Vol. 141, No. 13 — June 27, 2007

Registration
SOR/2007-121 June 7, 2007

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT

Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

P.C. 2007-918 June 7, 2007

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 73(1) (see footnote a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (see footnote b), hereby makes the annexed Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations.

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST
FINANCING REGISTRATION REGULATIONS

INTERPRETATION

1. The following definitions apply in these Regulations.

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

"money services business" means a person or entity referred to in paragraph 5(h) of the Act. (entreprise de transfert de fonds ou de vente de titres négociables)

2. For the purpose of subsection 54.1(3) of the Act, "identifying information" means the information set out in Part A and items 1 to 4 of Part C of Schedule 1 and the date of revocation or expiration of the registration of a person or entity, if any.

PRESCRIBED ENTITIES NOT ELIGIBLE FOR REGISTRATION

3. (1) An entity that is a corporation is not eligible for registration with the Centre if the chief executive officer, the president or any director of that entity or any person or entity that owns or controls, directly or indirectly, 20 per cent or more of the shares of that entity is a person or entity referred to in any of paragraphs 11.11(1)(a) to (d) of the Act.

(2) An entity that is not a corporation is not eligible for registration with the Centre if the chief executive officer, the president or any director of that entity or any person or entity that owns or controls, directly or indirectly, 20 per cent or more of that entity is a person or entity referred to in any of paragraphs 11.11(1)(a) to (d) of the Act.

APPLICATIONS, NOTIFICATIONS, CLARIFICATIONS AND SUPPLEMENTARY INFORMATION

4. The following information and documents must be submitted to the Centre by an applicant or a registered person or entity, as the case may be, in electronic form if they have the technical capability to do so and in paper form if they do not:

(a) an application for registration referred to in section 11.12 of the Act;

(b) a notification, for the purpose of section 11.13 of the Act, of a change to the information provided in an application referred to in paragraph (a) or (e);

(c) a notification, for the purpose of section 11.13 of the Act, of newly obtained information;

(d) a clarification requested by the Centre under section 11.14 or 11.17 of the Act;

(e) an application to renew registration for the purpose of section 11.19 of the Act; and

(f) a notification of the cessation of an activity for the purpose of section 11.2 of the Act.

5. An application referred to in paragraph 4(a) or (e), a notification referred to in paragraph 4(b) or (c) and a clarification referred to in paragraph 4(d) must contain the applicable information set out in Schedule 1.

6. A notification referred to in paragraph 4(f) must contain the applicable information set out in Schedule 2.

COMING INTO FORCE

7. These Regulations come into force on June 23, 2008.

SCHEDULE 1
(Sections 2 and 5)

INFORMATION TO BE INCLUDED IN APPLICATION
FOR REGISTRATION OR RENEWAL OF REGISTRATION,
NOTIFICATION OF CHANGES TO INFORMATION IN
EXISTING APPLICATION, NOTIFICATION OF NEWLY
OBTAINED INFORMATION AND CLARIFICATION OF
INFORMATION IN EXISTING APPLICATION

PART A — Identifying Information on Person or Entity that is the Applicant

1. Trade names, operating names and legal names of applicant (if applicable)

2. Status of applicant (whether sole proprietorship, partnership, corporation or other)

3. For an applicant that is a corporation, the incorporation number, date of incorporation and jurisdiction of incorporation

4. Business licence number and place of issue

5. Address of place of business

6. Telephone number

7. Facsimile number (if applicable)

8. Business website address (if applicable)

9. Activity or activities referred to in paragraph 5(h) or (l) of the Act in respect of which the applicant is applying to be registered or to have their registration renewed

10. Existing registration number issued to applicant by the Centre (in the case of an application for renewal of registration, a notification of a change to information in an existing application, a notification of newly obtained information or a clarification of information in an existing application)

11. Date of existing registration (if applicable)

PART B — Business Information on Person or Entity that is the Applicant

1. Type of submission (application for registration or renewal of registration, notification of a change to information in an existing application, notification of newly obtained information or clarification of information in an existing application)

2. Date of submission of application, notification or clarification

3. Effective date (in the case of a notification of a change to the information in an existing application)

4. Mailing address of place of business (if different from address in item 5 of Part A)

5. E-mail address (if applicable)

6. For an applicant that is a person, their name and date of birth

7. For an applicant that is a corporation, the name and date of birth of the chief executive officer, the president and every director of the corporation and every person who owns or controls, directly or indirectly, 20 per cent or more of the shares of the corporation

