many MSBs offer more than one of the                            countries. When we looked at the
listed services).                                               remittance networks that were being used,                             South America 10%
                                                                we found that more than half of all MSBs
Geographical regions served by MSBs                             used only a proprietary network (57%),       Remittance networks
who provide remittance services                                 with the remainder being divided between
Of the MSBs that provide money                                  those using only an established global
remittance services, we found that while a                      network (25%), or both (18%).                Both
majority of the MSBs in the population                                                                       18%
typically serve a specific geographic                                                                                                           Proprietary
region, a significant portion (just over a                                                                                                      57%

3 “Money Laundering and Terrorist Financing (ML/TF)
  Typologies and Trends for Canadian Money Services
  Businesses (MSBs),” FINTRAC Typologies and Trends                                                          global network 25%
  Reports (July 2010):

Types of clients served by the MSBs              Customer interaction                                Number of locations of the MSBs in the
Clients serviced by the MSBs include                                                                 benchmarking population
                                                                       Online only
corporate or other types of entities,                                  2%
individuals or a combination of both.                                                                              More than 25
Corporate clients typically served include                                                                         6%
                                                                                                                             Six to 25
institutions or businesses who seek the                                                                                      10%
services of the MSB to assist them with
making payments to foreign vendors.              Multiple                            Face-to-face
                                                                                                                                     Five or
                                                 access                              only
These transactions are usually for larger                                                                                            fewer 19%
                                                 50%                                 48%
dollar amounts. Individual clients are
                                                                                                             One location
generally seeking the services of the MSB                                                                    65%
to perform smaller currency exchange
transactions, for the remittance of money        Size of the MSB: number of locations,
to family members overseas or personal travel.   employees, use of agents
The graph below shows the proportion             While the MSB industry in Canada is
                                                                                                     Documented contracts with agents
of MSBs that have corporate clients,             dominated by a handful of larger businesses,
                                                                                                     A documented contract between an MSB
individual clients, or both. While the           there are also numerous smaller MSBs
                                                                                                     and its agent(s) can clearly lay out the
majority of MSBs served both, some               ranging in size from one location to larger
                                                                                                     duties and obligations of each of the
MSBs have carved out a niche for                 organizations with hundreds of locations
                                                                                                     parties and allow for an orderly means
themselves by serving a targeted                 in Canada and also abroad. Location has
                                                                                                     of settling any disputes that may arise.
market, many of these involving a                been defined for purposes of this
                                                                                                     Over half (53%) of the MSB benchmark
specific ethnic community.                       benchmarking report to include branch
                                                                                                     population did not have documented
                                                 and agent locations. Agents are individuals
                                                                                                     contracts in place with their active agents,
Types of clients served by the MSBs              or entities that are not directly employed
                                                                                                     indicating that this is a business area
included in the benchmarking population          by the MSB, but are authorized to act on
                                                                                                     requiring attention.
                                                 behalf of the MSB to provide money
   Individuals                                   services to clients. Of the MSB benchmark
   36%                                           population, 24% provided services to                  Put in place documented contracts
                                                 clients using agents. A number of the                 which clearly lay out compliance
                                                 MSBs in the benchmark population had                  program obligations and provide
                                                 less than five employees, including owner             right of audit to protect your
                                      62%        operated, family-run businesses.                      organization. Up front background
Corporations                                                                                           due diligence and regular site visits
                                                 Number of employees of the MSBs in
2%                                                                                                     to test compliance will protect your
                                                 the benchmarking population
                                                                                                       organization over the longer term.
Customer interaction types                                   More
The MSB benchmarking population was                          than 25
analyzed to understand how the MSBs
interacted with their customers. The             11 to 25
percentage of MSBs providing online              8%
access to customers was only 2%, while
                                                                                     Five or fewer
48% interacted in person/face-to-face            Six to 10                           employees
access and 50% provided multiple forms           15%                                 60%
of access. For those organizations
providing multiple interaction types, these
were usually only provided after an initial
face-to-face meeting.

Agent monitoring: background due
diligence and regular site visits
Less than half of the MSBs included in the
benchmarking population (only 38%)             Compliance program
conducted background due diligence
when first deciding to take on a new
agent. Further, only 37% of the MSBs
perform regular site visits of their agents.
Site visits usually included some testing,
inspection and inquiry of how regulatory
requirements were being adhered to. It
was not necessarily the same group of                                                         The most common policy and procedure
MSBs who performed both of these                 Make sure that your policies and             deficiencies included:
procedures, only approximately half of           procedures reflect and align with            •	 insufficient detail of recordkeeping
the MSBs who conducted due diligence             your money service business                      responsibilities (e.g., requirement to
also performed regular agent site visits.        activities. Also ensure this is true for         document beneficial ownership of
                                                 your risk assessment as well. If your            corporate customers);
Review of AML compliance program                 risk assessment includes controls            •	 no documentation of when and how
The MSB benchmarking population was              to mitigate risk, these controls need            to make third-party determinations;
analyzed to understand the percentage of         to be performed.                             •	 no definitions of third-party and/or
MSBs whose compliance program had                                                                 PEFP provided;
been subject to a prior review(s), whether                                                    •	 no documentation that the manual/
                                               Policies and procedures
this was performed by Grant Thornton or                                                           policies and procedures had been
                                               A required element of an MSB’s
another party. Approximately 28% of the                                                           reviewed and authorized by senior
                                               compliance program is to have
benchmarking population had been                                                                  management; and
                                               documented compliance policies and
subject to more than one compliance                                                           •	 no documentation of the
                                               procedures. The majority of the
program review.                                                                                   responsibilities of the compliance
                                               benchmarking population (66% of the
    For those MSBs who had more                                                                   officer.
                                               MSBs) had deficiencies identified in their
than one review of their program
                                               program reviews. The remaining MSBs
completed, there was a marked decrease                                                        Policy and procedure deficiencies
                                               with no identified deficiencies were likely
in documentation deficiencies (risk
                                               to have more than five employees,
assessments and policy and procedures),
                                               developed their policies and procedures
however, there still continued to be record
                                               using external resources and a compliance
keeping and reporting deficiencies.
                                               officer that had received external training.                     No deficiency
    Referrals are not enough.                                                                   Deficiencies
    Background due diligence results                                                            66%

    can be known within days. Focused
    investigative research can identify
    serious issues or concerns you
    need to know about. Make sure you
    get the facts about the people you
    do business with—the potential
    cost of failing to identify problems
    can be prohibitively high.

                                                                                                                    The risk assessment really needs to
                                                                                                                    be the foundation of your AML
                                                                                                                    program. Document your higher
                                                                                                                    risks and ensure you are actively
                                                                                                                    monitoring for these higher risk
                                                                                                                    customers and transactions. Once
                                                                                                                    identified, protect yourself and your
                                                                                                                    business by executing on your
                                                                                                                    documented controls such as
                                                                                                                    obtaining source of funds
                                                                                                                    information before you take on
                                                                                                                    responsibility for facilitating the
Note: This bar chart provides detail data results for the pie chart on the previous page.

                                                                         Only a small number of the MSBs had      The risk assessment
   The CO role requires expertise and                                compliance officers who were certified       A good risk assessment documents
   experience, and needs to be taken                                 with relevant AML credentials (e.g. a        specific money laundering and terrorist
   seriously. In July 2012, HSBC’s                                   certified anti-money laundering specialist   financing risks specific to that individual
   chief compliance officer resigned                                 designation). We expect that going           business and includes mitigating controls.
   from the role amidst allegations                                  forward more organizations will require      This is a required element of the AML
   that the bank had inadvertently                                   this expertise and qualification of their    compliance program regime for an MSB
   allowed the laundering of Mexican                                 compliance officers.                         and it can also be a roadmap to assist
   drug cartel money.                                                    Of the MSBs in the benchmarking          others with understanding the business,
                                                                     population, 23% had a compliance             the risks associated with the money
Compliance officer                                                   officer that was supported by a team         service transactions facilitated, the
Each MSB is required to designate a                                  providing assistance to oversee and meet     customers and geographic regions
compliance officer (CO) responsible for                              the compliance program requirements.         serviced. While most (94.5%) of the MSBs
its AML compliance program. The data                                 We noted that for those MSBs with a          in the benchmarking population had a
available in the benchmarking population                             compliance officer supported by a team,      documented risk assessment, the majority
was analysed to try and understand who                               the rates of record keeping and reporting    were still in the process of making the risk
was fulfilling the role and if and how this                          deficiencies were higher. This indicates     assessment a practical reality of their
person was supported. In the benchmarking                            that while these teams are monitoring        business operations. An effectively
population, 45% of the MSBs had the                                  and processing a higher volume of            implemented risk assessment
owner of the organization fulfilling the                             transactions, on-going management of         fundamentally affects how an MSB
compliance officer role. In general, these                           the compliance program team is essential     conducts their business.
MSBs were identified as smaller and more                             to ensure effectiveness of results.
likely to have policies and procedures
with identified deficiencies. For these
MSBs, it was also more likely that the
owner, for their compliance officer role,
received external training. There was no
marked difference regarding record
keeping or reporting deficiencies for
MSBs that had the owner as the
compliance officer versus MSBs which
had another individual fulfilling that role.

