FINTRAC Policy Interpretations

Other

Unable to open a bank account

Question:

I cannot currently open a bank account in Canada due to charges of third-party money laundering in another country. These charges have been dropped. How can I clear my name with FINTRAC?

Answer:

FINTRAC operates under and enforces the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations and, therefore, can only comment on the obligations as contained within the Act and its associated Regulations. Further, FINTRAC does not request nor hold records on persons or entities convicted of criminal offences in Canada or elsewhere in order to prevent them from opening accounts in Canada. As such, you are not required to “clear your name with Fintrac”.

The only prohibition against opening an account is found at section 9.2 of the PCMLTFA, which states that no person or entity that is referred to in section 5, commonly referred to as reporting entities and which includes financial entities, shall open an account for a client if the person or entity cannot verify the identity of the client in accordance with the regulations.

That said, the PCMLTFA requires every reporting entity to conduct an assessment of its exposure to money laundering (ML) and terrorist activity financing (TF) risk using a number of prescribed criteria, in order to protect and maintain the integrity of its business while also contributing to the integrity of the Canadian financial system as a whole. The risk management process is widely used in the public and private sector to assist in decision-making, and includes the recognition of ML/TF risks, the assessment of these risks, and the development of methods to manage and mitigate the risks that have been identified. While FINTRAC has developed guidance to help reporting entities meet their risk assessment obligations, it is up to each reporting entity to decide what level of risk is acceptable for its business operations. As such, you should address this concern with the financial institution where you wish to open a bank account.

Date answered: 2020-09-23

PI Number: PI-10886

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 71(1)

Sharing of information between reporting entities

Question:

The regulations prescribe how reporting entities can rely on each other to verify identity. Can we use these provisions to allow us to share other information on clients with other reporting entities?

Answer:

It is important to note that FINTRAC administers the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. Therefore, we are only able to comment on the obligations contained within these.

Persons and entities subject to the PCMLTFA are required to verify the identity of clients for activities and transactions prescribed within the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). The methods available to reporting entities (REs) to verify the identity of their clients are also prescribed within the PCMLTFR. The provisions within the PCMLTFR are specific to the obligation to verify identity under the regulations and provide for the sharing of information between REs for this purpose. That is, these provisions do not speak to, or allow for, the sharing of information between REs for other purposes, such as confirming negative media. These provisions would allow you to verify the identity of your customer, John, for prescribed activities and transactions, by relying on measures taken by John’s financial institution (for example), so long as the requirements are met, and would require John’s financial institution to provide you with the required information.

The collection, use, or disclosure of personal information in the context of Canadian commercial activities is protected by the Personal Information Protection and Electronic Documents Act (PIPEDA), or by substantially similar provincial legislation. FINTRAC cannot, however, comment on the requirements under Canada’s privacy legislation, either federal or provincial, that may apply to your business. Therefore, you may wish to contact the Office of the Privacy Commissioner of Canada, as they would be best placed to answer any questions you may have.

Date answered: 2020-08-07

PI Number: PI-10881

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Other

Regulations: 64.1(1)

Act: 5

Sharing Suspicious Transaction Reports (STR)

Question:

Is a reporting entity allowed to share a suspicious transaction report (STR) upon request from the person on whom the report was submitted?

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) sets out a regime in which the information contained in financial transaction reports sent to FINTRAC (including Suspicious Transaction Reports (STRs)) is protected from disclosure except in very limited circumstances. The Act also includes specific provisions aimed at protecting the personal information under FINTRAC's control. For example, the PCMLTFA is founded on a prohibition on disclosure (s. 55(1), PCMLTFA). Any disclosure of information or intelligence by FINTRAC must fall under one of the exceptions to this prohibition. Outside of these exceptions, FINTRAC is prohibited from disclosing the contents of financial transaction reports, or even acknowledging their existence.

While reporting entities (REs) are not subject to the same prohibitions, consideration must be given to section 8 of the PCMLTFA, which prohibits REs from disclosing that they have made, are making or will make a report under section 7, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun. Worth noting is the reference to the “whether or not” element, as an RE will not be in a position to know that an investigation is ongoing, nor that one may begin. So, while the intent to prejudice may not be explicit, the disclosure may have the same unintended consequences.

FINTRAC strongly believes that STRs should be regarded as highly sensitive documents, given the role FINTRAC plays in the fight against money laundering and terrorist activity financing in Canada, and the fact that STRs are a key source of FINTRAC’s intelligence holdings. REs collect and collate data for STRs in order to comply with their legislated obligations under the PCMLTFA, and, as such, the purpose of STRs is quite singular and should not relate to the business or financial activities of organizations operating outside Canada’s anti-money laundering and anti-terrorism financing regime.

The potential harm that could occur from the disclosure of the information in these financial transactions reports is great, and includes compromising: (1) police and national security investigations that are both ongoing or could be undertaken in the future; (2) sources of the information/intelligence within the reports, placing those sources at risk of retaliation; and (3) FINTRAC’s compliance activities, given that data provided by REs is always provided in confidence and that confidence is expected to be maintained by all parties.

Further, FINTRAC relies on the information included within STRs to support disclosure of financial intelligence to police and other law enforcement and national security organizations, in the interest of detecting, preventing and deterring money laundering and the financing of terrorism; in fact, a financial intelligence disclosure could be based entirely on a single STR if it is complete enough to meet one of FINTRAC’s thresholds for disclosure.

From FINTRAC’s perspective, it is not in the public interest for REs to disclose financial transaction reports and the information contained therein. Even beyond this, the collection or disclosure of financial transaction reports, including STRs, without a valid purpose and authority, may infringe on legislated privacy protection obligations. Almost all information within financial transaction reports is personal information about an identifiable individual and is considered financial intelligence by FINTRAC, collected for the sole purpose of reporting to FINTRAC.

Date answered: 2020-07-15

PI Number: PI-10662

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Other

Pre-paid payment products

Question:

When does a financial entity have obligations associated with pre-paid cards?

Answer:

Subsection 1(2) of the PCMLTFR has been amended, and will come into force June 1, 2021, to include:

  • Prepaid payment product, which means a product that is issued by a financial entity and that enables a person or entity to engage in a transaction by giving them electronic access to funds or virtual currency paid to a prepaid payment product account held with the financial entity in advance of the transaction. It excludes a product that:

                     (a) enables a person or entity to access a credit or debit account or one that is issued for use only with particular merchants; or

                     (b) is issued for single use for the purposes of a retail rebate program.

  • Prepaid payment product account, which means an account […] that is connected to a prepaid payment product and that permits:

                     (a) funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period; or

                     (b) a balance of funds or virtual currency of $1,000 or more to be maintained.

Therefore, as can be seen above, where a financial entity opens a prepaid payment product account connected to a prepaid payment product and permits funds totalling $1,000 or more to be added to the account within a 24-hour period or a balance of $1,000 or more to be maintained, then the financial entity would have the associated obligations.

Date answered: 2020-03-12

PI Number: PI-10536

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2)

Act: 5(a)-(f)

Accountants and the PCMLTFA

Question:

Could you please clarify when public accountants are required to report transactions under PCMLTFA – are we required to report on a suspicious transaction if we are not performing the services prescribed in the Regulations?

Answer:

Accountants or accounting firms, are subject to the requirements contained with the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) when conducting any of the following activities on behalf of any individual or entity (other than their employer) or giving instructions in respect of those activities on behalf of any individual or entity (other than their employer):

  1. receiving or paying funds;
  2. purchasing or selling securities, real property or business assets or entities; or
  3. transferring funds or securities by any means.

Accountants and accounting firms are responsible for providing FINTRAC with certain transaction reports when conducting any of the activities described above, including large cash transaction reports (LCTRs), suspicious transaction reports (STRs) and terrorist property reports (TPRs).

With respect to STRs, should an accountant or accounting firm identify a transaction for which they have reached reasonable grounds to suspect that it is related to the commission or attempted commission of a money laundering or terrorist activity financing offence when conducting one or more of the activities described above, then an STR must be reported to FINTRAC.

More information on the obligations of accountants and accounting firms, including on the obligation to submit STRs to FINTRAC, can be found on the accountant sector page of our website.

Date answered: 2020-01-23

PI Number: PI-10532

Activity Sector(s): Accountants

Obligation(s): Other

Regulations: 34(1)

Act: 5(j), 7

Obligations of an MSB dealing in virtual currency

Question:

What obligations does an MSB dealing in virtual currency have?

Answer:

As of June 1st, 2020, entities engaged in VC activities will be MSBs and will be required to register with FINTRAC.

The obligations for an MSB dealing in VC will come into force in two (2) stages. On June 1st, 2020, MSBs dealing in VC will become subject to all of the obligations currently in place for MSBs, including the obligation to verify the identity of their clients. MSBs must identify individuals and confirm the existence of entities when they:

1.    Issue or redeem negotiable instruments of $3,000 or more;

2.    Remit or transmit fiat funds of $1,000 or more;

3.    Conduct a foreign currency exchange of $3,000 or more;

4.    Conduct a large cash transaction;

5.    Create a client information record; and

6.    Must take reasonable measures to identify individuals who conduct or attempt to conduct a suspicious transaction.

More information can be found on the Know your client requirements page of our website.

In addition, on June 1st, 2021 all MSBs, including those dealing in VC, will be subject to the VC specific obligations set out in the Regulations. More information, including Guidance on these obligations, will become available on our website.

To receive notifications of any updates to the information posted to FINTRAC’s website, you may wish to join our mailing list, subscribe to our RSS feed or follow FINTRAC on Twitter.

Date answered: 2020-01-13

PI Number: PI-10546

Activity Sector(s): Money services businesses

Obligation(s): Other

Act: 5(h)

Prepaid payment product – corporate reward program

Question:

Does a financial entity have obligations if a company sets up a prepaid card program for its customers?

Answer:

Subsection 1(2) of the PCMLTFR has been amended, and will come into force June 1, 2021, to include:

    • Prepaid payment product, which means a product that is issued by a financial entity and that enables a person or entity to engage in a transaction by giving them electronic access to funds or virtual currency paid to a prepaid payment product account held with the financial entity in advance of the transaction. It excludes a product that:
      • enables a person or entity to access a credit or debit account or one that is issued for use only with particular merchants; or
      • is issued for single use for the purposes of a retail rebate program.
    • Prepaid payment product account, which means an account [■] that is connected to a prepaid payment product and that permits:
      • funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period; or
      • a balance of funds or virtual currency of $1,000 or more to be maintained.
    • Authorized user, which means a person who is authorized by a holder of a prepaid payment product account to have electronic access to funds or virtual currency available in the account by means of a prepaid payment product that is connected to it.

 

In addition, subsection 14(1) of the PCMLTFR has been amended and will state, a financial entity shall keep the following records in respect of every prepaid payment product account that it opens and of every transaction that is made by means of a prepaid payment product that is connected to that account:

(a) a record of the name and address of each holder of a prepaid payment product account and each authorized user, the nature of their principal business or their occupation and, in the case of a person, their date of birth;

(b) if an account holder is a corporation, a copy of the part of its official corporate records that contains any provision relating to the power to bind the corporation in respect of the prepaid payment product account or the transaction.

Finally, subsection 88(a)(ii) of the PCMLTFR will state, a financial entity shall verify the identity of an authorized user.

Turning to your question, where a business opens a prepaid payment product account with a financial institution, deposits $50,000 to said account, and instructs the financial institution to issue 500 prepaid payment products all in the amount of $100 and all connected to the prepaid payment product account, then the financial institution has all of the obligations associated with that prepaid payment product account, which includes the obligation to verify the identity of all authorized users.

Date answered: 2020-01-10

PI Number: PI-10540

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 14(1)

Act: 5(1) - (f)

Prepaid payment product – open loop gift cards

Question:

Do financial entities have obligations with respect to open loop gifts cards?

Answer:

Subsection 1(2) of the PCMLTFR has been amended, and will come into force June 1, 2021, to include:

    • Prepaid payment product, which means a product that is issued by a financial entity and that enables a person or entity to engage in a transaction by giving them electronic access to funds or virtual currency paid to a prepaid payment product account held with the financial entity in advance of the transaction. It excludes a product that:
      • enables a person or entity to access a credit or debit account or one that is issued for use only with particular merchants; or
      • is issued for single use for the purposes of a retail rebate program.
    • Prepaid payment product account, which means an account [■] that is connected to a prepaid payment product and that permits:
      • funds or virtual currency that total $1,000 or more to be added to the account within a 24-hour period; or
      • a balance of funds or virtual currency of $1,000 or more to be maintained.
    • Authorized user, which means a person who is authorized by a holder of a prepaid payment product account to have electronic access to funds or virtual currency available in the account by means of a prepaid payment product that is connected to it.

In addition, subsection 14(1) of the PCMLTFR has been amended and will state, a financial entity shall keep the following records in respect of every prepaid payment product account that it opens and of every transaction that is made by means of a prepaid payment product that is connected to that account:

(a) a record of the name and address of each holder of a prepaid payment product account and each authorized user, the nature of their principal business or their occupation and, in the case of a person, their date of birth;

(b) if an account holder is a corporation, a copy of the part of its official corporate records that contains any provision relating to the power to bind the corporation in respect of the prepaid payment product account or the transaction;

Finally, subsection 88(a)(ii) of the PCMLTFR will state, a financial entity shall verify the identity of an authorized user.

Turning to your question, typically gift cards are issued for use only with particular merchants and as such would fall under the exclusion listed above. However, should this not be the case, in order to meet the definition of a prepaid payment product the open loop gift card would need to be issued by a financial entity, not fall within one of the exclusions, and the associated prepaid payment product account would need to allow the account holder to add, in a 24-hour period, fiat or VC totally $1,000 or more, or allow the account holder to maintain a balance $1,000 or more of fiat or VC, regardless of whether the prepaid payment product is reloadable or not.

Date answered: 2020-01-10

PI Number: PI-10538

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 14(1)

Act: 5(a)-(f)

Investment Fund Managers and the PCMLTFA

Question:

Are Investment Fund Managers subject to the PCMLTFA? It has been suggested that the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) may apply to Investment Fund Managers (IFMs) because of the “investment services” offered.

Answer:

Pursuant to paragraph 5(g) of the PCMLTFA, that Act applies to persons and entities authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments or to provide portfolio management or investment advising services, other than persons who act exclusively on behalf of such an authorized person or entity. So, the key consideration for FINTRAC, recognizing that an IFM does not provide portfolio management or investment advising services, is actually whether an IFM is authorized under provincial legislation to engage in the business of dealing in securities.

It is important to first note that FINTRAC recognizes that whether a person or entity is “authorized under provincial legislation” is not determined solely by the requirement to register with a provincial securities regulator. As such, it is not an automatic that because an IFM is required to register with the provincial securities regulator, that it is authorized under provincial legislation to carry out the prescribed activities, and, therefore, subject to the PCMLTFA.

As such, FINTRAC has assessed this requirement to register, in conjunction with the activities carried out by an IFM, and with consideration for the intent of the PCMLTFA, and determined that an IFM exclusively registered to engage in the development, marketing, organization, management and/or administration of investment products, does not appear to be authorized under provincial legislation to engage in the business of (i) dealing in securities or any other financial instruments, nor (ii) providing portfolio management or investment advising services, so is not captured within the category of securities dealers. These entities are, therefore, not subject to the PCMLTFA and its associated Regulations as securities dealers.

Date answered: 2019-10-22

PI Number: PI-10450

Activity Sector(s): Securities dealers

Obligation(s): Other

Act: 5

Public hospitals and public body status

Question:

I am seeking clarification regarding whether individual public hospitals meet the definition of a public body. Please advise if individual hospitals are covered under the definition of “public body”.

Answer:

A public body is defined at subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) as:
(a) any department or agent or mandatary of Her Majesty in right of Canada or of a province;
(b) an incorporated city or town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body in Canada or an agent or mandatary in Canada of any of them; and
(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or an agent or mandatary of such an organization.
 
Subsection 123(1) of the Excise Tax Act specifies that a hospital authority “means an organization that operates a public hospital and that is designated by the Minister as a hospital authority for the purposes of this Part”.
 
The GST/HST memorandum 25.2, Designation of Hospital Authorities, found on the Canada Revenue Agency (CRA) website, states that the CRA has the delegated authority to make the hospital authority designation and that the hospital authority designation is an exercise of the CRA’s discretion guided by administrative guidelines and eligibility criteria.
 
The memorandum further explains the administrative guidelines and eligibility criteria used to designate a hospital authority require that you must be an organization that operates a facility that meets the following criteria:
• is recognized as a public hospital by the government of the province or territory where it is located;
• is established and operated solely for a purpose other than profit;
• is operated for the purposes of providing medical or surgical treatment of the sick or injured; and
• provides and maintains in-patient beds and services.
 
As a result, an individual public hospital is not designated as a hospital authority simply because it is a public hospital. It must meet the criteria specified by the CRA and be designated as such. Therefore, the hospital authority designation, and thus the public body determination, can only be made on a case-by-case basis depending on the facts of each situation. In the context of an exam, a reporting entity could be asked to demonstrate how it determines that a client is a hospital authority and meets the definition of public body. If this can be done for an individual public hospital, that is the individual public hospital is designated as a hospital authority, then it would be considered to meet the definition of a public body as specified in the PCMLTFR.

Date answered: 2016-11-14

PI Number: PI-7672

Activity Sector(s): Financial entities

Obligation(s): Other

Guidance: Glossary

Regulations: 1(2)

Agent/Principal relationships

Question:

How does FINTRAC determine whether a money services business (MSB) has a principal-agent relationship with a person or entity (versus an ongoing service arrangement) and is there a test used to determine whether an entity is an agent of an MSB, or in other words, whether an entity is engaged in MSB business on behalf of another MSB.

Answer:

Guidance has been published on the FINTRAC website for Money services businesses. This guidance includes definitions for MSBs, which specify that an agent is an individual or organization authorized to act on an MSB’s behalf. The agent of an MSB is a separate individual or organization that the MSB authorizes to deliver its services.

Alternatively, a service agreement is an agreement made between an MSB and another organization for the MSB to provide any of the following MSB services to that other organization:

  • Money transfers
  • Foreign currency exchange
  • Money orders, traveller’s cheques or anything similar

An entity may choose to enter into an ongoing service agreement with an MSB to effectively carry-out its own business.

Determining whether an MSB has principal-agent relationships or ongoing service agreements with other entities must always be determined on a case-by-case basis. There is no test that FINTRAC uses to assess what kind of relationship exists.

Date answered: 2016-08-15

PI Number: PI-6899

Activity Sector(s): Money services businesses

Obligation(s): Other

Requirements for foreign DPMS

Question:

Can you provide a determination whether a dealer in precious metals and stones (DPMS) located outside of Canada, and selling $10,000 or more to a Canadian customer is subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and has reporting obligations to FINTRAC?

Answer:

As per section 39.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), “Every dealer in precious metals and stones that engages in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction, other than such a purchase or sale that is carried out in the course of, in connection with or for the purpose of manufacturing jewellery, extracting precious metals or precious stones from a mine or cutting or polishing precious stones, is subject to Part 1 of the Act.” However, to be subject, the entity must be operating in Canada.

As a result, the answer to your question is no. An entity that is selling to Canadian customers, but is not operating in Canada, is not subject to the PCMLTFA. Therefore, the entity would not have any associated reporting obligations to FINTRAC.

Date answered: 2016-08-08

PI Number: PI-6889

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Guidance:

Regulations: 39.1

Act: Part 1

Public body determination for public schools

Question:

Are public schools considered public bodies for the purpose of FINTRAC's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations?

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a public body at subsection 1(2) as:
“(a) any department or agent of Her Majesty in right of Canada or of a province;
(b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and
(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.”

Canadian municipal bodies and hospital authorities are deemed to be public bodies for the purposes of the PCMLTFA and its associated Regulations, when they meet this definition. These determinations are not made as part of a “guideline” that is applied. Instead, it is the way in which the legislation has been written to define a public body.

Schools are not explicitly included in this definition. The structure and governance of schools can vary throughout each province and Canada as a whole. For this reason, we have said it is a question of fact to determine on a case-by-case basis whether a school can be considered a public body for the purposes of the PCMLTFA and its associated Regulations. This position was developed to allow for the rare occasion where a school may be determined to meet the definition of a public body. However, in most cases, a public school will not meet this definition as it is not a department or agent of Her Majesty in right of Canada or of a province, it is not an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them, and it is not an organization that operates a public hospital.

Date answered: 2016-04-28

PI Number: PI-6418

Activity Sector(s): Financial entities

Obligation(s): Other

Guidance:

Regulations: 1(2)

Obligations for third party administered loans

Question:

A bank offering Third Party Administered Loan (TPAL) Products wants to know whether it has any obligations pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) or its associated Regulations.

Answer:

For financial entities, the ascertaining identity requirements are outlined in section 54 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), and the record keeping requirements are outlined in sections 13 and 14 of the same section. These requirements rely on the opening of an account and the transactions associated to an account. When an account is held with a financial entity, a business relationship is also formed. A business relationship is defined in subsection 1(2) of the PCMLTFR as “any relationship with a client, established by a person or entity to which section 5 of the Act applies, to conduct financial transactions or provide services related to those transactions and, as the case may be,

(a) if the client holds one or more accounts with that person or entity, all transactions and activities relating to those accounts; or
(b) if the client does not hold an account, only those transactions and activities in respect of which that person or entity is required to ascertain the identity of a person or confirm the existence of an entity under these Regulations.”

For account-based business relationships, the business relationship is formed when a client holds one or more accounts regardless of any subsequent requirement to ascertain identity, or not.
 
Based on the information provided, it is our understanding that the bank has purchased pools of loans from third party lenders as an investment activity, and does not administer these products as its own. For instance, an individual whose loan is purchased by the bank would not be able to contact the bank to make additional payments on the loan, nor could they negotiate the terms of the loan with the bank. If this is the case, individual accounts for each loan holder may not be required, and in the absence of account openings, the client identification and associated recordkeeping obligations are not required. However, if this is not the case, that is, this is not an investment activity for the bank in line with our understanding, or should any sort of account opening for the individual holders of these products take place, then the bank would be required to fulfill all of the related client identification and recordkeeping obligations under the PCMLTFR.
 
Additionally, it is our understanding that when a pool of loans is purchased as an investment activity, accounts are opened for the third party lenders, and business relationships are established. Client identification and record keeping obligations therefore exist for each account of this nature, and ongoing monitoring must be conducted for each business relationship. Ongoing monitoring is described at subsection 1(2) of the PCMLTFR as “monitoring on a periodic basis based on the risk assessment undertaken in accordance with subsection 9.6(2) of the Act and subsection 71(1) of these Regulations, by a person or entity to which section 5 of the Act applies of their business relationship with a client for the purpose of

(a) detecting any transactions that are required to be reported in accordance with section 7 of the Act;
(b) keeping client identification information and the information referred to in sections 11.1 and 52.1 up to date;
(c) reassessing the level of risk associated with the client’s transactions and activities; and
(d) determining whether transactions or activities are consistent with the information obtained about their client, including the risk assessment of the client.”
 
Section 54.4 of the PCMLTFR further states that “if, as a result of its ongoing monitoring of a business relationship under paragraph 54.3(a), the financial entity considers that the risk of a money laundering offence or terrorist activity financing offence is high, it shall treat that person or entity as high risk for the purpose of subsection 9.6(3) of the Act and apply the prescribed special measures in accordance with section 71.1 of these Regulations.” As such, FINTRAC would expect that as part of its compliance regime, the Bank would develop its risk assessment to account for the business relationships it creates with the third party lenders. The Bank should consider the risk posed by the products, services, and delivery channels used by the third party lenders, the risk posed by the location of and transactions of the third party lenders, and the risk posed by the characteristics and patterns of transactions of the third party lenders. The Bank should also consider the policies and procedures implemented, including those for client identification, by the third party lenders when issuing these products to clients and the amount of information that is obtained on each individual client. If as a result of its ongoing monitoring efforts, the Bank were to determine that the third party lenders should be treated as high risk clients, then it would be required to adopt its enhanced measures developed in accordance with subsection 71.1(a) of the PCMLTFR.  

Date answered: 2016-04-06

PI Number: PI-6412

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 13, 14, 54, 54.4

Act: 5

International dealers exemptions

Question:

Would the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations apply to foreign incorporated and domiciled securities dealers and advisers relying on international dealers/advisors exemptions?

