ARCHIVED — Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2009)

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Vol. 143, No. 20 — September 30, 2009

Registration

SOR/2009-265 September 9, 2009

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT

P.C. 2009-1536 September 9, 2009

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 Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2009).

REGULATIONS AMENDING CERTAIN REGULATIONS MADE UNDER THE PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT (2009)

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING SUSPICIOUS TRANSACTION REPORTING REGULATIONS

1. (1) The definition “financial entity” in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (see footnote 1) is replaced by the following:

“financial entity” means an authorized foreign bank, as defined in 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 or caisse populaire that is regulated by a provincial Act, an association that is regulated by the Cooperative Credit Associations Act, a financial services cooperative, a credit union central, a company to which the Trust and Loan Companies Act applies and a trust company or loan company regulated by a provincial Act. It includes a department or agent of Her Majesty in right of Canada or of a province when the department or agent is carrying out an activity referred to in paragraph 8(a). (entité financière)

(2) Subsection 1(2) of the Regulations is amended by adding the following in alphabetical order:

“credit union central” means a central cooperative credit society, as defined in section 2 of the Cooperative Credit Associations Act, or a credit union central or a federation of credit unions or caisses populaires that is regulated by a provincial Act other than one enacted by the legislature of Quebec. (centrale de caisses de crédit)

“financial services cooperative” means a financial services cooperative that is regulated by An Act respecting Financial services cooperatives, R.S.Q., c. C-67.3, or An Act Respecting the Mouvement Desjardins, S.Q. 2000, c. 77, other than a caisse populaire. (coopérative de services financiers)

2. The Regulations are amended by adding the following before section 3:

2.1 (1) Part 1 of the Act applies to financial services cooperatives.

(2) Every credit union central is subject to Part 1 of the Act when it offers financial services to a person or entity other than a financial entity that is a member of that credit union central.

PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING REGULATIONS

3. (1) The definition “financial entity” in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (see footnote 2) is replaced by the following:

“financial entity” means an authorized foreign bank, as defined in 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 or caisse populaire that is regulated by a provincial Act, an association that is regulated by the Cooperative Credit Associations Act, a financial services cooperative, a credit union central, a company to which the Trust and Loan Companies Act applies and a trust company or loan company regulated by a provincial Act. It includes a department or agent of Her Majesty in right of Canada or of a province when the department or agent is carrying out an activity referred to in section 45. (entité financière)

(2) Subsection 1(2) of the Regulations is amended by adding the following in alphabetical order:

“credit union central” means a central cooperative credit society, as defined in section 2 of the Cooperative Credit Associations Act, or a credit union central or a federation of credit unions or caisses populaires that is regulated by a provincial Act other than one enacted by the legislature of Quebec. (centrale de caisses de crédit)

“financial services cooperative” means a financial services cooperative that is regulated by An Act respecting Financial services cooperatives, R.S.Q., c. C-67.3, or An Act Respecting the Mouvement Desjardins, S.Q. 2000, c. 77, other than a caisse populaire. (coopérative de services financiers)

4. The Regulations are amended by adding the following before section 12:

11.2 (1) Part 1 of the Act applies to financial services cooperatives.

(2) Every credit union central is subject to Part 1 of the Act when it offers financial services to a person or entity other than a financial entity that is a member of that credit union central.

5. (1) Subclause 64(1)(b)(i)(A)(III) of the Regulations is replaced by the following:

(III) an entity that is subject to the Act and is a member of the same association as the entity ascertaining the identity of the person, and

(2) Subclause 64(1.1)(b)(i)(A)(III) of the Regulations is replaced by the following:

(III) an entity that is subject to the Act and is a member of the same association as the entity ascertaining the identity of the person, and

(3) Section 64 of the Regulations is amended by adding the following after subsection (1.2):

(1.21) For the purposes of subparagraphs (1)(b)(i) and (1.1)(b)(i),

(a) a financial services cooperative and each of its members that is a financial entity are considered to be members of the same association; and

(b) a credit union central and each of its members that is a financial entity are considered to be members of the same association.

