Vol. 135, No. 19 — September 12, 2001

Registration
SOR/2001-317 28 August, 2001

PROCEEDS OF CRIME (MONEY LAUNDERING) ACT

Proceeds of Crime (Money Laundering) Suspicious Transaction Reporting Regulations

P.C. 2001-1500 28 August, 2001

Whereas, pursuant to subsection 73(2) of the Proceeds of Crime (Money Laundering) Act (see footnote a), a copy of the proposed Proceeds of Crime (Money Laundering) Suspicious Transaction Reporting Regulations was published, substantially in the form set out in the annexed Regulations, as part of the Proceeds of Crime (Money Laundering) Regulations, 2000 in the Canada Gazette, Part I, on February 17, 2001 and a reasonable opportunity was thereby given to interested persons to make representations to the Minister of Finance with respect to the proposed Regulations;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 73 of the Proceeds of Crime (Money Laundering) Act (see footnote b), hereby makes the annexed Proceeds of Crime (Money Laundering) Suspicious Transaction Reporting Regulations.

PROCEEDS OF CRIME (MONEY LAUNDERING) SUSPICIOUS TRANSACTION REPORTING REGULATIONS

INTERPRETATION

1. (1) For the purposes of the Act and in these Regulations, "casino" means a person or entity that is licensed, registered, permitted or otherwise authorized to do business under any of paragraphs 207(1)(a) to (g) of the Criminal Code and that has an establishment

(a) that the person or entity holds out to be a casino and in which roulette or card games are carried on; or

(b) where there is a slot machine, which, for the purposes of this definition, does not include a video lottery terminal.

(2) The definitions in this subsection apply in these Regulations.

"accountant" means a chartered accountant, a certified general accountant or a certified management accountant. (comptable)

"Act" means the Proceeds of Crime (Money Laundering) Act. (Loi)

"cash" or "currency" means coins referred to in section 7 of the Currency Act, notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are intended for circulation in Canada and coins or bank notes in the currency of countries other than Canada. (comptant ou espèces)

"CICA Handbook" means the handbook prepared and published by the Canadian Institute of Chartered Accountants, as amended from time to time. (Manuel de l'ICCA)

"financial entity" means an authorized foreign bank within the meaning of section 2 of the Bank Act in respect of its business in Canada or a bank to which that Act applies, a cooperative credit society, savings and credit union and caisse populaire that are regulated by a provincial Act, an association that is regulated by the Cooperative Credit Associations Act, a company to which the Trust and Loan Companies Act applies and a trust company and loan company regulated by a provincial Act. It includes a department or agent of Her Majesty in right of Canada or of a province where the department or agent is carrying out an activity referred to in section 8. (entité financière)

"funds" means cash, currency, securities and negotiable instruments or other financial instruments, in any form, that indicate a person's title or interest in them. (fonds)

"life insurance broker or agent" means an individual who is registered or licensed under provincial legislation to carry on the business of arranging contracts of life insurance. (représentant d'assurance-vie)

"money services business" means a person that is engaged in the business of remitting or transmitting funds by any means through any entity or electronic funds transfer network, or of issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments. It includes a financial entity when it carries out one of those activities with a non-account holder. (entreprise de transfert de fonds ou de vente de titres négociables)

"real estate broker or sales representative" means an individual who is registered or licensed under provincial legislation in respect of the sale or purchase of real estate. (courtier ou agent immobilier)

"trust company" means a company to which the Trust and Loan Companies Act applies or a trust company regulated by a provincial Act. (société de fiducie)

2. For the purposes of these Regulations, an individual acting on behalf of his or her employer is acting on behalf of any person or entity except where the individual

(a) is depositing cash into the employer's account;

(b) is a legal counsel who is carrying out an activity referred to in section 5; or

(c) is an accountant who is carrying out an activity referred to in section 6.

