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Proposed 2023 AML Changes: Mortgage Lenders and Armoured Car Services

Background

February seems to be the month for proposed legislative changes.

On February 18, 2023, draft amendments to the regulations under the Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA), and a net-new draft regulation, were published in the Canada Gazette. If you’re the type that likes to read original legislative text, you can find it here. We (thanks Rodney) also created a redlined version of the regulations, with new content showing as tracked changes, which can be found here.

These changes are meant to renew and improve Canada’s anti-money laundering (AML) and Counter Terrorist Financing (CTF) regime, adapting to new money laundering (ML) and terrorist financing (TF) risk. One of the most significant changes, in our opinion, is the introduction of two new regulated entity types, mortgage lenders and armoured car companies.

Currently, mortgages issued by financial entities are captured under the PCMLTFA but these amendments would make all entities involved in the mortgage lending process (brokers responsible for mortgage origination, lenders responsible for underwriting the loan, and administrators responsible for servicing the loan) reporting entities. The intent here is to level the playing field between regulated and unregulated mortgage lenders, and to deter misuse of the sector for illicit activities.

While the activity of transportation is not currently supervised for AML purposes per se, armoured car carriers provide services largely to regulated entities. Given the flow of funds that is typically seen in this sector, reconciliation and identification of the origin of funds can sometimes be challenging, and allows funds to move with some degree of anonymity, which is an ML/TF vulnerability.

The draft regulations also introduce new requirements for correspondent banking relationships, and additional requirements related to the Money Services Business (MSB) registration. There are also some technical amendments related to existing reporting requirements and changes related to Administrative Monetary Penalties (AMPs).

Lastly, a new regulation would introduce a prescribed formula for the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to assess the expenses it incurs in the administration of the PCMLTFA against reporting entities. Such models are seen from other regulators, such as the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC). Currently, FINTRAC is funded through appropriations.

In the following sections, we have summarized what we feel are the most important requirements to note.

Armoured Car Companies

The proposed changes would require a company that engages in “transporting currency or money orders, traveller’s cheques or other similar negotiable instruments” (except for cheques payable to a named person or entity) to be considered an MSB. As such, the following obligations will have to be met:

  • Development of a compliance program;
  • Maintaining an up-to-date MSB registration with FINTRAC;
  • Conducting compliance effectiveness reviews;
  • Reporting certain transactions;
  • Identifying customers;
  • Record keeping;
  • Risk ranking customers and business relationships;
  • Conducting transaction monitoring and list screening;
  • Conducting enhanced due diligence and transaction monitoring for high-risk customers and business relationships; and
  • Follow ministerial directives and transaction restrictions.

One record keeping obligation to note, which is new for armoured car companies, is the requirement to record the following information when transporting CAD 1,000 or more of cash or virtual currency, or CAD 3,000 or more in money orders or similar negotiable instruments:

  • The date and location of collection and delivery;
  • The type and amount of cash, virtual currency or negotiable instrument transported;
  • The name and address of the person or entity that made the request, the nature of their principal business/occupation and, in the case of an individual, their date of birth;
  • The name and address, if known, of each beneficiary;
  • The number of every account affected by the transport, the type of account, and the name of the account holder;
  • Every reference number that is connected to the transport, and has a function; equivalent to that of an account number; and
  • The method of remittance.

An additional requirement that will apply to armoured car companies is in relation to PEP determinations (existing PEP requirements for MSBs still apply). Specifically, a PEP determination is required whenever a person requests that the MSB transport more than CAD 100,000 in cash or virtual currency, or in an amount that is not declared.

Under the proposed regulations, there are some exemptions for reporting that are noteworthy. Large Cash and Large Virtual Currency reporting requirements will not apply where there is an agreement of transportation between:

  • The Bank of Canada and a person or entity in Canada;
  • Two financial entities;
  • Two places of business of the same person or entity; or
  • Canadian currency coins for purposes of delivery under the Royal Canadian Mint.

It is noteworthy, based on the definition, that there may be more than just armoured car companies that are captured under these new requirements. This will be clarified in guidance from FINTRAC that will follow publication of the legislation.

The requirements applicable to armoured car companies will come into force eight months after final publication in the Canada Gazette.

