Transcript: New obligations webinars - Money Services Businesses
Good afternoon everyone. My name is Christopher Lawton with FINTRAC.
Welcome to FINTRAC's presentation to reporting entities covering the new Proceeds of Crime (Money Laundering) and Terrorist Financing Act for the money services businesses. With me today is Marilyne Landry, FINTRAC's Manager for Program Development, who will be giving our presentation this afternoon.
This webinar is part of a series of seminars that will explain the new legislative requirements and obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act or PCMLTFA. Many of these changes will come into force in 2008 and 2009.
I will remind participants that it is possible to ask questions during the (live) presentation by using the email address on their screen. We will pause to take questions during the presentation.
You will be responsible for advancing your own slides (during the live presentation). Listen for the cues that the presenter gives you for the slides. This presentation will be archived on the FINTRAC Web site at www.fintrac-canafe.gc.ca.
Now, I will turn things over to Marilyne Landry, FINTRAC's Manager for Program Development. Thank you Christopher. Once again, the slide presentation is posted on FINTRAC's Web site at www.fintrac-canafe.gc.ca. There is a link to the Presentations to Reporting Entities where you can access a paper copy of this presentation. Please remember that you are responsible for moving your own slides (during the live presentation).
Presentation Overview
In terms of how we will be spending the next hour or so, we'll start with a quick introduction of the changes to the Act and the regulations and what they entail, go through what the objectives of the new requirements are. Then we will spend a little bit of time talking about the registration of the MSBs and review the money services business (MSB) registration procedure.
As well, we'll be focusing on new reporting, new client identification and record keeping (obligations); changes to due diligence measures and compliance regime; a short discussion on administrative monetary penalties; and then finally providing you with some information with respect to other outreach and communications initiatives.
Introduction
I will jump in and provide you with a quick overview of how the changes in the Act and regulations came about.
Some of you may be aware that, in December of 2006, the Parliament of Canada amended the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLFA). Following those amendments, changes were also made to related regulations, both the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Suspicious Transaction Reporting Regulations. A new set of regulations were also developed with respect to the registration requirements.
Why is this important? Ultimately, I'll be talking quite extensively about the Guidelines throughout the presentation and that is certainly your best source in terms of getting a layman's version of what your requirements are. A simplified and easy to access version of what are your requirements. However, if you do want to take a look at what the law actually says, there are four places for MSBs to look. Take a look at the Act itself and then the three sets of regulations that are found on page 3.
Now, the presentation that we're going through today will focus on your new requirements that are coming into effect on June 23, 2008, roughly, in about
two months time. There are other requirements that will be coming into force a little bit later in 2008 or 2009. We may make vague references to those obligations, but the focus of the presentation is very much on those requirements that need to be implemented by June 23, 2008.
I also want to highlight that when FINTRAC comes and does an examination, as of
June 23 (2008), we will expect that these new requirements be implemented.
Objectives of the New PCMLTFA Requirements
Why all of these new changes? What are we trying to achieve? I want to highlight that these changes are trying to strengthen existing AML and ATF regimes.
We also want to build on FINTRAC's experience. FINTRAC has been in existence for about eight years. In those years, it has benefited from its initial years of building and the experience it has gained in terms of creating disclosure cases and disclosing them to law enforcement.
Many of the changes that you will see today are a result of that experience and the desire to improve on the already existing requirements and obligations. In addition to that, various reviews were conducted with respect to Canada's anti-money laundering (AML) and anti-terrorist financing (ATF) initiatives.
We had the Auditor General (AG) evaluate the initiative and put forward recommendations. We had an external evaluation conducted that reported on certain improvements that could occur.
There was also a series of improvements recommended by the Financial Action Task Force (FATF) which Canada has agreed to comply with.
When the Department of Finance presented the Bill (C-25) to Parliament, it took into consideration all of the recommendations, and determined what was in the best interest, what made sense in the Canadian context. The changes that we are presenting today are a result of this process.
In terms of what we are trying to achieve, we've talked about addressing existing gaps in the legislation, strengthening the existing regime, and strengthening FINTRAC's experience, enhancing FINTRAC's capacity to detect and deter terrorist financing (TF) and money laundering (ML), make illicit transactions more difficult to process, and try to have a greater impact on organized crime and terrorism.
Definition of a Money Services Business (MSB)
Here we focus on the actual changes that have been made to the regulations and to the legislation, and explain how this will affect you.
So, the first thing that has changed is the actual definition of what an MSB is. You will hear me say MSB quite often as the shortened version. The definition of a money services business has been expanded to include foreign exchange dealers. In practical terms, there has been no change in terms of what you need to do, no change in who is covered. However, in the past, the regulations have been divided into two sections: one for money services businesses and one for foreign exchange services. Given that the two types of businesses usually provide both services, FINTRAC has put both categories together.
You will see that, if you look at the regulations, we only speak now of money services businesses. It is more a change in what we call the sector as opposed to an actual change in your obligations. But I wanted to highlight that so that if you are a foreign exchange dealer, you will know that you are now part of the definition of an MSB, but that your requirements have stayed the same.
MSB Registration
In terms of the money services business sector, the biggest change that will come into effect on June 23 (2008), is the fact that you will be required to register with FINTRAC. On slide 7, it says that as of June 23, 2008, if you are not registered with FINRAC, you will be operating illegally. It is very important that you understand your registration obligation.