APPLICATION OF PART 1 OF THE ACT

3. Part 1 of the Act applies to life insurance brokers and agents.

4. (1) Every money services business is subject to Part 1 of the Act when it engages in any of the following activities:

(a) remitting or transmitting funds by any means through any entity or electronic funds transfer network; and

(b) issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments.

(2) For greater certainty, paragraph (1)(b) does not apply in respect of the redemption of any cheque payable to bearer.

5. Every legal counsel is subject to Part 1 of the Act when they engage in any of the following activities on behalf of any person or entity, including the giving of instructions on behalf of any person or entity in respect of those activities:

(a) receiving or paying funds, other than those received or paid in respect of professional fees, disbursements, expenses or bail;

(b) purchasing or selling securities, real property or business assets or entities; and

(c) transferring funds or securities by any means.

6. (1) Every accountant is subject to Part 1 of the Act when they

(a) engage in any of the following activities on behalf of any person or entity, namely,

(b) give instructions on behalf of any person or entity in respect of any activity referred to in paragraph (a); and

(c) receive professional fees in respect of any activity referred to in paragraph (a) or in respect of any instructions referred to in paragraph (b).

(2) For greater certainty, subsection (1) does not apply in respect of audit, review or compilation engagements carried out in accordance with the recommendations set out in the CICA Handbook.

7. Every real estate broker or sales representative is subject to Part 1 of the Act when they engage in any of the following activities on behalf of any person or entity in the course of a real estate transaction:

(a) receiving or paying funds;

(b) depositing or withdrawing funds; and

(c) transferring funds by any means.

8. Every department and agent of Her Majesty in right of Canada or of a province is subject to Part 1 of the Act when it

(a) accepts deposit liabilities in the course of providing financial services to the public; or

(b) sells money orders in the course of providing financial services to the public.

REPORTING OF SUSPICIOUS TRANSACTIONS

9. (1) Subject to subsection (2), a report under section 7 of the Act concerning a financial transaction in respect of which there are reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence shall contain the information set out in the schedule.

(2) The requirement to report information set out in the schedule does not apply to a person or entity in respect of information set out in an item of the schedule that is not marked with an asterisk if, after taking reasonable measures to do so, the person or entity is unable to obtain the information.

10. The report shall be sent to the Centre within 30 days after the person or entity or any of its employees or officers first detects a fact respecting a transaction that constitutes reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence.

11. (1) The report shall be sent electronically in accordance with guidelines for report submissions that are issued by the Centre, where the sender has the technical capabilities to do so.

(2) A person or entity that does not have the technical capabilities to send the report electronically shall send it to the Centre in paper format, in accordance with guidelines for report submissions that are issued by the Centre.

PRESCRIBED INFORMATION

12. The prescribed information for the purposes of paragraph 55(7)(e) of the Act is

(a) the following information concerning the client, importer or exporter, or any person acting on their behalf, namely,

(b) in the case of a financial transaction, the following information, namely,

COMING INTO FORCE

13. These Regulations come into force on November 8, 2001.

SCHEDULE
(Section 9)

SUSPICIOUS TRANSACTION REPORT

PART A — Information on Place of Business where Transaction Occurred

1.^* Type of reporting person or entity, as described in paragraphs 5(a) to (h) and (k) to (m) of the Act, and, if reporting person or entity is referred to in paragraph (i) or (j) of the Act, type of business, profession or activity of reporting person or entity, as described in sections 3 to 8 of these Regulations

2.^* Identification number of place of business where transaction occurred (e.g., institution's identification number, licence number or registration number), where applicable

3.^* Full name of reporting person or entity

4.^* Full address of place of business where transaction occurred

5.^* Name and telephone number of contact person

PART B — Information on Transaction

1.^* Date of transaction or night deposit indicator

2. Time of transaction

3. Posting date (if different from above)

4.^* Purpose and details of the transaction, including type of funds, amount of transaction, currency of transaction, and, where applicable, number of other institutions or other persons and their names and account numbers

5.^* Disposition of funds, amount of disposition, currency of disposition, and, where applicable, number of other institutions or other persons and their names, account numbers and policy numbers

6.^* Method by which the transaction is conducted (in-branch or office, ABM, armoured car, mail deposit, courier, telephone or other)

7. Identification number of individual who first detected a fact respecting a suspicious transaction

PART C — Account Information (where applicable)

1.^* Account number

2.^* Branch number/transit number

3.^* Type of account (personal, business, trust or other)

4.^* Full name of each account holder

5.^* Type of currency of the account

6. Date account opened

7. Date account closed

8.^* Status of account (active, inactive or dormant)

PART D — Information on Individual Conducting Transaction

1. Individual's full name

2.^* Client Number provided by reporting person or entity, where applicable

3. Individual's full address

4. Individual's country of residence

5. Individual's personal telephone number

6. Individual's type of identifier (e.g., driver's licence, birth certificate, provincial health card or passport) and identifier number

7. Place of issue of individual's identifier (province or state, country)

8. Individual's date of birth

9. Individual's occupation

10. Individual's business telephone number

11. Individual's employer

12. Employer's full business address

13. Employer's business telephone number

PART E — Information on Person or Entity Other Than an Individual on Whose Behalf Transaction is Conducted (where applicable)

1. Full name of person or entity

2. Full name of each individual — up to a maximum of three — who is authorized to act with respect to the account

3. Type of business of person or entity

4. Full address of person or entity

5. Telephone number of person or entity

6. Incorporation number and place of issue, where applicable

PART F — Information on Individual on Whose Behalf Transaction is Conducted (where applicable)

1. Individual's full name

2. Individual's full address

3. Individual's home telephone number

4. Individual's business telephone number

5. Individual's type of identifier (e.g., driver's licence, birth certificate, provincial health card or passport) and identifier number

6. Place of issue of individual's identifier (province or state, country)

7. Individual's date of birth

8. Individual's country of residence

9. Individual's occupation

10. Individual's employer

11. Employer's full business address

12. Employer's business telephone number

13. Relationship of individual conducting the transaction to the individual on whose behalf the transaction is being conducted

PART G — Description of Suspicious Activity

1.^* Detailed description of the grounds to suspect that the transaction is related to the commission of a money laundering offence

PART H — Action Taken (where applicable)

1.^* Any other action taken as a result of suspicion

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

Money laundering is becoming increasingly difficult to deter and detect, and traditional means of investigating this activity are proving less effective. Law enforcement agencies in Canada have called on the federal government to introduce a legal framework to require the reporting of suspicious financial transactions. International anti-money laundering standards have been established by the Financial Action Task Force (FATF), of which Canada is a member. Since money laundering is global in scope, it is important that Canada enhance its contribution to international efforts to deter and detect money laundering.

In response to these concerns, the federal government introduced the Proceeds of Crime (Money Laundering) Act. This statute, which received Royal Assent on June 29, 2000, creates a mandatory reporting system for suspicious and prescribed transactions and the cross-border movement of large amounts of currency and monetary instruments. The Act also provides for the establishment of a new independent anti-money laundering agency, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which was established on July 5, 2000. In addition, the Act sets out a regulation making authority for carrying out the purposes and provisions of the Act, including the implementation of the reporting, record-keeping and client identification requirements.

In December 1999, the Department of Finance issued a Consultation Paper outlining the regulatory proposals to implement the Act. Proposed Regulations, which would expand upon the current Proceeds of Crime (Money Laundering) Regulations by prescribing the financial transactions that must be reported and enhancing the current client identification and record-keeping requirements, were pre-published in the Canada Gazette, Part I on February 17, 2001.

These Regulations, which formed part of that package of proposed Regulations, bring into force those sections of the Act which require financial institutions and other intermediaries to report financial transactions to FINTRAC where there are reasonable grounds to suspect that the transaction is related to money laundering. They prescribe an expanded set of reporting entities that includes lawyers and accountants, real estate brokers and sales representatives, life insurance agents and brokers, and money service businesses (money order vendors and money transmitters). It is recognized that in some instances certain information concerning financial transactions may not always be obtainable for reporting purposes. In such cases, financial institutions and other intermediaries are required to take reasonable measures to provide such information to FINTRAC. The Regulations prescribe a specific time limit for reporting suspicious transactions (section 10) and the format for doing so (sections 9 and 11). Reports must be submitted to FINTRAC in electronic format where the reporting entity has the capability to do so. In other cases, reports may be submitted in paper format.

These Regulations also outline the "designated identifying information" that FINTRAC may disclose to law enforcement authorities where it has reasonable grounds to suspect that that information would be relevant to investigating or prosecuting a money laundering offence.

Regulations with respect to client identification, record-keeping, the reporting of prescribed transactions and implementation of a compliance regime, which were pre-published in the Canada Gazette, Part I with these Regulations, are not included in this package. Comments received during the pre-publication period are currently being reviewed and it is anticipated that these requirements will be finalized in the coming months. These Regulations also do not address the requirements pertaining to the cross-border movement of currency and monetary instruments under Part 2 of the Act. It is anticipated that these requirements will be developed in the coming months and subsequently pre-published for comment.

In mid-February, FINTRAC circulated draft guidelines on suspicious transaction reporting and the form and manner of reporting to stakeholders for their comment. The suspicious transaction guideline will assist reporting entities in identifying the factors that should be considered in making a determination of whether or not a transaction is suspicious. FINTRAC has revised these guidelines to incorporate comments from stakeholders and they are now available on FINTRAC's Web site.

Alternatives

In considering alternatives to the Regulations, the business practices of reporting entities were carefully considered. For example, in including professionals such as lawyers and accountants under the suspicious transaction reporting regime, the Regulations limit the scope of coverage to only specific financial activities.

As well, in developing the data elements to be provided to FINTRAC in a suspicious transaction report, the data collection practices of institutions and other intermediaries were taken into account in determining which information is to be provided on a mandatory basis and which is to be provided by taking reasonable measures. The majority of the information contained in the report is to be provided using reasonable measures. However, where the requested information has been obtained by the reporting entity, it must be provided to FINTRAC.

The Regulations effectively balance the interests of stakeholders in respect of compliance costs, the protection of individual privacy and the need to provide law enforcement with the necessary information to detect and deter money laundering.

Benefits and Costs

The Regulations create a balanced and effective regime designed to deter and uncover criminal activity while recognizing the importance of protecting individual privacy and the need to minimize compliance burden.

Studies carried out by the Solicitor General of Canada have estimated that billions in criminal proceeds are laundered in and through Canada every year. The experience of other countries provides some insight into the benefits of financial transaction reports to law enforcement efforts. AUSTRAC's latest Annual Report notes that in a sample of 200 cases, the information provided in financial transaction reports either initiated or contributed to criminal investigations. The U.K. has estimated that, over the last four years, an average of 5,000 reports provided additional criminal intelligence value. Statistics show that, of the roughly 24,000 suspicious transactions reports received by Belgium's anti-money laundering agency between 1994 and 1998, approximately 1,400 cases were sent to judicial authorities of which 117 resulted in convictions against more than 200 people.

The Regulations will impose additional compliance costs for financial institutions and other intermediaries. However, it is inherently difficult to measure the compliance costs with any precision. The majority of the costs associated with suspicious transaction reporting are related to the development and implementation of procedures and employee training. The Suspicious Transaction Reporting Guideline, prepared by FINTRAC, provides a general, though not exhaustive, list of suspicious indicators, as well as lists tailored to the businesses of each of the reporting entities, which may assist reporting entities in developing training materials. In general, the relative impact on costs is expected to be lower for regulated financial institutions than for other persons and entities covered under the Regulations. This is in part because financial institutions have been reporting suspicious transactions to police on a voluntary basis since 1993.

Consultation

In December 1999, the federal government released a Consultation Paper on the Regulations to the Proceeds of Crime (Money Laundering) Act to industry and other key stakeholders for comment. Before the proposed Regulations were pre-published in February 2001, representations were received and extensive consultations held with many stakeholders, including the Canadian Bankers Association, the Credit Union Central of Canada, Confédération des caisses populaires et d'économie Desjardins du Québec, the Canadian Life and Health Insurance Association, the Independent Life Insurance Brokers Association, the Canadian Association of Insurance and Financial Analysts, the Investment Funds Institute of Canada, the Canadian Bar Association, and the Canadian Real Estate Association as well as individual financial institutions, provincial gaming authorities and casinos. Persons engaged in foreign exchange dealing and in the money services business were also consulted. Self-regulatory organizations such as the Canadian Institute of Chartered Accountants, the Certified General Accountants, the Investment Dealers Association of Canada, the Barreau du Québec, and the Chambre des Notaires du Québec also made representations. Provincial governments and agencies were also consulted. Finally, law enforcement authorities including the Royal Canadian Mounted Police and other representatives from the law enforcement community were consulted and these groups made representations to the federal government.

In addition, representations were received from many of these stakeholders in response to the Regulations pre-published in the Canada Gazette, Part I. With respect to suspicious transaction reporting, stakeholders have indicated that they would like considerable guidance to assist them in identifying suspicious transactions. Draft guidelines, including the Suspicious Transaction Reporting Guideline that provides a general, though not exhaustive, list of suspicious indicators, as well as lists tailored to the businesses of each of the reporting entities were released in February 2001 and will be revised in light of comments provided by stakeholders.

Stakeholders have also indicated that they require sufficient time, once the suspicious transaction regulations are finalized, to implement changes to their systems and design and deliver training to their employees. In order to facilitate appropriate systems changes and training, the requirement to report suspicious transactions will not come into force until sixty days after the Regulations are published in the Canada Gazette, Part II.

In general, these Regulations have not been substantially revised since they were pre-published. In certain instances drafting language was changed, at the request of stakeholders, so that it might better reflect the nature of their particular industry. In particular, the schedule has been revised to make more explicit reference to the business practices of non-financial institution reporting entities such as casinos, life insurance brokers and agents and money services businesses.

Also with respect to the schedule, a number of stakeholders indicated that the suspicious transaction report should contain as few mandatory data elements as possible, given that some information may be impossible to provide if a transaction is found to be suspicious after the fact (for example, time of transaction, name of person conducting the transaction). In response to these comments, reporting entities will only be required to take reasonable measures to provide these data elements.

Compliance and Enforcement

FINTRAC will be responsible for ensuring compliance with the Regulations. However, implementation of the provisions in the Act which allow FINTRAC to conduct compliance audits of reporting entities will be brought into force concurrently with provisions in the next package of regulations to be finalized in the coming months.

FINTRAC will develop and promote a compliance policy that favours a co-operative approach. The emphasis will be on working with entities to achieve compliance rather than immediately taking action against those entities that are not fully in compliance with the Act. Only in cases where this co-operative approach has failed will FINTRAC consider referring such cases to the appropriate law enforcement agency. In those situations, the Act provides for a maximum fine of $2,000,000 and a maximum jail term of five years for failure to report a suspicious transaction.

The Act allows FINTRAC to enter into arrangements with financial sector regulators, provincial governments and self-regulatory organizations for the purposes of carrying out compliance supervision. FINTRAC will work with other federal and provincial bodies and professional associations to identify areas of common interest and avenues for cost efficiencies, consistency of approach and sharing of information.

Contact

Chief, Financial Crimes Section
Financial Sector Division
Department of Finance
L'Esplanade Laurier
140 O'Connor Street
20th Floor, East Tower
Ottawa, Ontario
K1A 0G5
Tel.: (613) 995-1814
FAX: (613) 943-8436

Footnote a

S.C. 2000, s. 17

Footnote b

S.C. 2000, s. 17

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