British Columbia Notaries Public and Notary Corporations

Requirements for BC Notaries

Good afternoon everyone, and welcome to today's FINTRAC Webinar on the obligations for British Columbia notaries. Thank you for being with us.

My name is Stephen, and I will be the moderator of our discussion this afternoon. I'd like to introduce you now to one of my colleagues who will deliver our presentation today, Marilyne Landry, Manager of Program Development here at FINTRAC. Welcome, Marilyne.

Marilyne:
Thank you, Stephen.

Stephen:
I'd like to encourage you to ask any questions you may have at any point during the webinar, by submitting them to the outreach email address that you see on your screen. There'll be a handy little link just to the right of your webinar screen. We'll take a few breaks over the course of the presentation to answer as many of your questions as we can.

I should also note that, in order to move between slides, you can use the arrows that appear on your screen, just at the bottom, so that you can jump ahead in the presentation or go back to something, should you wish. Marilyne will let you know when she has moved on to a new slide.

And with that, I will turn things over to Marilyne.

Slide 2

Marilyne:
Thank you so much, Stephen. I'll get started and go straight to slide 2 with the presentation overview. We'll start the presentation with some information about the Financial Transactions Reports Analysis Centre of Canada, or FINTRAC, for short. Then we'll spend a bit of time providing an overview of what money laundering and terrorist financing is, and go to the heart of the presentation, which is an overview of the obligations for British Columbia notaries. Finally, we'll wrap up by talking about FINTRAC's compliance approach.

Slide 3

Slide 3 is just an introduction to highlight that British Columbia notaries and British Columbia notary corporations will have obligations starting December 30, 2008, and that FINTRAC is responsible for ensuring compliance with these legislative and regulatory obligations.

Slide 4

Slide 4 speaks to FINTRAC and its role within Canada and Canada's efforts to combat money laundering and terrorist financing. FINTRAC is Canada's financial intelligence unit, and is responsible for producing financial intelligence for law enforcement and national security agencies. FINTRAC is in a unique position to analyze millions of financial reports to produce this intelligence. In government terms, we're a relatively new agency since we were created in 2000 under the Proceeds of Crime (Money Laundering) Terrorist Financing Act. We were created to contribute to Canada's efforts to combat organized crime and terrorism. We're an independent agency that reports to the Minister of Finance and Parliament, and we operate at arms length from law enforcement and other law enforcement bodies. It's very important to note that we work in partnership with individuals and entities that are subject to the Proceeds of Crime (Money Laundering) Terrorist Financing Act, and that this partnership with individuals and entities that have obligations is key to the success of FINTRAC.

Slide 5

Now, I'll jump to slide 5 to speak a little bit more about FINTRAC's role and mandate. FINTRAC's primary role is to collect, analyze, assess, and disclose information related to money laundering, terrorist financing, as well as the threats to the security of Canada. Now, how do we do this? We receive information from various reporting entity sectors: everything from financial institutions that include banks and credit unions, trust and loans, casinos, securities dealers, life insurance agents, real estate agents and brokers, as well as money services businesses. So, a very wide range of sectors must comply with obligations under the Act, including BC notaries, starting December 30, 2008. All sectors must report to FINTRAC. FINTRAC receives that information, analyzes it and assesses it. We try to connect all of the transactions that might be related to a case of money laundering or terrorist financing, and we build a case. Our cases tend to be very, very big: last year, our biggest one was a case that involved $5 billion worth of transactions. So you can see that when we develop a case, we're not just developing a case based on one report filed by one entity. Our goal is to build a network, identify new individuals that might be involved in the criminal organization, which might be benefiting from the criminal organization's profits. Once we've conducted our analysis, then we must determine whether or not we meet a certain threshold. Our legislation only allows us to disclose information once we've met a threshold, which is that there's a reasonable suspicion that the transactions are related to either money laundering or terrorist financing. The last step in the process is, if we meet that threshold, to disclose the information to either law enforcement or security agencies. In a nutshell, that is our primary role that you see in the first bullet, which is to collect, analyze, assess and disclose financial information.

Our second mandate is to ensure compliance with obligations under Part 1 of the Proceeds of Crime (Money Laundering) Terrorist Financing Act and related regulations. This means conducting compliance examinations, supporting entities and individuals that have obligations under the Act to actually understand their obligations, and then comply with those obligations. So FINTRAC's second mandate is to ensure compliance.

We also have a legislative responsibility to protect the information that is under our control. When I spoke about disclosing to law enforcement, I mentioned that we can only disclose information once we've met a particular threshold. The idea is that the vast majority of the information that's under FINTRAC's control, are legitimate transactions conducted by everyday Canadians. So we want to make sure that if the information leaves FINTRAC and is shared with law enforcement, it is because we have suspicions that the information is related either to money laundering and terrorist financing. Only under those specific circumstances can we actually disclose information and can the information leave FINTRAC's database. Now, in addition to that, every employee that works for FINTRAC has a minimum secret clearance and is subject to substantial fines and penalties if unauthorized information is disseminated. So, very key to our mandate: ensuring the protection of personal information.

Finally, enhancing public awareness of money laundering and terrorist financing is FINTRAC's last key mandate.

Slide 6

Moving onto slide number 6 to discuss on what money laundering is. The United Nations defines money laundering as "any act or attempted act to discuss the source of money or assets derived from criminal activity." It's the process where 'dirty money' is transformed into 'clean money'. It's more than just cash; it also includes valuable items such as real estate, diamonds, and other kinds of funds like electronic funds transfers. When we talk about money laundering, people often think that money laundering might be a victimless crime. It's the movement of money, and trying to conceal its criminal origins. What we often forget is that for there to be money laundering, you must first have a crime. And essentially, when we talk about crime, we're talking about drug trafficking, weapons trafficking, prostitution, and human smuggling, so there's a very clear link between the safety of our communities and money laundering. Their main motivation is obviously to generate profits through crime. When we talk about contributing to Canada's fight against organized crime, the fight against money laundering is very key in preventing organized crime from benefiting from the profits of their crime.