MSB Registration (cont'd)
We go into a little bit more detail in terms of what your specific registration obligations are. We'll look at slide 8, again talking about MSB registration. MSBs will need to register and then renew their registration every two years. The first thing that you will need to do is register by June 23 (2008). In addition to registering on June 23, 2008, you will need to renew your registration every two years. You must advise us if there is any change of information provided in the original registration. You will have 30 days to do that from the moment the change occurred.
In terms of who will register you, FINTRAC will act as the registrar and will have the power to approve, deny or revoke the registration. It is important to note that registration is not a FINTRAC endorsement. All it means is that you have submitted the information that you were supposed to submit and that your application was processed.
Registration Ineligibility Grounds
Slide 9 gives a list of those entities and individuals who are not eligible to register. What I will do, since it is fairly technical language on slide 9, is attempt to summarize in broad categories.
Within the first group of people who cannot register with FINTRAC is anyone who is on the UN terrorist list as well as the Canadian version of that list, which is the Criminal Code list. So, anyone on those lists is not eligible: persons or entities who have been found guilty of ML or TF, have been criminally convicted of non compliance with this Act, ofcertain acts of fraud or organized crime activities, as well as convictions related to drugs. The list is fairly short, very focused towards those activities that lend themselves to money laundering and terrorist financing, but if either the entity or one of its senior officials has been convicted of any of these offences, that person or the entity cannot register with FINTRAC.
Again, if you have any questions with respect to this you can consult the Regulations and they will provide you with even greater clarification and much more detail on offences that are prohibited.
Before we move on to the changes in reporting, I just want to provide you with additional information in terms of how the MSB registration will work and what you will need to do from now until June 23 (2008).
First, FINTRAC should have contacted you to set up your organization to register with FINTRAC.
I will highlight that many of you are already reporting to FINTRAC and you have already done the setup for STRs to allow you to report to FINTRAC. However, if someone has not contacted you specifically for MSB registration, please contact us. You need to contact us if you want to register. If someone has called you, we have your information, and I will be talking to you about how we gather additional information. If you have not spoken to someone from FINTRAC with respect to the registration and your registration obligation, please contact us. I am going to give you the number, which is also on our Web site: 1-866-346-8722. I will repeat that you will want to contact us if we have not contacted you about MSB registration, and the number is
1-866-346-8722. We encourage you, if you haven't spoken to us about MSB registration, to please contact us so that we can get some key information, and we will be able to generate passwords and what not that you can actually log on to the system.
Now, if we have spoken with you and we have your information, you should receive a letter in the coming weeks with credentials and password that will allow you to logon to the registration Web site.
The registration Web site will be available in late May, so the letter that we will be sending you will tell you when the Web site is available. Again, a reminder, given that this is the first time that MSBs will have to register, that we expect the volume of registration to be very high.
We guarantee a service level of standard of 14 days. If you get your application to us, we guarantee that we will process it within 14 days, unless we need more clarification.
It will be very important, if you want to be in compliance by June 23, 2008, that the information be provided to us before June 9 (2008), in order to allow more processing time. After June 9 (2008), we cannot guarantee that your application will be processed prior to June 23 (2008). It is very important that, once you get the letter that tells you how to register, you do that early so that you have met all of your obligations by
June 23 (2008). As I have indicated, this is a very important requirement, probably the biggest one for the money services business sector. I remind you that we have already spoken to most of you and that you will be receiving a letter with passwords so that you will be able to log onto the system. We encourage you to register prior to
June 9 (2008), so that your application is processed by June 23 (2008). If we haven't contacted you or we haven't been able to reach you, we would encourage you to contact us. In addition to the letter, FINTRAC will also have an MSB registration guide that will actually walk you through step by step on how to register, and that guide will be posted on our Web site.
I know that this is a fairly important requirement and I will pause here to see if there are any questions with respect to the registration requirements.
Question:
With respect to the registry, I am currently in the United States; MSBs who are working with an agent with a larger principal are not required to register because they seem to be working under that company's registration. Are the rules in Canada going to be similar once the registration obligation comes into effect?
Answer:
The obligation to register is with the principal and not with the agent. I should note that the principal or the main entity, under which the agent works, will be required to provide agent information and branch location information, but it will be their responsibility. So if you are an agent, you are not required to register unless you are an MSB in your own right. I know that some MSBs are agents for a MSB, but are also MSBs within their own right. If you are only an agent, you are not required to register directly; your principal will do that for you.
I should also have mentioned that, in terms of the information that is provided, part of your application will be posted on the public Web site, including the branches location information and agency information. Just to note that parts of your application will be posted on the public Web site. More confidential information will only be available to FINTRAC.
Question:
Are the registrations of MSBs retroactive? Is there only application of these requirements to customers that are signed on or to transactions that take place after June 23, 2008?
Answer:
I hesitate to speak about all the requirements, but in a very general sense, they are not retroactive, and they only kick in as of June 23, 2008. As I go through the requirements, if there is an exception to that, I will highlight it. But generally, I can't think of anything that would apply retroactively; everything would be as of
June 23 (2008), on.
Suspicious Attempted Transactions
You already know that you have reporting obligations. There are four things that you need to report to FINTRAC: large cash transactions, suspicious transactions, terrorist property reports, and certain electronic funds transfers.
In addition to those four that already exist, we are making an amendment to the suspicious transaction reporting requirement to indicate that you must also report suspicious attempted transaction reports.