8. For an applicant that is an entity other than a corporation, the name and date of birth of the chief executive officer, the president and every director of the entity and every person who owns or controls, directly or indirectly, 20 per cent or more of the entity

9. Name, address and account number of every financial entity with which the applicant maintains an account for the purposes of remitting or transmitting funds

10. Name and address of every Canadian money services business used by the applicant to conduct transactions and the registration number issued to that money services business by the Centre

11. Name, address, telephone number and e-mail address of person, referred to in paragraph 71(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, who is responsible for implementation of compliance program

12. Language in which records of the applicant are kept

13. Indication as to whether any activities of the applicant referred to in item 9 of Part A are carried out in a dwelling house

14. Number of persons employed by the applicant for the purposes of the activities referred to in item 9 of Part A (at time of application for registration or renewal of registration, as applicable)

15. Approximate annual value in Canadian dollars of all foreign exchange dealing and all other activities referred to in item 9 of Part A (at time of application for registration or renewal of registration, as applicable)

16. Name, position, business address, business telephone number and business e-mail address of the person submitting the application on the applicant's behalf

17. Indication as to whether the applicant is a person or entity referred to in any of paragraphs 5(a) to (g) or (i) to (l) of the Act (if applicable)

18. Indication as to whether the applicant has previously submitted an application for registration

PART C — Information to Be Provided by Applicant on Its Agents, Mandataries or Branches

1. Trade names, operating names and legal names of every agent or mandatary

2. Business address, business telephone number and, if applicable, business e-mail address and website of every agent, mandatary or branch

3. Activity or activities referred to in item 9 of Part A that are carried out by agent, mandatary or branch

4. Where agent or mandatary is not a person or entity to which Part 1 of the Act applies, address of all locations where the activity or activities referred to in item 9 of Part A are carried out

5. Relationship to applicant (whether agent, mandatary, branch or other)

PART D — Statement of Eligibility for Registration

1. For an applicant that is a person, a statement that they are not a person who is not eligible for registration with the Centre under subsection 11.11(1) of the Act

2. For an applicant that is a corporation, a statement that the chief executive officer, the president and every director of the corporation, and every person or entity that owns or controls, directly or indirectly, 20 per cent or more of the shares of the corporation, is not a person or entity referred to in subsection 3(1) of these Regulations that is not eligible for registration.

3. For an applicant that is an entity other than a corporation, a statement that the chief executive officer, the president and every director of the entity, and every person or entity that owns or controls, directly or indirectly, 20 per cent or more of that entity, is not a person or entity referred to in subsection 3(2) of these Regulations that is not eligible for registration.

SCHEDULE 2
(Section 6)

CESSATION OF ACTIVITY BY REGISTERED PERSON OR ENTITY

1. Trade names, operating names and legal names of registered person or entity

2. Existing registration number of registered person or entity

3. Date of submission of notification of cessation of activity

4. Proposed effective date of cessation of activity

5. Name, position, business address, business telephone number and business e-mail address of individual submitting the notification of cessation of activity on behalf of registered person or entity

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

The National Initiative to Combat Money Laundering was launched in 1999 as part of the government's ongoing effort to combat money laundering in Canada. Following the events of September 11, 2001, the mandate of the initiative was enlarged to include the fight against terrorist financing activities and, since then, it has been referred to as the Anti-Money Laundering and Anti-Terrorist Financing Regime (the Regime). One of the key elements of this regime is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and its three sets of regulations, which were brought into force between 2001 and 2003.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTF Regulations) implement a portion of Part 1 of the Act by requiring the financial institutions and financial intermediaries that are subject to the Act (see footnote 1) to identify their customers, keep certain records, report large cash transactions and international electronic fund transfers of $10,000 or more to the Financial Transactions and Reports Analysis Centre of Canada (the Centre) and develop an internal compliance regime.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (PCMLTF Suspicious Transaction Reporting Regulations) implement the remainder of Part 1 of the Act by requiring financial institutions and financial intermediaries to report financial transactions where there are reasonable grounds to suspect that they are related to money laundering or terrorist financing activities.

The Cross-Border Currency and Monetary Instruments Reporting Regulations implement Part 2 of the Act by requiring any person or entity to report to the Canada Border Services Agency importations and exportations of currency or monetary instruments of a value of CAN$10,000 or more.

Since the coming into force of these Regulations, the domestic and international context has changed. First, the international standards of the Financial Action Task Force (the Task Force), on which the Canadian anti-money laundering and anti-terrorist financing regime was based in 2000, were revised in 2003 to keep up with new money-laundering and terrorist financing trends and techniques. Canada is being evaluated until the end of June by the Task Force on the extent to which it has implemented these standards. Chapter 2 of the 2004 Report of the Auditor General also outlined several recommendations to improve the regime, such as the need to review the information the Centre can include in its disclosures to law enforcement and security agencies in order to increase their usefulness. Similar findings were also outlined in the Treasury Board mandated program evaluation report prepared by Ekos Research Associates.

Several of the federal partners to the Regime, such as the Royal Canadian Mounted Police, the Canada Border Services Agency, the Canada Revenue Agency and the Centre have proposed amendments to help them better fulfill their mandate. A few financial institutions and intermediaries have also requested changes to the regime to allow them to concentrate their efforts in areas where the risk of money laundering or terrorist financing is higher.

In response to these developments, the Department of Finance issued a consultation paper in June 2005 outlining policy proposals to enhance the Regime. These proposals included a new requirement to identify beneficial owners of client entities, enhanced due diligence measures for correspondent banking relationships and politically exposed persons, the obligation to collect information on the beneficiary and originator of an electronic funds transfer, new identification measures for non-face-to-face transactions and a new registration scheme for money services businesses. Various groups and organizations have made representations on the proposed changes to the regime. Since then, the Department of Finance has been in consultations with stakeholders to tailor the requirements to their existing business practices and minimize to the extent possible their compliance burden.

In October 2006, the Minister of Finance tabled Bill C-25, which proposed amendments to the Act to expand the customer due diligence and transaction reporting requirements for financial institutions and financial intermediaries, set out a framework for the registration of money services businesses and extend the list of information that the Centre may disclose to law enforcement and intelligence agencies. This Bill received Royal Assent in December 2006, but will require the implementation of new regulations to become fully effective.

The amendments to the PCMLTF Regulations and the PCMLTF Suspicious Transaction Reporting Regulations implement a large part of the requirements set out in Bill C-25, bring the Regime in line with the new international standards and address the recommendations and comments made by the Auditor General, the Ekos report, the partners to the Regime and stakeholders, by enhancing existing client identification and transaction reporting requirements and increasing the usefulness of the Centre's disclosures to law enforcement agencies. New regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations (PCMLTF Registration Regulations) introduce a registration scheme for money services businesses. These changes will be followed by other amendments to the regulations needed to fully implement the legislation. These amendments will extend the regime to new professions, such as home builders, British Columbia notaries public and dealers in precious metals and stones, and establish the framework for an administrative monetary penalties scheme.

1. Amendments to the PCMLTF Regulations

Under the amendments, the Canadian customer due diligence standards set out in the PCMLTF Regulations are being strengthened. First, in response to the evolving technologies used to deliver financial products and services, new methods to ascertain the identity of a person in a non-face-to-face environment are being made available to all reporting entities (see footnote 2). These methods, which have been developed in consultation with stakeholders, include the use of third party sources such as credit bureaus and agents or mandataries.

Bill C-25 requires reporting entities to conduct an assessment of the money laundering and terrorist financing risks in the course of their business activities. The amendments to the PCMLTF Regulations build on that obligation by requiring all reporting entities to take reasonable measures, where it is determined that a client represents a higher risk taking into account the type of customer, the type of product, the delivery channels, geographic location, etc., to conduct ongoing monitoring of the transactions and keep the client information up to date. The risk assessment and the compliance policies and procedures that reporting entities are required by the existing Regulations to implement will now have to be reviewed at least every two years.

The amendments to the PCMLTF Regulations also require all reporting entities to obtain information on their clients whenever they have reasonable grounds to suspect that a transaction or suspicious attempted transaction is linked to money laundering or terrorist financing activities. This requirement does not apply if obtaining such information would alert the client that the reporting entity is filing a report. Compliance with this new requirement will be supplemented by the publication of sector specific guidelines on what constitutes a suspicious attempted transaction. In addition, when the reporting entity has ascertained the identity of the client but has doubts about the veracity of the information, they have to ascertain again the identity of the client.

The Regulations also introduce new product, transaction or activity exemptions to the client identification and record-keeping requirements in low-risk situations. For example, reporting entities will no longer have to ascertain the identity of the members of a group plan if the contributions are made by means of payroll deductions. The existing exemptions are extended to all reporting sectors to ensure a level playing field. The amendments also exclude some low-risk activities such as re-insurance and real estate property management.

Some of the amendments to the PCMLTF Regulations will only impact specific reporting entities. For example, the client identification and record keeping requirements for certain persons and entities are being extended to new activities, such as the receipt of funds by accountants, and deposits of any amounts or sale or purchase of real estate for real estate brokers and agents.

To mitigate the terrorist financing risks associated with electronic fund transfers, money services businesses, financial entities (see footnote 3) and casinos will have to obtain information on the originator and beneficiary of certain electronic funds transfers of $1,000 or more and ensure that certain identifying information is transmitted along with the funds.

Under the amendments, some reporting entities will have to take additional steps when entering into a business relationship with an entity. First, financial entities, securities dealers, life insurance companies, life insurance brokers and agents and money services businesses will have to take reasonable measures to obtain information on directors of a corporation or on persons who own or control 25 per cent or more of a corporation or other entity. Financial entities will also have to obtain from foreign financial institutions, information and documentation on the nature and the scope of their operations and determine whether these institutions are shell banks before entering into a correspondent banking relationship with them.

Finally, financial entities, securities dealers, life insurance companies, life insurance brokers and agents and money services businesses will have to determine whether account holders or persons sending large electronic funds transfers or making large payments are politically exposed foreign persons and, if so, conduct enhanced scrutiny of such transactions and of their business relationships with such clients.

2. Amendments to the PCMLTF Suspicious Transaction Reporting Regulations

In response to the Auditor General's recommendations, the amendments to the PCMLTF Suspicious Transaction Reporting Regulations expand the information contained in the Centre's disclosures to law enforcement and intelligence agencies to include telephone number, type of account, name and address of persons authorized to give instructions on the account, and type of report. The suspicious transaction reporting requirement is also being extended to reporting suspicious attempted transactions.

3. Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

The recent amendments to the Act set out a framework for the registration of certain designated reporting entities. This scheme is intended to help the Centre ensure compliance in non-regulated sectors such as money services businesses. A new set of regulations, the PCMLTF Registration Regulations, provide clarification on the registration process and on the information that must be provided to the Centre for registration, renewal of registration, changes in registration information and cessation of activities.

Alternatives

As a member of the Task Force, Canada is expected to comply with the 49 revised recommendations of the organization, the international anti-money laundering and anti-terrorist financing standards setting body. Failure to meet these international standards would not only send a negative signal to the international community on Canada's commitment to fight financial crimes, but could also have a detrimental impact on the integrity of our financial system and economy.

The Task Force recommendations on money laundering and terrorist financing were designed to apply to any member country and are not necessarily adapted to a member's national context. As a result, Canada has had to adapt some of the measures so they respect its constitutional and legal framework and the privacy rights of Canadians. In order to meet the international standards without diminishing competition in the financial sector and minimize the compliance burden for reporting entities, the requirements integrate the level of money laundering or terrorist financing risks in Canada with existing business practices in the sectors covered by the Act.

Benefits and costs

The amendments will have various impacts on the partners to the Regime and reporting entities. For instance, the addition of new designated information in the Centre's disclosures to law enforcement agencies will be achieved at virtually no cost, while adding value to the investigations of money laundering and terrorist financing cases. This additional information will not only increase the usefulness of the disclosures in current investigations, but could trigger new ones. Overall, this policy should enhance Canada's capacity to detect and deter money laundering and terrorist financing activities.

The implementation of enhanced due diligence measures will require financial institutions and intermediaries to devote resources to the development of revised internal policies and procedures, new training to employees, assessment of money laundering and terrorist financing risks and changes to their information-technology systems. They will also have to keep more information on their clients and transactions, which will likely generate additional costs. The resources that will need to be devoted by each of the entities covered by the Act vary, depending on their size, the volume of financial transactions they carry out and their use of information technologies. It is expected that large entities that have extensive information-technology systems will face the highest costs. However, in some cases, these implementation costs will be partially offset by savings generated by the introduction of new exemptions to client identification and record-keeping requirements where risks of money laundering and terrorist financing are low and do not justify special attention from the private sector.

The introduction of the new customer due diligence measures will also require additional funding for the Centre, which is responsible for ensuring compliance with the requirements under Part 1 of the Act. The Centre will not only have to perform more thorough examinations on the reporting entities, but will also have to produce guidelines on the new obligations and build systems to receive and analyse the additional information that will be reported to the Centre.

Similarly, as the registrar for the registration scheme in PCMLTF Registration Regulations, the Centre will have to develop various application forms, build information-technology systems to run the program and maintain a Web site that will serve as the registry. Since the Centre will not charge any fees for registration, the burden on money services businesses is restricted to the time required to fill out the registration form and to update this information when changes occur. Budget 2006 provided the Centre with adequate funding needed to implement these changes.

Despite the costs these requirements generate, the enhanced due diligence measures and the money services businesses registration scheme should further deter money laundering and terrorist financing activities, as they will give financial institutions and intermediaries the ability to detect suspicious transactions more easily and allow the Centre to make more information available for money laundering and terrorist financing investigations. These measures, which will bring Canada's regime in line with the international standards, should also send a positive signal to the international community that Canada is at the forefront of the fight against money laundering and terrorist financing and, hence, maintain the credibility and soundness of our financial system.

Consultation

On March 10, 2007, the Department of Finance pre-published the proposed amendments to the regulations in the Canada Gazette, Part I, for a 30-day consultation period. About 20 financial institutions, financial sector associations and professional associations sent representations regarding the feasibility of the proposed amendments and possible coming-into-force dates for the new provisions. Representatives from the Department of Finance also met with some of these stakeholders to discuss their submissions and answer outstanding questions on the requirements.

Overall, stakeholders were supportive of the proposed enhancements to Canada's regime. However, some of them have suggested modifications to the proposed amendments to reduce the compliance burden. These concerns have been addressed to the extent that they do not impede the effectiveness of the Regime. For example, as requested by a group of money services businesses, amendments to the Regulations exempt the sector from customer due diligence requirements when they enter into a service agreement with a publicly traded company or public body. Other exemptions to the client identification and record-keeping requirements have been added to alleviate the compliance burden for securities dealers and other sectors. As proposed by banks and credit unions, the definition of politically exposed foreign persons has been limited to fewer family members and the timeframe for the identification of such persons has been extended. Following discussions with banks, the record-keeping requirements applicable to financial entities for funds transfers of $1,000 or more have been limited to international electronic funds transfers and domestic SWIFT MT103 transfers. Likewise, the obligation to keep a record of the address of the beneficiary for such transfers has been removed from the amendments to the Regulations. Many sectors have expressed their concerns regarding the amount of information that would have to be collected on partnerships and other entities if the published amendments were to come into force. To reduce this compliance burden, the amendments to the Regulations no longer require persons and entities to obtain information on the partners or directors of an entity other than a corporation.

Compliance and enforcement

The Centre is responsible for ensuring compliance with Part 1 of the Act and its related regulations. The Centre sends compliance questionnaires to person or entities that are subject to the Act to better assess the compliance risks and conducts on-site examinations. It also has the capacity to enter into information-sharing agreements with industry regulators to reduce the number of compliance examinations on all reporting entities.

The Regulations will impose new compliance obligations on the sector. In recognition of these new responsibilities, Budget 2006 allocated additional funding to assist the Centre in implementing the new requirements, including the issuance of new guidelines to help persons and entities that are subject to the Act to comply with their obligations.

Reporting entities that do not comply with the Act and its regulations are currently subject to criminal penalties and, depending on the offence, convictions that could result in up to five years imprisonment, a fine of up to $500,000, or both.

Contact

Diane Lafleur
Director
Financial Sector Division
Department of Finance
140 O'Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-5885
Fax: 613-943-8436
Email: fcs-scf@fin.gc.ca

Footnote a

S.C. 2006, c. 12, s. 39

Footnote b

S.C. 2000, c. 17; S.C. 2001, c. 41, s. 48

Footnote 1

The financial institutions and financial intermediaries that are subject to the Act include banks, cooperative credit societies, savings and credit unions, caisses populaires, life insurance companies, life insurance brokers or agents, trust and loans companies, securities dealers, money services businesses (including foreign exchange dealers), casinos, real estate brokers or sales representatives, accountants and accounting firms and certain departments and agents of Her Majesty in right of Canada or a province

Footnote 2

Reporting entities include all financial institutions and financial intermediaries subject to the Act

Footnote 3

Under the PCMLTF Regulations, the term "financial entity" refers to a bank, credit union, cooperative, caisse populaire, cooperative association, trust and loan company and any department or agent of Her Majesty in right of Canada or of a province that accepts deposits in the course of providing financial services to the public

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