     The benchmarking population                                                       Testing as part of training
indicates that most (84%) of the              There are now MSB industry-tailored      Testing reinforces learning. It also helps
MSBs did not have any high-risk areas         training resources                       the MSB determine whether its training
identified in their risk assessment. Of       available which organizations            efforts have been effective, and provides
the MSBs that did identify high risks         can access online and can also use       additional motivation for staff. In the
(16%) these businesses were much more         to track employee completion and         benchmarking population, 24% of MSBs
likely to have had their documentation        test results.                            use testing as part of their staff training
developed externally and to train their                                                program, and 76% do not use any form of
compliance officer externally. However,                                                documented testing. The MSBs that used
                                              Testing doesn’t only reinforce
it is interesting to note that these same                                              testing in their program were less likely to
                                              learning, it helps the MSB understand    have record keeping deficiencies and were
MSBs were less likely to file a suspicious
transaction report (STR). This is reviewed
                                              the level of knowledge that its staff    more likely to operate from one location.
in more detail later in this report.          has. It also demonstrates a              However, the testing of staff as part of an
                                              commitment to AML and it locks           MSB training program, did not have any
Training                                      in your training investment.             marked impact on whether or not an MSB
Documented ongoing training of the                                                     was reporting STRs. We expect this will
compliance program requirements must              Training programs for staff may be   change as training evolves to focus more
be maintained. We looked at how the          developed internally or externally, or    on how to identify suspicious transactions,
compliance officers of MSBs received and     in combination. In the benchmarking       with less focus on general awareness and
maintained their training and we looked at population, the majority (71%) of MSBs      the recordkeeping requirements. We do
how the training for others in the           used internal resources exclusively to    believe the data reflects that testing
organization was delivered and               train staff, 7% used external resources   works—while MSBs with testing did have
maintained. In the MSB benchmarking          exclusively and 22% used a combination    recordkeeping deficiencies the rate of
population, the compliance officers were     of programs. MSBs using internal          deficiency were comparatively lower.
primarily obtaining their training by        resources to train staff tended to have
accessing internal resources or visiting and lower rates of recordkeeping and            Training should include materials
using the resources on the FINTRAC           reporting deficiencies (albeit rates of
                                                                                         that are relevant to the employee’s
website. This group accounted for 65% of deficiency were still high).                    role within the organization, and
the compliance officers for which data                                                   should provide an understanding of
was available. The remaining 35% of          Type of training
                                                                                         AML as well as specific knowledge
compliance officers were receiving
                                                                    External             necessary for that person to
external training.                                                  7%                   perform their part of the MSB’s AML
    There was no marked difference           Both                                        strategy. Don’t provide blanket
regarding recordkeeping or reporting         22%
deficiencies between compliance officers
trained internally or externally. However,
the externally trained officers did have                                                 Train and review your specific
fewer identified deficiencies regarding                                                  recordkeeping requirements with
policy and procedure documentation                            71%                        staff. Use examples specific to your
and risk assessments. It is essential to                                                 organization to make it effective.
remember that good training is only one
element of your compliance program,
and that all of the compliance program
elements need to be in place and working,
including the monitoring for and
reporting of suspicious transactions.

Testing in training

 Use of testing
                  No testing

                                              Note: This bar chart provides detail data results for the pie chart to the left.
In the benchmarking population, 76% of           individuals authorized to transact for                              Transaction processing system
the MSBs had recordkeeping deficiencies.         the corporation were not collected or                               Transaction processing system refers to the
Given the high rate of deficiency, we            recorded; and                                                       manner in which a customer transaction is
looked in detail at the percentage of         •	 for third-party and PEPF                                            recorded. An automated transaction
records that had record keeping                  determinations no documentation that                                system refers to a system where the
deficiencies for each MSB, we then               enquiries were made with client.                                    customer’s information, as well as the
averaged and summarized this. Out of all                                                                             transaction information is electronically
of the records reviewed, across all of the       Occupation—this is really all about                                 recorded and then processed. A manual
MSBs in the benchmarking population, an          trying to understand the source of a                                system refers to a process for which both
average of 27% of the records tested             person’s funds, how they earn their                                 the customer and transaction information
contained deficiencies. We were able to          money. Documenting that someone                                     is first recorded manually (on paper).
identify two program elements which had          is a manager doesn’t provide any                                    Information from a manual system is kept
a positive impact on record keeping              information as to source of funds.                                  in paper format or it may be entered into a
(meaning that MSBs with these program            Be specific and detailed.                                           spreadsheet. In the benchmarking
elements had a lower rate of record                                                                                  population, 54% of MSBs used automated
keeping deficiency). These elements were                                                                             transaction systems while 46% of MSBs
                                                 Don’t make assumptions for your                                     used a manual system. The MSBs that used
the use of an automated system to process
transactions and the use of testing as part      clients. When required, third party                                 automated transaction systems usually had
of staff training.                               and politically exposed foreign                                     more locations and processed a higher
    The more typical recordkeeping               persons enquiries need to be made                                   volume of customer transactions.
deficiencies were:                               and documented. Also, for larger                                    Automated systems also resulted in a higher
•	 staff was unclear as to what the              transactions, ones out of pattern or                                likelihood of the MSB filing an STR report
    specific recordkeeping requirements          not expected for a client, enquire                                  with FINTRAC. The rates of recordkeeping
    were (i.e., were not obtaining address,      and document as to source of                                        deficiencies were high regardless of
    telephone, date of birth information         funds, don’t assume it.                                             whether the MSB was using an automated
    from clients);                                                                                                   or manual transaction processing system.
•	 occupation information was either not
    obtained or what was documented
    was unclear (e.g., self-employed,
    manager, owner);
•	 corporate beneficial ownership
    information was not obtained or
    documented, also details of the
                                               The most common deficiencies were:                                   Suspicious transactions
     Even smaller MSBs that record
                                               •	 late filings (most common);                                       Most MSBs (73%) did not file any STRs
     their transactions manually can                                                                                with FINTRAC over the time period
                                               •	 reportable transaction not identified
     benefit from the low-cost solution                                                                             reviewed which was generally a three
                                                  by the MSB until the completion of
     of recording transactions on a                                                                                 month to one year timeframe. The data
                                                  the review (this was most common for
     spreadsheet. This will help to                                                                                 indicates that it was typically larger MSBs
                                                  transactions meeting the 24-hour rule
     identify anything suspicious and                                                                               that filed STRs and that these
                                                  threshold); and
     also demonstrate to others that                                                                                organizations were more likely to use an
                                               •	 filing incorrect information.
     you have the ability to adequately                                                                             automated transaction system, meaning
     monitor your transactions.                                                                                     the organization likely had automated
                                                                                                                    monitoring procedures. As well, MSBs
                                                                                                                    that filed STRs were more likely to have
     Ensuring that the 24-hour reporting
                                               MSBs that filed STRs                                                 delivered their training using internal
     rule requirement is met can be
                                                                                                                    resources and to have developed their
     tricky for MSBs that process a high
                                                                                                                    policies and procedures internally.
     volume of transactions using a
     manual system. It will be harder
     and harder to justify maintaining            Filed STRs
     manual records. Before you make              27%

     the system investment, even the                                     Have not
                                                                         filed STRs
     use of a simple spreadsheet can                                     73%
     assist with ensuring the
     requirements are met.

Transaction processing system


Transaction reporting (large cash and
electronic funds transfers)
In the benchmarking population, 66%
had large cash and/or electronic funds
transfers reporting deficiencies. Given the
high rate of deficiency, we looked in detail
at the percentage of transaction reports
that had reporting deficiencies for each
MSB, we then averaged and summarized
this. Out of all of the reports reviewed,
33.4% of LCT reports and 38.5% of EFT
reports had deficiencies.
                                               Note: This bar chart provides detail data results for the pie chart above.

We identified that most of the MSBs in     Terrorists and designated individuals            Terrorist and designated individuals
the benchmarking population had            We analyzed the data available to identify       detection system
transactions which the MSB needed to       how many MSBs were using an
review in order to determine whether or    automated system to check customer
not any STR filing was required. At the    names against available listings of
time of the review these MSBs had not      sanctioned individuals and entities.
documented any form of previous            Results showed that 57% of MSBs were                Manual         Automated
                                           manually checking customer names, and               57%            43%
monitoring of these transactions. The
most commonly identified types of          43% had an automated process to do this
transactions were:                         for them. Most MSB organizations which
•	 numerous transactions made by the       were manually checking were doing so
    same customer over shorter time        against the OSFI list only, whereas when
    periods (e.g., one to ten days); and   an automated process was used to do the
•	 larger transactions conducted by        checking, usually multiple lists were            Automated detection system
    customers and source of funds          checked, including at least the OSFI and         with deficiencies
    information was unknown or what        OFAC lists.
    was known/documented was not               We determined that for the MSBs
    clear/did not make sense.              using an automated system, during
                                           the time of their compliance program
                                           review, 45% of these MSBs had identified           No deficiency    Deficiency
  It’s critical that all staff (front      deficiencies.                                      55%              identified
  counter, back office/ processing,            Deficiencies were specifically related to:
  and management) are properly             •	 the list the system was using to check
  trained and aware of how to                  names against was not the most
  recognize the red flags of an                updated, and in some cases was several
  unusual transaction—one suspicious           months outdated; and
  of money laundering or terrorist         •	 technical issues with the system such          Understanding source of funds: A
  financing. Training is now expected          that the comparison process was simply        bank account is where the money
  to be tailored to the role and               not working as it was supposed to.            last comes from before it comes to
  position of your staff.                                                                    your organization; knowing this is
                                                                                             not enough. Find out how the money
  MSBs which are not identifying and                                                         came to be owned and in the control
  reporting suspicious transactions to                                                       of your potential customer.
  FINTRAC need to really stand back
  and assess their risk, identification                                                       Transactions need to be monitored
  and monitoring processes. Is their                                                          for unusual, potentially suspicious
  compliance program really                                                                   activity. Make sure this process is
  effective? Today the expectation is                                                         documented.
  that within this industry an effective
  program will identify suspicious
  transactions. If you are not
  reporting, you need to be able to
  prove that you don’t have to.

Public notice of administrative
monetary penalties

Posted on FINTRAC’s website are
persons and entities that have been issued
a monetary penalty where a “serious or
very serious” violation was committed
(15 MSBs in total).4 The chart to the right
summarizes the types of penalties cited
and provides comparison information on
the rate of occurrence across the MSBs
who were issued penalties. We note the
higher number of penalties regarding
compliance program documentation
versus the number of penalties regarding
the substantive results of a compliance
program, for example, the identification
and reporting of STRs.

4 As of September 1, 2012

About Grant Thornton LLP

Grant Thornton is one of the world’s           Our national anti-money                   We have made efforts to ensure
leading organizations of independent           laundering team:                          information in this article is accurate as of
assurance, tax and advisory firms. These       Jennifer Fiddian-Green, Patrick Ho,       its original publication date, being
firms help dynamic organizations unlock        Michelle Sarmiento, Dave Chu (Toronto);   September 2012, however, we make no
their potential for growth by providing        Pat McParland, Albina Alimerko            representations as to its current accuracy.
meaningful, actionable advice through a        (Vancouver); Al Bleau (Calgary)           In addition, information or views
broad range of services. Proactive teams,      Corey-Anne Bloom (Montreal)               expressed herein are provided on an
led by approachable partners in these                                                    informational basis only and should not
firms, use insights, experience and instinct   Toll-free line and email to directly      be taken as official statements of position,
to solve complex issues for privately          contact our national AML team:            or be considered technical advice. For
owned, publicly listed and public sector       T +1 855 747 2647                         more information about the topics
clients. Over 31,000 Grant Thornton            E                           expressed herein, please contact a Grant
people, across 100 countries, are focused                                                Thornton adviser in your area who will be
on making a difference to clients,                                                       happy to answer your questions.
colleagues and the communities in which
we live and work.

About Grant Thornton in Canada
Grant Thornton LLP is a leading
Canadian accounting and advisory firm
providing audit, tax and advisory services
to private and public organizations.
Together with the Quebec firm Raymond
Chabot Grant Thornton LLP, Grant
Thornton in Canada has approximately
4,000 people in offices across Canada.
Grant Thornton LLP is a Canadian
member of Grant Thornton International
Ltd, whose member firms operate in close
to 100 countries worldwide.


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