Third party determination requirements
Third party requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.
Third party determination
A third party is a person or entity who instructs another person or entity to conduct an activity or financial transaction on their behalf. When you are determining whether a third party is giving instructions, it is not about who owns or benefits from the money, or who is carrying out the transaction or activity, but rather about who gives the instructions to handle the money or conduct a transaction or particular activity. If you determine that the individual in front of you is acting on someone else's instructions, that someone else is the third party. For example, Jim is the third party when he asks Alice to wire $12,000 to a business account held by company ABC in country A.
When a person is acting on behalf of their employer, the employer is considered to be the third party, unless the person is making a cash deposit to the employer’s business account.
The PCMLTFA and associated Regulations require that you take reasonable measures to make a third party determination for certain transactions and activities. Once you have made that determination you must identify and record the third party involved in any transaction you report to FINTRAC.
The Financial Action Task Force (FATF), FINTRAC, Egmont and other anti-money laundering and anti-terrorist financing authoritative bodies have observed the use of third parties in several money laundering and terrorist financing cases. It is not uncommon for criminals to use third parties as a method to evade detection by distancing themselves from the proceeds of crime.
How to make a third party determination?
You must take reasonable measures to determine if there is a third party who is instructing your client to conduct an activity or a transaction.
Reasonable measures include asking your client if they are acting on someone else’s instructions, or by retrieving the information already contained in your records. The steps you take to make a third party determination must be documented in your compliance policies and procedures.
When do you have to make a third party determination?
There are situations that would require you to make a third party determination. In all four cases, you must take reasonable measures to determine if there is a third party to a transaction or an activity. These situations occur when you must:
- keep a large cash transaction record
- keep a signature card or an account operating agreement
- keep a client information record
- submit a casino disbursement report
1. Large cash transaction record
When a large cash transaction is conducted you have to keep a large cash transaction record, and you must take reasonable measures to determine whether the individual who gives you the cash is acting on the instructions of a third party, at the time of the transaction. If you have made a positive determination, you must include the third party information in the Large Cash Transaction Report or in any other transaction report you send to FINTRAC, such as a Suspicious Transaction Report (STR). Third party information must be recorded as part your large cash transaction record.
2. Signature card or account operating agreement
When do I have to make a third party determination for an account opening?
When you open an account and create a signature card or an account operating agreement, you must take reasonable measures to determine whether the account is to be used by, or on behalf of, a third party. These measures must be taken at the time that the account is opened.
For example, if an account is opened in an individual's name but the account activity will be directed by someone else, that someone else is the third party. As another example, parents who decide to open an education savings account for their child would not be acting on the instructions of the child therefore there is no third party in this case.
Sectors that have obligations to keep account opening records include financial entities, securities dealers, and casinos. Please refer to the record keeping guidance for your respective sector for more information on this requirement.
Are there any exceptions to making a third party determination when opening an account?
Yes. There are scenarios where the third party determination does not need to be made when opening an account:
- if you are opening an account where the account holder is a financial entity or a securities dealer that is engaged in the business of dealing in securities in Canada; or
- if it is an account held by a credit card acquiring business.
3. Client information record
When you create a client information record, you must take reasonable measures to determine if the client is acting on behalf of a third party. These measures must be taken at the time the client information record is created.
Sectors that have obligations related to keeping client information records include life insurance, real estate, money service businesses and agents of the Crown. Please refer to the record keeping guidance for your respective sector for more information on this requirement.
4. Casino disbursement report
When a casino is required to report a disbursement of $10,000 or more, it must take reasonable measures to determine whether the person receiving the disbursement is acting on behalf of a third party.
What records must be kept in relation to third party determinations?
You must keep third party records for the following activities:
- A large cash transaction
- An account opening
- A client information record
- A casino disbursement
If you determine that the person in front of you is acting on the instructions of a third party, you must keep a record of:
- The third party’s name, address and occupation or nature of principal business, as well as:
- Their date of birth, if the third party is a person;
- The incorporation number a its jurisdiction of issue, if the third party is a corporation; and
- The nature of the relationship between your client and the third party.
The nature of the relationship between your client and a third party can include for example, an accountant, agent, legal counsel, borrower, broker, customer, employee, friend or relative.
You must keep records in relation to third party determination for at least five years following the date they were created.
What if you are unable to make a third party determination?
If you have reasonable grounds to suspect that your client is acting on behalf of a third party, but are unable to make a third party determination, you will have to record the following information:
- If the client indicated that the transaction was (or was not) on behalf of a third party; and,
- The reasons why you suspect that the person is acting on behalf of a third party.
The steps you take to make a third party determination must be included in your compliance policies and procedures.
If you were unsuccessful in determining whether a client was acting on behalf of a third party, but there are reasonable grounds to suspect that a third party is instructing your client you must record:
- The steps you took to make the third party determination;
- The reason(s) you were unsuccessful; and
- The date you took these steps.
Are there any exceptions to the record keeping requirement for a third party determination?
Yes. There are exceptions to the record-keeping requirement when opening an account. A third party determination has to be made to open the account, but the third party determination record is not required if:
- The account is opened by a legal counsel, an accountant or a real estate broker or sales representative and you have reasonable grounds to believe that the account is to be used solely for the clients of that legal counsel, accountant or real estate broker or sales representative;
- A securities dealer opens an account for a person or entity that is engaged in the business of dealing in securities only outside of Canada and:
- the account is in a country that is a member of the Financial Action Task Force;
- the account is in a country that is not a member of the Financial Action Task Force (FATF) but has implemented the recommendations of the FATF relating to client identification and, at the time that the account is opened, the securities dealer has obtained written assurance from the entity where the account is located that the country has implemented those recommendations; or
- the account is in a country that is not a member of the FATF and has not implemented the recommendations of the FATF relating to client identification but, at the time that the account is opened, the securities dealer has verified the identity of all third parties relating to the account in accordance with the measures established in subsection 64(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations.
These exceptions exist because the accounts are in foreign countries and the expectation is that these countries have similar legislation in place that requires them to identify, report and record information about third parties.
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