Third party determination requirements


May 2021

This guidance comes into effect on June 1, 2021.

The Financial Action Task Force (FATF), the Egmont Group and other anti-money laundering and anti-terrorist financing authoritative bodies have observed that third parties have been used 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.

This guidance explains the third party determination requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. These requirements apply to all reporting entity (RE) sectors, but only to certain transactions and activities, as specified in this guidance.

This guidance answers the following questions:

  1. Who is a third party and how do I determine whether there is a third party?
  2. When do I have to make a third party determination?
  3. What must I do if I determine that there is a third party?
  4. What if I am not able to make a third party determination, but suspect that a third party is involved?
  5. What are the exceptions to making a third party determination?
  6. What are the exceptions to keeping a record of a third party determination?

Examples of third parties can be found in Annex 1.

**Note: Throughout this guidance, all references to dollar amounts (such as $10,000) are in Canadian dollars.

1. Who is a third party and how do I determine whether there is a third party?

A third party is the person or entity that instructs another person or entity to conduct a transaction or activity on their behalf. As such, the third party is the instructing party to the transaction or activity, and is also understood to be the "on behalf of" party.

You must take reasonable measures to determine whether a third party is involved when you carry out certain transactions or activities, as explained in this guidance.   

Reasonable measures for third party determination could include asking the client if they are acting at the instruction of another person or entity, or asking whether another person or entity will be instructing on the account. The steps you take as reasonable measures to make a third party determination must be documented in your compliance program's policies and procedures.

2. When do I have to make a third party determination?

You must take reasonable measures to make a third party determination when you are required to:  

Large Cash Transaction Report or large cash transaction record

When you receive cash in an amount of $10,000 or more, and are required to submit a Large Cash Transaction Report (LCTR) to FINTRAC or to keep a large cash transaction record, you must take reasonable measures to determine whether the person that gave you the cash is acting on behalf of a third party.Footnote 1  

For more information about your obligations to report a large cash transaction and keep a large cash transaction record, see the reporting guidance for large cash transactions and the record keeping guidance for your sector.

**Note: This requirement is subject to the 24-hour rule.Footnote 2

Large Virtual Currency Transaction Report or large virtual currency transaction record

When you receive an amount of virtual currency (VC) equivalent to $10,000 or more, and are required to submit a Large Virtual Currency Transaction Report (LVCTR) to FINTRAC or to keep a large virtual currency transaction record, you must take reasonable measures to determine whether the person from whom you receive the VC is acting on behalf of a third party.Footnote 3

For more information about your obligations to report a large virtual currency transaction and keep a large virtual currency transaction record, see the reporting guidance for large virtual currency transactions and the record keeping guidance for your sector.

**Note: This requirement is subject to the 24-hour rule.Footnote 4

Signature card or account operating agreement

As a financial entity, a securities dealer or a casino, you must take reasonable measures to determine whether an account will be used by or on behalf of a third party, when you open an account and are required to keep a signature card or an account operating agreement.Footnote 5

When you open a credit card account or a prepaid payment product account, you do not need to make a third party determination because you are not required to keep a signature card or an account operating agreement for these account types.

For more information about your obligations to keep account records, see the record keeping guidance for your sector.

Information record

As a money services business (MSB), a foreign money services business (FMSB), an agent of the Crown, a life insurance company, broker or agent, or a real estate developer, broker or sales representative, you are required to keep an information record for certain transactions or activities. At the time you create the information record, you must take reasonable measures to determine whether the person or entity for which the information record is kept on, is acting on behalf of a third party.Footnote 6

For more information about your obligations to keep information records, see the record keeping guidance for your sector.

Casino Disbursement Report

As a casino, when you are required to report a disbursement of $10,000 or more, you must take reasonable measures, at the time of the disbursement, to determine whether the person or entity requesting the disbursement is acting on behalf of a third party.Footnote 7

For more information about your obligations to report a disbursement, see the reporting guidance for casino disbursements.

**Note: This requirement is subject to the 24-hour rule.Footnote 8

3. What must I do if I determine that there is a third party? 

If you determine that there is a third party involved, you must take reasonable measures to obtain the following information about the third party:Footnote 9

A record must be kept of the information obtained.Footnote 10

Making a third party determination as required, will assist you in completing any report you submit to FINTRAC. Specifically, if you determine that a third party is involved in any of the transactions or activities specified in this guidance, then this information may help you in completing the 'on behalf of' section of any related report you send to FINTRAC.  

Retention: At least five years from the date the third party determination record was created.Footnote 11

4. What if I am not able to make a third party determination, but suspect that a third party is involved?

If you are not able to make a third party determination, but have reasonable grounds to suspect that a third party is involved, you must keep a record that:

Retention: At least five years from the date the record was created.Footnote 18

5. What are the exceptions to making a third party determination?

As a financial entity, you do not need to make a third party determination when you open an account and are required to keep a signature card or an account operating agreement, if the account is for the processing of payments by credit card or prepaid payment product for a merchant.Footnote 19

If you are a financial entity, securities dealer or casino, you do not need to make a third party determination when you open an account and are required to keep a signature card or an account operating agreement, if every account holder is a financial entity or a securities dealer that is engaged in the business of dealing in securities in Canada.Footnote 20

If you are a life insurance company, broker or agent, you do not need to make a third party determination when you keep an information record on a beneficiary in connection with the sale of a life insurance policy under which you are to remit an amount of $10,000 or more to the beneficiary over the duration of the policy, regardless of the means of payment.Footnote 21

6. What are the exceptions to keeping a record of a third party determination?

If you are a financial entity, a securities dealer or a casino, you do not have to take reasonable measures to obtain information and keep a record of that information for a third party determination if an 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 only for clients of the legal counsel, accountant or real estate broker or sales representative, as the case may be.Footnote 22

If you are a securities dealer, you do not have to take reasonable measures to obtain information and keep a record of that information for a third party determination when an account operating agreement is kept for the account of a person or entity that is engaged in the business of dealing in securities only outside of Canada, and when:Footnote 23

Annex 1: Examples of third parties

Large Cash Transaction Report or large cash transaction record

Ms. Violet instructs her son, Mr. Blue, to purchase gold bullion with $10,000 in cash. While Mr. Blue conducted the transaction, Ms. Violet is the third party as she instructed Mr. Blue to conduct the transaction.

An employer, 123 Inc., instructs its employee, Mr. Orange, to deposit $10,000 in cash into 123 Inc.'s bank account. In this scenario, the bank as the RE, determines that 123 Inc. is the third party because Mr. Orange is conducting the transaction at the instruction of, and on behalf of, 123 Inc.

Company A is a client of Consulting Inc. Company A instructs Consulting Inc. to deposit $10,000 in cash into Company B's bank account. Mr. Green, an employee of Consulting Inc., conducts the transaction by making the deposit. Company A is the third party because Mr. Green is conducting the transaction at the instruction of, and on behalf of, Company A. Consulting Inc., although Mr. Green's employer, is not the third party, as it did not provide the instructions for the transaction to occur.

Large Virtual Currency Transaction Report or large virtual currency transaction record

Ms. Red instructs her friend, Ms. Yellow, to exchange an amount of VC equivalent to more than $10,000 CAD into US dollars at a Canadian money services business (MSB). Ms. Yellow is the conductor and the MSB determines that Ms. Red is the third party, as Ms. Red instructed Ms. Yellow to conduct the transaction.

Signature card or account operating agreement

If an account is opened in Mr. Green's name, but the RE determines that the account activity will be directed by Ms. Teal, Ms. Teal is the third party.

Information record

Mr. Black wishes to purchase a home in Canada. Ms. White helps Mr. Black to find a suitable home by attending showings with a real estate sales representative. When a home is found, Mr. Black is the purchaser and there is no third party since the information record is kept on Mr. Black and he is not acting at the instruction of anyone else.

Ms. Grey has a power of attorney for an elderly relative who is incapacitated and unable to conduct a transaction or give instructions on a transaction. Ms. Grey is required to sell the elderly relative's home. The information record kept by the real estate sales representative or broker would be in respect of Ms. Grey. As a result, there is no third party as Ms. Grey is not acting on the instructions of the elderly relative or anyone else.

123 Ltd. requests that its subsidiary, ABC Company, purchase a commercial property. The information record is kept on ABC Company and the RE determines that 123 Ltd. is the third party, as it is the instructing party.

Casino disbursement report

Mr. Blue requests a casino to disburse $10,000 CAD. Mr. Blue is making this request because he was instructed to do so by Ms. Red. The casino determines that Ms. Red is the third party.

Date Modified: