Expanding the scope of the PCMLTFA to high risk areas
The consultation paper proposes to clarify existing reporting requirements or to expand the scope and depth of the PCMLTFA to a number of new types of businesses in Canada. In many cases, the paper expands existing definitions, or introduces new categories and requirements for information gathering.
Proposition to amend the definition of Heads of International Organizations (HIO) and Politically Exposed Persons (PEP) to include international bodies which have considerable political influence in society and in the global economy, and who control significant financial resources. Clarifications to the definitions of certain domestic PEPs (e.g. First Nations Chiefs) are proposed, and that financial institutions determine whether beneficial owners of clients are PEPs to apply the prescribed measures to mitigate the risks associated with PEPs to these beneficial owners.
The consultation paper proposes to introduce standardized client identification and record-keeping requirements at various thresholds to remove today’s unnecessary complexity and barriers to compliance. Additionally, and similar to regulations in the United States and Australia, the consultation paper proposes making it a criminal offence for an entity or individual to structure transactions (i.e. break them down into multiple smaller transactions) to avoid triggering reporting requirements.
A number of new businesses and sectors are being proposed for inclusion under Canada’s AML/ATF regime, bringing the in-scope entities more in line with international AML/ ATF regulations. Notable new sectors include:
- law firms in order to close the most notable loophole in Canada’s current AML/ATF framework
- non-federally regulated mortgage lenders such as mortgage finance companies, REITs, mortgage investment corporations, mutual fund trusts, syndicated mortgages or individuals acting as private lenders
- mortgage insurers and land registries and title insurance
- finance, lending and factoring companies
- company service providers
- designated non-financial businesses and professions (DNFPBs) and other new businesses such as privately owned ATMs and jewelry auction houses.
Strengthening intelligence capacity and enforcement
The consultation paper proposes new measures relevant to Canadian financial institutions including Electronic Funds Transfers (EFTs). In addition to certain regulated entities being required to report client initiated cross-border incoming and outgoing EFTs, those EFTs that pass through a Canadian financial institution (where Canada is not the sending or receiving destination) should also be reported.
The consultation paper is proposing the introduction of Geographic Targeting Orders (GTOs) in respect of certain geographic areas or segments that are seen to be a higher risk for money laundering and terrorist financing. Of note, the US has used GTOs to focus on AML risks in the real estate sector by requiring all title insurance companies to identify and report on the natural persons behind shell companies that make cash-only purchases of high-end real estate in six major markets.
Modernizing the framework and supervision
The consultation paper proposes a number of measures to modernize Canada’s AML/ATF framework, the most relevant for financial institutions including enhancing and strengthening identification methods and Money Service Businesses (MSB). As such, The Department proposes to strengthen current identification processes, explore new ones and leverage new technologies to enhance the effectiveness of customer due diligence. They also propose strengthening the FINTRAC registration process for MSBs including expanding the list of offences that would make an applicant ineligible for registration, to safeguard the integrity of the financial system.
The Department supports continued flexibility and adaptation in an environment of rapid development and proposes principles-based identification requirements over strict rules-based regimes, which could allow reporting entities to take a risk-based approach in respect of new technologies.