Slide 7

I will now go to slide number 7 and give you a little bit of context in terms of the different stages of money laundering. The first stage of money laundering is the placement stage. Once again, you can only have money laundering if a crime has occurred. Let's say we talk about the crime of drug trafficking. A drug deal occurs and $20,000 in cash is received by the drug dealer for cocaine. The placement stage consists in taking that $20,000 in cash and putting it into the financial system, either depositing it in a bank account or going to a money services business and asking for that $20,000 in cash to be wired to a bank account outside of Canada. So the first stage, the placement stage, is when the criminal proceeds in putting the cash into the financial system. Most of the time, we're talking about cash. But there might be instances where, for example, someone steals a diamond ring. Essentially, the sale of the stolen diamond ring would be the placement stage, because it's sort of integrating it into the financial system.

The layering stage is where it gets complicated. If we go back to our example of the $20,000 in cash that was generated by the sale of cocaine, you might have the drug dealer deposit it into their bank account. Now, the layering stage is trying to confuse the money trail, trying to disguise the audit trail so that the source of the funds, the criminal origin of the funds, is now difficult to detect. Once the money is in the bank account, they might come to a BC notary and say, "Look, can you, can you help me purchase securities?", or "Can you help facilitate a wire transfer?" So, the idea is you'll have multiple transactions, again, trying to further the funds from its original criminal origins. So layering, once again: trying to create layers of financial transactions to disguise the audit trail and the source of funds.

Finally, the integration stage would be placing the laundered funds back into the economy to create a perception of legitimacy. Let's say that, in the case of our $20,000, it was deposited into a bank account, was wired to various jurisdictions, maybe a jurisdiction that's known as a tax-haven, and then finally the money launderer says "I want to buy a nice house." Well, the integration stage would be wiring the funds back to Canada, and then writing a check to put a deposit on a nice home, let's say, in Surrey. So again, at the integration stage it's very difficult to detect that the money is actually coming from criminal sources. However, it's very key and likely that, as a BC notary, you might actually see some of these transactions, especially when we're talking about the purchase of real estate or the purchase of high-value goods. So the stages of money laundering are a highly complex process. Criminal organizations have individuals that do this full-time. To see a FINTRAC disclosure, I would invite you to take a look at the five to six-minute video that's on our Web site, in which a case disclosure is explained. Even if I work here at FINTRAC, when I watch the video I get confused myself because of the complexities involved in money laundering. So when we think about money laundering, we consider that there needs to be a crime first, that there are three stages, and that all sectors and individuals who have obligations have the potential to see the three stages of money laundering. Once again, money laundering obviously has an impact on the safety of our communities.

Slide 8

Now, in terms of terrorist financing, we'll go to slide 8. Terrorist financing is the process by which money is provided to an individual or group to fund terrorist activities. There are two main differences with money laundering. Here, the funds may be coming from legitimate or illegitimate sources, but used to help facilitate a terrorist act. You'll remember that, for money laundering, there needs to be a crime for the proceeds of this crime to be laundered. When it comes to terrorist financing, you could actually have legitimate funds, let's say a contribution to a charity, and then the funds would be taken from the charity, transferred to a foreign country, and then portions of those funds that were gathered for charitable purposes would actually be used to fund terrorism. That's not to say that terrorists don't also fund their activities through criminal activity; we have examples of that occurring as well. The other big difference between money laundering and terrorist financing is that, with money laundering, you have the crime and then you have the laundering of funds, whereas with terrorist financing, you can actually have the financing of a terrorist organization without a terrorist act occurring. So it makes it that much more difficult to detect. That difficulty is further exacerbated by the fact that we're often talking about smaller amounts than those of money laundering, so it's harder for our analysts to detect.

That takes us to the end of slide 8. I'll pause here to see if there are any questions with respect to FINTRAC's mandate, money laundering, or terrorist financing.

Stephen:
Thanks, Marilyne. We do have one question that we've had submitted. I'd like to take this moment to remind everyone that, as it's a product of the live session, you have the ability to submit any questions you wish to submit to us for consideration on our question and answer period. We'll have a couple more during the presentation and one at the end. So feel free to submit your questions to us and we'll get to them as soon as we can. Also, if we are unable to get to them before the end of the presentation, we will follow up by email with the address that you will provide. With that said, we did get one question asking about a bit more information on the issue of money laundering in Canada, and the importance of the transactions that are submitted to FINTRAC. Would you be able to expand on that a little bit?

Marilyne:
Absolutely. When we talk about the scope of the problem, as you might understand, we're talking about estimates because criminal organizations don't file tax returns, and they don't tell us that they've generated $100 million dollars from drug trades. So obviously, we only have estimates. In terms of what FINTRAC is seeing, I can say that in fiscal year 2006-2007 only, we disclosed almost $10 billion worth of financial transactions. Now, again, it's only what FINTRAC has seen. We should say 'suspicions of money laundering or terrorist financing', because we're not talking about convictions, it's only suspicions, but that gives you an idea of the scope. You know, what FINTRAC sees is only a portion of what's going on and we've already disclosed $10 billion in our last fiscal year. I believe the International Monetary Fund, the IMF, estimates that, globally, the problem of money laundering could be as high as $500 billion. So those are very staggering numbers. I also think that it speaks to the international nature of money laundering and terrorist financing; they're certainly not phenomena that stay within borders, and by their vary nature, are of international nature. I think that gives a little bit of context about the scope of the issue. In terms of the importance of the reports that are submitted to FINTRAC: "How important are they?" I'll say that, essentially, if we didn't have the reports submitted by various entities and individuals, we wouldn't be able to do our job. Our business is to analyze financial information. In order to do so, we need to receive financial information. So in terms of how critical it is, it's essential to the success of not only FINTRAC, but also to the broader anti-money laundering, anti-terrorism financing initiative here in Canada. As we get into the obligations for BC notaries, I'll speak to the various reports and the importance of what each of them brings to FINTRAC in its analysis.

Stephen:
Excellent. Thank you very much, Marilyne. I'll continue to monitor the questions that do come in from our viewers. Again, I encourage you all to put in any that you might have. At this point in time, we'll continue on with the presentation, but we will have a couple more stops along the way, so we'll be watching out for you. Go ahead, Marilyne.

Slide 9

Marilyne:
Sounds great. I'm now moving on to slide 9 and the heart of the presentation: speaking to BC notaries specifically, and the obligations that they will have. The first question that we get when a new sector is introduced to the obligations is "What are the reasons for including British Columbia notaries?" Simply put, BC notaries, like many other sectors, engage in various activities that may be vulnerable to money laundering and terrorist financing. So whether that's facilitating the buying and selling of real estate, holding trust accounts for clients, or performing transactions, the fact that you act as financial intermediary creates a vulnerability to money laundering and terrorist financing. That is also true of many financial intermediaries such as banks, credit unions, securities dealers, life insurance agents, or even real estate agents. The reason for including BC notaries is the fact that they are involved in potentially vulnerable transactions related to money laundering and terrorist financing.

Slide 10

On slide 10, we're going to talk more specifically about vulnerable real estate transactions and give you some examples of what those could be. You might have the purchase of real estate registered in the name of a trust. Any transaction where you do not know who is conducting the transaction makes it that much more vulnerable to money laundering because, obviously, criminals want to remain anonymous. They don't want law enforcement or the government to know that the transaction is actually related to a crime and that it can be tied back to them. Anything that uses, that provides anonymity is always seen as being potentially suspicious and vulnerable to money laundering. For that reason, the use of nominees would be seen as being vulnerable, as would property transfers and concealing transfers of a legal fund. So, a little bit of what we were talking about earlier in the example that I provided. International real estate flips, under invoicing, and placement deposits would also be seen as vulnerable transactions.

Slide 11

I would say that slide 11 is probably the most important slide in the presentation because it will help you determine whether or not you have obligations under the Act. It's important to note that not all BC notaries will have obligations under the Act. You only have obligations if you engage in the following activities: the receiving and paying of funds other than professional fees, disbursements, expenses, bails, the purchasing or selling of securities, real estate properties, business assets, entities, the transferring of funds or securities by any means, and then giving instruction in relation to all of these activities. Essentially, for you to have obligations as of December 30, 2008, you must conduct one of these activities. Some people will say, "Well, I helped in the purchase of real estate… once. Does that make me covered?" The answer is yes. The very first time that you engage in one of these activities, you are covered under the legislation, and you must comply with the obligations. Once again, slide 11 provides a list of key activities. If you engage in these activities, you have obligations starting December 30, 2008.

Slide 12

The second most important slide in the presentation, slide 12, gives you a summary of what you need to do if you do have obligations. You must report a series of transactions: suspicious transactions; large cash transactions; and terrorist property. You must also keep records, ascertain identity and implement a compliance regime. I won't go into that right now since the next few slides will provide details as to what the requirements are for each of these obligations.

Slide 13

Going to slide 13 and large cash transactions. BC notaries will need to report transactions involving amounts of $10,000 or more received in cash. In this context, when we talk about cash, we're not talking about cheques, bank card, or bank drafts; we are talking about cold, hard cash, so bills and coins. Only if you receive $10,000 or more in cold, hard cash must you report to FINTRAC, or must the large cash transaction requirement kick in. So, $10,000 in cash. If you receive $10,000 in cash, you have 15 days to report it to FINTRAC as of the day of the receipt of the cash. We have something called the 24-hour rule. Essentially, if you receive more than several payments in cash from the same client within 24 hours, and those several payments are equal to $10,000 or more in cash, then you should be submitting a large cash transaction report. Now, you may ask "How is this particular report key to FINTRAC's analysis?" When we talk about cash transactions, the vast majority of criminal activity is conducted through cash, since it's pretty difficult to pay for your drugs with a credit card, so you need to pay in cash. That cash needs to enter the financial system. That's not to say that cash transactions are automatically suspicious, or that there's anything wrong with cash transactions, of course not. But in money laundering trends, the biggest trend that we see is that, at the placement stage that I was talking about earlier, cash transactions dominate. So they are considered higher risk transactions, and for that reason, they're reported to FINTRAC. Now, I'll highlight, as I mentioned in previous slides, that guidelines are available on our Web site. So, if you want more information on the subject that I'm talking about, you'll see, at the bottom of many slides, a referral to FINTRAC guidelines that would provide you more information. When we're talking about submitting a large cash transaction report to FINTRAC, Guideline 7 is where you would want to go, and Guideline 7 actually gives you step-by-step instructions as to what information you need to collect and how you should report to FINTRAC.

Slide 14

I am now moving on now to slide 14. In addition to reporting a large cash transaction of $10,000 ore more, when you do receive $10,000 or more in cash, you need to create and keep a record of the transaction on file. Actually, the simplest way to do that is to print the report that you submitted to FINTRAC; but if you want to keep it through another document, that's fine as well. You must identify the client and keep client identification information. So it is very key that, when you receive $10,000 or more in cold, hard cash, you identify your client. We'll talk about how you can do that in a moment. And then you need to determine whether the cash is coming from a third party, by simply asking this question to the person who gave you the cash: "Does this cash belong to anyone else?" For example, in the event that a son is putting a cash deposit on a condo, but the money is actually his mother's, that would be a third party relationship, and you would need to document the name and address of the mother. The information that needs to be collected is also contained in Guideline 6J, which highlights record-keeping and client identification requirements for British Columbia notaries. So those are the requirements with respect to large cash transactions.

Slide 15

Slide 15 addresses suspicious transactions. As a BC notary, if you have obligations, you must report any suspicions you have of transactions being related to either money laundering or terrorist financing. For example, if someone comes and wants to conduct a real estate transaction and you tell yourself: "Here's a student who wants to go and purchase a million dollar condo while telling me that he's unemployed, and his family history doesn't seem to indicate that he has any source of funds that would enable him to purchase this, however, he has substantial means and seems to be able to purchase the million dollar condo." That may be suspicious, depending again on circumstances, on the facts of the particular transaction. So again, you have an obligation to report suspicious transactions when you think a transaction or attempted transaction is related to either money laundering or terrorist financing.

Following the day that you became suspicious, you have 30 days to report to FINTRAC. Let's say you help facilitate a real estate transaction, and two months later, there's an article in the newspaper saying that the client that you helped has been arrested for drug trafficking. And you think "Now that I know that this person was arrested for drug trafficking, it's true, there were a few things that seemed fishy, and I think that the transaction was related to money laundering." From that point (the day that you suspected the transaction was suspicious), you have 30 days to report to FINTRAC.

In addition to reporting suspicious transactions, you need to keep a copy of the report, and you also need to take reasonable measures to ascertain the identity of the individuals. It's very key that, when we're talking about suspicious transactions, you should only identify the individual if you're sure that identifying them will not lead them to believe that you're submitting a report to FINTRAC. In other words, if you think that identifying them will lead them to believe that you're submitting a report to FINTRAC, don't identify them. Essentially, you don't want to tip them off that you're actually sending a report to FINTRAC stating that the transaction is suspicious. So you should only identify them in the context of suspicious transactions if you think it's not going to tip them off.

For suspicious transactions, it's really important to remember that it doesn't matter whether the transaction is in cash or not, and that there is no threshold amount. So regardless of the amount of the transaction, if you think something is suspicious and is related either to money laundering or terrorist financing, you should report to FINTRAC.

You'll see at the bottom of slide 15, that you can get a lot of help in our guidelines. Guideline 2 will help you identify what a suspicious transaction is. Guideline 3 will help you submit a report to FINTRAC, and then Guideline 6 will speak to the record keeping and client identification requirements that you will have.

Slide 16

Slide 16 speaks to suspicious attempted transactions. An attempted transaction is an incomplete transaction that a client intended to conduct and took some form of action, but where the transaction wasn't actually completed. So all this slide says is "If there is an attempt by a client to conduct a transaction, it doesn't go through, but you still think it's suspicious, you have to report it to FINTRAC."

Slide 17

Slide 17 through 19 provide a whole list of indicators of suspicious transactions. Many people say "How do I know if something could be related to money laundering and terrorist financing?" You can't always have an absolute answer. In some instances, the use of cash makes perfect sense. In others, the use of a third person to conduct a transaction might also make perfect sense. However, those two situations might be suspicious in another context. So indicators are sort of red flags to say "When this happens, pay a little closer attention." And if, after paying closer attention, after scrutinizing, you think everything is fine, that's great. However, if after scrutiny you think that "This is kind of suspicious and I think it might be related to money laundering or terrorist financing", you have to report it to FINTRAC. Again, these are meant as help, as hints. If one of these things happens, it's not an automatic that you have to report to FINTRAC; but they are provided as red flags to help you remember that it might be related to money laundering or terrorist financing.

I'll highlight a few indicators of what could be suspicious transactions. For example, your client doesn't live in your district. Is there a logical reason why they would come and deal with you, if they don't live in your city or your province? If the answer is yes, then great, but if the answer is "I'm not quite sure", then you might want to pay closer attention to the transaction. If a client is reluctant to discuss financial affairs, it might be a privacy thing, but again, remember that being anonymous and having as little information on you as possible is key to a successful money laundering activity. Anything that's related to secrecy, whether it's with respect to the activities of the client or to the actual individual that's conducting the transaction could be suspicious. If a client has a history of changing a notary accountant, they might have the idea that "If one person knows all of my business, they might get suspicious." They would try to change notaries and accountants often so that people don't become suspicious with respect to the activity. It might be that a client is uncertain of the location of company records. If you're running a company, you should know where your records are. If it's a way of avoiding to provide information, that might be suspicious. It could also be that a client has no employees, which is unusual for the type of business he's running. When we talk about anything that's unusual, we mean something that doesn't make a lot of business sense. You know what makes sense, because you know your clients, you know your business. So if something's not quite right, and there are situations that you're thinking "That really doesn't make sense", just look a little bit closely to the transaction, and ask yourself "Could this be related to money laundering or terrorist financing?" If you think it's possible, then you should report to FINTRAC.

Slide 18

Slide 18 has more examples:

• Client forms several different companies for no legitimate reason;
• Client pays unusual consultant fees to offshore companies, again highlighting the international nature of money laundering; or
• Client conducts business transactions that are inconsistent with his business.

So as I mentioned before, anything that doesn't make business sense.

Slide 19

I am moving on to slide 19. Client invoiced by entities located in a country that does not have adequate money laundering laws, are known as a corporate tax haven, or known for its secretive banking practices. In terms of if you want to see a list of countries that could be potentially higher risk, the Financial Action Task Force provides a list of non-cooperative countries and also issues advisories. If you go on our Web site, FINTRAC sometimes issues advisories about countries that have been subject of money laundering / terrorist financing sanctions, or have been highlighted by the Financial Action Task Force as having lax anti-money laundering and anti-terrorist financing laws.

Slide 20

I am now going to slide 20 and to talk about our last report that needs to be submitted to FINTRAC, the terrorist property report. I will say that this will not occur very often. However, if you are ever in the possession or control of goods or property that is owned by a terrorist or a terrorist group, you need to report that to FINTRAC. You'll say "How do I determine whether something is owned or controlled by a terrorist or terrorist group?" Essentially, the government of Canada publishes a list. You'll see that, at the bottom of the slide, we refer you to Guideline 5, which provides you a link to that list. If you're going to submit a terrorist property report, you need to know that you are in the possession or control of terrorist property. It's not a suspicion, it's not a belief; you need to absolutely know that it is terrorist property. You can do that by consulting the list. Let's say Osama bin Laden comes and provides you with a bank draft to purchase real estate; you would need to seize the bank draft, call the RCMP, call CSIS, and once you've done all of that, report to FINTRAC. It's a little known fact that all Canadians have the obligation to actually seize terrorist property and call the RCMP and CSIS. So essentially, you already have this obligation, since we all have this obligation as Canadian citizens. The only additional requirement is that once you have called the RCMP and CSIS, you should also submit a report to FINTRAC. Once again, Guideline 5 provides you with a link to the list and gives you instructions on how to submit terrorist property reports.

Slide 21

Slide 21 speaks to how to submit suspicious transactions, large cash transactions and terrorist property reports. Terrorist property reports are submitted on paper, because of their urgency and because they don't happen frequently. Large cash transaction and suspicious transaction reports must be reported electronically, if you have access to Internet. If you do, you must report STRs and LCTRs, so suspicious transactions and large cash transaction reports, electronically. How do you do that? FINTRAC has a secure Web site and you can access it through FINTRAC's main Web site. To report, you will need to enroll with FINTRAC by contacting FINTRAC at its 1-866 number. We'll provide that number at the end of the presentation. Once again, if you have access to Internet, you must report suspicious transaction reports and large cash transaction reports electronically.