Now, many reporting entities are saying "okay, fair enough, that is fairly straight forward, but how do I determine that something is a suspicious attempted transaction?"
Suspicious Attempted Transactions (cont'd)
Essentially, there are two criteria to determine if something is an SAT.
First and foremost, for a suspicious completed transaction (SCTs), you need to ask yourself if the transaction is related to money laundering and terrorist financing. If the answer is no, then your job is done.
However, if you do think that a transaction is related to money laundering and terrorist financing, and the transaction wasn't completed, you've met the first criteria.
The second criteria is to ask yourself whether there was an intent to conduct the transaction by the client and if there was a concrete form of action taken. To determine if it was an attempt, you need to ask yourself the following question: "Was there a concrete action and was there intent on the part of the client to complete the transaction?"
For example, if someone is negotiating or discussing a transaction and they have actually given you a specific amount, those will all be indications that some form of concrete action was taken and that there was an attempt to complete the transaction.
What's not is when someone comes up to you and asks you a point of information; perhaps they ask you about your currency exchange rate for American dollars. This is simply an enquiry. It is important to make the distinction between a concrete action and an information request.
Suspicious Attempted Transactions (cont'd)
On slide 13, we give an example of what can be considered a suspicious attempted transaction. Once you determine that a SAT has been made, you must report it to FINTRAC.
For the MSB sector specifically, let's say that an international transfer of $10,000 is cancelled because the client refused to provide identification requested by a teller. That would be a good example of what a SAT would be. Always remember to think about if the attempt is related to ML and TF before you actually report it to FINTRAC.
Once you have established that it is a SAT, you will use the same form that you are currently using to report suspicious completed transactions (SCTs), and there are only two new fields on the form. The first field asks whether the transaction was completed. If the transaction was not completed, you must indicate why it wasn't. In the example that I just gave, the client refused to provide identification and the teller therefore refused to complete the transaction.
I will indicate that Guideline 2 on suspicious transactions and suspicious attempted transactions has been updated and posted to our Web site to help you clarify what a ST and SAT are.
EFT Beneficiary Information
As you know, as an MSB, the reporting entity that is the initial recipient of an incoming international EFT of $10,000 or more must report it. In other words, let's say that there is a wire transfer that comes from France and it is received here in Canada; if you are the first one to touch it, you must report it.
There is a second rule which says that, if there are more than two reporting entities involved in a particular wire transfer or a funds transfer - let's say the wire came from France, went to a (Canadian) bank and then the bank transferred it on to you as a (Canadian) MSB - the first reporting entity to touch the EFT when it arrives in Canada is responsible for reporting it to FINTRAC. That being said, if you did not provide the beneficiary information and it is not contained in the wire transfer that was received by the bank (in most cases you would have needed to provide them with that information), then you will (as of June 23, 2008) need to report the beneficiary's name and address (and other transaction details) to FINTRAC. The logic being that, obviously, it is very important from an intelligence perspective that FINTRAC knows who ultimately received the funds.
To summarize, if you are the last reporting entity to touch an EFT, and the beneficiary's name and address has not been provided to the other reporting entity, you actually have to report it to FINTRAC.
Bundled EFTs
This is an exception to the 24-hour rule. You will remember that the 24-hour rule applies to both EFTs and large cash transactions. If someone conducts multiple transactions within 24-hours that add up to $10,000 or more, those transactions need to be reported to FINTRAC. There is a FINTRAC interpretation notice on how to calculate a 24-hour period.
On slide 15, there is an exception to that: if it is a funds transfer that has been conducted by a public body, a very large corporation, or the administrator of a pension fund, you don't have to apply the 24-hour rule.
If it is one of those three entities, all you have to do is report transactions that are $10,000 or more. This exception only applies if you are dealing with a public body, large corporation, or the administrator of a pension fund.
Take a look at your client base; if you have any of those, and you find that they conduct multiple wire transfers in a 24-hour period, all you will have to do now is report those that are $10,000 or more.
I will just pause here to see if there are any questions.
We haven't received any additional questions on registration or reporting. Perhaps we can move on to the next section.
Client Identification
Essentially, the standard method to identify is face to face (FTF), using valid government issued identification documents. That is your standard method and you can always use the standard method. If you are using NFTF delivery channels, you have more flexibility in terms of identification.
In the upcoming slides, I will highlight a whole new section having to do with non face to face transactions (NFTF) and how you can identify clients in NFTF situations. We recognize that reporting entities need a little bit more flexibility to conduct client identification when the client is not right in front of them.
However, if you prefer to use the standard FTF method, that is perfectly fine. You don't have to use any of the following methods; they are just there to provide you with more flexibility in the event that you conduct NFTF transactions.
We will be talking about three major categories of methods that can be used in NFTF situations. You can only use these options in NFTF situations.
Client Identification: Non Face to Face Methods
Slide 18 gives you an overview of what the various client identification methods are. The first one is to use an affiliate or, as item two indicates, you can use a combination of identification methods. And finally, you can use an agent. We will review what the various methods are and then speak to what combinations are permissible.
The slides that we will be looking at will provide more detail on those three NFTF methods. It is really important to note that you can only use NFTF methods if you are conducting NFTF transactions. If the client is in front of you, you must identify them using the standard FTF method. NFTF is only when the client is not in front of you.
