Money laundering (ML) is an umbrella term to describe the processing of funds obtained from criminal activity to disguise the source, thereby converting “dirty” money to “clean” money.

ML typically occurs over three stages: the first stage is placement, or the depositing of funds into the financial system. Once the funds have been placed, layering occurs, whereby the money launderer conducts a series of transactions to disguise the source of the funds. When the funds have been “cleaned,” the integration stage involves the funds entering the legitimate economy by purchasing goods or services.

A related concern is terrorist financing (TF), which is the process by which funds are sent to terrorist organizations while attempting to disguise the destination of the funds. TF is committed by individuals who want to use legitimate or illegitimate funds to support terrorist organizations without the funds being easily traced to the organization or themselves. Attempts to disguise TF are similar in nature to ML.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) was established to “facilitate the detection, prevention, and deterrence of money laundering and the financing of terrorist activities.” [footnote 1] FINTRAC is mandated to combat ML and TF by assisting and ensuring businesses operating in certain industries comply with Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations.

Who does this apply to?

Below are summarized descriptions of businesses that can be considered Reporting Entities under the PCMLTFA. Refer to FINTRAC’s website [footnote 2] for full definitions and specific exclusions.

Accountants

Accountants or accounting firms that perform any of the following activities on behalf of a person or entity:

• receive or pay funds or virtual currency (VC), excluding those received for professional fees;
• purchase or sell securities, real property or immovables, or business assets or entities; or
• transfer funds, VC, or securities by any means.

These activities exclude those carried out in the course of an audit, review or compilation engagement.

Agents of the Crown

A department or an agent of the Crown that accepts deposit liabilities, issues, sells, or redeems money orders in the course of providing financial services to the public, or sells precious metals to the public of $10,000 or more.

British Columbia Notaries

A member of the Society of Notaries Public of British Columbia or a British Columbia notary corporation that perform any of the following activities on behalf of a person or entity:

• receive or pay funds or VC, excluding those received or paid as professional fees, disbursements, expenses, or bail;
• purchase or sell securities, real property or immovables, or business assets or entities; or
• transfer funds, VC, or securities by any means.

Notaries employed by a British Columbia notary corporation are exempt from all obligations except for reporting suspicious transactions.

Casinos

Businesses that conduct and manage:

• a lottery scheme at a fixed location that includes games of roulette or card games;
• games operated through electronic gaming devices, such as a slot machine, at a fixed location, where there are fifty or more machines; or
• a lottery scheme available to the public through the Internet.

Dealers in Precious Metals and Stones (DPMS)

Businesses that buy or sell (including via consignment) precious metals, precious stones, or jewellery. DPMS become subject to PCMLTFA obligations once they have purchased or sold $10,000 or more of the above-mentioned products in a single transaction, with certain exceptions.

Financial Entities

• banks operating in Canada;
• financial services cooperatives, savings and credit unions, and similar businesses;
• trust or loan companies that are federally or provincially regulated;
• unregulated trust companies;
• departments, agents, and mandataries of the Crown that accept deposit liabilities when providing financial services to the public; and
• life insurance companies, brokers, or agents in relation to loans or prepayment products that are offered to the public, with certain exceptions.

Life Insurance Companies, Brokers, and Agents

Life insurance companies are life companies that are provincially regulated or to which the Insurance Companies Act applies. Life insurance brokers or agents are those authorized to arrange life insurance contracts. Brokers, agents acting as managing general agents, and agents acting as an employee of life insurance companies are exempt from all obligations except reporting suspicious transactions.

Money Service Businesses (MSB)

Businesses that provide any of the following services:

• foreign currency exchange dealing;
• remitting or transmitting funds;
• issuing or redeeming money orders, traveller’s cheques, or anything similar;
• dealing in VC;
• payday loans or cheque cashing;
• providing and maintaining a crowdfunding platform; or
• providing payment services

A business may be considered a MSB if it holds a permit or license, is registered to offer, or advertises any of the above services. This definition does not apply if a business offers one or more of the above MSB services strictly as an agent for a MSB.

Real Estate Developers and Brokers or Sales Representatives

Real estate developers are businesses that, in any calendar year after 2007, have sold the following to the public:

• at least five new houses or condominium units;
• at least one new commercial or industrial building;
• at least one new multi-unit residential building, each of which contains five or more residential units; or
• at least two new multi-unit residential buildings that together contain five or more residential units.

Once the above are met, the business is considered a Reporting Entity until there is a substantial and permanent change to operations.

Real estate brokers or sales representatives are businesses authorized to act as an agent in the purchase or sale of land, houses, commercial buildings, etc. Agents acting on behalf of a real estate broker are exempt from all obligations except for the reporting of suspicious transactions.

Securities Dealers

Businesses authorized to engage in the business of dealing in securities or any other financial instrument or to provide portfolio management or investment advising services. A person who acts exclusively on behalf of a securities dealer is not considered a securities dealer.

What do you need to do?

If your business fits one of the above categories, you must implement an Anti-Money Laundering / Anti-Terrorist Financing (AML/ATF) compliance program. These programs are comprised of the following five pillars:

1. Appointment of a compliance officer: this individual is responsible for developing and implementing the AML/ATF compliance program;
2. Written compliance policies and procedures: you must document policies and actionable procedures to ensure your business meets its obligations under the PCMLTFA — including those designed to meet record-keeping, reporting, and ongoing monitoring requirements;
3. Risk assessment: document the AML/AFT risks your business faces and the measures used to manage those risks;
4. Ongoing training program: provide employees with training to ensure they understand their role in keeping the business compliant with the PCMLTFA; and
5. Biennial compliance effectiveness reviews (CER): an independent party should review your AML compliance program on a biennial basis at a minimum to ensure it is current and effective.

What if you don’t have an AML/ATF compliance program?

An AML/ATF compliance program is essential if PCMLTFA applies to your business. FINTRAC periodically examines businesses to ensure they adhere to Canada’s AML requirements. These assessments can include any combination of the compliance program requirements, including record-keeping, reporting, and ongoing monitoring requirements.

During these examinations, FINTRAC will consider the business’s compliance with the PCMLTFA and may address non-compliance by:

• taking no further action;
• conducting follow-up compliance activities;
• issuing an Administrative Monetary Penalty (AMP); and/or
• disclosing relevant information to law enforcement for investigation and prosecution.

FINTRAC must publicly disclose all AMPs, including the date and dollar amount of the AMP, company name, and nature of the violation(s).

FINTRAC has increased its enforcement of AMPs in recent years. In 2020, these totalled just under $500,000. As of May 2023, AMPs have exceeded $750,000 for the year to date. Figure 1 illustrates the AMPs issued from 2020 to May 2023.

Compliance program assistance

An abundance of guidance is available online to help you build an effective AML/ATF compliance program. Still, it can be overwhelming and time-consuming to ensure your business is meeting its obligations under the PCMLTFA. Further, with AMPs increasing year over year, non-compliance can result in an unexpected financial burden.

A qualified AML practitioner or AML advisor can help you navigate your requirements by:

• informing you about the regulations applicable to your business;
• designing a compliance program commensurate to the size of your business;
• performing biennial CERs to ensure compliance;
• reviewing and assisting in the remediation of FINTRAC’s examination findings;
• keeping you up to date on regulation changes and updates; and
• providing ad hoc advice as unique issues arise in your business.