Answer:

Securities dealers and advisors are subject to the PCMLTFA and its associated Regulations based on the authorization they receive under provincial legislation to engage in the business of dealing in securities or any other financial instruments or to provide portfolio management or investment advising services, other than persons who act exclusively on behalf of such an authorized person or entity. 

Once a foreign incorporated and domiciled securities dealer or advisor is authorized to conduct activities under an exemption, it becomes subject to paragraph 5(g) of the PCMLTFA.  However, if the securities dealer or advisor to whom the exemption applies does not conduct activities in Canada, the securities dealer or advisor will not be subject to obligations set out in the PCMLTFA and associated Regulations.  Securities dealers and advisors who rely on international dealers/advisors exemptions must only meet the obligations outlined in the PCLMTFA and its associated Regulations in respect of the activities they conduct in Canada.  Our understanding is that the entities to which you refer do not conduct any of their business activities in Canada and, as such, do not have any obligations under the PCMLTFA and associated Regulations. 
 
Based on the above, it stands to reason that FINTRAC could not receive a report outlining the securities activities of a Canadian that were conducted with a securities dealer or advisor outside of Canada.  

Date answered: 2016-04-01

PI Number: PI-6917

Activity Sector(s): Securities dealers

Obligation(s): Other

Act: 5g)

What is a loan company

Question:

Is there a resource that defines what a loan company is that falls under a financial entity in regards to the PCMLTFA?

Answer:

The PCMLTFA applies to accountants, British Columbia notaries, casinos, dealers in precious metals and stones, life insurance companies, life insurance brokers and agents, money services businesses, real estate agents or brokers, securities dealers, and financial entities. Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), financial entities 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.

At the federal level, the Trust and Loans Companies Act regulates the incorporation and continuance of the loan company (i.e., the powers of the directors, the corporate governance structure, the capital adequacy and liquidity, etc.), and not necessarily the conditions under which loans are granted. As such, FINTRAC has taken the position that a "loan company regulated by a provincial Act,” refers to loan companies that are regulated at the provincial level by an Act similar to the federal Trust and Loan Companies Act.

Date answered: 2016-02-19

PI Number: PI-6396

Activity Sector(s): Financial entities

Obligation(s): Other

Guidance:

Regulations: 1(2)

Act: Part 1

Sales of precious metals and coins by Financial Entities

Question:

Could you provide us with clarifications regarding the requirements of dealers in precious metals and stones (DPMS)? More specifically, we are a financial entity that offers a suite of precious metals and collectible numismatic coins for sale in branches and online and we would like to know whether this activity makes us subject to the requirements of a DPMS, rather than those of a financial entity, for these transactions?

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a DPMS “means a person or an entity that, in the course of its business activities, buys or sells precious metals, precious stones or jewellery.” Section 39.1 of the PCMLTFR further specifies that it is only when a DPMS engages in the purchase or sale of precious metals, precious stones, or jewellery in an amount of $10,000 or more in a single transaction that it becomes subject to Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This type of transaction must occur at least one time before an entity is subject to the on-going requirements of a DPMS.

That said, because the bank is already subject to Part 1 and Part 1.1 of the PCMLTFA and its associated Regulations as a financial entity, and because the requirements for financial entities already capture the requirements of the DPMS sector, the bank's activities involving the sale of precious metals and coins fall under the purview of its activities as a financial entity and are subject to the applicable obligations (e.g. large cash and suspicious transaction obligations).

In the event that the bank carried out the sale or purchase of precious metals, stones, or jewellery through a subsidiary that was considered a separate legal entity, in an amount of $10,000 or more in a single transaction, then that separate legal entity would be subject to the requirements of a DPMS for its DPMS-related activities.

Date answered: 2015-12-04

PI Number: PI-6380

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 39.1

Act: Part 1, 1.1

Purity of precious metal

Question:

Are you aware of any line in the sand in terms of the purity of the metal in goods bought and sold to be considered a DPMS?  For instance, if I am selling coins but the gold content is only 20% gold?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines precious metal as “gold, silver, palladium or platinum in the form of coins, bars, ingots or granules or in any other similar form”. Precious metal has not been further defined. Coin dealers are covered under the regime when they purchase or sell coins that contain any prescribed precious metals. It does not matter whether the quantity of precious metals is negligible or not. If the coin does contain precious metals - even in the smallest quantity - it constitutes precious metals in the form of a coin. Therefore, whether the coin content 20% gold, or is plated with 10k, 14k gold (as long as it qualifies as gold in Canada) it would fall under the definition of precious metal.

Date answered: 2015-06-02

PI Number: PI-6313

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Regulations: 1(2), 39.1

Act: 5(i)

Prepaid Cards as Monetary Instruments

Question:

Are gift cards considered monetary instruments by FINTRAC?

Answer:

The term "negotiable instruments" is not defined in the PCMLTFA nor the PCMLTFR. However, we have said in the past that negotiable instruments would include a bank draft and/ or a cheque (certified or not).

The Cross-border Currency and Monetary Instruments Reporting Regulations (CCMIRR) provides further guidance through its definition of monetary instruments. According to subsection 1(1) of these regulations, monetary instruments mean the following instruments in bearer form or in such other form as title to them passes on delivery, namely,
(a) securities, including stocks, bonds, debentures and treasury bills; and
(b) negotiable instruments, including bank drafts, cheques, promissory notes, travellers' cheques and money orders, other than warehouse receipts or bills of lading.

Moreover, section 2 of the Financial Administration Act (FAA), defines a negotiable instrument as including, “any cheque, draft, travellers cheque, bill of exchange, postal note, money order, postal remittance and any other similar instrument.”

Therefore, at this point in time, prepaid cards are not covered as monetary instruments.

Date answered: 2015-05-27

PI Number: PI-6312

Obligation(s): Other

Regulations: 1(1)

Request for financial info

Question:

Also I find it a little confusing as to why FINTRAC is asking for my most recent financial information, Value of Assets, Gross Revenue and Net Revenue. Could you please advise where in the legislation it provides that FINTRAC can ask for this information as I really don’t see the connection here.

Answer:

Subsection 63.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that “for an examination under subsection 62(1), an authorized person may also serve notice to require that the person or entity provide, at the place and in accordance with the time and manner stipulated in the notice, any document or other information relevant to the administration of Part 1 or 1.1 in the form of electronic data, a printout or other intelligible output.”

As such, this provision allows FINTRAC to request additional information, such as financial information, from a reporting entity during the course of an exam, so long as notice is served and the information is relevant to the administration of Part 1 or 1.1 of the Act. In other words, the request must be documented and the information must be relevant to the exam.

Date answered: 2015-05-14

PI Number: PI-6306

Activity Sector(s): British Columbia notaries

Obligation(s): Other

Act: Part 1, 1.1, 63.1(1)

Mortgage Lending Companies

Question:

In a couple of provinces, namely Ontario and BC, the business of lending money on the security of mortgages is an activity that is regulated, requiring licensing as a mortgage brokerage in Ontario and registration as a mortgage broker in BC. In most of the other provinces (except, perhaps Saskatchewan), if a person is lending their own money on the security of mortgages, there is no licensing or registration requirement.

The key elements of the business model of such a client (I will call such client the “lender” in this email) would be as follows:

  • The lender is a Canadian resident (usually a Canadian corporation that is formed under federal or provincial corporate legislation).
  • The lender is not a deposit taking institution and does not carry on any business of banking. It is not a federally regulated bank, - The lender is licensed as a mortgage brokerage in Ontario and is subject to the regulatory regime for mortgage brokerages administered by FSCO. The lender is also registered as a mortgage broker in BC, and is subject to the regulatory regime for mortgage brokers administered by FICOM.
  • The lender maintains a trust account at a Canadian bank for certain purposes such as receiving third party deposit money in advance of a transaction for good faith deposits under loan commitments. Such trust account is subject to audit by the provincial regulator.
  • The primary business of the lender is lending its own money to borrowers on security that primarily consists of mortgages of commercial properties in Canada. The properties can be in any class of commercial real estate, such as hotels, industrial, office, retail, etc.
  • The lender funds the mortgages from its own resources, i.e. from the equity of the lender. In some cases, however, it may enter into borrowing arrangements with other financial institutions, which borrowings are secured by a charge over its portfolio of mortgages. The money that it borrowers would also be used to fund mortgages originated by the lender.
  • The lender typically holds the mortgages for its own account and services the mortgages over the term of the loan.
  • In some cases, the lender may sell certain of its mortgage loans to third party buyers.
  • In other cases, the lender may sell certain of its mortgages to issuers who issue securities backed by a pool of mortgages through pubic market transactions or private placements, but always in compliance with applicable securities laws.
  • The mortgages are held by the lender in its own name on title to the mortgaged land.

When I look at the types of entities required to report to FINTRAC, none seem to capture the lender I have described in my fact situation.

My question, therefore, is whether such a lender as I have described would have to gather AML and identification information and/or report to FINTRAC?

Answer:

For an individual or an entity to be subject to the PCMLTFA it must fall within one of the following categories outlined in section 5 of the PCMLTFA:

  • Financial entities
  • Life insurance
  • Securities dealers
  • Money services businesses
  • British Columbia notaries
  • Accountants
  • Real estate
  • Dealers in precious metals and stones
  • Casinos

Based on the information you have provided, it appears that your clients do not fall within the definition of a financial entity, nor any other sector subject to the PCMLTFA. In addition, you state that “the primary business of the lender is lending its own money to borrowers on security that primarily consists of mortgages of commercial properties in Canada,” as such, your clients appear to be mortgage lending companies. FINTRAC has said in the past that mortgage lending companies are not covered under the PCMLTFA and its associated Regulations, unless they are loan companies regulated by a Provincial Act (i.e. that accept deposit liabilities).

Therefore, given that your clients do not appear to fall under any of the categories identified at section 5 of the PCMLTFA, and appear to be mortgage lending companies, they do not have any legislative obligations under the PCMLTFA or its associated Regulations.

Date answered: 2015-05-05

PI Number: PI-6305

Obligation(s): Other

Regulations: 1(2)

Act: Part 1, 1.1,

Authorization of a representative

Question:

Our questions are about FINTRAC's authorizing or cancelling a representative form.

  1. What are FINTRAC's obligations arising from this authorization? In other words, what are the limits of this authorization?
  2. Could the consent given by the entity to deal with a person other than itself be somewhat equivalent to its intent to no longer be FINTRAC's contact?

Answer:

There is a general principle of law that allows any individual or entity the right to be represented by the person of his/her/its choice. This is not based on the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Moreover, a representative's authorization or cancellation form allows FINTRAC to share the information about compliance with any representative designated by the reporting entity. The form is only one of the tools which may be used by the reporting entity to express its consent. The reporting entity may use any other tool.

  1. Starting from the principle that the reporting entity authorized a representative, FINTRAC is required to respect this authorization within the limits established by the reporting entity for any issues related to its compliance. To the extent that the designated representative has been authorized by the reporting entity, FINTRAC must comply with the reporting entity's authorization, and send its correspondence to the designated representative;
  2. Yes, within the limits established by the reporting entity, it can designate its representative for all issues related to compliance. Moreover, it allows exclusivity by indicating “Please fill in this form to allow (FINTRAC) to deal with a person or business other than you as representative." This means that FINTRAC is authorized to deal with the designated representative only.

Date answered: 2015-04-28

PI Number: PI-6337

Activity Sector(s): Financial entities

Obligation(s): Other

Accountant Sector Questions

Question:

Question 1: Please define “Accounting Services”, and the concept of “to the public”, and explain the rationale and basis for those positions.

Question 2: Which of the following activities does FINTRAC consider to constitute “Accounting Services”:
i) Assurance services
ii) Specified auditing procedures
iii) Compilation engagements
iv) Forensic accounting
v) Financial investigation
vi) Financial litigation support services
vii) Tax advisory services
viii) Tax return preparation
ix) Bookkeeping
x) Trust administration
xi) Escrow services
xii) Corporate finance
xiii) Clerical administration
xiv) Chief Financial Officer services
xv) Chief Operating Officer services
xvi) Payroll administration
xvii) Bank reconciliation services

Question 3: Our question relates to various scenarios where accountants might be considered to be engaged in, or to be giving instructions on behalf of any person or entity, in respect of the following activities (“Triggering Activities”):
i) receiving funds;
ii) paying funds; and

Neither “Receiving”, nor “Paying” are defined terms in the PCMLTFA.

There are various scenarios which might be considered Triggering Activities, and would like your clarity in that regard.