Mortgage Lending

The proposed regulations would require mortgage lenders, brokers, and administrators (mortgage participants) to put in place compliance regimes, similar to that of other regulated entities, which include the following:

  • Development of a compliance program;
  • Conducting compliance effectiveness reviews;
  • Reporting certain transactions;
  • Identifying customers;
  • Keeping records;
  • Risk ranking customers and business relationships;
  • Conducting transaction monitoring and list screening;
  • Conducting enhanced due diligence and transaction monitoring for high-risk customers and business relationships; and
  • Follow ministerial directives and transaction restrictions.

It is noteworthy, that many mortgage brokers already have existing voluntary AML compliance programs and already apply AML measures. This is in part due to various securities regulations and lending partners.

The requirements applicable to mortgage lending will come into force six months after final publication in the Canada Gazette.

Cost Recovery

As part of this round of regulatory changes, there is a net-new regulation, the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations. This regulation will allow FINTRAC to pass on expenses, to reporting entities, that it incurs in the administration of the PCMLTFA. Only the following prescribed entity types are affected by this:

  • Banks and authorized foreign banks;
  • Life insurance companies;
  • Trust and loan corporations; and
  • Every entity that made more than 500 threshold reports during the previous fiscal year.

The regulations provide a formula that FINTRAC would use to calculate the assessment amounts payable by reporting entities on the basis of their annual asset value, and the volume of all threshold transaction reports submitted. For clarity, threshold transaction reports include Large Cash Transaction Reports (LCTRs), Large Virtual Currency Transaction Reports (LVCTRs), Electronic Funds Transfer Reports (EFTRs), and Casino Disbursement Reports (CDRs).

The requirement would come into force on April 1, 2024. This means FINTRAC would commence recovering costs from the 2024-2025 fiscal year and forward.

Other Changes

Enhancing MSB registration

Under the proposed amendments, as part of MSB registration, MSBs would now need to include the telephone numbers and email addresses of its president, directors and every person who owns or controls 20% or more of the MSB. This is in addition to current required information. Additionally, the number of the MSB’s agents, mandataries and branches in each country will be added (currently, only those within Canada are required).

This requirement will come into force twelve months after final publication in the Canada Gazette.

Streamlining requirements for sending AMPs

Under the proposed amendments, FINTRAC would be allowed to serve a reporting entity solely by electronic means when issuing an AMP. Currently, FINTRAC would also have to send an additional copy by registered mail.

This requirement would come into force on registration.

What Next?

There is a 30 day comment period (ending March 20, 2023) for the proposed regulations. It is strongly recommended that industry, and potentially impacted companies, review carefully and provide feedback. Comments can be submitted online via the commenting feature after each section of the proposed changes, or via email directly to Julien Brazeau, Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5.

We’re Here To Help

If you have questions related to the proposed changes, or need help starting to plan, you can get in touch using the online form on our website, by emailing us directly at info@outliercanada.com, or by calling us toll-free at 1-844-919-1623.

New Terrorist Financing Indicators

FINTRAC Registration

FINTRAC has published updated indicators related to terrorist activity financing.

These are subdivided into three broad types of violent extremism:

  • religiously motivated violent extremism (RMVE),
  • politically motivated violent extremism (PMVE), and
  • ideologically motivated violent extremism (IMVE).

Each subtype has distinct characteristics and indicators. While it can be tempting to think that these types of things don’t happen here, unfortunately, they can and do happen here in Canada. As a Compliance Officer, it’s important to think through where these indicators might be visible to you and your team.

All Canadian reporting entities must use this information to:

  • Update the indicators in training materials,
  • Update the indicators in policies and procedures, and
  • Update transaction monitoring mechanisms (where applicable) to detect relevant indicators.

Of course, if you require assistance, Outlier Compliance is here to help, please contact us

First AML Compliance Effectiveness Review Timing

As a company that gets to work with a lot of startups, and existing companies entering the Canadian market, we get to help folks understand the regulatory landscape in Canada. One of the required elements of a Canadian compliance program is an AML Compliance Effectiveness Review. These reviews must be completed every two years at a minimum. You can think of it like an audit, but for compliance.

The purpose of an effectiveness review is to determine whether your AML compliance program has gaps or weaknesses that may prevent your business from effectively preventing, detecting and deterring money laundering and terrorist financing. Recently, we have seen an increased focus on Effectiveness Reviews during FINTRAC examinations. Specifically, on whether the review really tested the effectiveness of the compliance program as a whole (not just what you say you’re doing, but also what you’re actually doing). This has led to FINTRAC examiners requesting the working papers for completed effectiveness reviews where the report did not clearly describe how the effectiveness was tested and assessed. This is the main reason Outlier has started providing our working papers with the final report. This also provides a pretty good reference point for making sure you are meeting your regulatory expectations.

First Time for Everything

In previous engagements, Outlier has operated on the theory that the clock for when your first review was due stemmed from the MSB’s FINTRAC registration date. However, we were incorrect. It wasn’t until a recent conversation where the registration date preceded any customer transactions by six months, that really spurred on an official clarification from the regulator. The trigger for the 2-year clock to start ticking is not registration but “a registered MSB is required to create a compliance program once it engages in one or more of the MSB-related activities.” This means that the clock starts ticking after the MSB has conducted their first transaction.

Here is a PDF version of the policy interpretation we received from FINTRAC that you can keep for your records.

Potential Corrections

If we have completed a review for you in the past that has a commencement date prior to your first customer transaction, please feel free to reach out so we can amend your report to the proper date.

Upcoming Effectiveness Reviews

While this article talks about your first review, you must also be sure to initiate all subsequent reviews within 2 years of the start date of your previous review. Please note that this is based on the previous commencement date, not the date of completion or issuance of the final report.

Need a Hand?

If you are looking for an idea of pricing for an upcoming review or have questions about a review that is currently underway, please feel free to contact us.

Effectiveness Reviews for Dealers in Virtual Currency

Effective June 1, 2020, dealers in Virtual Currency activities were considered as Money Services Businesses (MSBs) and as such, must comply with MSB obligations under amendments made to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). One obligation is to have an AML effectiveness review at least once every two years. MSBs must start their effectiveness review no later than two years from the start of their previous review or in the case of dealers in Virtual Currency, no later than June 1, 2022, the date they were considered to be MSBs under law.

Such reviews must test your compliance program and effectiveness of your operations. Our reviews follow a similar format to examinations conducted by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which you can read more about in a previous Blog Post.

We’re Here To Help

If you have not yet engaged or commenced your review, there are still a couple of weeks to be compliant. If you would like to engage Outlier to conduct your AML Compliance Effectiveness Review or have questions regarding this obligation, please get in touch.

Fixed Fee AML Reviews for the Real Estate Sector

No Hassle, Fixed Fee AML Compliance Effectiveness Review Pricing

All real estate developers, brokers and sales representatives are required to have AML Compliance Effectiveness Reviews at least every two years. These reviews involve a review and assessment of your compliance program and operational testing. Real estate developers, brokers and sales representatives will receive a formal review report, and Senior Management must provide signoff on the final report within 30 days of the day it’s issued. While Canadian legislation permits self-reviews, reviews must be independent, something harder to do at small to medium sized firms. The reviewer must be sufficiently qualified. At a minimum, each reviewer must:

  • Demonstrate sufficient understanding of the Canadian regulatory context;
  • Have sufficient experience in conducting AML Compliance Effectiveness Reviews in Canada; and
  • Have maintained up-to-date training and professional qualifications; including, but not limited to, the Certified Anti-Money Laundering Specialist designation.

To make budgeting easier for Canadian real estate developers, brokers and sales representatives, we’re introducing no hassle pricing. To calculate where you fall on the chart, just add up the number of employees and agents you have.

Number of Employees & Sales Agents* AML Compliance Effectiveness Review Price
1 – 50 6,000
51 – 100 7,000
101 – 150 8,000
151 – 200 9,000
200+ Please Call

All prices are subject to applicable taxes. Additional fees apply for staff travel and administration related to the sorting of paper documents (where applicable).

*If you have part-time or seasonal employees, count two part-time employees as one employee. Include business owners who are active in running the business as employees. Count each agent location as one employee. If you’re not sure about the calculation, feel free to contact us.

Coast to Coast to Coast

Our Canadian team is here to serve in all parts of Canada. Given the current COVID-19 pandemic, and to keep costs low, we are currently conducting reviews remotely. To do this, we will review electronic copies of your compliance program and data.

Disclaimers

Outlier cannot be considered an “external reviewer” if we have designed your compliance program or conducted annual training with your staff. Most banking services providers require that you have an external reviewer. Some banking services providers also have specific lists of reviewers whose work they will accept. Please check with your banking services provider to ensure that our review will be acceptable for their purposes.

Need a Hand?

If you’re ready to schedule a review or would like more information, please contact us.

Sanctions This Week: July 25th – 29th, 2016

 

OSFISanctions Pic

There were no updates released from OSFI this week.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released four updates last week.  One update was related to the publication of Cuba-related Frequently Asked Questions (FAQ), covering some of the recent changes made to the sanctions that had previously been placed on Cuba.  Other updates included the removal of 12 individuals from the Counter Terrorism Designations List, the issuance of a Finding of Violation and the publication of Iran General License J.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.

The update to the Cuba-related FAQs was for the issuance of a new FAQ (#38) and a revision of an existing FAQ (#39), relating to certain information collection and recordkeeping requirements for persons subject to U.S. jurisdiction who provide authorized carrier or travel services to or from Cuba for specifically licensed travelers.

The update to the Counter Terrorism Designations List included the removal of 12 individuals of Libyan origin who are currently residing in the UK.

The Finding of Violation was issued to Compass Bank, which uses the trade name BBVA Compass, for violations of the Foreign Narcotics Kingpin Sanctions Regulations. From June 12, 2013 to June 3, 2014, Compass maintained accounts on behalf of two individuals on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”).

The final update of the week was related to OFAC issuing “General License J”, authorizing the re-exportation of certain civil aircraft to Iran on temporary sojourn and related transactions.

See the Cuba-related FAQ update on OFAC’s website.

See the Counter Terrorism Designations List update on OFAC’s website.

See the issuance of a Finding of Violation to Compass Bank on OFAC’s website.

See the Iran General License J details on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: July 18th – 22nd, 2016

OSFIOutlier3_032

On July 18th and 22nd, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released the United Nations Security Council’s (UNSC’s) Al’Qaida and Taliban regulations updates to the sanctions list, deleting one individual and amending another.

The individuals are subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations.

The review of the individual who was deleted from the list was triggered by regularly scheduled updates.  However, no additional information was available regarding the justification.

The amendment of one individual’s information included the following:

  • A physical description;
  • The confirmation of the most recent position held within the Taliban, as of April 2015; and
  • That they are currently involved in drug trafficking and operate a heroin laboratory in Afghanistan.

See the July 18th update on the United Nations (UN) website.

See the July 22nd update on the United Nations (UN) website.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released three updates last week.  One update was related to the addition of three individuals to the Counter Terrorism Designations list.  The second update was related to the addition of multiple individuals and entities to the Syria and Non-proliferation Designations lists.  The final update last week was to the Kingpin Act and Panama-related Frequently Asked Questions (FAQs) regarding General Licenses.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.

The changes to the Counter Terrorism Designations list included three individuals of different nationalities, Saudi Arabia, Egypt and Algeria, though all have been linked to Al Qa’ida.

The update to the Syria Sanctions list included eight individuals, all of whom are Syrian.  The seven entities, which range from construction, to finance to manufacturing industries and vary in location, which include:

  • Syria;
  • Saint Kitts and Nevis;
  • Cyprus;
  • UAE; and

The update to the Kingpin Act and Panama-related FAQs are specific General License 5B and 6B

See the Counter Terrorism Designations list update on OFAC’s website.

See the Syrian and Non-proliferation Designations lists update on OFAC’s website.

See the Kingpin Act and Panama-related General License FAQs update on OFAC’s website.

See OFAC’s recent actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: July 11th – 15th, 2016

OSFIOutlier3_036

There were no updates released from OSFI this week.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released one update last week.  The update was related to the addition of two Russian individuals who were added to the Counter Terrorism Designations list.

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.

No other information was available on the individuals who were added.

See the Counter Terrorism Designations list update on OFAC’s website.

See OFAC’s Recent Actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: July 4th – 8th, 2016

OSFISanctions Pic

On July 5th, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released the United Nations Security Council’s (UNSC’s) Al’Qaida and Taliban regulations update to the sanctions list, removing one individual.

Individuals who are included in the list are subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations. The individual delisted was decided following a review, initiated by a request that was submitted to the Ombudsperson.  The individual is a German national and has been imprisoned in Germany since 2007.

See the update on the United Nations (UN) website.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released three updates last week.  The first update, released on July 5th, 2016 was related to the settlement of a potential civil liability for apparent violations of the Iranian and Sudanese transactions and sanctions regulations.  The second update was related to the addition of multiple North Korean individuals and entities to the North Korean Designations List.  The final update was further clarification to the new Cuba-related Frequently Asked Questions (FAQ).

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.

The settlement on July 5th for apparent violations of the Iranian and Sudanese sanctions was levied against Alcon Laboratories, Inc., Alcon Pharmaceuticals Ltd., and Alcon Management SA.  In the course of the investigations, Alcon produced documents and information where it appeared that from August 2008 to December 2011, Alcon violated Iranian sanctions on 452 occasions and Sudanese sanctions on 61 occasions.  Alcon engaged in the sale and exportation of medical end-use surgical and pharmaceutical products from the United States to distributors located in Iran and Sudan without OFAC authorization. OFAC determined that Alcon did not make a voluntary self-disclosure and that the apparent violations were not egregious. The statutory maximum civil monetary penalty amount for the Apparent Violations was $138,982,584 USD and the base penalty amount was $16,927,000 USD.  Ultimately, Alcon paid $1,317,150 USD.

The North Korean sanctions list update included numerous individuals and entities, some of whom are high-ranking officials with titles such as:

  • Director of the Fifth Bureau of the Reconnaissance;
  • Director of the Workers’ Party of Korea Propaganda and Agitation Department; and
  • Minister of People’s Security.

The update to the Cuba-related FAQs were specific to the issuance of two new questions added, #43 and #50, regarding the use of the U.S. dollar in certain transactions.

See the Enforcement Action update on OFAC’s website.

See the North Korea Designations List update on OFAC’s website.

See the Cuba-related FAQ update on OFAC’s website.

See OFAC’s Recent Actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

Sanctions This Week: June 27th – July 1st, 2016

Sanctions Pic

OSFI

On June 27th, 2016, the Office of the Superintendent of Financial Institutions (OSFI) released two updates to the United Nations Security Council’s (UNSC’s) Al-Qaida and Taliban regulations sanctions list, amending 8 individuals and 1 entity.

The individuals are subject to the assets freeze, travel ban and arms embargo set out in paragraph 2 of Security Council resolution 2253 (2015) adopted under Chapter VII of the Charter of the United Nations.

All of the individuals are of different nationalities, but all have connections to Al-Qaida and French terrorist groups.  Some of the individuals have been detained and are currently serving out sentences.  Where others have arrest warrants issued by France, which are currently outstanding.

Go to the OSFI UNAQTR update on the OSFI page.

Go to the OSFI lists page.

OFAC

The U.S. Department of Treasury’s Branch, The Office of Foreign Asset Control (OFAC), released three updates last week.  One update was related to the Counter Terrorist Designations list.  The second update was the publication of new Panama-related and Kingpin Act General Licenses and related Frequently Asked Questions (FAQ). The FAQ update is related to recent adjustments made to the sanctions placed on Panama.

OFAC also released the details about the implementation of the Federal Civil Penalties Inflation Adjustment Act, where penalties related to AML failings have increased 150%, the allowable maximum.  The adjustment to the base fine of USD 11,000, has now increased to USD 27,500.  This is based off the Consumer Price Index, and if you are curious about the actual math, see the image below:

OFAC CMP Calculation

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.  The sanctions target countries, regimes, terrorists, international narcotics traffickers, the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the U.S.  The changes to the Counter Terrorism Designations list included the removal of 11 Somali and Djibouti nationals.  The update also included the addition of one individual of Indian nationality with ties to the entity added, which is a section of Al-Qaida operating within India.

See the Counter Terrorism Designations List update on OFAC’s website.

See the Kingpin Act/Panama-related General Licenses and FAQs update on OFAC’s website.

See the Implementation of the Federal Civil Penalties Inflation Adjustment Act update on OFAC’s website.

See OFAC’s Recent Actions page.

Need A Hand?

We would love to hear from you.  If there are subjects in this post that you would like to know more about, or if you need assistance with your compliance program, please contact us.

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