6. Schedule 8 to the Regulations, as enacted by section 19 of the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2008-1), SOR/2008-21, is amended by replacing “(Subsections 42(1) and (3))” after the heading “SCHEDULE 8” with “(Subsections 42(1), (3) and (4))”.

7. Paragraph 3(b) of Part B of Schedule 8 to the Regulations, as enacted by section 19 of the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2008-1), SOR/2008-21, is replaced by the following:

(b) type of disbursement (cash, cheque, electronic funds transfer, deposit in account at financial institution or other form of disbursement), amount disbursed and currency of amount disbursed and, if applicable, name and account number of each person involved in the disbursement, other than a person referred to in item 2 of Part A or Part D or F, and branch or transit number of each of those accounts, and name and account number of each entity involved in the disbursement, other than an entity referred to in item 2 of Part A or Part E, and branch or transit number of each of those accounts

REGULATIONS AMENDING CERTAIN REGULATIONS MADE UNDER THE PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT (2008-1)

8. Subsection 8(2) of the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (2008-1) (see footnote 3) is amended by adding, after the subsection (3) that it enacts, the following:

(4) Despite subsection (3), for the application of subsection (2), a casino is not required to report information set out in an item of Schedule 8 that is marked with an asterisk if, after taking reasonable measures to do so, the casino is unable to obtain the information.

COMING INTO FORCE

9. (1) Subject to subsection (2), these Regulations come into force on the day on which they are registered.

(2) Sections 1 to 5 come into force on July 31, 2010.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issue: Regulatory amendments are needed to address a gap in Canada’s anti-money laundering and anti-terrorist financing regime in the credit union sector. The changes also include two technical changes to clarify the large disbursement reporting obligations for casinos.

Description: The credit union central in Quebec will be brought under the Regulations for all activities. Credit union centrals outside of Quebec will only be covered for services offered directly to the public.

Cost-benefit statement: These changes, which were requested by the credit union central in Quebec, will strengthen Canada’s anti-money laundering and anti-terrorist financing regime and will improve public safety for all Canadians. Compliance costs for credit union centrals should be minimal and there will only be seven new reporting entities which the Financial Transactions and Reports Analysis Centre (FINTRAC) will have to monitor for compliance.

Business and consumer impacts: Compliance costs will be minimal for credit union centrals outside Quebec because offering services directly to the public is not an important aspect of their business. The credit union central in Quebec will face a more significant impact since it will be covered for all activities, but it specifically requested this type of coverage.

Domestic and international coordination and cooperation: The amendments should not have an impact on the competitiveness of Canadian firms since the changes are based on international standards and Canada’s major trading partners have similar measures in place. They should send a positive signal to the international community that Canada continues to strengthen its regime and is at the forefront of the fight against money laundering and terrorist financing. Domestically, the amendments will impose requirements that most areas of the financial sector already have to meet.

Issue

In 2007 and 2008, the Government published new amendments to certain regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) that introduced various measures to enhance Canada’s anti-money laundering and anti-terrorist financing regime (http://canadagazette.gc. ca/partII/2007/20070627/pdf/g2-14113.pdf, http://canadagazette.gc. ca/partII/2007/20071226/pdf/g2-14126.pdf, http://canadagazette.gc. ca/partII/2008/20080220/pdf/g2-14204.pdf, and http://canadagazette. gc.ca/partII/2008/20080625/html/sor195-e.html). Those amendments included additional client identification, record-keeping, transaction reporting and compliance program requirements for financial institutions and intermediaries.

Following the publication of those regulatory amendments, a gap in the anti-money laundering and anti-terrorist financing regime was discovered in the credit union sector. Individual credit unions and caisses populaires are subject to the Act as financial entities and are therefore subject to requirements that include client identification, record-keeping, transaction reporting and development of a compliance regime. The Act, however, does not currently cover provincial credit union centrals and provincial centrals of caisses populaires (Provincial Centrals), as they principally provide liquidity and other financial services to their member institutions. That said, in contrast to the business models of other Provincial Centrals, the Provincial Central in Quebec (Desjardins) does offer extensive services to the public. This presents a risk of money laundering and terrorist financing and should, therefore, be covered under the Act. It was further determined, through a series of conference calls with each Provincial Central in April and May, 2008, that certain other Provincial Centrals (Central One, Alberta, Saskatchewan, Manitoba, Prince Edward Island and Nova Scotia) do offer limited services directly to the public and should also be covered under the Act.