Slide 22

Slide 22 highlights when you need to identify clients and keep records. We've already talked about your obligation to identify clients when you receive $10,000 or more in cold, hard cash, And when you're reporting a suspicious transaction, but only if you don't think you're going to tip off the client you're reporting. And then the third scenario is when you receive $3,000 or more, whether it's cash, credit card, bank note, or check. For any transaction of $3000 or more, you must identify your client. So, there are three situations where you must identify your client and keep records: when you conduct a transaction or when you receive $10,000 or more in cash; suspicious transactions, but only if you do not tip off the client; and then any transaction of $3,000 or more. It's important to note that, if you keep a large cash transaction record or a copy of it, which is the record, you do not need to keep the receipt of funds record. If you have a large cash transaction record, you're fine; you don't need to keep the receipt of funds record. Once again, if you're looking for further information, Guideline 6 will provide you with the exact details as to what you need to collect.

Slide 23

Slide 23 provides guidance in terms of how to identify a client. If your client is present, you need to refer to a valid government issued identification document. It can be a passport, a driver's license, and in some provinces like BC, you can refer to the health card. In other provinces, such as Manitoba, Ontario, and PEI, that's prohibited, but in British Columbia you're fine in terms of using a health card. So any valid, government-issued identification document. That's the standard method: that's what you do if the person is face to face, in front of you. However, if you conduct transactions over the telephone or Internet, you do have non face to face identification methods that are available to you. It's a combination of two methods, and it's usually related to a person's bank account information or financial institution account information, in combination with other things such as a guarantor. Once again, Guideline 6J will provide you with a list of what those non face to face situations are. You can also rely on an agent to take care of your identification measures. The only thing here is if you want to use an agent to identify your clients, you need to have a written agreement with your agent for that purpose. Once you've identified someone, you're not required to do so again if you recognize the individual, unless you have doubts about the accuracy of the information that was obtained previously. Now, many people will ask "Do I have to identify the longstanding clients that I've known for twenty years?" The answer is if they conduct one of the three transactions that we've talked about on slide 22, if they give you more than $10,000 in cash, if they conduct a transaction of $3,000 or more, or conversely if they conduct a suspicious transaction and you don't think that they'll be tipped off by you asking them for I.D., yes, you would have to identify your longstanding clients because it's the law. If you don't identify them, you make yourself subject to potential penalties. FINTRAC has pamphlets available on its Web site that explains why you are required to ask this information. You can order more if you don't want to print them directly off the Web. If you have one of those three transactions listed on slide 22, you must identify the individual regardless of how long you've known them. But once you've identified them once, that's it, unless you think the information they provided you is inaccurate.

I'll take a pause here to see if there are any questions either with respect to reporting client identification or record-keeping.

Stephen:
Excellent. Actually, it's perfect timing for a pause because we were getting a number of questions piling up in our inbox. Thank you all for submitting your questions. We'll try to get through a good number of those at this second pause, while we're here. So with that said, we got a couple specific questions that I wanted to put out there, and one is related to the presentation itself. On slide 10, this is the title we have: "For Vulnerable Real Estate Transactions."

Marilyne:
Yes?

Stephen:
One of our listeners was wondering if you would be able to explain a little bit more about under-invoicing.

Marilyne:
Absolutely. We're going back to slide 10 because one of our audience members was asking about under-invoicing. In the context of a real estate transaction, it's undervaluing the value of the house. Let's say it's a $500,000 house; under-invoicing would be saying it's actually worth $400,000, and then providing a cash payment, under the table, of $100,000. That's what we mean about under-invoicing. You can see it in real estate, but you can also see it with the purchase of any other good. It's a very common money laundering technique.

Stephen:
On a follow up as well, you were recently discussing some points of the suspicious transaction, large cash transaction, and terrorist property reports. We have a number of reports obviously. In a situation where the notary would receive a large amount of cash, let's just say $20,000 for example, but they also consider the transaction to be suspicious; would the reporting entity, the BC notary in this case, need to file both an STR, a suspicious transaction, and an LCTR, a large cash transaction?

Marilyne:
The answer is yes because the information you collect for large cash transaction and suspicious transaction is slightly different. In the suspicious transaction report, there is a section where you can actually tell us why you think the transaction is suspicious. It's very important that you provide us with both reports so that we're able to get a full picture. I think this is a good opportunity to also highlight that, when we talk about the importance of reports, the suspicious transaction reports are actually the most important ones that FINTRAC receives. You are our eyes and ears out in British Columbia, with respect to the transactions you facilitate, and if you think something is suspicious, we're certainly going to pay attention. Every single one of the suspicious transaction reports that we receive is read by a FINTRAC analyst; that's how important they are. If you think something's not quite right, we pay attention and we'll look at the report saying "Do we have enough information to start a case that could eventually be disclosed to law enforcement?"

Stephen:
Excellent. Thank you very much. We also have a follow up question with respect to identifying clients over the phone or Internet. We have a notary following up on a real estate transaction, who obviously deals fairly frequently with real estate transactions.

Marilyne:
Yes?

Stephen:
It's about a client that resides outside of Canada, and they're wondering what would be the measures to identify these customers that are abroad.

Marilyne:
As I said, Guideline 6 provides a whole series of options that could be applied to non face to face situations. The most common one in this context would be the use of an agent. Now, it's important to note that anyone can be your agent. It could be a cousin, a lawyer, or a real estate agent. Whomever you trust to identify your customer can be an agent of yours, as long as you remember that, to use an agent, you need to have a written agreement for that purpose.

Stephen:
Excellent. Thank you very much. We'll have one last question before we move on with the presentation. Again, we will have another pause before the end of the session, so please continue to ask your questions. The last one I'm going to ask is a bit more technical, more specific than the previous ones. It involves an individual buying a mobile home. The value in this case was $15,000, but they're paying this amount directly to the seller of the mobile home.

Marilyne:
Okay.

Stephen:
The notary is indicating that it's not coming through their trust account.

Marilyne:
Yes.

Stephen:
They're only registering the transaction.

Marilyne:
Yes.

Stephen:
Do they need to report this?

Marilyne:
The answer is no. Unless they think it is suspicious. So again, in terms of suspicious transactions, there is no dollar amount. If you think that transaction is suspicious, you should report it to FINTRAC. But when we talk about large cash transaction reports, it is only when it is $10,000 in cold, hard cash that you receive, when you're actually counting the money in front of your client. Only when you're the one receiving the $10,000 in cash do you need to report it.

