General Information on Part 1.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act: Guidance

These authorities allow the Minister of Finance to take steps to protect the integrity of Canada's financial system from foreign jurisdictions and foreign entities that are deemed to pose high risks for facilitating money laundering and terrorist financing.

General

This guidance provides an overview of the Minister's new authorities, and greater detail and certainty to reporting entities and other stakeholders as to how these powers will be used.

This guidance focuses mainly on the Minister of Finance's new authority to issue directives that require reporting entities to apply countermeasures, and identifies the type of countermeasures that the Minister may choose to include in a directive, as this information does not exist in regulation. The list of potential countermeasures contained in this guidance document is not exhaustive, but is designed to cover the majority of circumstances that could arise when intervention through a directive is deemed necessary.

The second power, the authority to recommend that the Governor-in-Council issue regulations limiting or prohibiting transactions, is intended to be used in the most serious of cases. The Minister of Finance must consult the Minister of Foreign Affairs before recommending the Governor-in-Council to issue these regulations. Such regulations will be published in the Canada Gazette and are not discussed further in this document as each regulation will be prepared on a case-by-case basis.

This guidance document is provided as general information only. It is not legal advice and is not intended to replace the Act and Regulations.

Ministerial Directive

According to subsection 11.42 of the PCMLTFA, the Minister of Finance may issue a written directive, setting out specified countermeasures that reporting entities must apply when conducting financial transactions originating from or destined to a designated jurisdiction or entity.

The authority to issue a directive lies solely with the Minister of Finance. According to the Act, the Minister may require Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to communicate a directive in accordance with the Minister's instructions.

The Minister may only issue a directive if:

The countermeasures that reporting entities could be required to apply under a directive would be extensions and enhancements of current obligations under the PCMLTFA. They would apply to the same range of activities to which reporting entities' legal obligations already apply.

When the Minister has taken the decision to issue a directive, the text of the directive will be communicated to reporting entities by FINTRAC, and will also be published in the Canada Gazette. The date upon which a directive will come into force will be specified in the directive.

Directives will remain in force until officially revoked, suspended or amended. The directives will be reviewed a minimum of once every three years from the day they took effect in order to determine whether the underlying conditions still exist.

Compliance with directives will be monitored and assessed by FINTRAC, in accordance with the PCMLTFA. Once changes to regulations are made, the existing Administrative Monetary Penalty (AMP) regime will be extended to all directives, and failure to comply with a directive may result in an AMP. Penalties applicable to a breach of a directive will be set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (PCMLTFR).

Moreover, every person or entity that knowingly contravenes the measures included in a directive, as well as any reporting requirements included in a directive is guilty of an offence and liable

(a) on summary conviction, to a fine of not more than $50,000 or to imprisonment for a term of not more than six months, or to both; or
(b) on conviction on indictment, to a fine of not more than $500,000 or to imprisonment for a term of not more than five years, or to both.

Scope of Countermeasures

The terms of each directive will set out in detail the measures reporting entities will be required to undertake and the circumstances in which these will become applicable. The measures will apply in addition to any existing measures applied as a result of a reporting entity's risk assessment. For instance, a directive could state the frequency at which countermeasures would be required to be undertaken, or the threshold at which such countermeasures could apply. These requirements may differ from reporting entities' existing practices.

Any directive issued will specify which reporting entity sectors are required to apply the countermeasures and will clearly explain to which transactions or activities these countermeasures must be applied. The directive will only require reporting entities to apply countermeasures to transactions or activities already subject to the PCMLTFA and its associated Regulations.

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

Identified Countermeasures

A list of identified countermeasures the Minister could require reporting entities to take in respect of a designated foreign jurisdiction or entity is included below. Although this list is not exhaustive, it covers the majority of countermeasures that could be included in a potential directive.

Countermeasures will fall into any of the following four categories:

  1. exercise of Client Due Diligence, including ascertaining the source of funds of a transaction, the purpose of a transaction, or the beneficial ownership or control of any entity;
  2. verification of client identity;
  3. monitoring of financial transactions or accounts; and
  4. record keeping and retention.

The table below provides an overview of these identified countermeasures.

Table of Current Obligations and Identified Countermeasures

  1. an international body or organization's call to take measures on the grounds that a foreign jurisdiction or entity's anti-money laundering or anti-terrorist financing measures are ineffective or insufficient; or
  2. a foreign jurisdictions or entity identified by the Minister whom is of the opinion that the ineffectiveness or insufficiency of the jurisdiction or entity's AML/ATF measures could cause an adverse impact or reputational risk to the integrity of Canada's financial system.
  1. treat transactions originating from or destined to a specified foreign entity or foreign jurisdiction, or accounts held by a specified entity or a person in a specified foreign jurisdiction as high risk for the purposes of subsection 9.6(3) of the PCMLTFA.
  1. take reasonable measures to determine the purpose of a transaction involving a designated entity or jurisdiction; and
  2. keep a record of the information obtained and the measures taken to obtain the information
  1. take reasonable measures to determine the source of funds of a specified transaction involving a designated entity or jurisdiction; and
  2. keep a record of the information obtained and the measures taken to obtain the information.

Verification of client identity

(a) ascertain the name and address of the foreign financial institution by examining a copy of the foreign financial institution's banking licence, banking charter, authorization or certification to operate from the relevant regulatory agency or certificate of corporate status or a copy of another similar document; and

(b) take reasonable measures to ascertain, based on publicly available information, whether there are any civil or criminal penalties that have been imposed on the foreign financial institution in respect of anti-money laundering or anti-terrorist financing requirements and, if so, to conduct, for the purpose of detecting any transactions that are required to be reported under section 7 of the Act, ongoing monitoring of all transactions in the context of the correspondent banking relationship.

  1. Conduct enhanced ongoing monitoring of all designated transactions conducted in the context of the correspondent banking relationship; or
  2. Obtain senior management approval to establish a new correspondent relationship; and
  3. keep a record of the measures taken to meet these obligations.

To require that reporting entities refer to multiple documents instead of relying on only one document, such as a certificate of corporate status.

(a) referring to the person's birth certificate, driver's licence, provincial health insurance card (if such use of the card is not prohibited by the applicable provincial law), passport or other similar document.

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;

(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;

(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and

(d) in all cases, information establishing the ownership, control and structure of the entity.

  1. obtain and take reasonable measures to ascertain the name, address and occupation of all persons who own or control, directly or indirectly,
    1. 10 per cent or more of the shares of the corporation; or
    2. 10 per cent or more of the entity other than a corporation; or
    1. the foreign financial institution has, in respect of those of its customers that have direct access to the accounts of the financial entity, met requirements that are consistent with the requirements of sections 54 and 64; and
    2. the foreign financial institution has agreed to provide relevant customer identification data upon request to the financial entity.
    1. obtain the relevant customer identification data from the foreign financial institution; and
    2. take reasonable measures to ascertain the customer identification data for those customers of the foreign financial institution that will have direct access to its accounts; and
    3. keep a record of the measures taken to obtain or ascertain that customer information data.
    1. conduct enhanced ongoing monitoring of specified transactions involving a designated entity or jurisdiction; and
    2. keep a record of the measures undertaken to conduct such ongoing monitoring.