Receiving Funds:

1. Would an Accountant be considered to have “received funds” if:
a) In the case of funds in the form cash or negotiable instruments, the Accountant physically collects the funds from the client’s safety deposit box on behalf of their client;
b) In the case of funds in the form cash or negotiable instruments, the Accountant physically gets funds from the client’s customer on behalf of their client;
c) In the case of funds in the form cash or negotiable instruments, the Accountant receives a deposit into their bank account from the client’s customer on behalf of their client;
d) In the case of funds in the form cash or negotiable instruments, the client receives a deposit into their account from a customer, an account which is monitored by their Accountant;
e) In the case of electronic funds (such as an EFT), the Accountant receives a deposit into their bank account from the client’s customer on behalf of their client; and,
f) In the case of electronic funds (such as an EFT), the client receives a deposit into their account from a customer, an account which is monitored by their Accountant.

Paying Funds:

2. Would an Accountant be considered to have been “paying funds” on behalf of their client, if:
a) If an Accountant pays for services on behalf of the client, using the Accountant’s cash;
b) If an Accountant pays for services on behalf of the client, using the client’s cash;
c) If an Accountant pays for services on behalf of the client, by mailing a cheque drawn on the Accountant’s account to the payee;
d) If an Accountant pays for services on behalf of the client, by preparing a cheque drawn on the client’s account, but signed by the client, and mailed by the Accountant to the payee;
e) If an Accountant pays for services on behalf of the client, by preparing a cheque drawn on the client’s account, but signed by the Accountant as an authorized signatory, and mailed by the Accountant to the payee;
f) If an Accountant pays for services on behalf of the client, by preparing a cheque drawn on the client’s account, but signed by the Accountant as an authorized signatory, and mailed by the client to the payee;
g) If an Accountant pays for services on behalf of the client, by preparing a wire transfer drawn on the client’s account, using internet banking privileges, but which is authorized for release by the client;

Question 4: What distinguishes a transfer on behalf of a client in the case of an Accountant, and a client remittance in the case of an MSB? Is it conceivable that a single entity could be considered to be at once an Accountant conducting a transfer on behalf of a client and an MSB remitting/transmitting funds at a client’s instruction? If so, is it to the reporting entity to choose on which basis they will comply (Accountant or MSB)

Question 5: When all triggering activities are performed on behalf of an employer, an Accountant is exempted from the PCMLTFA requirements. While a Chief Financial Officer (CFO) would normally be an employee (with an employment contract), it is conceivable and common that a Chief Financial Officer (CFO) who is an Accountant is hired as a subcontractor, or indeed, that an Accounting Firm is contracted to perform the functions of a CFO, and that in the course of their duties, they conduct triggering activities. The CFO who is technically an employee clearly benefits from the exemption, and yet it is not clear that the contract-CFO enjoys that same exemption, despite the similarity in role and function. Could you please confirm that both contract CFOs who are Accountants, and contract CFOs who are Accounting Firms, enjoy the same exemption as their employee counterparts. Also, please confirm whether contract CFO services would be considered to be accounting services offered to the public.

Answer:

1. The terms “accounting services” and “to the public” are not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) or the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR).

2. Subsection 34(1) of the PCMLTFR states “subject to subsections (2) and (3), every accountant and every accounting firm is subject to Part 1 of the Act when they
(a) engage in any of the following activities on behalf of any person or entity, namely,
(i) receiving or paying funds,
(ii) purchasing or selling securities, real properties or business assets or entities, or
(iii) transferring funds or securities by any means; or
(b) give instructions on behalf of any person or entity in respect of any activity referred to in paragraph (a).”

Therefore, it is only when an accountant or accounting firm engages in one of these activities that it becomes subject to Part 1 of the Act. If the listed services include the activities identified at subsection 34(1) of the PCMLTFR, then the accountant or accounting firm has obligations it must fulfil.

3. It will always be a question of fact to determine whether an activity falls under subsection 34(1) of the PCMLTFR, and specifically what it may be categorized as (i.e. receiving/paying funds or giving instructions).

3.1 (a - f) : Most of the scenarios identified, with the exception of merely monitoring a client’s account, would likely fall under the activities described at subsection 34(1) of the PCMLTFR. That is, most of the scenarios may constitute receiving funds on behalf of a client or giving instructions for the receipt of funds on behalf of a client. Therefore, the accountant or accounting firm engaging in these activities, excluding solely monitoring a client’s account, would likely be subject to the PCMLTFA and its associated Regulations.

3. 2 (a - f) : These scenarios would likely fall under the activities described at subsection 34(1) of the PCMLTFR. That is, each scenario may constitute paying funds on behalf of a client or giving instructions for the payment of funds on behalf of a client. Therefore, the accountant or accounting firm engaging in these activities would likely be subject to the PCMLTFA and its associated Regulations.

4. The PCMLTFR defines an accountant as “a chartered accountant, a certified general accountant or a certified management accountant” and an accounting firm as “an entity that is engaged in the business of providing accounting services to the public and has at least one partner, employee or administrator that is an accountant.”

A money services business (MSB) is defined as “a person or entity referred to in paragraph 5(h) of the Act.” That is, a person or entity who engages in the following activities:

  • Foreign exchange dealing;
  • Remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network; or
  • Issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments (except for cheques payable to a named person or entity).

An accountant/accounting firm conducting a transfer on behalf of its client would not be considered to also be operating as an MSB. However, should an accountant/accounting firm provide MSB activities outside of its services as an accountant/accounting firm then it would be required to also register as an MSB.

5. Subsection 34(2) of the PCMLTFR indicates that “subsection (1) does not apply in respect of an accountant when they engage in any of the activities referred to in paragraph (1)(a) or (b) on behalf of their employer.” This subsection does not make any reference to accounting firms, only accountants. The PCMLTFR defines an accountant as “a chartered accountant, a certified general accountant or a certified management accountant”. Therefore, this subsection only applies to accountants who engage in the triggering activities on behalf of their employer.

Additionally, subsection 34(2) of the PCMLTFR is specific to accounting activities carried out on behalf of an employer. It is a question of fact to be able to determine whether an accountant is an employee. In fact, contract employment does not automatically suggest a legal employer/employee relationship. To assist you in your determination, the Canada Revenue Agency’s (CRA) standards, used to determine employment status for tax purposes, may be useful for assessing employment status within Canada.

Date answered: 2015-04-28

PI Number: PI-6303

Activity Sector(s): Accountants

Obligation(s): Other

Guidance: FIN-1, FIN-2

Regulations: 34(1), 34(2)

Act: 5(h), 5(j)

Is the Office de stabilisation des caisses populaires acadiennes a “public body?”

Question:

The Office de stabilisation des caisses populaires acadiennes (the Board) was created under a public law, the New Brunswick Credit Unions Act (section 194). Its powers to supervise Acadian credit unions stem from this Act. In our opinion, the public organization exemption should apply.

According to our research, the Board reports to the Superintendent of Credit Unions (New Brunswick), which reports to the Government of New Brunswick.

Please let me know whether this information is sufficient to allow us to use the public body exemption.

Answer:

Under subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, a public body is:
a) any department or agent of Her Majesty in right of Canada or a province;
b) an incorporated city, town, village, metropolitain authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and
c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

Moreover, we have said previously that the issue of knowing whether an entity is considered a public body is a question of fact, to be resolved on a case-by-case basis. The government's level of involvement has to be determined and that there is a significant degree of government control over the entity, to be considered an agent of the government; in other words. how the government is actually involved. To better understand, it has to be determined who exercises ongoing influence on the body's governance and decision-making.

We have reviewed the New Brunswick Credit Unions Act, and it seems that the Board is not a public body.

The New Brunswick Credit Unions Act does not contain any indication to the effect that the Board is an agent of Her Majesty, the Board (and not her Majesty or the provincial crown) owns its own assets, the purpose of the entity is not a public body, and the Office exercises the rights, powers and privileges of a corporation (and is not an agent of the Crown). We should also add that subsection 194(1) of the New Brunswick Credit Unions Act stipulates that the Board “is continued as a body corporate.

Date answered: 2015-04-08

PI Number: PI-6298

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2)

Is the New Brunswick Liquor Corporation a Public Body exempt from LCTRs?

Question:

I am seeking guidance in regards to an LCTR Public Body exemption for a financial entity.
Here are some facts about this situation:

  • The account in question is a New Brunswick Liquor Corporation store, which is an accountholder at said financial entity.
  • According to the website the New Brunswick Liquor Corporation is a Provincial crown corporation responsible for the purchase, importation, distribution and retail activity for all beverage alcohol in the province of New Brunswick.
  • There are two types of New Brunswick Liquor stores that can be opened
    • Corporate stores: which are owned and operated by NB Liquor Corporation and,
    • Agency stores which are privately owned.
  1. Is this account exempt from LCTR reporting as the New Brunswick Liquor Corporation is a Provincial Crown Corporation?
  2. If the above answer is yes, would the exemption apply to all stores both corporate and agency, or only to the corporate stores?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a public body as:
(a) any department or agent of Her Majesty in right of Canada or of a province;
(b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and
(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

Also, as you’ve stated paragraph 12(1)(a) of the PCMLTFR states that “subject to section 50 and subsection 52(1), every financial entity shall report the “receipt from a client of an amount in cash of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 1, unless the cash is received from another financial entity or a public body.”

Given that subsection 2(2) of the New Brunswick Liquor Corporation Act states that “the Corporation is, for all purposes of this Act, an agent of Her Majesty in right of the Province of New Brunswick,” it would appear as though the New Brunswick Liquor Corporation is considered a Public Body as per the PCMLTFR. As such, paragraph 12(1)(a) of the PCMLTFR applies for all accounts opened for New Brunswick Liquor Corporation stores. Activities carried out on behalf of the New Brunswick Liquor Corporation, by privately owned agency stores, would also be considered exempt as these activities are ultimately regulated by the New Brunswick Liquor Corporation.

Date answered: 2015-03-02

PI Number: PI-6290

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 12(1)(a)

Sale of dental practices

Question:

As a Real Estate agent, would my obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) extend to my activities when I am acting as a sales representative for the sale of dental practices?

Answer:

We will respond to your question by assuming that when you sell a dental practice, you are selling three categories of assets: the tangible assets of the practice (the furniture, fixtures and equipment owned by the practice) ; the practice’s accounts receivable, including the revenue due to the practice prior to the sale; and the “goodwill”, including the practice’s reputation, trained support staff, established client base and accompanying medical records, practice history and practice location.

A real estate broker or real estate sales representative means an individual or an entity that is registered or licensed in a province to sell or purchase real estate. If you are a real estate broker or real estate sales representative, you are subject to the obligations when you act as an agent regarding the purchase or sale of real estate. This includes the buying or selling of land, houses, commercial buildings, etc. Such activities trigger these obligations whether or not you get a commission for the real estate transaction and whether or not you have fiduciary duties regarding it. These obligations do not apply to you for activities related to property management. This means that if you only deal in property management transactions, such as leases or rental management, not purchases or sales, the obligations explained in this guideline do not apply to you.”

Because the obligations that apply to Real Estate sales professionals are limited to their activities when they “act as an agent for the purchase or sale of real estate”, it appears that, unless you are also selling real estate in combination with your other activities (more specifically the sale of dental practices) then those activities would not be covered under the PCMLTFA and do not carry obligations under the PCMLTFA.

Date answered: 2014-12-01

PI Number: PI-6261

Activity Sector(s): Real estate

Obligation(s): Other

Guidance: 6B

Regulations: 1(2)

Payment processing and the application of section 66.1 of the PCMLTFR

Question:

Why are payment processors not covered by the Act? What is the application of section 66.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)?

Answer:

1. Payment processing:
Paragraph 5(h) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that a person or entity is an MSB if they are engaged in the business of any of the following activities:

  • Foreign exchange dealing;
  • Remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network; or
  • Issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments (except for cheques payable to a named person or entity).

FINTRAC has previously taken the position that persons or entities engaged in the business of utility bill payments, tuition fees payments, payroll and commission payments, and mortgage and rent payments that involve the “remitting or transmitting of funds by any means or through any person, entity or electronic funds transfer network” are not considered to be MSBs, because they are not engaged in the business of doing remittance or transfers of funds.

