Beneficial ownership requirements

Beneficial ownership requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations

*Please note that this guidance has been re-issued by FINTRAC and differs from the guidance on this subject published in June 2017. Previously, FINTRAC took the position that while various means could be used to obtain beneficial ownership information, only official documentation could be relied upon to confirm the accuracy of the information obtained. This guidance has been updated to reflect FINTRAC's amended position that, once the beneficial ownership information is obtained, various reasonable measures may now be used to confirm the accuracy of beneficial ownership information. These changes have been in effect since May 1, 2018.

May 1, 2018

Financial entities, securities dealers, life insurance and money services businesses have obligations related to beneficial ownership only when they have to confirm the existence of an entity. These obligations include:

If an entity is a not-for-profit organization, you must also determine if the entity is a registered charity under the Income Tax Act or if it is an unregistered not-for-profit organization that solicits charitable donations from the public.

Who are beneficial owners?

Beneficial owners are the actual individuals who are the trustees, and known beneficiaries and settlors of a trust, or who directly or indirectly own or control 25% or more of a corporation or an entity other than a corporation or trust, such as a partnership. The ultimate beneficial owners cannot be another corporation or entity; they must be the actual individuals who are the owners or controllers of the entity. In order to determine who the beneficial owners are, you must search through as many levels of information as necessary in order to determine the actual individuals.

It is important to consider that the names found on legal documentation may not be the actual owners of an entity. For example, you may become aware through the normal course of business that the legal owners of a corporation, entity or trust, may not be the actual individuals who own or control the corporation, entity or trust.

Why is identifying beneficial ownership important?

Identifying beneficial ownership is important in order to remove anonymity and identify the actual individuals behind the transactions and account activities, which is a key component of Canada's anti-money laundering and anti-terrorist financing regime. The concealment of the beneficial ownership information of accounts, businesses and transactions is a technique used in money laundering and terrorist activity financing schemes. Collection and confirmation of this information is an important step to aid in money laundering and terrorist activity financing investigations and ultimately protect the integrity of Canada's financial system.

How do I obtain information about the beneficial owners?

To obtain beneficial ownership information, as well as the ownership, control and structure information, you can have the entity provide it, either verbally or in writing.

For example:

In all cases it is information on the actual individuals who are the beneficial owners as well as information establishing the entity's ownership, control, and structure that must be obtained.

How do I confirm the accuracy of the information about the beneficial owners?

Reasonable measures must be taken to confirm the accuracy of the information obtained. This can include referring to official documentation or records.

It is also acceptable to have the client sign a document to confirm the veracity of the beneficial ownership information, as well as ownership, control and structure information obtained. In this case, it is possible for one document to be used to satisfy the two distinct steps, namely to obtain the information and to confirm the accuracy of it.

If referring to documents or records, the accuracy of the beneficial ownership, as well as ownership, control and structure information related to a corporation or entity may be confirmed by referring to records, such as the:

In the case of a trust, the accuracy of the information can be confirmed by reviewing the trust deed, which will provide information on the ownership, control and structure of the trust.

Other reasonable measures can include:

In either case, you must collect documents or information that provides details of the beneficial owners as well as the ownership, control and structure.

To confirm the information obtained about a registered not-for-profit organization, you can consult the charities listing on the Canada Revenue Agency website.

The reasonable measures taken to confirm beneficial ownership as well as ownership, control and structure information, must be in line with the assessed risk of a money laundering or terrorist activity financing offence for that entity based on your risk based approach. Reasonable measures for entities assessed to be higher risk must go further to understand and confirm the beneficial ownership as well as establish the overall ownership, control, and structure of that entity. 

Reasonable measures for entities that are complex must go further in order to ensure you are able to understand and confirm the beneficial ownership as well as establish the ownership, control and structure of that entity. This does not mean, however, that a complex entity needs to be considered high risk.

Judgement must be used to discern the reasonable measures that are appropriate to take in each situation to confirm the accuracy of the information obtained, while considering the risk associated. During an assessment, FINTRAC expects that you will be able to produce the documentation that was collected to confirm the beneficial ownership information.

What if beneficial ownership information cannot be obtained or its accuracy cannot be confirmed?

If you are unable to obtain the beneficial ownership information, or if you obtain the beneficial ownership information but are unable to confirm its accuracy, you must:

The senior managing officer of a corporation or an entity may include, but is not limited to, a director, chief executive officer, chief operating officer, president, secretary, treasurer, controller, chief financial officer, chief accountant, chief auditor or chief actuary, or an individual who performs any of those functions. It may also include any other individual who reports directly to the entity's board of directors, chief executive officer or chief operating officer. In the case of a partnership, the most senior managing officer can be one of the partners.

In the case of a trust, the senior managing officer of a trust is the trustee, that is, the person who is authorized to administer or execute on that trust.

How do you verify the identity of an entity’s most senior managing officer?

To verify the identity of the most senior managing officer, you could use one of the methods outlined in Methods to identify individuals and confirm the existence of entities. However, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) does not specify that you must verify the senior managing officer's identity in accordance with the Regulations.

There is no record keeping obligation if you have successfully identified the senior managing officer. However, you may be asked to demonstrate the reasonable measures that were taken to identify the senior managing officer in the course of a FINTRAC assessment.

If the reasonable measures you took to identify the senior managing officer are unsuccessful, you must record the measures taken, the date you took them and the reason they were unsuccessful.

What if there is no individual who owns or controls 25% or more of a corporation or an entity other than a corporation or trust?

You may obtain information confirming that there is no actual individual who directly or indirectly owns or controls 25% or more of a corporation or of an entity other than a corporation or trust. This is not the same as being unable to obtain the beneficial ownership information.  

If you determine that there is no individual who directly or indirectly owns or controls 25% or more of a corporation or of an entity other than a corporation or trust, you must keep a record of the measures you took and the information you obtained in order to reach that conclusion. However, you are still required to obtain and confirm the ownership, control and structure of that entity.

In this situation, you do not need to verify the identity of the most senior managing officer. However, as part of your business practice, you may decide to record the names of individuals you feel have a managing role or control over a percentage of shares that you determine to be significant, even if it is less than 25%.

How do you keep beneficial ownership information up to date?

Beneficial ownership information must be kept up to date as part of your requirements to conduct ongoing monitoring of business relationships. You may have a documented process where you ask clients to confirm the information you have on record through your regular interactions with them.

However, beneficial ownership information will be updated based on your risk assessment of each client. For clients assessed as being high-risk, you must apply enhanced measures. Enhanced measures mean that you must take extra steps in accordance with the Regulations. This includes taking additional measures for client identification, conducting enhanced ongoing monitoring, and taking any other enhanced measures you identify as appropriate.

Beneficial ownership record keeping requirements

You must keep a record of the information you obtain and the measures you take to confirm the accuracy of beneficial ownership information, regardless of the outcome. The record of the measures you take can be part of your overall policies and procedures; while any information obtained will generate its own record associated with the entity for which beneficial ownership information was obtained. An individual record about measures taken may only be needed in situations where the measures taken differed from the process documented in your policies and procedures.

In a situation where no individual directly or indirectly owns or controls 25% or more of a corporation or an entity other than a corporation or trust, you must keep a record of the measures you took to confirm that information, the date it was done as well as the information obtained in order to reach your conclusion.

If an entity is a corporation, you must record:

If an entity is a trust, you must record:

If an entity is a business other than a corporation or trust, you must record:

If an entity is a not-for-profit organization, you also need to keep a record that indicates whether the entity is a registered charity under the Income Tax Act or an unregistered   organization that solicits charitable donations from the public.

Retention: You must keep beneficial ownership records, as well as records that describe ownership, control and structure for five years from the day the last business transaction is conducted.

Exceptions to beneficial ownership determination

General: The beneficial ownership requirements do not apply when you do not have to confirm the existence of an entity.

Life insurance companies, brokers and agents: If you deal in reinsurance, the beneficial ownership requirements do not apply to you for those dealings.

Financial entities and securities dealers: You do not need to confirm the existence of a corporation, trust or other entity for the opening of a group plan account held within a dividend or a distribution reinvestment plan, if the sponsor of the plan is an entity:

In addition, if you are a financial entity, the beneficial ownership requirements do not apply to your credit card acquiring activities.

Appendix A

Example of a record for ownership, control and structure of a corporation:

ABC Canada Inc. is a for-profit corporation with 100 privately traded shares in circulation. It is incorporated pursuant to the Canada Business Corporations Act. John Brown owns 15 of the shares and Green Company Ltd. owns the other 85 shares. James Smith is the Chair of ABC Canada Inc.'s board of directors; his wife, Jane Smith, is ABC Canada Inc.'s Chief Financial Officer and a director; and their three children make up the other members of the board.

In this example, you must record:

Example of record for ownership, control and structure of an entity that is neither a corporation nor a trust:

Rainbow Money Services is a money services business (MSB) in Vancouver owned by Howard and Betty. Howard and Betty paid a lawyer to draft a partnership agreement for the business, which they both signed. According to the agreement, Howard will invest $100,000 in the partnership to buy equipment and rent space for the MSB, and Betty will be solely responsible for operating the MSB. All decisions related to the partnership must be unanimous; in case of a disagreement, either partner can decide to end the partnership. Howard and Betty will split the income from the MSB 50/50. If they decide to end the partnership, Howard will get 85% of the proceeds of the sale of the business assets, while Betty will get 15%.

In this example you must record:

Note: The business structure is important in this example as the ownership and control of the MSB is shared between Howard and Betty despite an uneven split of proceeds in the case the business is sold. You would need to retain details of the partnership agreement to meet your record keeping requirements.

Records on how you obtained this information may be grouped under your policies and procedures. The measures you took to confirm its accuracy could be demonstrated by having a copy of the partnership agreement.

Date Modified: