On November 7, 2011, the Minister of Finance proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) through the publication of a consultation paper (the Consultation Paper). For the most part, these amendments are focused on strengthening both the identification and customer due diligence provisions of the Regulations in order to bring the Regulations into alignment with the recommendations of the Financial Action Task Force (FATF). The comment period on the consultation paper is open until December 16, 2011, and if there are perceived stumbling blocks for reporting entities in the implementation of the proposed amendments, consideration should be given to making submissions to the Department of Finance.
What follows is an overview of the proposed amendments to the Regulations.
“Business Relationships”
As the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PC Act) and its Regulations are currently drafted, they apply to reporting entities in circumstances where they engage in specified financial transactions, and, for financial entities, in circumstances where they “open accounts”.
The Consultation Paper proposes amending the Regulations to extend the application of certain obligations under the Regulations so that they will apply in circumstances where there is a “business relationship”. The term “business relationship” is defined in the Consultation Paper as any financial relationship established to provide financial activities or transactions. A business relationship will be deemed to have occurred where a reporting entity conducts any financial activity or transaction in respect of which records are required to be kept under the Regulations.
Accordingly, “business relationship” would encompass circumstances where there is a single:
- foreign exchange transaction;
- electronic funds transfer transaction;
- sale of traveller’s cheques, money orders or similar negotiable instruments; or
- redemption of a money order.
It is important to note that the proposed amendment refers to a “business relationship” and not to an “ongoing business relationship”. This is an important distinction given how FinTrac Guideline 4 is currently drafted. Specifically, Guideline 4 provides that completing a risk assessment is appropriate where there is an ongoing relationship. The Guideline goes on to provide that where dealings with a client are limited to a single transaction, there is no ongoing relationship. The proposed changes to the Regulations abandon the concept of an “ongoing” relationship in the circumstances of the deeming provision discussed above.
In respect of “business relationships”, it is proposed that the Regulations would require:
- ongoing monitoring of “business relationships”;
- application of enhanced customer due diligence measures to high-risk business relationships; and
- maintaining records of the purpose and intended nature of the “business relationship”.
Suspicious Transactions and Attempted Suspicious Transactions
The Consultation Paper proposes amendments to the Regulations to require reporting entities to take “reasonable measures” to ascertain the identity of an individual who undertakes or attempts to undertake a suspicious transaction, including in circumstances where the client or transaction in question may be subject to identity verification exceptions.
In this regard, it is important to note that section 53.2 of the Regulations, as currently drafted, provides an exemption to the requirement to ascertain identity for suspicious (or attempted suspicious) transactions in circumstances where the reporting entity believes that complying with that requirement would “tip off” the person that the transaction is being reported. From a practical perspective, it is difficult to see how requesting identifying information from a person who chooses not to complete a transaction would not tip off that person that the reporting entity intends to report the attempted transaction.
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