Affiliate Method
Looking at slide 19 and the affiliate method. This method can be used by an affiliate or a co-member of an association that is a bank, credit union, caisse populaire, trust company, loan company, securities dealer or life-insurance company. The affiliate needs to be either wholly owned by you, wholly own you, or be both owned by the same entity.
There are two broad conditions: does the affiliate fall into one of the sectors listed on slide 19? Secondly, do they own you? Are they owned by you? Or are you owned by the same entity?
When we talk about ownership, it is wholly owned, not partially owned. It needs to be owned by you, by them, or by a third entity.
Affiliate Method (cont'd)
How does the affiliate method work?
Once you have determined that they are an affiliate, ask for personal identification information - their name, their address, their date of birth. Confirm with your affiliate or co-member that the identification has been verified properly using the standard FTF method - using a government issued valid identification. Once your affiliate provides you with the name, address, and date of birth, you need to confirm that what your co-member or affiliate provided you with corresponds with the information that the client provided to you.
If your affiliate provides you with information on Marilyne Landry, and the date of birth does not match, that would not be considered a valid identification. The information needs to correspond.
New Non Face to Face Methods
In terms of identifying in NFTF situations, there are a series of methods that are available to you, which must be uses in combination. You need o use two of these methods. But before I talk about the combinations, I will just walk you through what the five methods are.
The first one is the identification product method. In terms of ID product or (the second method) credit file, this is an independent and reliable identification product that is based on information collected from a Canadian history. Through this product, a series of questions is generated on specific financial details. These questions would help the reporting entity ascertain whether or not the person answering the questions is indeed the person that you are trying to identify.
The ID product has to be based on Canadian credit information and the credit file needs to be in existence for six months. In addition to the ID product, if you are going to do a credit check through the credit file method, you will need the authorization of the individual. For both ID product and credit file, it is important to note that they are commercially available and they are largely used for credit rating activities.
It is important to note that there is no obligation for reporting entities to use these methods; ultimately, they are meant to provide more flexibility. Again, these two products are commercially available and generally used for credit rating purposes.
New Non Face to Face Methods (cont'd)
The third option, in terms of the new methods, is the attestation method. This is where either a commissioner of oath or a guarantor has seen a valid form of government issued identification. Who is considered a guarantor?
The list of those who can act as guarantor is similar to that of someone who can sign a passport application: dentists, medical doctors, chiropractors, judges, magistrates, optometrists, pharmacists, professional accountants, professional engineers, and veterinarians. Guideline 6 provides details on who can act as a guarantor. You are not required to verify the credentials of the guarantor.
You do not need to investigate the guarantor, but you must make sure that you have a legible photocopy of the ID with the contact information of the individual providing the attestation.
You can use the cleared cheque method. The clear cheque method confirms that the cheque has cleared at a Canadian financial institution.
You can make confirmation of a deposit account. This confirms that the client has a deposit with a financial entity. You need to receive confirmation from the financial entity itself. Receiving confirmation from the client is not sufficient.
It is important to note that you have to confirm with the financial entity that your client has a deposit account. It is not sufficient for them to provide you with their bank card. You actually need to confirm with the financial entity itself.
These are the five methods that are available to you.
Client Identification: Non Face to Face Methods
Slide 23 tells you what combination of methods you are allowed to use. I indicated that you need to put together two of these methods. However, it is important to note that you cannot combine all of the methods or combine methods that use the same source of information.
For example, the identification product and the client credit file cannot be used together because they come from the same source. It's the same thing with the clear cheque method and the confirmation of deposit account; they cannot be used together.
Slide 23 of this presentation indicates the combinations that are available and acceptable. You need two of these methods to actually identify a client. It is important that, as you are using two methods, the information corresponds. If one method gives you June 23 as Marilyne's date of birth and another method gives you May 30, that information does not correspond, so you will need to use another method.
There is no requirement for you to use any of these new methods. If you want to continue to identify your clients in a FTF environment using the standard identification method, which consists in identifying someone using a valid piece of government issued identification, you may continue to do so. The combination of methods is to provide you with more flexibility in NFTF situations.
Client Identification: Use of Agents
The last option that you have in terms of identifying is to use an agent. You have two conditions that must be met if you are going to use an agent.
The first one is you need to make sure that you have an agreement with that agent for the purposes of identification, and you need to make sure that you obtain the customer identification directly from the agent. You can use whomever you deem appropriate, but you must have a written agreement if you are going to use an agent in a NFTF situation.
It is important to note too that, if you have foreign clients - clients outside of Canada - the use of the agent is the only option that is available to you.
Client Identification: Doubts about Identification
There is a general rule in the regulations that if you recognize someone, if you have identified someone and you recognize them, you do not have to re-identify again.
The only exception to that is when there are doubts about the information provided to you; then you are obligated to ascertain the individual's identify again.
Record Keeping: New Exemption
To make things a little easier for reporting entities and to try to minimize the amount of paperwork, if you keep a record that is readily available, you don't have to keep that information again.
In other words, if you have already identified Marilyne Landry and if this record is easily accessible, you are not required to identify me again, you don't have to keep another record of the information; you can refer to the previous record. The logic being that if you are already keeping the information in one place, you don't have to duplicate it in any other place.
Record Keeping
Just highlighting that, as a result of incorporating foreign exchange dealers in the MSB definition, MSBs that create a client credit file and internal memoranda about the services provided to clients, are now required to keep a copy of any client credit files and internal memoranda that is provided to clients. As well, MSBs must keep all transaction tickets related to a foreign currency transaction .