In the same way, if the only reason a person or entity sends funds in a foreign currency is to pay the client's bills that are in a different country (or who invoice in a foreign currency), that tends to indicate the person or entity is in the payment processing business, as opposed to being engaged in the business of foreign exchange dealing.

In other words, the services of remitting and/or transferring funds or foreign exchange dealing are incidental to the payment of utility bill, tuition fees, payroll and commission, or mortgage and rent. The transfer or exchange of funds is simply a corollary of their actual service of processing the payments.

2. Application of section 66.1 of the PCMLTFR:
Pursuant to section 9.5 of the PCMLTFA, “Every person or entity that is referred to in section 5 and that is prescribed shall, in respect of a prescribed electronic funds transfer that occurs in the course of their financial activities,
a) include with the transfer the name, address, and account number or other reference number, if any, of the client who requested it, and any prescribed information;
b) take reasonable measures to ensure that any transfer that person or entity receives includes that information; and
c) take any prescribed measures.”

This section is also known as the “travel rule”. The travel rule applies to financial entities, MSBs and casinos. The type of transfer to which the travel rule applies is defined in subsection 66.1(2) of the PCMLTFR and clarified in subsection 66.1(3) of the PCMLTFR. Subsection 66.1(1) of the PCMLTFR states that “The prescribed persons or entities for the purpose of section 9.5 of the Act are every financial entity, money services business and casino that is required to keep a record under these Regulations in respect of an electronic funds transfer referred to in subsection (2). Subsection 66.1(2) of the PCMLTFR states that “Subject to subsection (3), the prescribed electronic funds transfers to which section 9.5 of the Act applies are those as defined in subsection 1(2), but including transfers within Canada that are SWIFT MT 103 messages.

(3) For greater certainty, subsection (2) does not apply in respect of
(a) a transfer carried out using a credit or debit card, if the recipient has an agreement with the payment service provider permitting payment by such means for the provision of goods and services;
(b) a transfer where the recipient withdraws cash from their account;
(c) a transfer carried out by means of a direct deposit or a pre-authorized debit ; or
(d) a transfer carried out using cheque imaging and presentment.”

Subsection 1(2) of the PCMLTFR defines an EFT as the transmission of instructions for the transfer of funds, other than the transfer of funds within Canada. In the case of SWIFT messages, only SWIFT MT 103 messages are included. This does not include domestic SWIFT MT 103 messages. Section 9.5 of the PCMLTFA requires entities referred to in section 5 to include certain information with prescribed electronic funds transfers when they occur in the course of their financial activities. Subsection 66.1(2) of the PCMLTFR goes on to specify that the prescribed electronic funds transfers to which section 9.5 of the Act applies are those as defined in subsection 1(2), but include transfers within Canada that are SWIFT MT 103 messages. As such, the only domestic EFTs to which the obligations set out in section 9.5 of the Act applies are SWIFT MT 103 messages.

Section 66.1 of the PCMLTFR is in the context of including information on EFT. This does not specifically carve out payment processors of being subject to Part 1 of the PCMLTFA.

Date answered: 2014-11-06

PI Number: PI-6254

Obligation(s): Other

Regulations: 1(2), 66.1

Act: Part 1, 5(h), 9.5

Obligations in regard to Real estate broker or sales representative

Question:

What level of service offered by a real estate broker or sales representative can make them subject to the obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations?

Answer:

As stated in paragraph 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a real estate broker or sales representative as "a person or entity that is registered or licensed under provincial legislation in respect of the sale or purchase of real estate." Section 37 of the PCMLTFR further states that "every real estate broker or sales representative is subject to Part 1 of the Act when they act as an agent in respect of the purchase or sale of real estate."

It was outlined that mere posting is defined in the Consent Agreement between the Canadian Real Estate Association and the Commissioner of Competition, as “a listing on a Member Board’s ABC System in respect of which the Member has chosen or agreed not to provide services to the Seller other than submitting the listing for posting on a Member Board’s ABC System.” It is this understanding of mere posting, that has led FINTRAC to conclude that mere posters are not subject to the PCMLTFA and its associated Regulations.

While FINTRAC is not in a position to outline those specific activities that may render a real estate broker or sales representative subject to the PCMLTFA and its associated Regulations, we reiterate that merely posting the listing on a Board’s ABC System has been determined not to be acting as an agent in respect of the purchase or sale of real estate. You have suggested that some real estate brokers or sales representatives may be providing services beyond that of mere posting, which would suggest that these individuals are no longer subject to FINTRAC’s interpretation of the facts and may therefore be acting in respect of the purchase or sale of real estate, making them subject to the PCMLTFA and its associated Regulations.

Date answered: 2014-08-29

PI Number: PI-6225

Activity Sector(s): Real estate

Obligation(s): Other

Regulations: 1(2), 37

Act: 5(j)

Various definitions

Question:

  1. What is the definition of redemption?
  2. Does the very definition of EFT mean the wire transfer is international?
  3. In s. 39(1)(a), what is meant by “otherwise”? What are some other examples than a cheque “in trust”?

Answer:

  1. Pursuant to subsection 14(l), it is only if the FE is redeeming the money order that a record is required to be kept. Therefore, if the FE is redeeming a money order issued by the FE or is redeeming based on an agent/principal relationship with the issuer, then this record is required. If the FE is just cashing a money order issued by another entity, one with which there is no agent/principal relationship, then the record-keeping requirement outlined in subsection 14(l) does not apply.
     
  2. By definition “electronic funds transfer” refers to international transactions only. Unless the reference is to prescribed EFTs, which are prescribed in 66.1(2) and include domestic MT 103 messages.
     
  3. If the real estate agent receives a cheque made out to a real estate agent, either directly, to his/her brokerage, or in trust, then the real estate agent must complete an ROFR. If the real estate agent receives a cheque made out to anyone else, subject to subsection 39(4) of the PCMLTFR (e.g. lawyers, financial institutions), then no ROFR is required.

Date answered: 2014-08-22

PI Number: PI-6221

Activity Sector(s): Financial entities, Real estate

Obligation(s): Other

Regulations: 14(l), 30(e), 43(f), 66.1(2)

L'Office municipal d'habitation de Lévis (OMH)

Question:

Is the Office municipal d'habitation de Lévis (OMH) a public body?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) defines public body as:

a) any department or agent of Her Majesty in right of Canada or of a province;
b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and
c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

We have already said that it would be a question of fact, on a case to case basis, to determine if an entity is considered a public body. The real matter is determining the government’s involvement and what is the significant degree of governmental control over the entity, for it to be considered an agent of the government, i.e. how is the government actually involved? Looking at who exercises a degree of ongoing influence in the body’s governance and decision-making gives you a better understanding.

With respect to the OMH, we reviewed the Act respecting the Société du Québec and noted the following:

  • The Société is an agent of the state. Its assets are part of the domaine of the state.
  • The government appoints:
    • members of the board, other than the chair of the board and the chief executive officer, taking into account the competency and experience profiles approved by the board of directors.
    • the chair of the board of directors, for a term of at least five years.
    • the chief executive officer, taking into account the competency and experience profiles approved by the board.
    • the vice-presidents of the Société, the number of whom it determines, and who carry out their duties on a full-time basis.
  • The Société's books and accounts are audited annually by the Auditor General, as well as whenever ordered by the government; the reports must be included with the Société's annual report.
  • Any neighbourhood improvement program must be confirmed by the government.
  • With the prior authorization of the government and upon the recommendation of Treasury Board, the Société may borrow money on notes, bonds or other securities, at a rate of interest and under any other conditions determined by the government.

Based on this information, we can conclude that the government has a significant degree of control over the OMH, its corporate body, its board members, its improvement programs, etc. Therefore, the OMH qualifies as a public body.

Date answered: 2014-06-12

PI Number: PI-6162

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2)

Applicability of PCMLTFA on Government Departments

Question:

I have a question regarding the applicability of the Act. Specifically, I would like to have clarification on the meaning of s.5(l), "departments and agents of Her Majesty in right of Canada or of a province that are engaged in the business of accepting deposit liabilities". If a conditionally refundable deposit of money is required from an applicant as part of their application to a government program, would the Act apply to the government department accepting the deposit? Would the Act apply to a government department that collects a fee for a service?

Answer:

Pursuant to subsection 5(l) of the PCMLTFA, Part 1 of the Act applies to departments and agents of Her Majesty in right of Canada or of a province that are engaged in the business of accepting deposit liabilities, that sell money orders to the public or that sell prescribed precious metals, while carrying out the activities described in regulations made under paragraph 73(1)(c). Section 45 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) further specifies that every department and agent of Her Majesty in right of Canada or of a province is subject to Part 1 of the Act when it accepts these deposit liabilities in the course of providing financial services to the public.

As such, unless the government department that charges fees for services or offers a program for which the applicant must provide a refundable deposit, is doing so in the course of providing financial services to the public, the government department is not subject to Part 1 of the PCMLTFA.

Date answered: 2014-04-02

PI Number: PI-6129

Obligation(s): Other

Regulations: 45

Act: 5(l)

Public body -Commission de construction

Question:

The investment management reporting entity operates in the securities sector and is registered with the Autorité des marchés financiers (AMF) as a portfolio manager.

This reporting entity opened a portfolio management account for the Commission de la construction du Québec (CCQ). Created in 1987, the CCQ is responsible for applying the Act respecting labour relations, vocational training and manpower management in the construction industry (Act R-20). The issue here is to determine whether the CCQ is considered as a public body under the PCMLTFA, which would allow the reporting entity to meet the conditions required to qualify for the exemption in paragraph 62(2)(m).

Answer:

Subsection 1(2) of the PCMLTFR defines “public body” as (a) any department or agent of Her Majesty in right of Canada or of a province; (b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and (c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

It seems to me that the Commission de la construction du Québec (CCQ) is a public body established under Quebec's Act respecting labour relations, vocational training and manpower management in the construction industry (Act R-20). After looking into the government's involvement and the extent of the government's control over the CCQ, we note that the CCQ has a duty to administer Act R-20, and that the President and the members of the Board of Administration are appointed by the government. Consequently, the CCQ falls under the definition of public body set forth in paragraph 1(2)(a).

As concerns the CCQ, the reporting entity can avail itself of the exemption in paragraph 62(2)(m) of the Regulations.

Date answered: 2014-03-20

PI Number: PI-6124

Activity Sector(s): Securities dealers

Obligation(s): Other

Regulations: 1(2), 62(2)(m)

Registered Deposit Brokers are not Reporting Entities

Question:

There was a policy interpretation of Deposit Brokers back in 2006 which stated: "The deposit broker is not a securities dealer as defined in the Regulations. As a consequence, the credit union cannot avail themselves of the exception to subsection 9(1) of the Regulations provided by subsection 9(4)."

We would like to confirm that this interpretation still stands. Based on what they do "A Deposit Broker is an independent financial professional who specializes in guaranteed investment products such as GICs, term deposits, RRSPs, RRIFs and LIFs.

It isn't easy to find this degree of specialization in a world that is inclined to focus on investments that carry higher risk and require sophisticated investor market knowledge" , they are not Securities Dealers and they still do not fall under our purview. Can you please confirm?

Answer:

Registered Deposit Brokers are not reporting entities subject to the PCMLTFA. However, they may act as the agent of a reporting entity at which point they would be required to carry out the applicable requirements for the PCMLTFA. As with any principal/agent situation, the principal, as the reporting entity, would be ultimately responsible for the appropriate application of the PCMLTFA.

That said, securities dealers may also engage in deposit broker activities. In these instances, they would be covered as a principal reporting entity under paragraph 5(g) in addition to the requirement to have an agent agreement in place with the financial institutions.

Date answered: 2014-01-14

PI Number: PI-5680

Activity Sector(s): Securities dealers

Obligation(s): Other

Guidance: 6E

Act: 5(g)

OMERS Sponsors Corporation - Public Body

Question:

Does OMERS Sponsors Corporation fit in the definition of a "public body"?

If not does OMERS qualify under the registered pension plan exception?

Answer:

Public Body
Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines public body as:

(a) any department or agent of Her Majesty in right of Canada or of a province;

(b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and

(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

As stated in previous policy interpretation determinations, it is a question of fact to determine whether an entity is considered a public body.

Subsection 22(2) of the OMERS Act 2006 states that “the Sponsors Corporation is not a Crown agency and it is not a local board as defined in subsection 1 (1) of the Municipal Act, 2001.” Therefore, it is our understanding that OMERS Sponsors Corporation does not fit the definition of a "public body" as found in subsection 1(2) of the PCMLTFR. Should the reporting entity believe otherwise, we would encourage as a best practice to maintain evidence to support their determination.

Pension Plan Exception
According to paragraph 62(2)(k) of the PCMLTFR, the exception to record-keeping and ascertaining identity, which the RE is referring to below, includes the opening of an account where the account holder or settlor is a pension fund that is regulated by or under an Act of Parliament or of the legislature of a province.

While the Regulations do not define the concept of an “account”, the real estate sector is not recognized as having accounts. The prescribed account opening obligations apply only to financial entities, securities dealers and casinos.

As the real estate sector does not have accounts, the exception found in paragraph 62(2)(k) of the PCMLTFR cannot be applied by same. Although there are references to general exceptions in FINTRAC’s guidelines, real estate has no reference to this specific exception.

Date answered: 2013-12-17

PI Number: PI-5664

Activity Sector(s): Real estate

Obligation(s): Other

Regulations: 1(2), 62(2)(k)

DPMS - Foreign Gold

Question:

Company ABC has signed an agreement with Company DEF to purchase Gold Dore bars from their operations in Ghana. […] the Seller is paying for the shipment of their product to the Buyer’s chosen refinery. We have selected a refinery in Texas. The refinery will process the shipment and pay out within 24 hours after final assay. Payments will be directed to the company’s bank account at Bank A, NY. […] After all payouts have been made, the balance of the funds will be transferred to the company’s bank accounts in Canada.” The headquarter is located in Canada.

Does our company is considered a dealer in precious metals and stones (DPMS) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a DPMS as an individual or an entity that buys or sells precious metals, precious stones or jewellery, in the course of its business activities. Precious metal includes gold, silver, palladium or platinum in the form of coins, bars, ingots or granules or in any other similar form. A DPMS will be subject to Part 1 of the PCMLTFA and its associated regulations if it is ever engaged in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction (s. 39.1 of the PCMLTFR). In other words, it is not subject to these requirements if it is engaged only in purchases or sales of less than $10,000 per transaction.

The purchases or sales referred to above exclude those carried out for, connected with, or for the purpose of:

  • manufacturing jewellery;
  • extracting precious metals or precious stones from a mine; or
  • cutting or polishing precious stones.

Based on the information you have provided, it would appear that your entity is engaged as a DPMS in Canada as per the PCMLTFA and its associated Regulations and has the following obligations. You must report any large cash transaction of $10,000 or more you receive, and have record keeping obligations in regards to that transaction. You must also report any suspicious transactions, as well as terrorist property reports. You also have a number of other record keeping obligations, ascertaining identity in certain situations, third party determination, and you must also implement a compliance regime.

Date answered: 2013-12-05

PI Number: PI-5659

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Regulations: 1(2), 39.1

Act: 5(i)

Agent of an Assurance Company

Question:

ABC Inc is primarily a pension and benefits consulting company. We are an agent of an Assurance Company, who holds our licenses.

The majority of our business is commission based, with no more that 15% being fee for service. We work primarily with corporations and unions on their benefit and retirement plans.
Less than 10% of our revenue is for sales of individual term life insurance. We also sell individual disability and critical illness insurance, which amounts to less than 5% of our income.

We currently have in force 3000 individual and critical illness policies that are part of mandatory programs with unions or employers. Through specialty underwriters we provide disability continuation programs for terminated employees - primarily executives.

We do not accept cash and cheques are payable directly to the insurers. Fee for services are billed to our clients and paid directly to our firm.

Any annuities sold (which for us amounts to 1 every 2 years or so) are purchased with registered funds.

ABC Inc carries Errors and Omissions Insurance above the maximum required both for the corporation and the two licensed individuals within the company.

ABC Inc is registered in every province and territory in Canada and is licensed in every province and territory, with the exception of Quebec (which we are currently working towards).

Based on this information, which transactions do we have to report to FINTRAC?

Answer:

The legislative requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) are applicable to life insurance companies, brokers or independent agents. However, if you are a life insurance agent and an employee of a life insurance company or broker, these requirements are the responsibility of the life insurance company, except with respect to reporting suspicious transactions and terrorist property, which is applicable to both.

Life insurance broker or agent is defined under subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) as, “a person or entity that is registered or licensed under provincial legislation to carry on the business of arranging contracts of life insurance.” A life insurance company is defined as, “a life company or foreign life company to which the Insurance Companies Act applies or a life insurance company regulated by a provincial Act.”

Subsection 6(2) of the PCMLTFR specifies that, where a person or entity who is subject to the requirements of these Regulations, other than a life insurance broker or agent, is an agent of or is authorized to act on behalf of another person or entity referred to in any of paragraphs 5(a) to (l) of the Act, it is that other person or entity rather than the agent or the authorized person or entity, as the case may be, that is responsible for meeting those requirements.

You have advised that ABC Inc is “an agent of an Assurance Company”, that it does not accept cash and that cheques are payable directly to the insurers. Given the foregoing, it appears as though ABC Inc is life licensed and authorised to sell life insurance. Since ABC Inc falls within one of the above definitions, it is covered under the PCMLTFA and has certain obligations. Based on the information you provided, namely that ABC Inc does not accept cash and that cheques are payable directly to the insurers, it appears that you must only report suspicious transactions, as well as terrorist property. You additionally have to implement a compliance regime.

Should your business model change in the future, we would appreciate you contacting us in order for us to review and reassess our interpretation to reflect these new facts.

Date answered: 2013-09-20

PI Number: PI-5618

Activity Sector(s): Life insurance

Obligation(s): Other

Guidance: 4

Regulations: 1(2), 6(2)

Watches - Considered jewelry or not

Question:

Could watches be considered jewellery within the definition of a “dealer in precious metals and stones” found in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)?

Answer:

Subsection 1(2) of the PCMLTFR defines a dealer in precious metals and stones as, “a person or an entity that, in the course of its business activities, buys or sells precious metals, precious stones or jewellery.” The PCMLTFR also defines jewellery as “objects that are made of gold, silver, palladium, platinum, pearls or precious stones and that are intended to be worn as a personal adornment”. It additionally explains that precious metals include gold silver, palladium or platinum and precious stones include diamonds, sapphires, emeralds, tanzanite, rubies or alexandrite. As such, a watch would be considered jewellery if it is made of the aforementioned precious metals, stones and/ or pearls.

Date answered: 2013-07-22

PI Number: PI-5578

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Regulations: 1(2)

Act: 5(i)

Financial Entity

Question:

ABC is a cooperative registered with the BC Corporate Registry, meeting the requirements of the Cooperative Association Act. Our membership primarily consists of caregivers and temporary workers from the Philippines. The business ventures the cooperative collectively decided on undertaking are a money remittance service to the Philippines and micro-lending to its members. These 2 business activities are very important to our members and are services frequently availed of by our members from a multitude of providers across the Lower Mainland.

  1. Money Remittance Service to the Philippines

Background
Our membership base consists primarily of caregivers and temporary foreign workers from the Philippines who send money home to their families 3 to 4 times a month. There is a need to provide this service to our members in a cost effective manner by eliminate costly intermediary costs. The cooperative will maintain an office in Vancouver to carry out its business activities including the processing of remittance transactions. We have chosen to partner with the Bank XYZ, the Philippines' largest bank, to be our last-mile partner in the Philippines, delivering the remittance to the intended beneficiaries' accounts. We will be using Bank XYZ remittance system to process the transactions.

Transactions Flow

  1. The customer, who is a registered cooperative member, will transact at our business location.
  2. The customer indicated the amount to be sent to the Philippines, the identified beneficiary and the form of remittance. This may be a bank-to-bank transfer, door-to-door delivery to the home of the beneficiary or the beneficiary my pick up the remittance at one of Bank XYZ's remittance centers or authorized pick-up point across the Philippines.
  3. The beneficiary will pay via a debit card at our bank-provided POS device. No cash will be accepted by the cooperative. This will allow for better monitoring of remittance transactions.
  4. The cooperative will check the name of the member against FBI terrorist databases prior to completing the transaction.
  5. Once approved, the funds will be released in the Philippines by Bank XYZ, our delivery partner. The cooperative will be maintaining a bank account in the Philippines to allow for the immediate release of remittance funds for the beneficiaries.
  6. The cooperative will send the payments collected in Canada to the Philippines via wire transfer at the end of the week, or if the account in the Philippines has been depleted.

Cooperative Profit
The cooperative will profit from transaction fees and a small spread in the foreign exchange conversion.

  1. Micro Lending to Cooperative Members

Background
The majority of our membership base are in Canada under a temporary workers' visa, and are therefore all employed. Many are new to Canada and have to still build up their credit rating and are, in many cases, unable to apply for credit cards or bank loans. The intention of the cooperative is to provide an avenue wherein our members can available of short term (a maximum of 6 months) loans to augment personal cash flow shortages.

Transaction Flow

  1. The customer, who is a registered cooperative member, will transact at our business location.
  2. The customer applies for a short term consumer loan, which is limited to twice (200%) the value of their shares with the cooperative.
  3. The loan committee assesses the application. Once approved, a pre-authorized debit agreement is signed.
  4. The cooperative will collect loan payments twice a month from its customers via debit from their bank account.

Cooperative Profit
The cooperative profits from charging its customers 2% per month on the consumer loan.

Does ABC need to register as an MSB in order to trade foreign exchange and engage in a money remittance business?

Answer:

The financial entity sector includes banks (those listed in Schedule I or II of the Bank Act) or authorized foreign banks with respect to their operations in Canada, credit unions, caisses populaires, financial services cooperatives, credit union centrals (when they offer financial services to anyone other than a member entity of the credit union central), trust companies, loan companies and agents of the Crown that accept deposit liabilities.

Based on the information you provided, namely that “ABC is a cooperative registered with the BC Corporate Registry, meeting the requirements of the Cooperative Association Act”, it appears that your entity is a financial entity and has legislative requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Date answered: 2013-07-18

PI Number: PI-5575

Activity Sector(s): Financial entities

Obligation(s): Other

Guidance: 4

Regulations: 1(2)

Act: 5(b)

Foreign Securities Dealer - Covered or not

Question:

I am a foreign securities dealer exempt from registration in Ontario but doing business under the International Dealer Exemption. I would like to know if a foreign securities dealer is required to report transactions regarding clients outside of Canada to FINTRAC.

Answer:

It is a question of fact to be able to determine what obligations a foreign securities dealer must fulfill. If you would like us to provide a full determination, we encourage you to submit the complete business model of your client outlining his/her activities in Canada along with the Authorizing a Representative Form attached to this e-mail. But here are some general comments:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines securities dealer as “a person or entity that is authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments or to provide portfolio management or investment advising services”. A foreign securities dealer, even if operating in Canada under an International Dealer Exemption, is authorized by the province to be engaged in the activities described under subsection 1(2) of the PCMLTFR. The person or entity only needs to be authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments or to provide portfolio management or investment advising services to be subject to Part 1 of our Act.

As a securities dealer under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), certain legislative requirements apply, namely:

  • reporting suspicious transactions, terrorist property and large cash transactions;
  • record keeping;
  • having a compliance regime; and
  • ascertaining identity.

The “authorized under provincial legislation” indicates that the activities must be conducted in Canada; your client has to develop and apply policies and procedures consistent with record keeping, client identification and compliance regime requirements for its Canadian activities only.

It is important to note that to be "authorized" does not necessarily mean that the person or entity must be "registered" with the respective provincial securities commission. Any person or entity that deals in securities in their province is still subject to provincial securities legislation and would therefore meet the PCMLTFA definition of securities dealer. Subsection 7.1 (1) of the PCMLTFA states that “Every person or entity referred to in section 5 that is required to make a disclosure under section 83.1 of the Criminal Code or under section 8 of the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism shall also make a report on it to the Centre, in the prescribed form and manner. In a case where a securities dealer operating under the IDE determines that one of its non-Canadian clients is listed on the Suppression of Terrorism Report, FINTRAC would expect to receive a report of such information if the securities dealer operating under the IDE makes a disclosure under section 83.1 of the Criminal Code or under section 8 of the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism.

Date answered: 2013-06-10

PI Number: PI-5566

Activity Sector(s): Securities dealers

Obligation(s): Other

Guidance: 4, 6E

Regulations: 1(2)

Act: 5(g), 7.1(1)

Financial Services Association: Cooperative credit associations and cooperative retail associations

Question:

Are Cooperative Credit Associations and Cooperative Retail Associations subject to Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines financial entity as “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”.

