Foreign MSBs in Canada | Outlier Solutions

Background

On July 10, 2019 the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were released in the Canada Gazette. With this round of changes, Foreign Money Services Businesses (MSBs) will be subject to Canadian AML obligations. This article is intended to give a high-level summary of the requirements as they relate to Foreign MSBs.

While foreign MSBs will have until June 1, 2020 to become compliant with Canadian requirements, it is highly recommended that you start budgeting and planning from now. It is expected that our regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), will allow foreign MSBs to register ahead of this date.

Note this article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

What Is A Money Services Business?

MSBs are considered reporting entities under the law in Canada. This means that they must comply with certain requirements and answer to their regulator. You are a money services business (MSB) in Canada if your business offers any of the following services to the public:

Foreign exchange dealing;
Remitting or transmitting funds;
Issuing or redeeming money orders, traveller’s cheques and other negotiable instruments;
Dealing in virtual currencies.

In the past, foreign MSBs only had to comply with Canadian AML requirements if they had a “real and substantial connection” to Canada. A “real and substantial connection” was defined in FINTRAC policy interpretations as having one or more of the following statements be true:

Is the business incorporated in Canada;
Does the business have agents in Canada;
Does the business have physical locations in Canada; and/ or
Does the business maintain a bank account or a server in Canada.

As part of the recent AML amendments, foreign businesses that conduct any of the above transactions, and your services are directed to persons in Canada, Canadian AML obligations will apply. You will need to be aware of the requirements under Canadian law as they apply to their Canadian customers.

Compliance Program

Under regulation, you will be required to have an anti-money laundering (AML) and counter terrorist financing (CTF) program that consists of these five elements:

Written policies and procedures: these list your responsibilities under Canadian law, and what you are doing to meet them.
A documented Risk Assessment: a document that describes and assesses the risk that your business could be used to launder money or finance terrorism.
The appointment of a Compliance Officer: the person who is ultimately responsible to develop and maintain your Canadian AML and CTF compliance program. Note the person appointed does not have to be located in Canada.
AML Compliance Effectiveness Reviews: testing and reporting completed at least every two years that assesses how well your compliance program is working.
Training: A documented training plan, and conducting, at least annually, testing to ensure that staff understands their roles and responsibilities as it relates to Canadian law.

Operational Compliance

In addition to a documented program, you will need to ensure you operate in a compliant manner with various requirements as it relates to your Canadian customers. This includes:

Collecting and recording client identification information;
Know your customer (KYC) information;
Reporting certain types of transactions to regulators and government agencies;
Maintaining appropriate registration and licensing; and
Keeping records.

Client Identification

As an MSB, you will be required to identify Canadian customers in accordance with Canadian law. You must verify the identity of a person who requests the following:

requests that they issue or redeem money orders, traveller’s cheques or similar negotiable instruments in an amount of CAD 3,000 or more;
requests that they initiate an electronic funds transfer of CAD 1,000 or more;
requests that they exchange an amount of CAD 3,000 or more in a foreign currency exchange transaction;
requests that they transfer an amount of CAD 1,000 or more in virtual currency;
requests that they exchange an amount of CAD 1,000 or more in a virtual currency exchange transaction; or
is a beneficiary of an international electronic funds transfer of CAD 1,000 or more, or of a transfer of an amount of CAD 1,000 or more in virtual currency, to whom they make the remittance.

As part of the recent AML changes, the identification methods that can be used to verify identification have been updated and modernized. Previously, a document used to verify identity was required to be “original, valid and current”. You can now confirm the identity of a customer by relying on an identity document where it is “authentic, valid, and current”, meaning you can confirm identification using acceptable documents, presented in an electronic means, so long as it can be authenticated.

There are other methods to verify a customer’s identity, which include referring to their Canadian credit file (Equifax or TransUnion), provided it has been in existence for at least three years, or a dual process method which involves referring to information from two reliable and independent sources.

If the customer is an entity (a company, partnership, trust, etc.), then measures must be taken to confirm the entity’s existence and beneficial ownership. This means certain details must be collected for directors, trustees, beneficiaries of trusts, and anyone that owns or controls 25% or more of an entity.

Registration

You must register as a Foreign MSB with FINTRAC before June 1, 2020. The process itself is relatively straightforward and begins with a pre-registration form. As part of this process, you must provide FINTRAC with complete information about your business, including:

Bank account information;
Information about your compliance officer;
Number of employees;
Incorporation information (if your business type is a corporation);
Information about your MSB’s owners and senior management, such as their name and date of birth;
Certain information about the directors of the company and every person who owns or controls 20% or more.
An estimate of the expected total dollar amount of transactions per year for each MSB service you provide;
Detailed information about every branch; and
Detailed information about every Canadian MSB agent.

Once registered, the registration must be maintained, and you must:

Keep information up to date;
Respond to requests for, or to clarify, information in the prescribed form and manner, within 30 days;
Renew your registration before it expires; and
Let FINTRAC know if you stop offering MSB services to Canadians.

SCAM ALERT: There is no cost to register an MSB with FINTRAC – although we’ve heard of several scams claiming that there is a fee. Please ensure that you are only registering through valid FINTRAC sites, which will contain “fintrac-canafe.gc.ca” in the URL. If you have received a phishing email or other request to pay FINTRAC registration fees, we recommend reporting this to both the Canadian Anti-Fraud Centre and to FINTRAC directly.

Reporting

Foreign MSBs are required to report certain transactions to FINTRAC where Canadians are involved, regardless if the funds or the instructions to transfer funds involve Canada. Foreign MSBs will be required to report to FINTRAC the following transactions:

The receipt, from a person or entity in Canada, of CAD 10,000 or more in cash;
The initiation, at the request of a person or entity in Canada, of an EFT of CAD 10,000 or more, if the EFT is sent or is to be sent from one country to another;
The final receipt of an EFT of CAD 10,000 or more, if the EFT was sent from one country to another and the beneficiary is in Canada;
The receipt from a person or entity in Canada of CAD 10,000 or more in virtual currency;
Any suspicious or attempted suspicious transactions; and
Any terrorist property.

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Foreign Money Services Business in Canada