Further, two technical changes are included in these regulatory amendments to clarify the large disbursement reporting obligations for casinos before amendments to those obligations come into force in September 2009, in order to make it easier for casinos to understand their obligations.

Objectives

The objectives of the regulatory amendments are to

  • strengthen Canada’s anti-money laundering and anti-terrorist financing regime by covering Provincial Centrals under the Act; and
  • clarify the large disbursement reporting requirements for casinos.

Description

Individual credit unions and caisses populaires are currently subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations). The amendments would bring Provincial Centrals under the Regulations as Financial Entities, although the Provincial Central located in Quebec will be subject to different requirements than those located outside of Quebec.

The vast majority of money laundering risks lie in transactions conducted with members of the public, so Provincial Centrals located outside of Quebec will be covered under the Act for financial services offered to the public (the public being any person or entity other than a financial entity that is a member of that credit union central). Requirements include record keeping, prescribed transaction reporting, customer identification, due diligence (e.g. verifying customer identification), third party determination (e.g. enquiring as to whether the customer is acting on behalf of another party) and a compliance regime (i.e. appointing a compliance officer, implementing anti-money laundering policies and procedures, training employees and conducting risk assessments and reviews of policies and procedures).

The Provincial Central located in Quebec (i.e. Desjardins) will be covered by the Regulations for all of its activities, as requested in January 2008, including financial services offered to individual caisses populaires. Desjardins will be subject to the same requirements as other Provincial Centrals but will, in addition, be required to meet those obligations in relation to all of their activities, not just for transactions with the public.

Therefore, these regulatory amendments will permit Desjardins to report electronic funds transfers on behalf of their member institutions to the Financial Transactions and Reports Analysis Centre (FINTRAC). FINTRAC is Canada’s financial intelligence unit and is responsible for ensuring compliance with the anti-money laundering and anti-terrorist financing regime. The amendments also modify the reporting requirements for individual caisses populaires, which are currently responsible for sending electronic funds transfer reports to FINTRAC.

The amendments will not allow Provincial Centrals located outside Quebec to report electronic funds transfers on behalf of their members to FINTRAC since this is not an activity that is covered by the Regulations (i.e. it would not be a transaction with the “public”). The existing reporting requirements for individual credit unions will continue to apply.

The technical amendments for large disbursement reporting for casinos provide additional clarity with respect to the requirements applicable to the casino sector. The first technical change clarifies the reporting requirements in scenarios where casinos are reporting two or more transactions with the same customer within a 24-hour period that add up to more than $10,000. The second technical change requires that a branch or transit number must also be reported, in addition to an account number, in large casino disbursement reports.

Regulatory and non-regulatory options considered

One alternative would have been to maintain the status quo. Choosing this alternative would have left a gap in Canada’s anti-money laundering / anti-terrorist financing regime, making it susceptible to abuse by criminals and terrorists.

A second alternative considered was to cover all Provincial Centrals for all of their activities. This alternative would have also closed the identified gap in the regulatory regime but would have imposed compliance costs on Provincial Centrals for activities and transactions conducted with member financial institutions that present a lower risk for money laundering and in respect of which they are already subject to the Act as a financial entity.

A third option that was contemplated would have covered all Provincial Centrals (including Desjardins) only when they conduct transactions with the public. This option would have closed the identified gap in the anti-money laundering regime and would not impose significant compliance costs on the industry. However, this option would not satisfy the request from Desjardins to be covered for all activities.

Benefits and costs

The amendments will strengthen Canada’s anti-money laundering and anti-terrorist financing regime, and this will benefit all Canadians by improving public safety. In particular, the measures improve Provincial Centrals’ ability to know their customers, and they will therefore be in a better position to detect suspicious transactions. This will help prevent and deter money laundering activities in Canada.

By bringing Provincial Centrals into the anti-money laundering regime, the financial sector as a whole is treated more equitably by the Regulations. Currently, some Provincial Centrals provide services (e.g. deposit accounts, currency exchange, loans, electronic funds transfers) directly to the public that are identical to those provided by other financial entities that are subject to the Regulations, such as banks and credit unions. Covering these institutions closes the regulatory gap in the credit union sector.

Although the Provincial Central in Quebec will face compliance costs and be required to have compliance and employee training programs, their operational costs will be reduced as a result of a more streamlined process of reporting electronic funds transfers to FINTRAC. The impact on Provincial Centrals outside Quebec is expected to be minimal since they will only be covered when they provide services directly to the public. Of the eight Provincial Centrals outside Quebec, only six will be covered under the Regulations and several of them have plans to cease providing services to the public which would relieve them of the additional obligations.

In addition, Provincial Centrals already provide support to members for compliance with the Act by providing customer screening services (i.e. checking customer names with terrorist watch lists), arranging electronic funds transfer reporting and developing anti-money laundering and staff training programs.

These amendments will only have a minimal impact on FINTRAC’s operations since there will be, at most, seven new reporting entities out of a base of more than 300 000 existing reporting entities. Furthermore, the number of Provincial Centrals outside Quebec that will be subject to these provisions is expected to decrease over time as several are in the process of phasing out their public accounts. This would relieve them of the additional requirements and further reduce the number of reporting entities in the sector.

The two technical changes affecting the large disbursement reporting requirements for casinos do not introduce new reporting requirements and therefore will not have an impact on the cost of their compliance with the Regulations. The changes clarify their obligations under regulations that will come into force in September 2009 and do not impose any additional burden on casinos, or on FINTRAC’s operations.

Rationale

Bringing Provincial Centrals under the anti-money laundering regulations strengthens Canada’s anti-money laundering regime and levels the playing-field within the financial sector.

The technical changes clarify reporting obligations for casinos, which will ease the implementation of their compliance programs.

Consultation

The amendments respond to requests made by Desjardins. The Department of Finance consulted extensively with all Provincial Centrals to gain a better understanding of the industry and further consulted with all centrals on the proposed regulatory amendments. This process included a series of conference calls with each Provincial Central in April and May 2008 to discuss the financial services that they provide to the public and whether they had existing anti-money laundering and anti-terrorist financing measures in place. The policy intent and drafting instructions for the proposed amendments were shared with each Provincial Central in January 2009. Each Provincial Central participated in a follow-up conference call on this issue. No objections were raised with the policy intent or the drafting instructions. Subsequently, draft amendments were shared with each Provincial Central in February 2009 and no concerns were raised.

No comments were received during the 30-day comment period following pre-publication. During this period, Desjardins and the other provincial credit union centrals, along with FINTRAC, were consulted about the coming into force date of the Regulations. All parties agreed to a one-year time frame as this would provide them with time to comply with the Regulations. The sector is supportive of the measures being introduced.

Implementation, enforcement and service standards

FINTRAC is responsible for ensuring compliance with the Act and its related regulations. It sends compliance questionnaires to entities that are subject to the Act to assess compliance and conducts on-site examinations. It also has the capacity to enter into information-sharing agreements with regulators in order to reduce the number of compliance examinations to which entities are subjected.

Persons and 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. Additionally, as of December 2008, a new administrative monetary penalties scheme provides for penalties that are in proportion to the violation. Violations under that scheme are classified in one of three categories: minor, serious and very serious. The maximum penalty that can be imposed under the administrative monetary penalty scheme for violations classified as very serious is, in the case of an entity, $500,000 and in the case of a person, $100,000.

Contact

Lynn Hemmings
Acting Director
Financial Sector Division
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-0553
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
SOR/2001-317; SOR/2002-185

Footnote 2
SOR/2002-184

Footnote 3
SOR/2008-21