These are probably two things that you were already doing, but given that we are merging foreign exchange dealers and MSBs in the same silo, under the MSB definition, I just wanted to highlight that those requirements apply to both foreign exchange dealers and MSBs as of June 23 (2008).
Record Keeping (cont'd)
Here we talk about EFTs, or remittance or transmission of $1,000 or more. When you remit or transmit an amount of $1,000 or more, domestic or international, you need to keep a record of all information as indicated on slide 28, and ascertain the identity of the client.
In the past, when we were talking about wire transfers, the threshold to identify was $3,000. Note that the threshold has been lowered to $1,000 and is comprised of both domestic and international. I'll note here that this is not the reporting requirement. You need to report EFTs of more than $10,000 if they are international in nature, if you have received them from outside of Canada or if you are sending them outside of Canada.
The requirement on slide 28 is only a record keeping and client identification obligation. You now have to identify your customers who conduct wire transfers of $1,000 or more, whether it's an international wire transfer or a domestic one, and keep all of the information that you see on slide 28.
Suspicious Transaction Report (STR)
In terms of suspicious transaction reports, as of June 23 (2008), you will need to keep copies of STs and SATs that you have reported to FINTRAC. In addition, reporting entities must take reasonable measures to determine the identity of an individual who is the subject of a suspicious completed transaction. The exception to this is if you are going to tip off the client, then you do not have to identify.
Ongoing Service Agreement with Entity
In terms of client identification, as it stands, you must identify the person in front of you and who conducts the transaction. On slide 30, we talk about ongoing service agreements with entities.
If you have an ongoing agreement with an entity, rather than identify the person who conducts that transaction each and every time, you now need to have a written agreement with the entity. When the MSB enters into that agreement, you need to ascertain the existence of the corporation or the entity. You will also need to write down the name, address, date of birth, and occupation of every individual who signed the agreement on behalf of the entity. Then, you need to keep a list of the name, address, and date of birth of every employee authorized to conduct transactions.
In other words, if you have an ongoing service agreement with an entity, you need to document that fact, identify the corporation or the entity, keep a list of the individuals who signed the agreement, and the individuals authorized to conduct the transactions. So again, all of those details are located on slide 30. It is your option whether you want to continue to identify the person who conducts the transaction or, alternatively, to establish an ongoing service agreement with the entity, to only ascertain the existence of the corporation and keep a list of the people who signed it and the people who are authorized to conduct transactions. We are just providing you, as an entity, a little bit of flexibility in terms of how you are going to conduct client identification.
Question:
For an ongoing service agreement; you need information as indicated on the slide. When we say address, does this mean a residential address or can the individual provide the business address from which they will be booking transactions for example? Regardless, either way, is it required that this address actually be provided by the employee or can it be obtained from a third party or public source?
Answer:
In terms of whether it is a personal address or a business address, the regulations do not specify. Either would be acceptable. I would say to be concerned about the veracity if it didn't come directly from the entity itself or the person. I would say you would have to ask the person itself or, alternatively, when they say a third party, if that third party is a representative of the entity, I would say that that would be appropriate.
Question:
This is a follow-up question to the ongoing service agreement, with respect to the personal information of individuals who may be acting on behalf of a company they are working for. Some may be uncomfortable giving information like their date of birth. Is it mandatory to take this type of information, or should the reporting entity take steps to get it and show that they took these steps?
Answer:
I don't have the regulations in front of me to determine whether or not it is a reasonable measure effort or a requirement. That being said, I think if they are conducting the transaction, they would need to identify and provide that information regardless. Not having the regulations in front of me, my instinct would say that they must provide it.
Generally speaking, certainly it is required that the date of birth be on these types of records.
Question:
I will ask you Marilyne to recap something that you spoke to earlier. You said that agents are not required to register with respect to their activities as an agent to another MSB; however, there are now scenarios where an agent may have to register not in its capacity as an agent?
Answer:
That is correct. There are agents that provide services as an agent to a principal, but in addition to those activities, they are n MSB in their own right. They conduct wire transfer services, foreign exchange services, in their own right, separate from their role as an agent. If that is the case, if they are undertaking activities as an MSB in their own right, they must register. But they do not need to register with respect to their activities as an agent.
For an entity that is doing both, let's say facilitating wire transfers through a principal's network, but then conducting foreign exchange completely separate in their place of business; they would register and be on the registry in two places. They would register for their foreign exchange activities and then a principal for whom they provide wire transfer services would actually list them as an agent for the wire transfer activities. But it is not the agent's responsibility to register with respect to wire transfer activities.
Question:
You have spoken about a couple of dates: June 23 (2008), as the coming into force date for the registry among other obligations and June 9 (2008), as the last date that to guarantee that our registration will be processed by June 23 (2008). June 9 (2008) is not the only day available for registration, is it?
Answer:
That's a good point. You will be able to register as of late May. We will be sending you a letter with a password, telling you where the Web site is located and how to log on. When you receive that letter, and you should be receiving that letter in the next couple of weeks, you can register from any point on. That letter also indicates that the system will not be available on certain dates due to system upgrades, and will indicate those dates as well.
Question:
With respect to registration, once you actually submit your registration, you mention that there is a 14-day review period; once that period is complete and an entity should be registered, will any confirmation be sent to the entity?
Answer:
The answer is yes, you will be receiving both an email confirmation as well as a letter confirming that you have been registered. You will get two different notices. Another way to find out if you have been registered is to go to the public Web site that I mentioned. Once you have been posted to the Web site, it is an indication that you are registered with FINTRAC.
Question:
This question concerns suspicious attempted transactions. When an MSB is reporting SATs via our reporting system; is it going to be possible to report these transactions even though you don't have complete identification information on the customer?
Answer:
I should have highlighted that because it is an attempted transaction. FINTRAC understands that you might not have as much information as for a ST, so, yes, you will be able to report that information even though you do not have the identification information of the client. There will be even fewer fields in a ST report.
Question:
Could you just recap the dual threshold that exists?
Answer:
There are basically two things that have to happen for you to consider that something is suspicious attempted transaction. These are the two criteria: do you think the transaction is connected to ML or TF? Do you have a suspicion? That is the first criteria. The second one being is it an attempt? The questions to be asked there are was there an intent from the client to complete the transaction and was there a concrete action taken?
It does not mean that you have to report every attempted transaction; only when suspicion is there.
Beneficial Owners
Here we cover beneficial owners. In all those cases where you are required to confirm the existence of corporate clients or clients that are part of a not for profit corporation; when we say that you are required to confirm the existence of the beneficial owners, this means that when you must ID a corporate client, all of the ID exemptions are also beneficial owner exemptions.
These requirements only apply when you have to ID a corporate client or another non corporate entity that is a client of yours. Take reasonable measures to obtain all information on beneficial owners who own 25% or more of the corporation. This is separate from ID requirements.
When you obtain this information, keep a record. If you cannot obtain this information, if it is not clear, record the fact that you did ask because you are required to keep this information.
Risk-based Approach: Requirements
Moving on to slide 33 and highlighting what information needs to be kept for corporations, for entities other than corporations, and for non profit organizations with respect to beneficial owners.
Politically Exposed Foreign Persons
New are now moving on to another enhanced due diligence measure with respect to politically exposed foreign persons.
You will need to determine if someone is a PEFP. If a client initiates or receives an international EFT of $100,000 or more, you have 14 days to determine whether or not the client was a PEFP.
Slide 35 highlights when you must determine if a client is a politically exposed foreign person.
Politically Exposed Foreign Persons (cont'd)
What is a politically exposed foreign person?
For your purposes, a PEFP is an individual that holds a position with the Canadian government. They are not a PEFP if they have held a position abroad with the Canadian government, but any foreign client or any domestic client who has held a foreign position does apply.
This obligation follows situations where people in senior positions took national funds for their own personal benefit.
Does this apply to Canadian positions? A Canadian would not be considered a PEFP in Canada, but they would be in the United States.
Politically Exposed Foreign Persons (cont'd)
Among all of these types of individuals, their family members are also considered PEFPs. All of these individuals are deemed to be PEFPs because of that relationship and will be considered so even if the person leaves the position. You do not have to report to FINTRAC if you have clients that are PEFPs.
Here are a few clarifications in terms of PEFPs. In the title it says foreign, so this does not apply to Canadian positions; it only applies to foreign positions. Could a Canadian be a politically exposed foreign person? The answer is yes. If a Canadian has held one of the senior positions in a foreign state or is a family member of someone who has held one of these positions, they would be considered a PEFP.
Is someone a PEFP for their entire life? The answer is once a PEFP, always a PEFP. If they are a PEFP, either because they have held the position or they are a family member, they are considered a PEFP for their entire life.
PEFP: How to Make the Determination?
There are two main ways. You can ask the client directly; that's very simple. Ask the client if they or one of their family members have ever held one of those positions. I should note that FINRAC will be producing a pamphlet on this topic. If your client is wondering why you are asking these questions, there is a pamphlet explaining what the PEFP requirement is and why you are asking the questions. The other way is to consult a commercial database about PEFPs.
How do you determine if a commercial database is adequate? Make sure that the database covers all of the categories listed on slide 36 as well as the family member designation on slide 37. If the database covers all of those categories then FINTRAC will be comfortable with you using that database.
Once you have made the determination, you have determined that Marilyne Landry is a PEFP, slide 39 tells you what you need to do.
Politically Exposed Foreign Persons: Additional Measures
Once determination of PEFP status has been confirmed, the additional measures, as listed on slide 39, must be applied. Note that you have a total of 14 days to determine if someone is a PEFP and to get approval from senior management; it is not a total of
28 days.
Politically Exposed Foreign Persons: Senior Management
What is considered senior management?
Senior management is someone who has the authority to make and be held accountable for management decisions about this type of accounts or transactions, that has awareness of money laundering and terrorist financing risks to which the MSB is exposed, an awareness of politically exposed foreign persons.
The criteria are listed here on slide 40.
Politically Exposed Foreign Persons (cont'd)
What do you need to keep in your records? On slide 41, we indicate the five elements to keep on record once PEFP determination is made: the office or the position of the person who held the foreign position, the source of funds, the date that you determined the person was a PEFP, the name of the member of senior management who reviewed the transaction, and the date of the review.
EFTs: Originator Information and Travel Rule
We will continue with other enhanced due diligence measures. We turn to slide 43 and talk about originator information and travel rule requirements with respect to EFTs.
Financial entities that send EFTs shall include the originator information. In terms of EFTs that are sent by the financial entity, make sure that those four pieces of information are included in the transfer itself. Financial entities that receive the EFTs must take reasonable measures to ensure that originator information is included in the transfer.
Reasonable measures means contacting the entity that sent you the EFT, trying to acquire the necessary information, and documenting the fact that they have not provided you with the required information.
Many of you will be saying to yourselves that you are already reporting this information to FINTRAC; what's different? It is important to understand that this is not a reporting obligation, but one to include the information when you send or receive the EFT.
EFTs: Originator Information and Travel Rule (cont'd)
On to slide 44: which EFTs are covered? Domestic SWIFT MT 103s. If you are using the SWIFT network, as the MT 103s, those that are domestic would be covered as well as all international EFTs. It is really important to note that this information applies regardless of the amount. All your international EFTs need to have this information: full name, full address, account number, and reference number if applicable. That needs to be contained in every single one of your wire transfers, in the context of Domestic SWIFT MT 103s.
The last two bullets highlight an exemption that will not be in place until June 23, 2009 saying that if your IT system does not allow you to transmit the four pieces of information, you have until June 2009 to modify your system. If the info is not there by June 2009, you will be considered non compliant. However, if you can include the information, it must be there by June 23, 2008.
Question:
Regarding thresholds for record keeping and client identification, the questioner's understanding is that there is a different threshold for the remittance of funds and for foreign exchange. We have $1,000 thresholds for the remittance of funds; the questioner just wants to clarify if that's the case for foreign exchange.
Answer:
They are right; there is a different threshold for the remittance of funds. As of
June 23 (2008), it will be $1,000 and $3,000 for foreign exchange.
Question:
Do people holding political positions in the United States count as foreign persons? Some times there are exemptions in Canada for people in the United States. Is there any exemption like that? Do Americans count as PEFP?
Answer:
There are no exceptions. American positions are included in the PEFP definition.
Question:
If you are dealing with a corporate client; is there any obligation to determine if there are any PEFPs involved with that corporate client?
Answer:
No, the determination only applies to individuals, not corporations.
The Compliance Regime and New Changes
As it stands, there are four elements to the compliance regime. These four elements remain, and FINTRAC has added an additional element. The changes to the client regime attempt to make it systematic and robust.
In terms of developing compliance policies and procedures, three new reports are required:
- Ensure that policies and procedures are in writing.
- Make sure that they are approved by a senior officer.
- Keep the policies and procedures up to date.
By in writing, we mean that policies and procedures are documented. The approval by a senior officer is to ensure that, within the organization, senior management is aware of activities, is comfortable with the policies and procedures, and that they reflect changes to the regulations.
In terms of new requirements with respect to compliance regime, you will be required to apply a risk-based approach, to conduct a risk evaluation of your activities to determine what is riskiest in reference to money laundering and terrorist financing. This is a very new obligation. I will be spending a little bit more time on this particular obligation in the next few slides.
The risk-based approach will now be the fifth element of the compliance regime.
The Compliance Regime and New Changes (cont'd)
In terms of your training obligations: you must have a training program if you have employees or agents. As of June 23 (2008), you will need to make sure that that training program is in writing, maintained, and kept up to date. In writing means documenting what training was done. The training program must reflect your new obligations. So it is not only training on existing obligations, but also on the new obligations.
Reporting entities have asked, with respect to the new obligations, if employees and agents need to be trained by June 23 (2008). The answer is yes. It does not mean that you have to deliver the training in writing. Make sure that training program reflects any changes to your existing requirements. Employees need to be trained on new regulations by June 23 (2008).
The fifth element of the compliance regime has to do with completing a review of the policies and procedures. That review has been expanded to include the training program and the risk assessment. The review must be conducted every two years, must be documented and reported to a senior officer, must highlight updates made to policies and procedures, and the implementation status.
In terms of the compliance regime, there are lots of changes to make it a lot more robust and a lot more systematic.
Risk-based Approach
I will be spending a little bit of time on the new compliance regime element which is the risk-based approach.
The goal of the risk-based approach is to rely on your expertise of your business. The risk-based approach is subjective. You are in the best position to tell us where the risks are in your business with regard to money laundering and terrorist financing. Rather than having reporting entities focus enhanced due diligence efforts on all situations, target due diligence measures to highest risk situations.
Note that the second bullet on slide 48 indicates that existing client identification, record keeping, and reporting requirements still apply. The-risk based approach is over and above the existing requirements. Also note that the risk-based approach varies in size and complexity with the reporting entity. A risk assessment needs to be responsive to your reality.
What do you do when you have conducted your risk assessment and identified a series of high risk situations?
You need to establish risk mitigation strategies, develop and implement policies and procedures supporting the risk mitigation.
Risk-based Approach: Requirements
Slide 49 speaks to the requirements in terms of what your concrete obligations are.
The first step of a risk-based approach is to conduct an evaluation of the risks of your clients and operations. You must document your risk analysis and you are required by the regulations to consider a series of factors as indicated on slide 49.
There are two main categories of risks that you need to take a look at:
- Tour clients and business relationships;
- The risks related to your operations.
When we talk about products and services, delivery channels, geographic location of your activities as well as those of your clients, and then any other relevant factors related to your business, make sure that all of these elements are considered when you are preparing your risk assessment.
For tools that will help you conduct a risk evaluation, we direct you to Guideline 4; this is the compliance regime guideline. It contains a section on the risk-based approach, which includes checklists for both clients and operational risks, and a risk matrix that gives you examples of what FINTRAC considers to be low, medium, or high risk situations.
Risk-based Approach: Requirements (cont'd)
What do you do when you have conducted your risk assessment and identified a series of high risk situations? You need to establish risk mitigation strategies, develop and implement policies and procedures supporting the risk mitigation.
You must take reasonable measures to keep client information up to date and review it every two years. Keeping client up to date only applies to high risk situations.
It is a minimum requirement for reporting entities to document how they track suspicious transactions.
Risk-based Approach: Tools
Regarding tools that are available to assist you, Guideline 4 provides more information on the legislative and regulatory requirements.
We've developed tools that help you conduct risk assessments: checklists and matrixes are available to determine high risk situations.
We also have, on our Web site www.fintrac-canafe.gc.ca, a webinar on the risk-based approach that is archived and available to you. We encourage you to view that webinar.
Administrative Monetary Penalty (AMP) Regime
Regarding the administrative monetary penalty regime or AMP, as of December 30, 2008, FINTRAC will have the ability to issue monetary penalties related to non-compliance infractions. It is important to note that FINTRAC doesn't intend to use monetary penalties very widely.
However, there are currently reporting entities that, despite numerous efforts by FINTRAC, do not comply, which creates an unlevel playing field. FINTRAC wants to ensure that people who don't comply don't have a competitive advantage.
FINTRAC's Approach to Compliance
In terms of FINTRAC's compliance approach, it is important to stress that FINTRAC is committed to a cooperative approach regarding compliance. We want to work with entities as much as possible to help you comply with your requirements. With that in mind, we have developed a series of tools to help you comply with your requirements.
We realize how dependent FINTRAC is on reporting entities. If reporting entities don't give us information, FINTRAC can't do its job.
Key Events
This is a summary of the activities that we have undertaken in the last few months. All the key guidelines have been updated and are on our Web site. There is a section on the Web site that is dedicated to your obligations. The other guidelines, that have to do with reporting, will be updated in June (2008).
I have mentioned Guideline 4 for our compliance regime, Guideline 6 C, which is dedicated entirely to MSBs and lists all of your requirements with respect to record keeping and client identification. Again, the guideline section of our Web site provides you with lots of information regarding your obligations.
There were information sessions in ten different cities. The content is the same as what we covered today. We have held webinars throughout April (2008) and will continue in May. All of the webinars will be archived in the coming weeks and you will be able to access them online.
I remind you that all of these provisions are effective on June 23, 2008, and that we expect these requirements to be in place by that time.
For More Information
I want to remind people that the coming into force date is June 23, 2008. That includes your requirement to register with FINTRAC.
Once again, for more information, consult our Web site at www.fintrac-canafe.gc.ca.
Question:
For all these record keeping obligations; must the records be kept indefinitely? At what point do we no longer keep these records?
Answer:
It depends on the record. Most records are to be kept for five years. I think for MSBs that's probably the general rule. For other sectors, like the accounting sector, the records are kept until the relationship ends. In most instances, there are many records, so MSBs need to keep them as a general rule for five years.
Question:
For beneficial ownership; is a business address a valid address? (This question could also apply to some of the other requirements and we touched on it earlier for operating agreements, with respect to needing to have the address.)
Answer:
Once again, to confirm, speaking about beneficial owners, you don't actually have to identify these people. You just need to have the information. I don't want to answer this generally because the criteria are sometimes very specific and I rather refer people to the Regulations. But since there is no specific mention about the address, then both personal and business addresses would be acceptable.
Question:
When we ask for the occupation; how specific does this need to be? Is it in respect to their position in a corporation, if you are asking for their occupation with respect to a corporate client, or what else they might do on the side? Is (the information required) different based on whether you are identifying them as an individual or within their role as a corporate client?
Answer:
What is their main occupation? Be as specific as possible. Saying that they are a consultant would not be sufficient; saying that they are an engineering consultant would be more specific. Instead of saying that they are a consultant, ask what kind of consultant they are. The more details, the better. If you are actually identifying them vis-à-vis a corporation, then obviously it would be what their role is vis-à-vis that entity.
Question:
I am not sure if we will be able to answer this question, because it might be one that really needs to be considered on a case by case basis, but we'll see if we are able to deal with it. Is a travel agency or another similar business that sells services considered to be a MSB?
Answer:
If they are engaged in the activity of a MSB, then yes, they would be considered a MSB. It doesn't matter if they are a travel agency, if they are a corner store, if they sell carpets. Ultimately, if they are engaged in the activities of a money services business, they would be covered. In terms of the details to help you determine whether or not you are engaged in the activities of a MSB, refer to the FINTRAC interpretation notice that is on our Web site. They could be, and travel agencies would not be exempt.
They may also be acting as agents. In that case, it would depend on the particular arrangement that this business has.
Question:
Can we review the process for entities who have not heard from FINTRAC regarding registration?
Answer:
If you have not heard from FINTRAC, you should contact us as soon as possible. The number to call is 1-866-346-8722. This number is also on our Web site. During our conversation with you, we will get some key information. A reminder to those who have already spoken with us, we will be sending you a letter in the next few weeks that will provide you with passwords and the link to the registration Web site. You will need to register before June 23 (2008). You will be contacted by FINTRAC as to whether your application has been approved or denied by letter and email.
We come to the close of this webcast.
Thank you for your participation.