Stephen:
Excellent. So, we do have more coming in, but I'm going to hold off at this point in time and we'll continue on with the slide presentation and have a pause in a short while.

Slide 24

Marilyne:
Excellent. We are now on slide number 24 in the section that talks about compliance regimes. When we talk about compliance regime, it's about "How are you going to make sure that you're complying with all of the obligations that we've just discussed?" The compliance regime has five elements: appointing the compliance officer; developing written policies and procedures; doing a risk assessment; training employees and agents, if you have any; and then doing a documented review every two years. I'll just take each one of those elements and delve into a little bit greater detail.

You must appoint a compliance officer who can be absolutely anyone, even yourself if you're a small firm. The only condition would be that this person has the authority to make sure that all of the requirements are being complied with. So anybody can be a compliance officer; who you appoint is at your discretion.

Then, the second element of the compliance regime is to develop and apply written compliance policies and procedures. It's really important that they be written. Policies and procedures should document how you plan to comply with your requirements. For example, you might say "When it comes to… you may refuse to accept $10,000 in cash, document that, and say "Because I won't accept $10,000 in cash, I won't be reporting large cash transactions." That's your choice in terms of whether or not you want to receive cash. There is absolutely no problem, but that's an example of a policy that might be contained in your broader compliance policies and procedures.

We'll skip through conducting a risk assessment because we'll see several slides in a few moments that speak to that in greater detail.

Now, the fourth element of the compliance regime is the implementation documentation of an ongoing training program. That only applies to you if you have employees, agents, or mandataries. It's important that you document what you've done in terms of training. Let's say your employees are listening to this FINTRAC webinar; this could be seen as a form of training and you could simply document "Gina, Steven, and Julie participated in FINTRAC's webinar on BC notaries on November 6, 2008." Essentially, you need to document exactly what you've done in terms of training.

Finally, you need a documented review that takes a look at the effectiveness of your policies and procedures, your risk assessment and your training program. You need to do this at least every two years, and you need to document the results of the review. Now, for corporations and other entities, you also need to report the findings to senior management, and tell them about updates and implementation statuses if you found any sort of deficiencies or breaches. You also need to give them a status report in terms of where you are in correcting the gaps that you've identified. These are the five elements of the compliance regime.

Slide 25

On slide 25, I will now delve into the risk assessment and the risk-based approach a little bit more deeply. Essentially, the risk-based approach is meant to allow BC notaries to identify higher risk situations and to focus their resources on those higher risk situations to mitigate the risks. There are two major steps to the risk-based approach: 1) Identifying what situations are higher risks, so conducting an evaluation; 2) Putting risk mitigations in place that will allow you to mitigate the risks that you've identified. Now, when we talk about risk-based approach, it's really important to highlight that it will vary according to the size and complexity of your operations. For instance, a large financial institution might have twenty to thirty pages of documented risks, whereas a BC notary that's working alone in an office might have two or three pages. Again, your risk-based approach will vary according to the size and complexity of your operations.

Slide 26

How do we actually conduct a risk assessment? Slide 26 tells you what you need to analyze when you're conducting a risk assessment. The first thing is to take a look at your clients, business relationships, products and services, delivery channels, geographic locations of your activities as well as the location of your clients and any other relevant factor. When you conduct your risk assessment, we often get the question "Do I need to do a risk assessment for each and every one of my clients?" The answer is you can cluster your clients into various groups. You might want to say "One group includes the clients that I've known for the last twenty years, that I know their business, that I'm very familiar with their activities. Those would probably be considered lower-risk because you know them very well. Medium risk would be newer clients, but that I meet face to face. And then higher-risk might be new clients that you never met before, that you're conducting transactions with either over Internet or through the telephone. When you're conducting your risk assessment, you may want to cluster your clients and do the same with your various types of business relationships and products. Essentially, take a look at what you think is higher risk.

Slide 27

Slide 27 highlights that, once you've identified something as being higher-risk, let's say new clients that you've never met before, that you conduct transactions with either over the phone or Internet, you consider those higher-risk. First thing you need to do is establish mitigation strategies to mitigate that higher risk. That might be asking for some confirmation of identification even though it might not be required. It can also be signaling to senior management, if you are part of a corporation, that a transaction is occurring with a higher-risk client. That's the first thing you do: establish mitigation strategies to mitigate the risk.

Then you need to take reasonable measures to keep client identification information up-to-date every two years. That means that you don't have to identify the client again, but you just need to make sure that the information you have on that client is updated every two years. It might be just confirming the address when you're on the phone with them.

Then, finally, you need to take reasonable measures to conduct ongoing monitoring to detect suspicious transactions. For clients that are new and that you interact with in a non face to face situation, you might say "On a monthly basis, I will review the transactions that are related to those particular types of clients", and that would meet the requirement of conducting ongoing monitoring. So there are three things you need to do when you identify something as higher-risk: you need to mitigate the risk; keep client information up-to-date every two years; and do ongoing monitoring.

Slide 28

Are there tools to help you do all of this? The answer is yes. Slide 28 provides you with a series of tools. The key tool that you have is Guideline 4, which has an extensive section on risk-based approach. It also has a checklist that that will help you identify higher-risk situations. It also gives you examples of potential risk mitigation measures as well as examples of how you can monitor high-risk clients. I'll also add that we conducted a webinar dedicated exclusively to risk-based approach. The archived webinar is available on our Web site and you can look at it if you want a very detailed overview of how to conduct your risk-based approach. That session's about an hour and a half, dedicated exclusively to risk-based approach. But I would start with Guideline 4 that has lots of very helpful information in terms of helping you conduct your risk assessment, and giving you examples of risk mitigation, and what ongoing monitoring might mean.

I'll take a pause to see if there are any additional questions, whether related to the compliance regime or more broadly to other requirements.

Stephen:
Well, actually, it's an excellent time for a pause. We do have a very savvy group on today, who've got a number of questions for us, but not so much about the actual regime itself. We're still getting some more questions with respect to cash transactions, and I probably want to start off with this one: an individual is looking for some clarification with respect to the $3,000 transaction. Is it only related to the suspicious transactions, or is it all transactions over $3,000? I guess maybe one thing to focus on is "Are we strictly talking about cash, or any $3,000 worth of transaction?"

Marilyne:
It's all transactions that are $3,000 or more. Regardless of whether it's cash or not, and whether it's suspicious or not. First of all, you need to determine whether or not you have obligations under the Act, that's the first thing. If you determine that you do, for any transaction of $3,000 or more, regardless of how it's conducted, you need to identify and keep records.

Stephen:
Excellent. Thank you very much for the clarification. Someone is asking a two-part question here, so I'll do my best to make it succinct. They're looking for some elaboration on a potential conflict of duty, in standing from their shoes, from their client's, and FINTRAC, if you're thinking of filing a report on them, can we touch on any differences between lawyers and notaries as to client confidentiality?

Marilyne:
There are regulations that have been published for lawyers, but they haven't come into force because of the court injunction, and we're hoping that this injunction will get resolved soon. The difference between lawyers and BC notaries is the relationship; the solicitor-client privilege relationship is different. Are there differences? Yes, there are, and the BC notary is protected in terms of any information that it provides to FINTRAC if he or she does so in good faith. I don't' know if that addresses the core of the question, but if you wanted to know if there are protections for BC notaries who provide information to FINTRAC? Absolutely. Is there a difference between the relationship between a BC notary and a lawyer? Yes, there is, and it's related to the constitutionally protected solicitor-client privilege that lawyers have.

Stephen:
I was saving it up for last, but I think you just touched upon "Why BC notaries?" We've received this question on a number of different lines. We do interact with the BC notary population as a whole, we do have individuals that we report through out from our BC office, and we do get that question. So I think that underlines "Why BC notaries?"

Marilyne:
Notaries in other provinces have that solicitor-client privilege dynamic, and that's why it is only BC notaries. Essentially, the requirements for other notaries and lawyers are subject to that injunction, and we hope that it'll get resolved very soon, either through the courts or through an agreement between the parties to the litigation.

Stephen:
Okay, great, thank you very much for that. Looking at the second part here, they would like more elaboration on the identification requirements for the non face to face clients.

Marilyne:
Yes?

Stephen:
In this case, the example involves a purchaser in another country. They don't require a mortgage financing and, normally, would not need a witness to sign the documents. They would receive and return documents by fax and sign them. In this case, since they don't have to sign documents, ultimately, the face to face requirements would be? I'm not certain…

Marilyne:
If it's a transaction of $3,000 or more, and you have obligations, you will need to identify the client. If the client is located outside of Canada, I'd say the most common way would be the use of an agent. So you would need to find an agent in the country where the individual is located.

Stephen:
Great, thank you. Another technical question, that's a good thing.

Marilyne:
Yes, it's excellent.

Stephen:
We've gotten a question with respect to their own notaries' rules involving the specific Rule 4.03. What they've indicated is that they're not allowed to deposit more than $2,500 in cash into a trust account, so they're looking for situations where we could be handling a cash transaction of $10,000 or more, and I was wondering, if the 24-hour rule might be applicable.

Marilyne:
Potentially. I'm not familiar with the rules that govern your profession, so I won't speak to. But If you have a rule that prohibits you from receiving $10,000 or more in cash, well, that resolves the issue with respect to large cash transactions. The only thing, as Stephen mentioned, is if within a 24-hour period, you receive multiple cash deposits, payments, from the same client, and that adds up to $10,000, then that would need to be reportable. If the prohibition is $2,500, that only gets you to $5,000, so you're fine. You've talked about trust accounts; are there situations where you can receive $10,000 in cash that is not deposited in a trust account? I don't know if that's a typical transaction in your business, but essentially, if you don't receive more than $10,000 in cash, ever, then you will never have to report a large cash transaction.

Stephen:
Excellent, thank you very much. We have a few more coming in, but I'll take a couple moments just to have a look at those, and in the meantime, if we would continue on, I'll come back to those at the end of the segment.

Slide 29

Marilyne:
Excellent. The final section of our presentation speaks to FINTRAC's compliance approach. I mentioned earlier the importance of the reports that various entities submit to FINTRAC, and how it's so key to the work that FINTRAC does. It only makes sense that FINTRAC will favour a co-operative approach, and we'll want to work with BC notaries to assist you in understanding your requirements. So essentially, we do information sessions. There'll be an information session that covers the same information that you see here, tomorrow, in Vancouver. Again, our goal is to provide you with as much assistance as we can with respect to your obligations. Our experience is that the vast majority of individuals and entities that have obligations under our Act, want to comply with them, so we're there to help. People smile when they say "Government there to help?" We really want to be co-operative, to help you as much as we can to understand and comply with your obligations.

Slide 30

I am now moving to slide 30. FINTRAC has the authority to enquire into the business of individuals and entities that have obligations under the Act. We do that in three main ways: 1) we might send you a compliance questionnaire; 2) we might go on-site in your business offices to conduct an examination; 3) and we can also request information. These are the three main ways that FINTRAC can ask for information.

Slide 31

Slide 31 just walks you through what the examination process is. If we were to come on site and conduct an examination, how would that take place? In the vast majority of situations, we would contact the BC notary in advance. We'd try to schedule a date and a time to conduct the examination, confirm that date and time in a letter, as well as any documents that we would want to review during our visit. The purpose of the examination is to test the effectiveness of the mechanisms and controls that you have in place. You'll remember the compliance policies and procedures; those are key in terms of helping us determine whether there are proper mechanisms and controls in place or not. Once we've conducted interviews with the compliance officer, with some staff, and possibly with senior management, once the examination is over, we would have an exit meeting to let the compliance officer and senior management know "what we have found during our compliance examination." Finally, we would document those findings in a findings letter.

If we determine that you are compliant with every component of the regulations, the report would highlight the scope of the examination and what we found, which was that you were compliant with everything. If there was non-compliance that was detected, we would highlight what those deficiencies were, what would require corrective action, and we would request an action plan. This is where the co-operative approach really kicks in, where we want to work with you to say "How can we help you become compliant with the requirements?" We'll ask you to come up with an action plan to tell us "This is how I'm going to fix my client I.D. or record-keeping problem. This is by when it'll be in place."

Slide 32

Slide 32 highlights that there are penalties that are available for those who do not want to comply with the obligations, or still refuse to co-operate once we've identified deficiencies and tried to work with them. So FINTRAC will have the authority to issue administrative monetary penalties related to non-compliance. And in cases of very serious non-compliance, there are actual criminal penalties that can result in fines of up to $2 million and five years in jail. As you can see, Parliament takes this extremely seriously. Again, our intent is not to use these penalties, but I think it's important to note that there are many of you listening to this today, taking time out of your busy schedule to understand what your obligations are and making efforts to try to comply with your obligations. So it's fair to say that "If someone is not compliant with their obligations, they shouldn't have a competitive advantage versus all those BC notaries that do comply with the requirements." A penalty allows us to address those types of non-compliance, but again, it's not a first resort, it's not automatic; it's only in cases of repeated non-compliance and serious non-compliance that we plan to use these penalties.

Slide 33

Finally, on slide 33, we remind you that, if you do have obligations, you need to be ready as of December 30. I believe it was slide 11 that identified the activities that would determine whether or not someone would have obligations: if you receive or pay funds, purchase or sell securities, real estate properties, business assets or entities, if you transfer funds or securities by any means, or give instructions in relation to those activities, you have obligations. So by December 30, you need to have a compliance regime, a risk assessment in place, and you need to be ready to submit suspicious transactions, large cash transactions, and terrorist property reports. That essentially wraps up the formal portion of our presentation.

Slide 34

Slide 34 highlights FINTRAC's Web site. As I indicated earlier, it offers a wealth of information, particularly in our Guidelines, which takes the legalese of the regulations and the Act and makes it a lot more accessible. The Guidelines also provide you with valuable insights in terms of how to implement your compliance regime, and give you examples of suspicious indicators. We highly encourage you to consult our Web site. Throughout the presentation, you'll have seen that on various slides we mention the various guidelines. If you want more information, take a look at the slide in question and see if we make a reference to a particular guideline. We have a few minutes left before we wrap up, so I'll check with Stephen to see if we have any additional questions.

Stephen:
Yes, they continue to roll in. We have a few follow ups as well, from some of the information we provided with respect to the record-keeping and what the limits are for thresholds. One individual is asking again about the out-of-country identification

Marilyne:
Yes?

Stephen:
In this case, they've never met with the individual, and only dealt over Internet or telephone.

Marilyne:
Mhmm.

Stephen:
They're paying cash for a property purchase. What type of identification would you suggest?

Marilyne:
First of all, if they're paying cash, we're always talking about cold, hard cash, bills; I would ask "How did the cash get to you?" If they sent you a cheque, that is not considered cash. However, if it's a transaction of $3,000 or more, you will need to identify them, and if they're outside of the country, you'll need to use an agent.

Stephen:
Okay. And any particular I.D. that you would recommend at this time?

Marilyne:
In terms of types of I.D., any government-issued I.D., whether Canada or otherwise; a passport would be the most logical one.

Stephen:
An individual is looking to clarify the 24-hour rule that we mentioned. Is there a difference between a 24-rolling-hour rule and a 24-hour static one? Which 24-hour rule are we talking about here? Is it at the time when the transaction occurs that the 24-hour clock starts? Or is it within the 24 hours each day that we know is business 9-5?

Marilyne:
It's any transaction that occurs within the 24 hours, starting from the time that the transaction occurred. Let's say it occurred at 9:30 a.m. on Monday; it would be any transaction between 9:30 a.m. on Monday and 9:30 a.m. on Tuesday. This is unlikely to occur in the context of BC notaries, but more frequent for financial institutions, for example, since they have electronic systems. We allow both for a static 24-hour rule, so calendar day, as well as a rolling 24-hour. But that's only if you're talking about IT systems. If you're not talking about IT systems, it's essentially the 24 hours from the time the first transaction occurred.

Stephen:
We also have another technical one. Because of the nature of the work we're involved in, of course we can do a follow up afterwards…

Marilyne:
Absolutely.

Stephen:
We do have a number of questions that I'm afraid we won't be able to get to before the end of the session, and we will follow up by email, as we've indicated. So we'll follow up on some of the technical questions we have that we're unable to answer at this time. An individual says that they're keeping logged client files for the statutory limitation period; he's asking if it's sufficient for maintaining client records as far as FINTRAC is concerned?

Marilyne:
You need to take a look at Guideline 6J, to see what specific information you need to collect, let's say for the receipt of funds record, and make sure that you have all of the elements that are contained in a receipt of funds record. If you collect it in another record, that's fine, as long as you have all of the data elements. You talked about statutory requirements; you'll be required to keep the records for five years under our legislation. So make sure that all of the information is there and that you keep it for five years and you'll be fine.

Stephen:
There was also just a quick follow up on the term, and I believe the individual is referring to the fact that the information they provided is protected. We have our own regulations that govern our protection of the provided information. They are wondering about protection for the notaries reporting the client activity. Are you able to elaborate on that?

Marilyne:
Anyone who reports on a client in good faith is protected under the Proceeds of Crime (Money Laundering) Terrorist Financing Act. The law provides protection from anyone ever coming and saying "You reported me to FINTRAC; I'm going to sue you." You have protection under the law, unless you reported maliciously. But other than that, you're protected under the Act.

Stephen:
I would say that brings us to close the question period. We do have a few more that are in our inbox, and we'll get back to you as soon as we can with the responses you're seeking. I would make a quick note that one individual is asking about the guidelines we referred to during the presentation. They are freely and fully available on our Web site. In fact, on the main page of our Web site, you can access them off to the left there. They're under "Guidelines". Feel free to have a perusal of any of the information that we provide there. This brings us to the end of our webinar, Overview on the Obligations of BC Notaries.

I'd like to extend my thanks to Marilyne for her presentation, and to all our listeners out there for their participation this afternoon; it was excellent. I encourage you all to get in touch with FINTRAC's compliance officers, responsible for your sector, should you have any additional questions or concerns with respect to your requirements as a reporting entity, or anything you've heard in our presentation today. To contact FINTRAC, you can reach us at our toll-free number at 1-866-346-8722, or continue to reach us by email, at the outreach address posted on your screen, after this presentation. You can also consult all presentations and webinars given to reporting entities by FINTRAC in the past year, including this one, by going to our Web site, following the Publications link, and then selecting "Presentations to reporting entities." You will find both sector-specific presentations and a couple more general ones. Before we go, I'd like to thank you, and thank our presenter today. Marilyne, thank you very much. I hope you enjoy the rest of your day. Thanks for joining us.

Marilyne:
Have a great afternoon. Thank you and have a good day.