The PCMLTFR also defines credit union central as “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”.

The definition of financial entity in the PCMLTFA and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (PCMLTFSTR Regulations) has been modified on July 31, 2010 to include credit union centrals when the credit union central offers services to anyone other than a financial entity that is a member of that credit union central, based on paragraph 5(j) of the Act. They came in under this paragraph in the Act because they have a triggering activity, and it’s only when this activity is triggered that they are subject to the Act.

Subsection 11.2 (1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “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.”

With respect to Cooperative Retail Associations, they are subject to Part 1 of the PCMLTFA if they fall within the definition of financial entity. More specifically, ABC is an association that is organized and operated on cooperative principles, permitted to act as a deposit-taking institution, and subject to the same restrictions and safeguards as other deposit-taking institutions. ABC may provide services to non-members, and take deposits from non-members, and is regulated by the Cooperative Credit Associations Act. Therefore, ABC is subject to Part 1 of the PCMLTFA since they fall within the definition of financial entity.

Date answered: 2013-05-27

PI Number: PI-5556

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 1(2), 11.2, 45

Act: Part 1

Valcartier and Bagotville military bases – Public body or not?

Question:

Do Canadian military bases meet the definition of "public body" as set forth in subsection 1(2)? And, if so, I should imagine that the reporting entity is not required to submit LCTRs for cash deposits of $10,000 or more made by base personnel, as stipulated in paragraph 12(1)(a)?

Answer:

Subsection 1(2) of the PCMLTFR defines a public body as

(a) any department or agent of Her Majesty in right of Canada or of a province;
(b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of
any of them; and
(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

The Valcartier and Bagotville bases are Canadian Forces bases in Quebec that operate within the Canadian Forces, which is "a department of Her Majesty in right of Canada." They were established under the National Defence Act. Consequently, the Valcartier and Bagotville bases are Canadian Forces bases that fall under the definition of public bodies.

Therefore, as provided for in paragraph 12(1)(a) of the Regulations, the reporting entity is not required to submit LCTRs to the Centre for cash deposits of $10,000 or more made by base personnel.

Date answered: 2013-05-07

PI Number: PI-5545

Activity Sector(s): Financial entities

Obligation(s): Other

Guidance: 6G

Regulations: 1(2), 12(1)(a)

Securities dealer (APPQ) – Covered or not?

Question:

Does an entity such as the Association des policières et policiers provinciaux du Québec (APPQ) meet the definition of "securities dealer" set forth in our Regulations and, as a result, is it subject to Part 1 of our Act?

Answer:

According to paragraph 5(g) of the PCMLTFA, "persons and entities authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments or to provide portfolio management or investment advising services" are subject to Part 1 of the Act.

In the past: We focused on the term "authorized" when determining whether an investment fund management entity falls under the definition of "securities dealer" and, as such, is subject to Part 1 of the Act. We also maintained that, if it was possible to find the name of the entity or individual in the provincial register of businesses and individuals authorized to practice, then the business or entity was clearly authorized. On this basis, we declared investment fund managers to be reporting entities pursuant to paragraph 5(g) of the PCMLTFA.

New elements taken into consideration for our new position:

By definition, investment fund managers "direct the business, operations or affairs of an investment fund. They organize the fund and are responsible for its management and administration. For example, a mutual fund is an investment fund. A firm that manages a mutual fund must therefore register as an investment fund manager."

Even though an investment fund manager may be registered in the provincial register of businesses and individuals authorized to practice as an investment fund manager, this does not seem to bestow upon it the authority to conduct security trading activities or to provide investment advice for unit holders. In fact, the investment fund manager's role can be summarized as that of creating investment fund products for its members. These products are then distributed by securities dealers who provide portfolio management and investment advice services.

Pursuant to Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations, investment fund managers are exempt from Division 1 (under Part 13) - Dealing with Clients - Individuals and Firms, and Division 1 (under Part 14) - Handling Accounts - Firms..

The AMF (Autorité des marchés financiers) has confirmed that "portfolio management is limited to firms registered in the 'advisor' category, and that it is not one of the activities of an investment fund manager." The AMF also noted that the word "management" in the expression "investment fund management" should be taken to mean the "implementation of all of the human and material resources of a firm or organization for the achievement of its business objectives."

Finally, the legislator's intention does not appear to be to subject investment fund managers that create investment products. These managers are not involved in the trading of securities or other financial instruments, or in the provision of portfolio management and investment advice services. These concepts do not include the business objective management.

Hence, the security dealers category does not include investment fund managers whose sole responsibility is the creation of investment products.

In light of the facts presented by the APPQ, this entity does not appear to be subject to Part 1 of our Act, as it does not fall under the securities dealers category.

Date answered: 2013-04-10

PI Number: PI-5530

Activity Sector(s): Securities dealers

Obligation(s): Other

Guidance: 6E

Regulations: 1(2)

Act: 5(g)

Tax service company

Question:

Is our tax service company a reporting entity?

Answer:

MSBs have the obligation to register with FINTRAC. You are an MSB if you are engaged in the business of any of the following activities:

  • Foreign exchange dealing;
  • Remitting or transmitting funds by any means or through any person, entity or electronic funds transfer network; or
  • Issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments (except for cheques payable to a named person or entity).

Based solely on the information you provided, namely that the business is “the country’s leading tax service company…providing fast and accurate tax preparation services, to offering reliable bookkeeping and accounting support”, it appears that Company ABC is in the business of providing tax services assistance. Therefore, Company ABC is not, at this time, engaged as an MSB as per the PCMLTFA and its associated Regulations. You do not have to register your entity as an MSB with FINTRAC.

However, in regards to being covered as an accountant or an accounting firm, subsection 34(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), states that “subject to subsections (2) and (3), every accountant and every accounting firm is subject to Part I of the Act when they:

(a) engage in any of the following activities on behalf of any person or entity, namely,

(i) receiving or paying funds,
(ii) purchasing or selling securities, real properties or business assets or entities, or
(iii) transferring funds or securities by any means;

(b) give instructions on behalf of any person or entity in respect of any activity referred to in paragraph (a).

Subsection 1(2) of the PCMLTFR defines accountant as “a chartered accountant, a certified general accountant or a certified management accountant”. Accounting firm is defined as “an entity that is engaged in the business of providing accounting services to the public and has at least one partner, employee or administrator that is an accountant”.

The obligations for accountants and accounting firms apply only while they are carrying out the triggering activities described above. This means accountants and accounting firms are subject to Part I of the Act, but only when they conduct the above activities on behalf of any individual or entity, or give instructions relating to these activities on behalf of any individual or entity. Should you determine that Company ABC is engaged in any of the activities above, you will be required to contact FINTRAC to enroll as a reporting entity.

Date answered: 2013-04-02

PI Number: PI-5528

Activity Sector(s): Accountants, Money services businesses

Obligation(s): Other

Guidance: FIN-1

Regulations: 1(2), 34(1)

Act: 5(h)

Exception of Universities as public bodies

Question:

Universities are not public bodies. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) define a public body as any department or agent of Her Majesty in right of Canada or of a province. The University of Kingston was created by the Royal Charter which is amended and added to by an Act of Parliament (Bill S-1001). Consequently, is the University of Kingston an agent of Her Majesty and thus a public body?

Answer:

Subsection 1(2) of the PCMLTFR defines public body as:

(a) any department or agent of Her Majesty in right of Canada or of a province;
(b) an incorporated city, town, village, metropolitan authority, township, district, county, rural municipality or other incorporated municipal body or an agent of any of them; and
(c) an organization that operates a public hospital and that is designated by the Minister of National Revenue as a hospital authority under the Excise Tax Act, or any agent of such an organization.

We have said in the past that it would be a question of fact, on a case to case basis, to determine if a school is considered a public body. The structure in regards to schools is not uniform either provincially, and even more so nationally. Therefore, it would depend on each school.

The real matter is determining the government’s involvement and what is the significant degree of governmental control over the school board, to be considered an agent of the government, i.e. how is the government actually involved?

The school board having taxation powers or having public elections for trustees of the school board does not equate being an agent of Her Majesty. However, looking at who exercises a degree of ongoing influence in the body’s governance and decision-making, namely who elects or names the board of directors, the director, etc. can give you a better understanding.

The basic issue comes down to determining who the school board answers to and how the government is involved.

With respect to the University of Kingston, we reviewed the Kingston University Introduction (October 2011) document and note the following:

  • The University was created by Royal Charter;
  • The Royal Charter has been amended when the composition of the Board of Trustees and University Council was changed (made by the Parliament of Canada which has exclusive jurisdiction over any changes to the Charter of the University);

However, there is nothing conclusive permitting to establish that the government has a significant degree of control over the University, its Corporate Body, its Trustees, Senate or University Councils.

Therefore, University of Kingston does not qualify as a public body.

Date answered: 2012-12-12

PI Number: PI-5476

Activity Sector(s): Securities dealers

Obligation(s): Other

Guidance: 6E

Regulations: 1(2)

Canadian depository for securities dealers

Question:

We have received some questions internally as to the application of the PCMLTFA to various financial entities.

  1. Is the ABC Securities a reporting entity under s.5 of the PCMLTFA?
  2. Are XYZ reporting entities under s.5 of the PCMLTFA?
  3. How does s.5 PCMLTFA apply to the various entities involved in the distribution channel of mutual funds? Are mutual funds trusts and mutual funds corporations subject to s.5 of the Act?

Answer:

  1. Is ABC Securities a reporting entity under s.5 of the PCMLTFA?

    Subsection 5(g) of the PCMLTFA states that “persons and entities authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management or investment advising services” are subject to Part 1 of our Act.

    The principal objective of the ABC Securities is to contribute to the improved efficiency of the financial sector of the Canadian economy through provision of automated facilities for clearing of securities transactions and custody of securities.

    The ABC Securities has been recognized as clearing agencies by the OSC and l’Autorité des marchés financiers.

    ABC Securities is owned by the major Canadian chartered banks and by the Investment Industry Regulatory Organization of Canada (IIROC) and the TSX Inc.

    It is our opinion that ABC Securities does not fall under the 5(g) of the PCMLTFA, and therefore is not subject to any obligations under our Act. Their mandate is to build a centralized depository service and create an electronic clearing and settlement system to handle the trading volumes on Canada’s exchanges and over-the-counter markets, in other term, an on-line, real-time national clearinghouse for money market and equity transactions.
     

  2. Are XYZ reporting entities under s.5 of the PCMLTFA?

    XYZ reporting entities manage investment funds, sponsored by labour organizations, that have a specific mandate to invest in small to medium-sized businesses. XYZ reporting entities may be incorporated pursuant to enabling legislation either federally or in a variety of provinces, and is subject to restrictions set out in the legislation. In particular, it must have a labour union sponsor, which controls the fund but has no ownership interest, is open only to individual investors (who need not have a high net worth), and must invest in firms based within the sponsoring jurisdiction. To encourage this mandate, governments offer generous tax credits to investors in XYZ reporting entities.

    Subsection 5(g) of the PCMLTFA states that “persons and entities authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management or investment advising services” are subject to Part 1 of our Act.

    The definition of a securities dealer does not refer to registration but rather to being “authorized” to provide investment management services or advice. Therefore, the fact that one is exempted assumes that a provincial authority “authorizes” the entity to operate without being registered.

    Therefore, exempted entities, such as XYZ reporting entities that are exempted from registration, are covered under our Act.

    With respect to question 3, DoF states that “However, the application of the Act must be assessed on a case-by-case basis as persons or entities would only be captured where the both (a) are “authorized under provincial legislation” and (b) they conduct the activities designated under the section 5 definition” – under 5(g) of the PCMLTFA the person or entity only needs to be authorized under provincial legislation to engage in the business of dealing in securities or any other financial instruments, or to provide portfolio management or investment advising services to be subject to Part 1 of our Act.

    With respect to commenting “on the specific responsibilities and structure of a Mutual Fund Trust or Corporation to determine what obligations, if any, they may be subject to under the PCMLTFA”, it would be a question of fact to determine what obligations Mutual Fund Trust or Corporation must fulfill. These Mutual Fund Trust or Corporation are invited to communicate with FINTRAC if they have additional questions.

Date answered: 2012-09-26

PI Number: PI-5457

Activity Sector(s): Securities dealers

Obligation(s): Other

Regulations: 1(2)

Act: 5(g)

Covered

Question:

The business activity of ABC is outlined as such:

  1. Client contacts ABC to buy natural coloured diamonds.
  2. Once the quantity and price is agreed upon, the client is informed that payment is required and is put in touch with ABC’s Associate company in Florida.
  3. The client then sends the payment to ABC’s Associate company in Florida.
  4. ABC’s Associate company then sends the diamonds to the client in Canada.
  5. ABC’s Associate company sends a commission payment to ABC in Canada.

Are these activities covered by the PCMLTFA?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a dealer in precious metals and stones (DPMS) as “a person or entity that, in the course of its business activities, buys or sells precious metals, precious stones or jewellery.” However, as indicated in Section 39.1 of the PCMLTFR, it is only once a dealer in precious metals or stones engages in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in one transaction, regardless of how it is paid, that they become subject to the PCMLTFA and the obligations outlined therein.

If ABC has engaged solely in the activity outlined in steps 1-5 above, namely acting as a broker, then it is not subject to the Act.

Date answered: 2012-09-11

PI Number: PI-5448

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Guidance: 4

Regulations: 1(2), 39.1

Act: 5(i)

Costume jewellery

Question:

I understand that costume jewellery is not always covered but depending on the amount of precious metal or stones in the piece, it could be considered jewellery.

I thought that the amount of precious metal or stones used had to be 10%, but I am not sure where that is listed. Also, is it 10% of the weight or 10% of the value?

Answer:

A dealer in precious metals and stones means an individual or an entity that buys or sells precious metals, precious stones or jewellery, in the course of its business activities. A DPMS is subject to the PCMLTFA if they have ever engaged in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction.

Entities dealing purely with costume jewellery that do not contain any of the precious stones or precious metals are not typically covered. For example, stones or metals such as cubic zirconia and rhodium are not captured by the regime. That said, as long as the costume jewellery contains precious metals (gold, silver, palladium or platinum), stones (diamonds, sapphires, emeralds, tanzanite, rubies or alexandrite) or pearls, in any quantity, and equals a value of $10,000 in a single transaction; the costume jewellery would be covered. This is similar to what we’ve said about coin dealers in past. It does not matter whether the quantity of precious metals is negligible or not. If the coin does contain precious metals - even in the smallest quantity - it constitutes precious metals in the form of a coin.

In regards to your question, the second a precious metal or stone constitutes any part of the item, the full value of the item has to be included in the calculation of the $10,000 or more. We cannot expect our compliance officers to be able to calculate the % of precious metals or stones in any particular item, so even the smallest amount of precious metals or stones means that the item is covered.

If a retail store combines the purchase of items containing even negligible amounts of precious metals or stones with the purchase of items containing absolutely no precious metals or stones, then they do not have to consider the latter items in the calculation of $10,000 or more. Only items containing precious metals or stones need to be considered in the calculation of $10,000 or more.

Date answered: 2012-08-23

PI Number: PI-5443

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Regulations: 1(2), 39.1

Act: Part 1

Once a DPMS always a DPMS?

Question:

“Once a DPMS always a DPMS? A DPMS is subject to the PCMLTFA as soon as he conducts a trigger transaction and will remain subject to the regime until it can be demonstrated that the DPMS will no longer purchase or sell precious metals, stones or jewellery in a transaction above $10,000 or more.”

My question is what constitutes demonstrated?

Answer:

“A DPMS is subject to the PCMLTFA as soon as he conducts a trigger transaction and will remain subject to the regime until it can be demonstrated that the DPMS will no longer purchase or sell precious metals, stones or jewellery in a transaction above $10,000 or more” we have the following comments.

First of all, once a DPMS always a DPMS. After the initial one-time purchase or sale of $10,000 or more a DPMS becomes subject to the PCMLTFA. From that point on, even if they continue to solely carry out $500 transactions, they are a DPMS. Because they are set up as a DPMS, they could, presumably, carry out a $10,000 purchase or sale at any moment.

As such, it would not necessarily be for the DMPS to demonstrate that they will no longer purchase or sell precious metals, stones or jewellery in a transaction of $10,000 or more, but that they are no longer in a position to act as a DPMS. This could be demonstrated through the dissolution of the company or a change in the business licensing/structure.

This is similar to the approach we’ve taken with MSBs. While they may not have carried out an MSB-related activity in months, they are set up to do so, and, as such, still considered an MSB to be registered with FINTRAC.

Date answered: 2012-07-27

PI Number: PI-5434

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Guidance: 6i

Regulations: 39.1

Act: 5(i)

Definition of DPMS

Question:

When is a DPMS covered? Also, when would exceptions apply?

Answer:

A dealer in precious metals and stones means an individual or an entity that buys or sells precious metals, precious stones or jewellery, in the course of its business activities. It is subject to the requirements listed below if it is ever engaged in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction. In other words, it is not subject to these requirements if it is engaged only in purchases or sales of less than $10,000 per transaction.

The purchases or sales referred to above exclude those carried out for, connected with, or for the purpose of:

  • manufacturing jewellery;
  • extracting precious metals or precious stones from a mine; or
  • cutting or polishing precious stones.

In other words, if all of its purchases and sales are related to these manufacturing, extracting, cutting or polishing activities, it is not subject to these requirements.

To clarify the exemption to the triggering activities to become a DPMS, we look at the exception prescribed in s. 39.1 of the regulations:

"... other than such a purchase or sale that is carried out in the course of, in connection with or for the purpose of manufacturing jewellery, extracting precious metals or precious stones from a mine or cutting or polishing precious stones, is subject to Part 1 of the Act."

Clearly, it is a question of fact to determine the nature of the transaction and not only the nature of their business. A manufacturing company which enters into a transaction of 10,000$ or more that is not related to manufacturing, mining, extracting, etc. would fall under the scope of Part 1 of the Act as a DPMS.

So it is important for them to determine if each particular transaction is related to manufacturing jewellery. Being a manufacturing company alone is not an exception.

Date answered: 2012-07-12

PI Number: PI-5427

Activity Sector(s): Dealers in precious metals and stones

Obligation(s): Other

Regulations: 1(2), 39.1

Act: 5(i), 5(l)

Application of the Act - Real Estate Developer

Question:

Would a real estate developer be subject to the Act as a result of the following situation:

The real estate developer in Canada is selling interest in strata units located abroad (for example, United States), and
(a) the purchasers (represented and not represented by a broker) send the purchase funds to the developer in Canada; or
(b) the purchasers (represented and not represented by a broker) send the purchase funds to an entity abroad (for example, United States)?

Answer:

Unless there is a significant connection to Canada, the Real Estate Developer would not be subject in this case to our Act. The fact that the Real Estate Developer receives funds would not be in our mind a signification connection to Canada.

In this scenario, the units are abroad, the construction is obviously done abroad, the Real Estate Developer seems to have a very limited role in the transaction, and his role is not substantial enough to link it to Canada, especially in light of the fact that the properties are not in Canada.

Date answered: 2009-08-11

PI Number: PI-4652

Activity Sector(s): Real estate

Obligation(s): Other

Regulations: 1(2)

Savings Bonds

Question:

A bank has the following questions:

  1. They want more information on the notion of "no deposit liability" as they cannot find it in the PCMLTFA or its associated Regulations.
     
  2. Then they want to know under what circumstances would section 45 of the PCMLTFR apply? They are a bank and they want to ensure that if they deal with a reporting entity that is covered under section 45 of the PCMLTFR that the bank (as an agent) gathers all the necessary info.

Answer:

Section 5(l) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (hereinafter, the Act) and section 45 of the related Regulations stipulate that departments and agents of Her Majesty are subject to Part 1 of the Act when they accept deposit liabilities in the course of providing financial services to the public. FINTRAC is of the opinion that the concept of accepting a deposit liability under the Act must be interpreted on the basis of the definition of "deposit" provided in the Canada Deposit Insurance Corporation Act and which applies to federal and provincial institutions. The concept of deposit under section 45 of the Regulations will thus have a limited meaning and will apply only to the deposit of money that is deemed "insurable" under the Canada Deposit Insurance Corporation Act.

In other words, a sum of money received from a client for the purchase of savings bonds issued by Épargne Placements Québec in the course of a single transaction does not constitute a deposit within the meaning of the Act.

Based on the facts at our disposal, Épargne Placements Québec is not a "federal department or agent of the Crown that accepts deposit liabilities" within the meaning of the Act. First of all, this body is not a federal or provincial institution as defined in the Canada Deposit Insurance Corporation Act, and the money received by this body for the purchase of bonds, RRSPs or other savings products is not a deposit within the meaning of the Canada Deposit Insurance Corporation Act.

Épargne Placements Québec is thus not an entity subject to the Act and is not subject to its obligations. However, it is important to point out that a financial entity nevertheless remains subject to obligations under the Act, even if it conducts transactions on behalf of a third party that is not an RE. The RE will be required to implement a compliance regime and report any transactions that are suspicious or related to terrorist property and which take place as part of activities carried out on behalf of a third party which is not an RE.

Date answered: 2009-04-02

PI Number: PI-4562

Activity Sector(s): Financial entities

Obligation(s): Other

Regulations: 45

Act: 5(l)

FINTRAC legislation to insolvency practitioners

Question:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) does not specifically target insolvency practitioners. The list of “reporting entities” does, however, include accountants (along with financial entities, life insurance brokers, securities dealers, casinos, among others). The issue, therefore, is to what extent are insolvency practitioners required to comply with the reporting obligations under the Act?

  • Insolvency practitioners who are not accountants: If the insolvency practitioner is not an accountant, they fall outside the ambit of the Act and have no reporting requirements under it.
     
  • Insolvency practitioners who are accountants: If the insolvency practitioner is an accountant who works for an accounting firm that provides general accounting services to the public (one of the “triggering services” under the Act) they may be required to comply with the reporting requirements under the Act.

The starting point is that if the insolvency practitioner/accountant is part of an accounting firm that provides general accounting services, they will be covered by the Act and if they carry out any of the “triggering activities” – which are broad in scope – they will be required to fulfill the reporting requirements under the Act.

If, however, the accounting firm offers general accounting services and they create a separate legal entity to carry out their insolvency-related services, those practitioners who carry out their insolvency-related work under the separate legal entity will not be considered to be accountants within the meaning of the Act and will have no reporting requirement under it.

Moreover, if the insolvency practitioner/accountant is with a firm that does not offer general accounting services but rather only carries out insolvency-related activities they will not be considered to carry out any “triggering activities” and therefore will not have reporting requirements under the Act.

Answer:

If the insolvency practitioner is not an accountant, you are right, they are not covered by our Act and have no legislative requirements or obligations to fulfill under our legislation.

Under the definition section of the PCMLTFR, more precisely, subsection 1(2), an accounting firm is defined as an entity that provides accounting services to the public, and secondly, has at least one partner, employee or administrator that is an accountant. Please note that an accounting firm would not be engaged in the business of providing accounting services to the public by reason only of providing services as Receiver or Trustee in Bankruptcy.

As of June 23, 2008 if you are an accountant or an accounting firm, and you engage in any of the following triggering activities on behalf of any person or entity:

  • receiving or paying funds;
  • purchasing or selling securities, real property or business assets or entities;
  • transferring funds or securities by any means;
  • or giving instructions on behalf of any person or entity in respect of any activity listed above
  • then you must comply with the requirements set out by the PCMLTFA and associated regulations.

In other words, if your accounting firm falls within the definition of an accounting firm under the PCMLTFA and associated regulations, and engages in any of the triggering activities, while providing accounting services to the public, the accounting firm would be subject to the legislative requirements under the PCMLTFA and associated regulations.

However, we must add a precision in regards to what falls within the triggering activities as defined in paragraph 34(1)(a) for accountants or accounting firms. In the case of services rendered by the accountant/accountant firm as trustee in bankruptcy, the services rendered are not activities engaged on behalf of any person or entity.

If you are appointed by the court, or if you act as a trustee in bankruptcy, you are not deemed to act on behalf of any person or entity, as you are acting only on your behalf.

Date answered: 2009-03-23

PI Number: PI-4551

Activity Sector(s): Accountants

Obligation(s): Other

Guidance: FIN-7

Regulations: 34(1)(a), 1(2)

Act: 5

Date Modified: