Archived FINTRAC Policy Interpretations

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Reporting

EFTs – pre-authorized debits and direct deposits

Question:

What are pre-authorized debits and direct deposits for the purpose of the amended definition of electronic funds transfers (EFTs)?

Answer:

Neither the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) nor its associated Regulations define the terms “direct deposit” or ‘pre-authorized debit.” However, it is generally understood that a direct deposit is :

  • a transaction where a payor enters into an agreement with a payee to have funds electronically transferred into, or credit to, the payee’s account at a financial institution;
  • originated by a business as the payor (e.g., employer);
  • a recurring transaction; and
  • one that requires that the payee’s account details be shared with the payor so that the payor can initiate the transaction (e.g., for the purpose of payroll deposit).

Alternatively, it is generally understood that a pre-authorized debit:

  • is a transaction where a payor enters into an agreement with a payee to have that payee debit funds from the payor’s account;
  • originated by a business as the payee (e.g., utility provider);
  • require an agreement between the financial entity holding the payor’s account and the payee to the transaction; and
  • allows the payee to initiate the debit transaction (e.g., for the purpose of paying a utility bill).

In light of the amendments to the definition of EFT within the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) that will be coming into force on June 1, 2021, FINTRAC has had to assess its position with respect to the reportability of certain transfer transactions. Specifically, the definition of EFT now includes the exceptions at section 66.1 of the PCMLTFR, and EFT now “means the transmission – by any electronic, magnetic or optical means – of instructions for the transfer of funds, including a transmission of instructions that is initiated and finally received by the same person or entity. In the case of SWIFT messages, only SWIFT MT-103 messages and their equivalent are included. It does not include a transmission of instructions for the transfer of funds :

  • (a) that is carried out by means of a credit or debit card or a prepaid payment product if the beneficiary has an agreement with the payment service provider that permits payment by that means for the provision of goods and services ;
  • (b) that involves the beneficiary withdrawing cash from their account;
  • (c) that is carried out by means of a direct deposit or a pre-authorized debit;
  • (d) that is carried out by cheque imaging and presentment;
  • (e) that is both initiated and finally received by persons or entities that are acting to clear or settle payment obligations between themselves; or
  • (f) that is initiated or finally received by a person or entity referred to in paragraphs 5(a) to (h.1) of the Act for the purpose of internal treasury management, including the management of their financial assets and liabilities, if one of the parties to the transaction is a subsidiary of the other or if they are subsidiaries of the same corporation.”

Therefore, should a transmission of instructions for the transfer of funds be carried out by means of a direct deposit or a pre-authorized debit, which are not EFTs, a prescribed reporting entity (RE)

i) would not have reporting obligations,

ii) would not have associated record-keeping obligations, and

iii) would not have the associated obligations that from the above, such as the travel rule requirements.

With the above in mind, we turn to consideration of ACH Network transactions. It is understood by FINTRAC that ACH Network transactions consist of direct deposits and direct payments where direct deposits are payments deposited directly to an account, and direct payments are debits of funds for making payments, whether they are sent or received. Further it is understood that for ACH Network transactions to take place, there must be an agreement between the parties, and detailed account information is required, to allow for the debiting or crediting of the relevant accounts, as the case may be.

Given the nature of the transactions carried out by means of the ACH Network in the United States, it would appear these transactions are direct deposits and pre-authorized debits, and, as such, these transactions do not trigger the EFT obligations, as these are exceptions to the definition of EFT.

That said, should it be possible for persons or entities to use the ACH Network for transactions other than direct deposit or pre-authorized debit transactions, then these must be considered against the RE’s EFT obligations under the PCMLTFA and its associated Regulations.

Finally, while EFT obligations may not be applicable to these transactions, we remind REs of the obligation, pursuant to section 7 of the PCMLTFA, to report to FINTRAC every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

  1. the transaction is related to the commission or the attempted commission of a money laundering offence; or
  2. the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

Date answered: 2020-12-21

PI Number: PI-11105

Activity Sector(s): Financial entities

Obligation(s): Reporting

Regulations: 1(2), 7(1)

Act: 9(1)

Life insurance – EFT reporting

Question:

Will life insurance companies be subject to EFT reporting when they offer loans to the public?

Answer:

Pursuant to subsection 1(2) of the amended PCMLTFR a financial entity means:  

(c) a life insurance company, or an entity that is a life insurance broker or agent, in respect of loans or prepaid payment products that it offers to the public and accounts that it maintains with respect to those loans or prepaid payment products, other than:

    (i) loans that are made by the insurer to a policy holder if the insured person has a terminal illness that significantly reduces their life expectancy and the loan is secured by the value of an insurance policy;

    (ii) loans that are made by the insurer to the policy holder for the sole purpose of funding the life insurance policy; and

    (iii) advance payments to which the policy holder is entitled that are made to them by the insurer;

In addition, pursuant to the amended PCMLTFR:

  • Subsection 1(2)
    • electronic funds transfer means the transmission — by any electronic, magnetic or optical means — of instructions for the transfer of funds, including a transmission of instructions that is initiated and finally received by the same person or entity. In the case of SWIFT messages, only SWIFT MT-103 messages and their equivalent are included.
    • final receipt, in respect of an electronic funds transfer, means the receipt of the instructions by the person or entity that is to make the remittance to a beneficiary.
    • initiation, in respect of an electronic funds transfer, means the first transmission of the instructions for the transfer of funds.
  • Subsection 7(1) - a financial entity shall report the following transactions and information to the Centre:
    • (b) the initiation, at the request of a person or entity, of an international electronic funds transfer of $10,000 or more in a single transaction;
    • (c) the final receipt of an international electronic funds transfer of $10,000 or more in a single transaction;

This means that when a life insurance company or entity that is a life insurance broker or agent is deemed to be a financial entity, it will have the obligations associated with the financial entities sector, including electronic funds transfer (EFT) reporting. This deeming only applies for the specific activities listed above. A life insurance company or entity that is a life insurance broker or agent is not required to consider all of its life insurance activities against the financial entity obligations, only those specific activities that trigger associated financial entity obligations.

For example, a life insurance company will be extending a mortgage loan to a foreign borrower, the life insurance company advances funds to the borrower and the borrower subsequently repays the loan. It is assumed that the amount of funds advanced and received is CAD $10,000 or more.

In this situation, it does not appear that the life insurance company is transmitting client initiated instructions for the transfer of funds across the Canadian border. As such, there is no reportable outgoing EFT (EFTO). This is because the life insurance company is carrying out the provision of funds according to the mortgage lending arrangement. As such, the instructions are to fulfill the terms of the arrangement and not to transfer funds from the borrower’s account with the life insurance company to the borrower’s account in the US, for instance.

However, when the life insurance company, as the deemed FE, finally receives the incoming EFT from Bank 2 (the foreign borrower’s bank in the US), it is in receipt of client initiated instructions for the transfer of funds across the Canadian border and has a reportable incoming EFT (EFTI). In this situation, the life insurance company, as the deemed FE, is the final recipient with the obligation to report and the foreign borrower is the beneficiary of the EFTI.

Date answered: 2020-10-16

PI Number: PI-11103

Activity Sector(s): Life insurance

Obligation(s): Reporting

Regulations: ss. 1(2), 7(1)

Act: 9(1)

Large Virtual Currency Transaction Report (LVCTR) obligations

Question:

When must a large virtual currency transaction report (LVCTR) be submitted to FINTRAC?

Answer:

The Government of Canada has made changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. The Regulations implementing these changes have been published in the Canada Gazette and this is where you will find information on what changes have been made, including when these come into force.

While dealing in virtual currency (VC) was added as an MSB service effective June 1st, 2020, which means that those persons and entities who are engaged in VC exchange and/or VC value transfer activities are now considered to be MSBs, the obligations that are specific to virtual currency (VC) transactions, such as large virtual currency transaction reporting, among other obligations, will only come into force on June 1st, 2021. Information on these obligations can be found in the amending Regulations link provided above. FINTRAC is also in the process of updating its guidance and this will become available on our website prior to the coming into force date.

In the meantime, these entities have all of the same obligations currently in force for MSBs:

  • Registering with FINTRAC;
  • developing and implementing a compliance program;
  • considering any of the transactions that are solely VC transactions for the purpose of submitting a suspicious transaction report;
  • the following for any fiat transactions they may be conducting – including if they receive cash in exchange for VC
    • Reporting – large cash transactions, suspicious transactions, electronic funds transfers, and terrorist property;
    • Record-keeping; and
    • Verifying ID.

Date answered: 2020-09-18

PI Number: PI-10650

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Act: 5(h)

Suspicious transaction associated with a third party credit card provider

Question:

Do I need to submit an STR if a company with which I’m associated alerts me to irregular client activities?

Answer:

Pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), every reporting entity (RE) shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that:

  1. the transaction is related to the commission or the attempted commission of a money laundering (ML) offence; or
  2. the transaction is related to the commission or the attempted commission of a terrorist activity financing (TF) offence.

First, it is important to note that it is only those persons and entities subject to the PCMLTFA that have obligations under the Act and its associated Regulations, including the obligation to submit STRs to FINTRAC. As such, FINTRAC cannot impose obligations on persons and entities not subject to the PCMLTFA and, therefore, a business that is not subject to the Act does not have the obligation to submit STRs. However, should a member of the public wish to voluntarily provide FINTRAC with information about any suspicions of ML/TF, they may do so using our Web form. More information on providing voluntary information can be found on our website.

Where an RE has reached reasonable grounds to suspect that a transaction, attempted or completed in the course of their activities, is related to the commission or attempted commission of an ML/TF offence, then an STR must be submitted to FINTRAC. However, where an RE, after completing their review and assessment, does not reach its reasonable grounds to suspect threshold, an STR is not required.

STRs are one of the most valuable report types submitted to FINTRAC. In addition to the prescribed information, Part G of the STR form allows for an expansion on the descriptive details surrounding a transaction that is derived from an RE’s assessment of what they are seeing through their business interactions and activities. Additional information, such as additional account numbers, locations, relationships, and background information are all additional details that FINTRAC uses in its analysis and production of financial intelligence disclosures.

In completing the STR form, Part G is mandatory and requires the RE to provide a detailed description of their grounds to suspect that the transaction or attempted transaction is related to the commission of an ML/TF offence. The narrative should include the explanation of their assessment and should focus on the question: "Why do you think the transaction is suspicious of ML/TF?" Note that context, for the purpose of completing an STR, is information that clarifies the circumstances or explains a situation or transaction. A transaction may not appear suspicious in and of itself. However, a review of additional contextual elements surrounding the transaction, such as underlying credit card transactions, may create the suspicion. More information on completing Part G of the STR form can be found on our website.

Therefore, where an RE has reached reasonable grounds to suspect that a transaction (completed or attempted) is related to ML/TF, an STR must be submitted to FINTRAC. If the credit card transactions form part of the RE’s assessment and determination that the transaction has reached the reasonable grounds to suspect threshold then this information must be included in Part G. The amount of detail and information to be provided will depend on the situation and the information available to the RE, but should be enough to answer the question of why the RE thinks the transaction is suspicious.

For instance, where XYZ RE reaches reasonable grounds to suspect that the payments from Tim’s chequing account and the associated cash deposits are related to the commission or attempted commission of an ML/TF offence, then they must submit an STR. In Part G, XYZ RE must outline the reasons why they are suspicious of the transactions detailed in Parts B through F, in this case, the notification from ABC Company of the suspicious credit card transactions, which led the RE to investigate the payments and to discover the cash deposits, which were outside of Tim’s normal behaviour.

Finally, XYZ RE must conduct a risk assessment of any service it provides, as part of its overall compliance program. This is to ensure that appropriate controls are put in place to mitigate any risks and apply special measures, as necessary. In addition, as with all of its activities, an RE must consider any financial transaction(s) conducted through a service it offers, if applicable, against its obligation to submit STRs, should there be reasonable grounds to suspect that the transaction(s) are related to the commission or the attempted commission of a ML/TF offence.

Date answered: 2020-08-24

PI Number: PI-10883

Activity Sector(s): Financial entities

Obligation(s): Reporting

Act: 7

Virtual currency – STR for victim of fraud

Question:

Is a suspicious transaction report (STR) required to be filed if I determine, or suspect, that a client is a victim of fraud, whether the transaction is completed or not?

Answer:

Pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), every person or entity referred to in section 5 shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that:

  1. the transaction is related to the commission or the attempted commission of a money laundering (ML) offence; or
  2. the transaction is related to the commission or the attempted commission of a terrorist activity financing (TF) offence.

The PCMLTFA defines an ML offence as an offence under subsection 462.31(1) of the Criminal Code, which indicates the need for the commission in Canada of a designated offence or an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated offence. Where a designated offence means:

  • (a) any offence that may be prosecuted as an indictable offence under this or any other Act of Parliament, other than an indictable offence prescribed by regulation, or
  • (b) a conspiracy or an attempt to commit, being an accessory after the fact in relation to, or any counselling in relation to, an offence referred to in paragraph (a).

For a transaction to qualify as a suspicious transaction, reportable under the PCMLTFA and it associated Regulations, you must have reasonable grounds to suspect that it is related to the commission or attempted commission of either an ML offence or a TF offence. An ML offence typically involves various acts committed with the intention to conceal or convert property or the proceeds of property (such as money) knowing or believing that these were derived from the commission of a designated offence, which could include drug trafficking, bribery, or fraud. It is, therefore, for the reporting entity to determine whether they have reasonable grounds to suspect that a transaction or attempted transaction is related to an ML/TF offence.

If you suspect that the purchase or attempted purchase of virtual currency is related to the commission or attempted commission of an ML/TF offence, then an STR would be required. However, if you determine, following an assessment of facts, context and indicators that the suspicion of ML/TF does not exist for the completed or attempted transaction, then you would not submit an STR on those transactions.

Where you have reached reasonable grounds to suspect and, as such, must submit an STR to FINTRAC, you must take reasonable measures to identify the individual(s) who conduct or attempt to conduct the suspicious transaction before submitting the STR.

Finally, if you receive confirmation of fraudulent transactions, and you have reasonable grounds to suspect that these transactions are related to an ML/TF offence, an STR must be submitted to FINTRAC. The STR could be solely based on the fraud factor, or it could also outline a series of other suspicious transaction indicators that may on their own seem insignificant, but together may raise higher suspicions.

More information on STRs, as well as, ML/TF indicators for money services businesses (MSBs) can be found on our website.

Date answered: 2020-08-06

PI Number: PI-10876

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Act: 7

Reporting – aggregating transactions per report

Question:

  1. Can a suspicious transaction report (STR) include transactions for multiple days?
  2. If a reporting entity manages multiple locations (each with separate Location number), can they aggregate transaction totals across all locations for a client to determine if an LCTR, CDR, EFTO or EFTI should be completed for multiple transactions below 10,000 but when aggregated over 10,000?

Answer:

Pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR):

  • 3(1) In these Regulations, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if:
    • (a) where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and
    • (b) where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.
  • 40(1) Subject to subsection 52(1), every casino shall report the following transactions and information to the Centre:
    • (a) 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 a financial entity or a public body;
    • (b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 5; and
    • (c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 6.
  • 42(1) Every casino shall report to the Centre the disbursement of $10,000 or more in the course of any of the following transactions, together with the information set out in Schedule 8:
    • (a) the redemption of chips, tokens or plaques;
    • (b) front cash withdrawals;
    • (c) safekeeping withdrawals;
    • (d) advances on any form of credit, including advances by markers or counter cheques;
    • (e) payments on bets, including slot jackpots;
    • (f) payments to a client of funds received for credit to that client or any other client;
    • (g) the cashing of cheques or other negotiable instruments; and
    • (h) reimbursements to clients of travel and entertainment expenses.
  • 42(2) For the purpose of subsection (1), two or more disbursements of less than $10,000 each that are made within 24 consecutive hours and that together total $10,000 or more are considered to be a single transaction of $10,000 or more if an employee or a senior officer of the casino knows that the disbursements are received by, or on behalf of, the same person or entity.

In addition, pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), every person or entity referred to in section 5 shall, in accordance with the Regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

  1. the transaction is related to the commission or the attempted commission of a money laundering offence; or
  2. the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

Suspicious transaction reports (STRs)

Pursuant to Schedule 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (PCMLTFSTRR), the following information must be provided to FINTRAC:

  • Part A - Information on Place of Business Where Transaction or Attempted Transaction Occurred;
  • Part B - Information on Transaction or Attempted Transaction;

In the case where a reporting entity (RE) has reached reasonable grounds to suspect the commission or the attempted commission of a money laundering (ML) or a terrorist activity financing (TF) offence through more than one transaction, or more than one attempted transaction, the RE can include all suspicious transactions in Part B of the suspicious transaction report (STR), as long as they i) took place at the same location; ii) have the same transaction status (e.g., all completed transactions or all attempted transactions); and iii) they are related to the same suspicion. Therefore, to answer your question, an STR may include transactions that occurred on multiple days, so long as these conditions are met.

For further clarity, because Part A includes the address of the transaction and the STR form only allows for one Part A in any given report, all transactions included in Part B of the report must have taken place at the same address. In a situation where related suspicious transactions took place at different locations, an STR must be submitted for each location and each report should only detail the transactions that occurred at that specific location. If the information is available, the RE can reference related STRs in Part G by entering the FINTRAC STR number and date of submission.

 

Large cash transaction report (LCTR)

Where an RE receives CAD $10,000 or more in multiple transactions across multiple locations within a 24 hour period, and knows that these transactions are conducted by, or on behalf of, the same person or entity, an LCTR is required.

These transactions should be reported based on the location of the transactions. Currently, the structure of the LCTR form does not allow REs to report LCTRs that contain transactions conducted at multiple locations. For example, where a client conducts five (5) transactions totaling $12,000 across two (2) locations in a 24 hour period, these should be reported as: one LCTR for location X with three (3) transactions totaling $8,500 and one LCTR for location Y with two (2) transactions totaling $3,500. In both instances, the 24 hour rule indicator should be set to 1.

As of June 1st, 2021, the PCMLTFR will be amended and section 126 will state that if a person or entity that is required under these Regulations to report an LCT or to keep an LCT record receives amounts in cash that total $10,000 or more in two or more transactions that are made within 24 consecutive hours, those transactions are deemed to be a single transaction of $10,000 or more if that person or entity knows that:

  1. the transactions are conducted by the same person or entity;
  2. the transactions are conducted on behalf of the same person or entity; or
  3. the amounts are for the same beneficiary.

 

Casino disbursement report (CDR)

As noted above, where a casino disburses CAD $10,000 or more in multiple prescribed transactions within a 24 hour period from multiple locations, and knows that these disbursements were received by, or on behalf of, the same person or entity, a CDR is required. These transactions may be reported in one report that contains all transactions conducted across multiple locations.

As of June 1st, 2021, the PCMLTFR will be amended and section 130 will state, if, within 24 consecutive hours, a casino makes two or more disbursements that total $10,000 or more in any of the transactions referred to in paragraphs 71(a) to (h), those disbursements are deemed to be a single disbursement of $10,000 or more if the casino knows that:

  1. the disbursements are requested by the same person or entity;
  2. the disbursements are received by the same person or entity;
  3. the disbursements are requested on behalf of the same person or entity; or
  4. the disbursements are received on behalf of the same person or entity.

 

Electronic funds transfer report (EFTR)

As noted above, where an RE receives, from outside of Canada, multiple EFTs that total CAD $10,000 or more at multiple locations in a 24 hour period, and knows that these transactions were conducted by, or on behalf of, the same person or entity, an EFTI is required. Similarly, where a client requests that an RE send, out of Canada, multiple EFTs that total CAD $10,000 or more from multiple locations in a 24 hour period, and knows that these transactions are being conducted by, or on behalf of, the same person or entity, an EFTO is required.

Currently, the structure of the EFT form does not allow the reporting of multiple transactions or multiple locations in one form. Therefore, each transaction that forms part of the required EFTI/EFTO (i.e. conducted by or, on behalf of, the same person or entity within the 24 hour period) should be reported separately.

As of June 1st, 2021, the PCMLTFR will be amended and sections 127(1) and 128(1) will state:

  • 128(1) If a person or entity that is required to report the initiation of an international electronic funds transfer under these Regulations initiates two or more international electronic funds transfers that total $10,000 or more within 24 consecutive hours, those transactions are deemed to be a single transaction of $10,000 or more if that person or entity knows that:
    • (a) the electronic funds transfers are initiated at the request of the same person or entity;
    • (b) the requests are made on behalf of the same person or entity; or
    • (c) the amounts are for the same beneficiary.
  • 128 (1) If a person or entity that is required to report the final receipt of an electronic funds transfer under these Regulations finally receives two or more electronic funds transfers that total $10,000 or more within 24 consecutive hours, those transactions are deemed to be a single transaction of $10,000 or more if that person or entity knows that:
    • (a) the electronic funds transfers are initiated at the request of the same person or entity; or
    • (b) the amounts are for the same beneficiary.

Date answered: 2020-08-05

PI Number: PI-10873

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): Reporting

Regulations: 3(1), 40(1), 42(1), 42(2)

Act: 7, 9(1)

STR - Part D (conductor) information for a suspicious e-transfer

Question:

Can you please clarify who is “a conductor” (Part D) when an STR results from an incoming e-transfer? Is the conductor the account holder and the sender’s information goes under Part B1. 8 & Part B1. 9.

Answer:

Pursuant to of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA):

  • Section 7, every person or entity referred to in section 5 shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
    • (a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
    • (b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

 

In a situation where a reporting entity is the recipient of an Interac e-transfer for the benefit of its client and where it is has reasonable grounds to suspect that the e-transfer transaction is related to the commission or the attempted commission of a money laundering or terrorist activity financing offence, then a suspicious transaction report (STR) must be submitted to FINTRAC together with the information set out in Schedule 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations.

In this case, the recipient of the e-transfer is not the party conducting the e-transfer transaction and should not be reported as such. The person sending the e-transfer should be reported in Part D: Information on Person Conducting or Attempting To Conduct Transaction.

That said, where it is the deposit component of the transaction that is suspicious (e.g., the recipient deposits the funds to a different account than usual, or one not in their own name), then it may be the recipient who is the conductor in this transaction, and the details of the person sending the e-transfer would instead form part of the Part G information.

Date answered: 2020-03-24

PI Number: PI-10534

Activity Sector(s): Casinos, Financial entities, Money services businesses

Obligation(s): Reporting

Act: 7

Ransomware

Question:

If we help people pay ransomware in virtual currency are we an MSB?

Answer:

pursuant to paragraph 5(h) of the PCMLTFA, a person or entity is a money services businesses (MSB), and required to register with FINTRAC, if engaged in the business of providing any of the following services:

  • Foreign exchange dealing (conducting transactions where one fiat currency is exchanged for another fiat currency);
  • Remitting or transmitting fiat 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).

In addition, effective June 1, 2020, persons or entities engaged in virtual currency (VC) activities will be MSBs and required to register with FINTRAC. Entities dealing in virtual currency include those that are offering virtual currency exchange and virtual currency transfer services, where :

  • Virtual currency exchange services include exchanging:
    • funds for virtual currency,
    • virtual currency for funds or,
    • virtual currency for another virtual currency.
  • Virtual currency transfer services include:
    • transferring virtual currency at the request of a client or,
    • receiving a transfer of virtual currency for remittance to a beneficiary.

Based on the information provided, namely that a client can approach your business to request assistance “in order to provide the decryption key and/or return the files to them. We would go and purchase 10 VC coins from an exchange on behalf of the client, and then transfer the 10 VC coins to the digital wallet the attacker provided in exchange for the files and/or decryption key - allowing our client to resume business operations,” it appears that your business is engaged in virtual currency transfer services.

As an MSB, the Ransomware Remediation business will have legal obligations under Canada’s PCMLTFA. This includes registering with us, reporting to us, keeping records, identifying clients, and implementing a compliance program. The current obligations for MSBs are explained in greater detail on the MSB sector page of our website and will provide valuable information.

You will note, in particular the obligation to report suspicious transactions. While the act of sending the VC for the purpose of releasing the encrypted files may not be counter the obligations of the PCMLTFA and its associated Regulations, you may suspect that the transaction is related to money laundering or the financing of terrorist activity because of the destination of the transaction, and therefore be obligated to submit a suspicious transaction report. In addition, you may wish to seek legal guidance with respect to participating in these transactions.   

Date answered: 2020-03-18

PI Number: PI-10542

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Act: 5(h), 7

Device ID

Question:

What number must be recorded to identify a user’s device?

Answer:

In fields where a reporting entity is required to report the number that identifies a device, the reporting entity should enter the individual identifier for that device type. An example of this would be a MAC address. A reporting entity should not generate their own device identifier.

Date answered: 2019-11-12

PI Number: PI-10460

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): Reporting

Assessing compliance with TPR obligations

Question:

Now that there is no single consolidated list of persons or entities, what list does FINTRAC expect reporting entities to refer to, and how will FINTRAC assess a reporting entity’s compliance with the TPR obligations?

Answer:

Pursuant to section 7.1 of the PCMLTFA, 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 (RIUNRST) shall report to the Centre in accordance with the regulations.

Therefore, the obligation to submit a TPR to FINTRAC is triggered by the requirement to make specific disclosures pursuant to the Criminal Code or the RIUNRST. A reporting entity must understand these obligations in order to meet its TPR obligations pursuant to the PCMLTFA.  For this reason, FINTRAC has explained, generally, what the obligations under the Criminal Code and the RIUNRST are, including providing some potential reference materials, but is not in a position to provide an official interpretation of the Criminal Code nor the RIUNRST.

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Criminal Code

83.1 (1) Every person in Canada and every Canadian outside Canada shall disclose without delay to the Commissioner of the Royal Canadian Mounted Police or to the Director of the Canadian Security Intelligence Service

(a) the existence of property in their possession or control that they know is owned or controlled by or on behalf of a terrorist group; and

(b) information about a transaction or proposed transaction in respect of property referred to in paragraph (a).

 

terrorist group means

(a) an entity that has as one of its purposes or activities facilitating or carrying out any terrorist activity, or

(b) a listed entity,

      and includes an association of such entities.

 

entity means a person, group, trust, partnership or fund or an unincorporated association or organization.

listed entity means an entity on a list established by the Governor in Council under section 83.05.

 

*  *  *  *  *  *  *  *  *  *  *  *  *  *

 

Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism

8 (1) Every person in Canada, every Canadian outside Canada and every entity set out in section 7 must disclose without delay to the Commissioner of the Royal Canadian Mounted Police or to the Director of the Canadian Security Intelligence Service

(a) the existence of property in their possession or control that they have reason to believe is owned, held or controlled by or on behalf of a listed person; and

(b) any information about a transaction or proposed transaction in respect of property referred to in paragraph (a).

 

listed person means a person whose name is listed in the schedule in accordance with section 2, with the exception of the following:

(a) the entities referred to in the Regulations Establishing a List of Entities; and

(b) Usama bin Laden or his associates, or any person associated with the Taliban within the meaning of section 1 of the United Nations Al-Qaida and Taliban Regulations. (personne inscrite)

 

person means an individual or an entity.

 

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As such, when assessing a reporting entity’s compliance with its TPR obligations, FINTRAC assesses whether a reporting entity has disclosed to the RCMP or CSIS, as applicable, the possession or control of property owned or controlled by or on behalf of a listed entity, and so was required to report to FINTRAC. FINTRAC will also review the steps a reporting entity takes to determine whether its business possesses or controls the property of a terrorist group or listed person, and to submit a report to FINTRAC. To this end, FINTRAC will ensure that the reporting entity’s policies and procedures effectively reflect the obligation to determine who is a terrorist group or listed person, but we do not prescribe the list(s) to which the reporting entity must refer.

While there used to be published consolidated lists for, to which FINTRAC’s guidance referred, these lists brought together a number of regulated listings, so may have contained more names than those referred to in the Criminal Code or RIUNRST for TPR purposes. Because of this, these lists were a source to not only determine a listed person or entity but also helped to determine “any person, group, trust, partnership or fund or an unincorporated association or organization that has as one of its purposes or activities facilitating or carrying out any terrorist activity.”

In the absence of the consolidated lists, a reporting entity must have an alternate means to refer to the prescribed lists, pursuant to the applicable subsections of the Criminal Code and the RIUNRST, which are available at the following links, https://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-284/page-1.html#h-694379, and https://laws-lois.justice.gc.ca/eng/regulations/sor-2001-360/page-3.html#docCont, respectively.  In addition, FINTRAC would encourage reporting entities to refer to other lists or media that may exist, to make the determination on “any person, group, trust, partnership or fund or an unincorporated association or organization that has as one of its purposes or activities facilitating or carrying out any terrorist activity”.

Date answered: 2019-09-03

PI Number: PI-9974

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): Reporting

Act: 7.1

List of entities for Terrorist Property Reports

Question:

Do we only have to submit a Terrorist Property Report if we match a name on the lists published online?

Answer:

Pursuant to subsection 7.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), reporting entities must submit TPRs to FINTRAC. The submission of a TPR is prompted after the threshold to disclose is met under the Criminal Code or the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (RIUNRST).

Under the Criminal Code, persons and entities must disclose the existence of property in their possession or control that they know is owned or controlled by or on behalf of a terrorist group. A terrorist group can include a number of different persons and entities, including a listed entity. The Criminal Code states that a listed entity is one that appears on a list under section 83.05 of the Code. This list is a public means of identifying a person or entity as being associated with terrorism.

Under the RIUNRST, persons and entities must disclose the existence of property in their possession or control that they have reason to believe is owned or controlled by or on behalf of a listed person. The RIUNRST defines a listed person as a person or entity that appears on a list published in the Schedule in the RIUNRST.

Therefore, reporting entities must determine whether they have property in their possession or under their control that they know or believe is owned or controlled by or on behalf of a terrorist group or listed person, as defined by the Criminal Code and the RIUNRST. In making this determination, a reporting entity should refer to the list under section 83.05 of the Criminal Code and the schedule of the RIUNRST (links provided above).

However, through the course of a reporting entity’s normal business activities, they may also come across a variety of information that leads them to determine that their client is part of a terrorist group, such as:

■          Publicly-available information or media articles stating that the client has carried out or facilitated terrorist activity; or

■          Official, publicly-available lists relating to terrorist activity (for example, the European Union (EU) lists).

In that case, the reporting entity must determine whether their threshold to disclose under the Criminal Code or the RIUNRST has been met and, thereby, prompting the submission of a TPR to FINTRAC.

Date answered: 2019-08-23

PI Number: PI-9972

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): Reporting

Act: 7.1

LCTR for armoured car transactions

Question:

How do we report large cash transactions brought to our vault by an armoured car service?

Answer:

It is important to first note the importance of the information to which FINTRAC has access for intelligences purposes, as well as the requirements to which reporting entities are subject.

Based on the information provided, we have determined that a reporting obligation exists for the armoured car carrier (ACC) transactions that are routed through Bank ABC’s processing facility on behalf of business’ whose funds are held at another financial institution. And, given that there is no agreement in place between Bank ABC and the financial entities to which the funds are subsequently transferred, it is for Bank ABC to report the transactions.

 

Below is FINTRAC’s understanding of the transactions and the information to which Bank ABC has access.

  • ACC picks up funds from a business for deposit to the business’ account
  • ACC brings the funds to the ACC facility which contains Bank ABC’s Vault
  • The Funds are deposited into the ACC account which is also with Bank ABC
  • System generated transfers are used to move the funds to the business’ accounts – both those with Bank ABC as well as those at other financial entities.

ABC has the names and account numbers when funds are transferred to another financial entity, but nothing more, and that the funds are not deposited into a general corporate account at each financial institution.

Based on the above, and the LCTR report in F2R, FINTRAC has outlined below the way these LCTRs should be completed:

 

Part A

  • NO to 24 hour rule
  • Information on Bank ABC as the reporting entity

 

Part B1 – Transaction

  • Amount of transaction is the full amount of cash brought in by the ACC
  • How was the transaction conducted – armoured car

 

Part B2 – Disposition

  • Disposition – On behalf of : an entity
  • Disposition of funds : deposit to an account (for both ABC account holders and non-account holders)
  • B11 – other institution name and number or other person or entity name : name of business from which ACC collected the funds
  • B12 – Other person or entity account or policy number : business’ account number with Bank ABC OR the other financial institution to which the funds were transferred and the financial institution’s name

 

Part C – Account

  • ACC Account information at Bank ABC

 

Part E – Conductor

  • Conductor name only – first and last – ACC employee

 

Part F – Third party

  • Business on behalf of which ACC made deposit :
  • name,
  • business type* and
  • address*

Because the 24-hour rule is NOT indicated, the above information in Part F is mandatory, so Bank ABC is required to provide this information.

 

Date answered: 2019-05-15

PI Number: PI-9978

Activity Sector(s): Financial entities

Obligation(s): Reporting

Regulations: 12(1)(a) and Schedule 1 PCMLTFR

Act: 9(1)

Address to report for military bases

Question:

I have to report an EFT, but it was sent from a military base. What address do I put in the EFT report?

Answer:

There is no special "allowance" for military bases. When a financial entity is in receipt of an incoming electronic funds transfer (EFT), then, pursuant to paragraph 9.5(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the financial entity must take reasonable measures to ensure that any transfer that the person or entity receives includes name, address, and account number or other reference number, if any, of the client who requested it. Because this is a reasonable measures obligation, Appendix 1B of Guideline 8A ■ submitting non-swift electronic funds transfers to FINTRAC, does not have the ordering client's address fields marked with an asterisk. This indicates that the financial entity must make reasonable efforts to get the information. If the information is available to the financial entity, then it must be reported. However, if the information was not available at the time of the transaction, and it is not contained in the financial entity's files or records, the field may be left blank.

That said, where an address is available to the reporting entity and is to be included in a report submitted to FINTRAC, a P.O. Box does not meet the requirements outlined in the Schedules to the Regulations. Although the PCMLTFA and its Regulations do not define an address, FINTRAC has indicated that a post office box is not considered a valid or legitimate address because post office boxes are allocated to clients by the post office so they can receive their mail. The required address refers instead to the client's physical address. It should be information relevant to help locate the person physically. In the case of a military base, the name of the base (e.g., Canadian Air Force Base 1234, France) should suffice as this information can be used to physically locate the sender of the EFT.  Should a base, however, have multiple locations, then the reporting entity would be required to provide a civic address of the specific base location, or as much description as possible to specify the location of the sender or beneficiary.

Date answered: 2019-05-06

PI Number: PI-9964

Activity Sector(s): Casinos, Financial entities, Money services businesses

Obligation(s): Reporting

Act: 9(1), 9.5

Reporting STRs for out of country transactions

Question:

How do we complete an STR report for a transaction that was conducted outside of Canada?

Answer:

Pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and subject to section 10.1 of the PCMLTFA, every person or entity referred to in section 5 of the PCMLTFA shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or

(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing

FINTRAC has taken the position that financial entities operating in Canada are required to report completed or attempted suspicious transactions that occur in the course of their activities outside of Canada, if these transactions have a material connection to Canada. A material connection to Canada should be determined on a case by case basis, given the specific facts of each situation. In most instances, if the only link to Canada is the client's Canadian mailing address, this will not be sufficient to establish a material connection and require an STR. However, if the suspicious transaction(s) happen to involve funds originating from or to a Canadian account, this may amount to a material connection and be sufficient to require an STR. Again, this determination should be made based on the facts of each individual case. This is in line with the purpose of the PCMLTFA, which is to assist in protecting the integrity of Canada's financial system through the detection and deterrence of money laundering and terrorist financing.

Given the system requirements of Batch and F2R, STRs for transactions attempted or completed outside of Canada should be reported as follows:

  • Part A: The address of the entity's head office.
  • Part B: Information about the transaction or attempted transaction.
  • Part C: Account information, if applicable.
  • Part D: Information on the person conducting or attempting to conduct the transaction.
  • Part E: Information on the entity on whose behalf transaction is conducted or attempted, if applicable.
  • Part F: Information on the person on whose behalf transaction is conducted or attempted, if applicable.
  • Part G: Description of the suspicious activity. In this case, this would include the specific details of the transaction, including specific details on the foreign location associated with the transaction.
  • Part H: Action taken, if applicable.

Date answered: 2019-05-03

PI Number: PI-9962

Activity Sector(s): Financial entities

Obligation(s): Reporting

Regulations: PCMLSTRR Schedule 1

Act: 7

Request for disclosure of information from FINTRAC

Question:

How long does FINTRAC keep the reports it receives? Can I see any reports sent to you about me?

Answer:

Please note that we are unable to speak to what, if any, records FINTRAC has received or retains as they relate to any individual. As such, we have provided general information with respect to the duties and obligations set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

Pursuant to paragraph 54(1)(d) of the PCMLTFA and subject to section 6 of the Privacy Act, FINTRAC shall retain each report received under paragraph 54(1)(a) of the PCMLTFA, including electronic funds transfer (EFT) reports, and all information referred to in paragraph 54(1)(a) or (b) of the PCMLTFA for 10 years beginning on the day on which the report is received or the information is received or collected.

FINTRAC's ability to disclose information is set out in the PCMLTFA, beginning at section 55. Pursuant to subsection 55(1) of the PCMLTFA, except in the prescribed circumstances, the Centre shall not disclose the information contained in a report received, including an EFT report, or the information provided to the Centre. However, as an example, pursuant to subsection 55(3) of the PCMLTFA, if the Centre, on the basis of its analysis and assessment, has reasonable grounds to suspect that designated information would be relevant to investigating or prosecuting a money laundering or a terrorist activity financing offence, the Centre shall disclose the information to the appropriate and prescribed entity(ies).

As such, FINTRAC is only able to disclose certain information to prescribed persons or entities and only under the prescribed conditions.

Date answered: 2019-04-17

PI Number: PI-9960

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): Reporting

Act: 54(1), 55(1) and 55(3)

Using another account for EFT purposes

Question:

My business doesn’t have a bank account for its MSB activities. Can I use my lawyer’s account to accept customer funds?

Answer:

Pursuant to paragraphs 28 (1)(b) and 28(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every money services business shall report to FINTRAC:

  • the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
  • the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

 

In the scenario provided, the MSB appears to be using the lawyer as an agent for the electronic funds transfer transactions. The lawyer is not the ordering client, nor is the lawyer a person acting on behalf of the ordering client. The relationship between the lawyer and the MSB is such that the lawyer is acting on behalf of the MSB for the purpose of carrying out these electronic funds transfer transactions. As such, the MSB continues to have reporting obligations for both outgoing and incoming transactions. In addition to the associated reporting obligations, the MSB is required to include additional information in its registration form, pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations. That is, the MSB must include:

  • Part B - name, address, account number and branch number or transit number of every financial entity with which the applicant maintains an account for the purposes of remitting or transmitting fund
  • Part C - the lawyer's details because the lawyer is acting as an agent for the entity

 

With that said, I turn to the question on how to complete the EFT reports:

Outgoing Non-SWIFT electronic funds transfer report:

Part A : When the EFT was sent

Part B : Details about the customer who requested the EFT, including the customer's account information

Part C : information on the MSB

Part D : If applicable - third party information if customer is ordering on behalf of another a person or entity

Part E : Details on the person or entity that receives payment instructions

Part F : Information on the beneficiary of the EFT

Part G : If applicable - Information on the person or entity on whose behalf the beneficiary is receiving the funds

 

 

Incoming non-SWIFT electronic funds transfer report:

Part A : When the EFT was sent

Part B : Details about the customer who requested the EFT, including the ordering customer's account information

Part C : Information on the business that sent the EFT for a customer

Part D : If applicable - third party information if customer is ordering on behalf of another a person or entity

Part E : Information on the MSB

Part F : Information on the beneficiary of the EFT

Part G : If applicable - Information on the person or entity on whose behalf the beneficiary is receiving the funds

You will note that the only place to include account information is specific to the ordering client. As such, the lawyer's account number will not be included in the EFT reports. The lawyer's account information must, however, be included in the MSB's registration form.

Date answered: 2019-04-09

PI Number: PI-9956

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: Guideline 8A

Regulations: 28(1)(a), 28(1)(b), Schedule 5 and Schedule 6

Act: 9(1)

STRs and the legalization of cannabis

Question:

I would like to know if we are going to be expected to report all transactions conducted by legal cannabis businesses as suspicious?

Answer:

Pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), every reporting entity is required to report an STR to FINTRAC for every financial transaction that occurs or that is attempted in the course of its activities, and for which there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering or terrorist activity financing offence.

FINTRAC has indicated in its Guidance that “reasonable grounds to suspect” is a conclusion that you reach based on an assessment of facts, context, and indicators associated with the financial transaction(s). However, it is possible to have one piece of information that is so compelling that it leads you to start an assessment of potentially related transactions or immediately submit an STR to FINTRAC.

In addition, your suspicion must be reasonable, meaning, for example, that it cannot be biased or prejudiced. It is determined by what is reasonable in the circumstances, which will vary based on the type of reporting entity and reporting sector, and from one client to another.

With that being said, reporting entities should evaluate transaction(s) in terms of what seems appropriate and within normal business practices based on their knowledge of their client.

 

If one or more transaction conducted by a legal cannabis business leads a reporting entity to determine that there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering or terrorist activity financing offence, then an STR must be submitted to FINTRAC.

Date answered: 2018-10-17

PI Number: PI-8760

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): Reporting

Act: 7

Reporting conductor ID when dual process method used to ascertain ID

Question:

What ID information do we include when completing an LCTR if the conductor was identified at account opening using the dual method process form of ID?

Answer:

The objective of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act  is to help detect and deter money laundering and the financing of terrorist activities, as well as facilitate investigations and prosecutions of money laundering and terrorist activity financing offences. To this end, when an entity has used the dual process method to ascertain identification, so is only required to include one source under the identifier information of a report, the information that would best serve to facilitate investigations is always preferred. However, we cannot promote, or require a reporting entity to use, one piece of information over another. 

While there is no requirement, at paragraph 64.2(d) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), for the reporting entity to record issuing jurisdiction and country when using the dual process method to ascertain identification, the reporting entity is required to record the source of the information. As such, when reporting, FINTRAC would expect the issuing jurisdiction and country to align with the source of the information, but would only expect, as per the validation rules, that the reporting entity include the country of issue for the dual process method. 

For example, if the statement from any Canadian financial institution (e.g., bank, credit union, trust company, etc.) is used to ascertain identification under the dual process method, then FINTRAC would expect to see Canada in Field D14 – Country, and the reporting entity could leave blank Field D15 – Province or State. Similarly, if a utility statement from a foreign country is used pursuant to 64(1)(d) of the PCMLTFR, then FINTRAC would expect to see the name of the foreign country in Field D14 – Country, and Field D15 – Province or State, could also be left blank. 

Date answered: 2018-06-13

PI Number: PI-9122

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): Reporting

Regulations: 64(1)(d), Schedule 1

Act: 9(1)

NAICs codes in LCTR

Question:

Is it possible to use the NAICS code in the "Type of Business" field of the Large Cash Transaction Report (LCTR)?

Answer:

The guidance that we have consistently given in relation to both fields F2 – Type of Business and D17 – Individuals’ occupation, is to be as descriptive as possible. We’ve indicated to reporting entities that they must provide information that clearly describes the business or occupation rather than using general terms. After reviewing the 6-digit NAICS codes, it would appear that these offer the necessary level of description to be used to describe the "Type of Business" in field F2 of the Large Cash Transaction Report, but only if they include “NAICS” or “SCIAN”  along with the 6-digit code.   
 

Date answered: 2018-06-01

PI Number: PI-9118

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): Reporting

Regulations: Schedule 1

Act: 9(1)

LCTR obligations with wholesale suppliers

Question:

We have 3 wholesale suppliers for foreign currency.                                                                                                                                                                                                                                                                                                                                                                                                                                        

A) We buy and sell from these suppliers.  The notes are received by cash which are held at our processing facilities in Canada.  Settlement (payment against supplied currency) happens by wire or by cash.

B) Once we have the supply in our processing facility from our wholesalers, we buy and sell to our MSB clients in Canada.  We supply the notes (foreign currency) in cash delivered by armoured car to client MSB, and settlement (payment against supplied currency) happens by wire (to our bank account) or cash (armoured car).

In scenario A, when we receive cash of $10,000 CAD or more from our wholesale supplier delivered to the armoured car facility – do we have to report a large cash transaction?                                                             

In scenario B, when we receive a settlement for foreign currency in cash or by wire from our MSB client of $10,000 CAD or more do we have to report as an EFT or large cash transaction?

Answer:

The obligation to report is specific to the transaction being conducted.  If MSB A is approaching other MSBs to use their exchange services, then MSB A is the client for that exchange. However, if another entity is using MSB A's services for the purpose of an exchange, then that other entity is MSB A's client, and the transactions must be considered against the obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations.

Scenario A
Pursuant to paragraph 28(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) every money services business (MSB) must 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 a financial entity or a public body. 

In Scenario A, where MSB A approaches another entity to replenish MSB A's store of foreign currencies, the amount of fiat currency that MSB A receives from that other entity, even if in cash, is not an amount received from a client. Rather, MSB A is the client of the other entity, from which MSB A received the fiat currency. As such, there are no large cash transaction obligations.   

That said, MSB A indicated that they buy and sell from their suppliers. If a wholesaler approaches MSB A to purchase a fiat currency, and the wholesaler uses cash to purchase the fiat currency from MSB A, then this is considered as cash received from a client. While the cash itself is received at the processing faciliyt, that facility is acting on behalf of MSB A. Should the amount of cash received be equivalent to CAD $10,000 or more in a single transaction, then MSB A has the large cash transaction obligations.  

Scenario B

Similar to Scenario A, if MSB A sells foreign currency to a client, and the client pays cash for the foreign currency, then this is considered as cash received from a client. While the cash itself is received at the processing facility, the facility is, again, acting on behalf of MSB A. If the amount of cash received is $10, 000 or more in a single transaction, then MSB A has large cash transaction obligations. If a client pays for a foreign currency exchange using a wire transfer to MSB A, then this does not constitute a cash transaction, so would not trigger the large cash transaction obligations, even if the payment is $10,000 or more. 

Furthemore, to receive payment for a foreign currency exchange transaction  by means of a wire transfer is not considered a remission or transmission of funds by MSB A. The receipt of payment for a service is not a remitting or transmitting activity, because MSB A does not send or receive funds at the instruction of a client; rather MSB A is the beneficiary of a wire transfer. 

Date answered: 2018-05-03

PI Number: PI-9114

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Regulations: 28(1)(a)

Act: 9(1)

STRs with no financial transaction

Question:

In situations where no transactions occurred or were attempted, but suspicious indicators were present are we supposed to file an STR?  The PCMLTFA says a report must be filed if a financial transaction occurs or is attempted where there are reasonable grounds to suspect that they are related to either a money laundering or terrorist financing offence.  Does this mean that an STR or ASTR is not required in situations not involving financial transactions? 
 
Example 1: If a financial entity client enters the branch, and asks the teller a series of questions that the teller determines to be suspicious.  No transaction occurs or is attempted.  The questions (and subsequent follow-up) contain the following indicators from Guidance:
 
Client makes inquiries that would indicate a desire to avoid reporting.
Client seems very conversant with money laundering or terrorist activity financing issues.
You are aware or you become aware, from a reliable source (that can include media or other open sources), that a client is suspected of being involved in illegal activity.
 
In this situation, no financial transaction occurs or is attempted.  Is an ASTR required, if the financial entity determines that the encounter was suspicious?  If so, how would this transaction be reported, given that there is no information to enter in the mandatory fields of the ASTR?
 
Example 2: A financial entity receives an RCMP production order for client statements for a financial entity client.  The financial entity reviews the member’s transaction history, but no transactions appear to be related to a money laundering or terrorist financing offence.  Would an STR be required, based on the production order? FINTRAC has indicated that a report should be filed in this scenario.  If so, how would the report be entered, if there are no transactions to enter in the mandatory fields of the STR?
 

Answer:

The requirement to report a suspicious transaction to FINTRAC is identified in section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and explains that “Subject to section 10.1, every person or entity referred to in section 5 shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.”

From your questions and the examples provided, it seems there may be some confusion regarding the presence of indicators, as explained in the FINTRAC guidance, and the reaching of reasonable grounds to suspect for reporting purposes. In determining whether there are reasonable grounds to suspect, a reporting entity should consider the context of the situation and all related factors. This includes assessing what is appropriate for the business and products used, as well as what is known about the client. Determining whether there are reasonable grounds to suspect that a transaction or attempted transaction is related to the commission of a money laundering offence or a terrorist activity financing offence could be based on various factors, or a single factor, depending on the situation. The indicators provided in the FINTRAC guidance are meant to help reporting entities assess the possibility of money laundering or terrorist financing suspicions. The indicators are provided as examples, and must be considered in relation to the context and various factors associated to a situation. There are times a single indicator may not be sufficient for a reporting entity to reach reasonable grounds to suspect. However, in other circumstances, the presence of a single indicator may be enough.

To address your question, yes, a financial transaction must have occurred or been attempted for the suspicious transaction reporting requirements to apply. That said, it is possible that an attempted transaction may have been initiated by a client, but not completed. As specified in the FINTRAC Guideline 3A: Submitting Suspicious Transaction Reports to FINTRAC Electronically, in the case of an attempted transaction, Part B would include information about how the transaction was proposed to be completed.

Therefore, in the example you provided, if an individual approached a teller with a suspicious line of questioning that related to a transaction, but the transaction was not completed, and the financial entity determined that it had reasonable grounds to suspect the transaction was related to the attempted commission of a money laundering or terrorist activity financing offence based on the context of the situation and the facts associated, then the financial entity must submit an STR to FINTRAC. The same would be true if a production order was received for a client, and, in context, the financial entity had reasonable grounds to suspect that upon a review of that client’s transactions it had reasonable grounds to suspect they were related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence. In both examples, the determination of whether an STR is required would have to be made on a case-by-case basis.

For more information on how to submit an STR to FINTRAC, please consult the FINTRAC Guideline 3A, if the report is to be submitted using F2R. This Guideline indicates that certain information with a * may be left blank in the case of an attempted transaction where information is not available. Similarly, if the report is to be submitted by batch, Module 2 Suspicious transaction report specifications  indicates that for an attempted transaction, if the information is not available, the field may be space-filled.

It is important to also note that information obtained about a client should be considered as part of a financial entity’s risk assessment, which must consider all clients and business relationships. Therefore, in situations where information is obtained and a financial entity determines that it has not reached reasonable grounds to suspect, the information should be used to consider the overall risk of a money laundering or terrorist activity financing offence that is associated with the client.    

Date answered: 2018-03-19

PI Number: PI-8466

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): Reporting

Guidance: Guideline 3A: Submitting Suspicious Transaction Reports to FINTRAC Electronically

Act: 7

Receipt of virtual currency

Question:

We have two questions:
1.       Does the use of bitcoin or any other virtual currency in a real estate purchase or sale mean the transaction should automatically be reported as suspicious? We are not aware of any FINTRAC guidance to-date that states it does and it was our understanding that this was merely one factor to consider in determining whether the transaction is suspicious.
2.       If more than $10,000 CAD in bitcoin or other virtual currency is received by a broker or sales representative does a large cash transaction record need to be kept and large cash transaction report need to be filed? We note that the definition of “cash” under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, SOR/2002-184 means “coins referred to in section 7 of the Currency Act, notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are intended for circulation in Canada or coins or bank notes of countries other than Canada” does not appear to include virtual currency and it was our understanding that a receipt of funds record – rather than a large transaction record and report – needs to be kept in such circumstances.

Answer:

The requirement to report an STR to FINTRAC is identified at section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which states that “Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence”.

FINTRAC’s guidance on Suspicious Transactions indicates that “reasonable grounds to suspect is determined by what is reasonable in your circumstances, including normal business practices and systems within your industry”. As such, determining whether a real estate transaction is suspicious will always be a question of fact and will vary from one business to another, and from one client to another. It is for each real estate broker or sales representative, on a case-by-case basis and in the course of its business activities, to determine whether or not a transaction is suspicious.

If a real estate broker or sales representative reaches its “reasonable grounds to suspect” that a real estate transaction involving virtual currency is related to the commission or the attempted commission of a money laundering or a terrorist activity financing offence, an STR must be submitted to FINTRAC. The STR could be solely based on that one indicator, or it could also outline a series of other suspicious transaction indicators that may on their own seem insignificant, but together may raise higher suspicions.

For more information, we invite you to consult FINTRAC’s STR guidance, which further provides parameters for Identifying Suspicious Transactions , and outlines a numbers of Indicators of suspicious transactions,  Examples of Common Indicators and Examples of Industry-Specific Indicators, that can be included in the real estate broker or sales representative’s assessment.

You have also asked “If more than $10,000 CAD in bitcoin or other virtual currency is received by a broker or sales representative does a large cash transaction record need to be kept and large cash transaction report need to be filed”. You have further stated that “it was our understanding that a receipt of funds record – rather than a large transaction record and report – needs to be kept in such circumstances”.

Pursuant to section 38 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every real estate broker or sales representative must submit a large cash transaction report to FINTRAC when they act as an agent in respect of the purchase or sale of real estate and they receive an amount in cash of $10,000 or more in the course of a single transaction, unless the amount is received from a financial entity or a public body. In addition, real estate brokers and sales representatives are also required to keep a large cash transaction record, as per subsection 39(2) of the PCMLTFR. Cash is defined at subsection 1(2) of the PCMLTFR as “coins referred to in section 7 of the Currency Act, notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are intended for circulation in Canada or coins or bank notes of countries other than Canada”.

Furthermore, in accordance with paragraph 39(1)(a) of the PCMLTFR, a receipt of funds record must be kept in respect of every amount that is received by the real estate broker or sales representative in the course of a single transaction, unless the amount is received from a financial entity or a public body. Subsection 1(2) of the PCMLTFR defines “funds” as “either cash; or currency, securities, negotiable instruments or other financial instruments, in any form, that indicate a person’s or entity’s title or right to, or interest in, them”.

As you have indicated, and based on our understanding, it appears that virtual currency does not fall within the definition of cash nor funds. Thus, when a real estate broker or sales representative receives virtual currency in respect of a purchase or sale of real estate, even if the value is of an amount of $10,000 or more, there are no large cash transaction or receipt of funds record requirements associated with this type of transaction.

That said, it is important to note that under the PCMLTFA and its associated Regulations, real estate brokers and sales representatives are required as part of their compliance program to assess, in the course of their activities, the risk of money laundering and terrorist activity financing offences associated with their business, clients and services. They must also implement measures to mitigate the risks identified, in a manner that is appropriate for, and tailored to, their business operations. As a result, and as per paragraph 71(1)(c) of the PCMLTFR, if a real estate broker or sales representative was to conduct real estate transaction where virtual currency may be involved, such activity must be taken into account as part of their compliance program’s policies and procedures and risk-based approach.

Otherwise, there are no special or additional requirements under the PCMLTFA and its associated Regulations specifically regarding the use of virtual currency in a real estate transaction. Also, FINTRAC does not prescribe who a real estate broker or sales representative can or cannot provide real estate services to, and as such, it is for each real estate broker or sales representative to determine what is considered acceptable for its business operations. FINTRAC cannot comment on day-to-day business practices or industry decisions.

Date answered: 2018-03-19

PI Number: PI-8463

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): Reporting

Regulations: 1(2), 38, 39(1)(a), 71(1)(c)

Act: 7

Type of business and nature of principal business

Question:

We would like to know what constitutes the “Entity’s Type of Business” in Part F of Schedule 1. Is the “type” of business the same as the “nature” of business? Would it be acceptable to capture the type of legal entity (i.e. corporation or incorporated association) in Part F of the LCTR?

Answer:

Schedule 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specifies at Part F, the Information on Entity on Whose Behalf Transaction Is Conducted (if applicable), and requires information with respect to the “entity’s type of business”. This information is mandatory, if applicable.

While an entity’s “type of business” is required under the PCMLTFR for reporting purposes, the PCMLTFR requires the “nature of principal business” for clients that are entities, to fulfil record keeping obligations. Generally speaking, the record keeping and reporting requirements outlined in the PCMLTFR are meant to complement each other, so that information kept in records on a client can easily be retrieved and reported to FINTRAC as required.

Therefore, while it is not explicitly stated in FINTRAC guidance, it is commonly understood that information used for “type of business” should be similar to the information kept in records for “nature of principal business”. The concept for both of these requirements is essentially the same. Similar to the information on occupation required for individuals, the information obtained for clients that are entities must describe their business activities so that a reporting person or entity can gain a better understanding of their client, and can properly assess any risk of a money laundering offence or terrorist activity financing offence. This not only helps a reporting person or entity to protect and maintain the integrity of their business, but also helps contribute to the integrity of the Canadian financial system as a whole. Consequently, simply capturing whether an entity is a “corporation” or “incorporated association” is not sufficient for this purpose.

Date answered: 2017-07-19

PI Number: PI-8108

Activity Sector(s): Financial entities

Obligation(s): Reporting

Regulations: Schedule 1

Legal land description as an address

Question:

I am seeking clarification regarding whether a legal land description satisfies the requirements of an address when the conventional civic address does not exist.

Answer:

FINTRAC has previously indicated that the address referred to in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) is the physical address where the client lives or where the physical location of the place of business is found. In cases where the client resides in an area where there is no civic address, a description, in as much detail as possible, of all information or features that may be useful to locate the physical location of the person is required.

For intelligence purposes, obtaining a precise description of an address allows FINTRAC to analyze evidence and to establish connections between a client’s physical location, financial transactions and trends that are suspected of being related to money laundering, terrorist financing or other threats to the security of Canada. This is also of great importance when disclosing intelligence to partners, which can contribute to criminal investigations by identifying new targets or hidden proceeds of crime and by disclosing facts that are necessary in obtaining warrants. 

Therefore, to address your question, it has been determined that a legal land description can be acceptable, so long as the legal land description is specific enough to pinpoint the physical location where the client lives.

That said, if the legal land description rather refers to an area or a parcel of land on which multiple properties are located, the legal land description would not, in this case, be sufficient. It could replace the absence of a postal code, but would not in itself be an address for the purpose of the PCMLTFR.

Date answered: 2017-05-31

PI Number: PI-7654

Activity Sector(s): Money services businesses

Obligation(s): Verifying identity, Record Keeping, Reporting

Operational Briefs and Alerts - Verification of list

Question:

I would like to obtain more information about the Operational Alert: Identification of higher risk currency exchange houses in Daesh - accessible territory in Iraq. Specifically, should Credit Unions compare the names listed in this brief to the names of members in the credit union, and would this comparison be just like the terrorist name/entity compare?

Answer:

Operational Briefs and Alerts provide indicator-based information for reporting entities on specific money laundering and terrorist financing issues, with a focus on methods, threats, and vulnerabilities. These products are intended to support reporting entities in meeting their compliance obligations, to assist them with factors to consider in their risk assessments, and provide an additional information resource when they consider their need for possible risk mitigation.

More specifically, this Operational Alert provides specific guidance to Canadian reporting entities about named foreign financial entities (noted in Appendix A) through which the Canadian financial system could be exposed to Daesh-related terrorist financing. In this context, FINTRAC is reminding all reporting entities subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations of their obligations to submit suspicious transaction reports (STR) and terrorist property reports (TPR) to FINTRAC and to risk assess their clients accordingly.

The requirement to report an STR to FINTRAC is identified at section 7 of the PCMLTFA, which states that “Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence”.

Regarding the TPR obligation, subsection 7.1(1) of the PCMLTFA stipulates 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”. FINTRAC’s Guideline 5: Submitting Terrorist Property Reports to FINTRAC, and FINTRAC’s website further indicate that a TPR must be sent to FINTRAC, without delay, when reporting entities have property in their possession or control that they know is owned or controlled by or on behalf of a terrorist or a terrorist group.

As part of its compliance program and in accordance with paragraph 71(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a reporting entity must assess and document its risks in relation to money laundering offences or terrorist activity financing offences. The risk assessment must take into consideration the reporting entity’s: 
• clients and business relationships,
• products and delivery channels,
• geographic location of its activities, and
• any other relevant factor(s).

Therefore, to answer your question, in order to meet the obligations outlined within the PCMLTFA and its associated Regulations, it is recommended that reporting entities compare the names listed in Appendix A to current and future clients. Clients should be assessed as high-risk as applicable, and prescribed special measures must be applied, as required under section 71.1 of the PCMLTFR.

Date answered: 2017-03-07

PI Number: PI-7660

Activity Sector(s): Financial entities

Obligation(s): Verifying identity, Compliance Program, Reporting

Guidance: Compliance Program, 5

Regulations: 71(1)c)

Act: 7, 7.1(1)

LCTRs required for completed transactions only

Question:

I am seeking clarification regarding the requirements associated to the large cash transaction report (LCTR), and specifically whether an LCTR is required for an attempted transaction.

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) specifies at subsection 9(1) that “Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner,
(a) any financial transaction, or any financial transaction within a class of financial transactions, specified in a directive issued under Part 1.1 that occurs or that is attempted in the course of their activities; and
(b) any prescribed financial transaction that occurs in the course of their activities.”

For financial entities, paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), further establishes that, subject to section 50 and subsection 52(1), every financial entity must 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.”

Our previous interpretation indicated that the reporting obligation pertains to the “receipt” of funds, and this was understood to be the point at which the reporting entity was physically in receipt of the funds. While, for LCTRs, paragraph 9(1)(b) of the PCMLTFA refers to reporting a prescribed transaction that occurs, our previous interpretation was that the PCMLTFR prescribes that the transaction occurs at “the receipt from a client of an amount in cash”, whether or not the transaction had been completed. Following a review of this interpretation, however, it has been decided that for a large cash transaction to be reportable it must be completed. Meaning that, in most cases, the reporting entity must have physically received the funds, and have posted the funds to its system, or have created a record if it has no system. Essentially the funds must be on the books and records of the reporting entity.

Date answered: 2017-01-18

PI Number: PI-7666

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)a)

Act: 9(1)

Address for transient Canadian or foreign clients

Question:

What type of information should be provided in reports for the address of clients who are transient and do not have a set physical address? For example, people living in cars, RV’s, working in camp and then staying in a motor home on their days off and people visiting Canada and travelling/living in Canada with only an RV and no fixed address.

Answer:

While it appears that you have inquired about the implications for reporting only, it is important to highlight the fact that a client’s address is also required to fulfil certain record keeping obligations and may be required to ascertain a client’s identity, depending on the method used.

FINTRAC has previously indicated that the address referred to in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations is the physical address where the client lives or where the physical location of the place of business is found.

Therefore, for Canadian residents, their permanent Canadian address is required, even if that is not where they are currently residing; for foreign clients travelling in Canada for a short period of time, their foreign residential address is required; and should the foreign client be living in Canada for a longer period of time (e.g. a student or new comer to Canada), then the client’s temporary Canadian address should be provided.

Date answered: 2016-10-25

PI Number: PI-7650

Activity Sector(s): Casinos

Obligation(s): Verifying identity, Record Keeping, Reporting

Multiple payers on behalf of the same person

Question:

As a dealer in precious metals and stones (DPMS), I am seeking clarification regarding the 24-hour rule and the large cash transaction reporting requirements. A man is shopping for an engagement ring. He has family members with him. His father contributes $2,000.00, his mother $4,000.00, his brother $2,000.00 and he pays the balance of $3,000.00 for a total of $11,000.00 cash. Specifically, I am asking whether these multiple cash transactions of less than $10,000 each, that are conducted by multiple individuals on behalf of the same man, are considered to be one transaction, and whether this is reportable as a large cash transaction under the 24-hour rule.

Answer:

Section 39.2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) requires every DPMS that is subject to Part 1 of the PCMLTFA and that receives an amount in cash of $10,000 or more in the course of a single transaction to report the transaction to FINTRAC, with the information set out in Schedule 1, unless the cash is received from a financial entity or a public body.

In accordance with subsection 3(1) of the PCMLTFR, a single transaction occurs in situations where two or more cash transactions of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more, if the person, or the employee or senior officer of the entity knows that the transactions are conducted by, or on behalf of, the same person or entity.

As a result, when a cash transaction of less than $10,000 is received, the DPMS must consider all cash transactions of less than $10,000 that have been carried out by, or on behalf of, the same individual within a 24 hour period.

In the scenario provided, as a DPMS, you have received multiple cash transactions of less than $10,000 each, that have been conducted on behalf of the same person within a 24 hour period, and that total an amount in cash of more than $10,000. Additionally, you know the transactions were conducted on behalf of the same person. Therefore, these cash transactions are reportable as a single large cash transaction to FINTRAC under the 24-hour rule. In this case, “yes” must be selected in the 24-hour rule indicator field of the large cash transaction report and the report must contain information on all of the cash transactions considered to be a single transaction of $10,000 or more.

Date answered: 2016-10-19

PI Number: PI-7646

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

Obligation(s): Reporting

Guidance: FIN-4, 7

Regulations: 3(1), 39.2

Ordering client on EFT reports for trust accounts

Question:

Who are the ordering clients of outgoing EFTs in the case of inter-vivos trusts and estate accounts?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines an EFT as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

The reports submitted must identify the client providing instructions for the transfer of funds. A financial entity should not identify itself as the ordering client. Therefore, in the case of an inter-vivos trust, the settlor’s information is to be included. In the case of an estate account, it is the estate as an entity that is to be included.

Date answered: 2016-09-26

PI Number: PI-6911

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 14(m)(ii)

Indirect clearing - LCTR reporting when conductor info not obtained

Question:

I am seeking confirmation in regards to the requirements for large cash transaction reporting for indirect clearers. More specifically, I would like confirmation that a reporting entity is not required to file a large cash transaction report (LCTR) in the context of over the counter deposit services, provided by a financial entity, when the reporting entity is not able to obtain the conductor’s information.

Answer:

It is our understanding that you are requesting guidance with respect to the application of the 24-hour rule in the context of a financial entity that has entered into an agreement that allows their clients to make cash deposits at another financial entity’s place of business.

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), and 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.” Subsection 3(1) of the PCMLTFR specifies that a single transaction occurs when two or more cash transactions of less than $10,000 each are made within 24 hours and total $10,000 or more, if the person, or the employee or senior officer of the entity required to keep the large cash transaction record knows the transactions were conducted by, or on behalf of, the same person or entity.

We have said previously that in the case where a financial entity has entered into an agreement that allows their clients to make cash deposits at another financial entity’s place of business, it is the responsibility of the financial entity that holds the client’s account to fulfill the record keeping and reporting obligations. This arrangement generates a principal/agent relationship whereby the client is deemed to be engaged in a financial transaction with the financial entity that holds their account, by means of an agent. As such, FINTRAC anticipates the creation of a formal agreement to outline the agent/principal relationship and establish the obligations of both parties regarding, but not limited to, how the account holding institution would be informed by the receiving institution of a large cash transaction, and the related information that must be obtained and communicated, such as the conductor information.

That being said, in the context of a cash deposit of less than $10,000, should the financial entity not have the conductor’s information, then it cannot know whether the transaction was conducted by, or on behalf of, the same person or entity, and the financial entity is not required to report a large cash transaction.

However, if the financial entity, as a business practice, collects “by or on behalf of” details for cash deposits of less than $10,000, or has a system that gathers this information, then the entity would be deemed to know that the deposits were made “by or on behalf of” the same individual or entity, should this be the case.

As indicated in FINTRAC’s Guidelines, “on behalf of” refers to the instructing party to a transaction and not the beneficiary of said transaction. The large cash transaction obligations are not triggered at the account level.

Date answered: 2016-09-08

PI Number: PI-6903

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 3(1), 12(1)a),

Incorrect beneficiary information

Question:

In situations where a financial entity in Canada receives an incoming electronic funds transfer (EFT) transmitted through another reporting entity in Canada, and the incoming EFT contains incorrect beneficiary information, would this still be reportable? Specifically, are these situations reportable if the name or address is provided for the beneficiary; however, this name or address is different than the name or address on record?

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), an EFT is defined as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Paragraph 12(1)(c) of the PCMLTFR further specifies that every financial entity must report the receipt from outside Canada of an EFT, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be. For this reason, we have said in the past that to be reportable an EFT must be:

  • client-initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Furthermore, subsection 12(5) of the PCMLTFR indicates that an incoming EFT report is not required to be submitted by a financial entity as per paragraph 12(1)(c), if it receives the EFT from another financial entity, MSB, or casino, subject to the Act, and the EFT contains the name and address of the beneficiary.

The receipt of an incorrect beneficiary name and/or address by a second financial entity in Canada, when it is aware that the information is incorrect, is equivalent to not receiving the beneficiary name and/or address. As a result, subsection 12(5) of the PCMLTFR cannot be applied by the second financial entity in Canada, and an incoming EFT report must be submitted to FINTRAC with the correct beneficiary name and/or address. 

Date answered: 2016-08-10

PI Number: PI-6893

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 12(1)c), 12(5)

Mobile ATM - Full address of place of business where transaction occurred

Question:

A financial entity is seeking FINTRAC's position regarding the information to be included in Part A of a Large Cash Transaction Report (LCTR) for a mobile ABM. By way of background: the financial entity announced that it would be setting up a branch and an ABM in a bus to serve customers. Questions arose as to what information should be provided in Part A of the LCTR about the place of business where the transaction takes place, given that the branch is mobile.

Furthermore, the financial entity noted that the mobile branch would not have a permanent associated address, although it would link up to a specific address on a daily basis. The financial entity did, however, specify that the mobile branch would follow a very specific pre-determined path, and that all of the financial entity's branches would be informed of this path. It was also noted that the mobile branch could be in constant movement, or could be stopped for a longer period of time, according to the agreement and the trip log, to be signed in advance with partners and users.

Answer:

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), and 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.”

In Part A of Schedule 1 of the PCMLTFR, it is specified that the information about the place of business where the transaction occurred must include the full address of this place of business.

Furthermore, pursuant to FINTRAC Interpretation Notice no. 5, entitled "Large Cash Transactions through Automated Banking Machines," if a large cash transaction is conducted at an ABM, or if a series of cash transactions at an ABM, or multiple ABMs, are considered to be a large cash transaction ($10,000 or more) based on the 24-hour rule, the information about the place of business where the transaction occurred must include the full address of the ABM where the transaction took place. 

Also, based on the information provided, it appears that the financial entity will be aware of the location of the mobile branch at all times.

In light of these facts, FINTRAC expects the information in Part A of the LCTR to include information about the financial entity that holds the customer account, as it is the financial entity that is responsible for complying with all the obligations set forth in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations. In the case of a single or a series of transactions conducted at the ABM, FINTRAC considers the customer to have conducted a financial transaction with the financial entity that holds its account. To this end, the financial entity that holds the account must have all the necessary information to be able to comply with its obligations.

Furthermore, information about the place of business where the transaction took place must include the full address of the location of the ABM where the transaction actually occurred. It should be noted that, in accordance with field B7 of Guideline 7, "How was the transaction conducted?", if the transaction took place at an ABM, the statement "Automated Banking Machine" must be selected. The financial entity that holds the customer's account is responsible for updating its locations in the F2R reporting system to include information about the address of the location of the ABM where the transaction in question actually took place. It is important that each location be entered individually in the F2R reporting system of the financial entity that holds the customer's account.

Date answered: 2016-08-05

PI Number: PI-6921

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-5, 7

Regulations: 12(1)a), Schedule 1

SWIFT and non-SWIFT EFTs - Knowing by or on behalf

Question:

Guidance regarding the application of the 24-hour rule and the requirement for financial entities to report electronic funds transfers (EFTs) has been requested. In support of the request, the financial entity has specified that it will be offering to its customers both SWIFT and Non-SWIFT products and has identified a situation where a customer could potentially send or receive both SWIFT and Non-SWIFT EFTs that aggregate to $10,000 or more within a 24 hour period. As a result, it has been asked how these EFTs should be reported to FINTRAC?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines an EFT as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Pursuant to subsection 12(1) of the PCMLTFR and “subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre:
b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be”.

In accordance with subsection 3(1) of the PCMLTFR, a single transaction occurs in situations where two or more EFTs of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more, if the person, or the employee or senior officer of the entity knows that the transfers are conducted by, or on behalf of, the same person or entity.

Whether an EFT is sent or received through a SWIFT or non-SWIFT message does not affect the application of the 24-hour rule and the requirement for financial entities to report EFTs conducted in a single transaction.

FINTRAC has taken the position that should there be a process in place to gather the “by or on behalf of” information for a transaction, then the entity is deemed to know that the transactions were conducted by or on behalf of the same person or entity, even where there is not a process in place to reconcile the information gathered.

Therefore, should the financial entity transmit or accept the transmission of client initiated instructions for the transfer of funds across the Canadian border, in two or more transactions (of less than $10,000 each) that add up to $10,000 or more, and that are conducted within 24 consecutive hours of each other; and should the financial entity have a process in place to gather the “by or on behalf of” information for the transactions, then it is deemed to know that these transactions are reportable EFTs conducted in a single transaction, regardless of whether the transactions were SWIFT or non-SWIFT. The transactions must be reported separately as EFTs to FINTRAC in the proper form and manner (i.e. SWIFT or Non-SWIFT), and the 24-hour rule indicator under Part A must be selected for each EFT report.

It should be noted that an exception to the 24-hour rule exists at subsection 3(2) of the PCMLTFR when an EFT is conducted in a single transaction as identified in subsection 3(1) of the PCMLTFR, and is sent or received for two or more beneficiaries, if the requestor is a public body, a large corporation (as identified in paragraph 62(2)(m) of the PCMLTFR), or the administrator of a federally or provincially regulated pension fund.

Date answered: 2016-06-15

PI Number: PI-6411

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 1(2), 3(1), 12(1)

LCTR for the value of precious metal coins

Question:

A client brings a dealer in precious metals and stones (DPMS) the value of $10,000 in precious metal coins for which the DPMS gives the client $10,000 cash. Would the DPMS be required to submit a large cash transaction report (LCTR) and would coins be part of the definition of cash?

Answer:

The answer to your question is yes – the DPMS would be required to submit an LCTR under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations.

According to section 39.2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), “Subject to subsection 52(1), every dealer in precious metals and stones that is subject to Part I of the Act and that receives an amount in cash of $10,000 or more in the course of a single transaction shall report the transaction to the Centre, together with the information set out in Schedule 1, unless the cash is received from a financial entity or a public body.”

Subsection 1(2) of the PCMLTFR defines cash as “coins referred to in section 7 of the Currency Act, notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are intended for circulation in Canada or coins or bank notes of countries other than Canada.” Paragraphs 7(1)(a) and (b) of the Currency Act state that “a coin is current for the amount of its denomination in the currency of Canada if it was issued under the authority the Royal Canadian Mint Act or the Crown in any province of Canada before it became part of Canada and if the coin was, immediately before October 15, 1952, current and legal tender in Canada.”

Additionally, FINTRAC’s Guideline 7A: Submitting Large Cash Transaction Reports to FINTRAC Electronically states that “Throughout this guideline, any references to dollar amounts (such as $10,000) refer to the amount in Canadian dollars or its equivalent in foreign currency. Furthermore, all references to cash mean money in circulation in any country (bank notes or coins). In this context, cash does not include cheques, money orders or other similar negotiable instruments.”

Therefore, it appears that if the DPMS receives the value of $10,000 or more in precious metal coins this would be the same as the receipt of $10,000 or more in cash. As a result, the DPMS would be obligated to report the transaction to FINTRAC as a large cash transaction under section 39.2 of the PCMLTFR.

Date answered: 2016-05-20

PI Number: PI-6424

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

Obligation(s): Reporting

Guidance: 7A

Regulations: 1(2), 39.2

Aggregation and reporting requirements in a rolling system

Question:

Clarification regarding the 24-hour rule and the large cash transaction reporting requirements for financial entities has been requested. In support of the request, an example has been provided where multiple cash transactions of less than $10,000 each are conducted by or on behalf of the same individual or entity within a 24 hour period, and the financial entity uses a rolling system.

Answer:

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), and 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”.

In accordance with section 3 of the PCMLTFR, for the purpose of large cash transactions, a single transaction occurs in situations where two or more cash transactions of less than $10,000 each are made within 24 consecutive hours and that total $10,000 or more, if the person, employee or senior officer of the entity knows that the cash transactions are conducted by, or on behalf of, the same person or entity.

In the context of a rolling system, when a cash transaction of less than $10,000 is received, the financial entity must consider all previous cash transactions of less than $10,000 that have been carried out by, or on behalf of, the same individual within a 24 hour period. If multiple cash transactions of less than $10,000 each exist within that 24 hour period and total $10,000 or more, this is reportable as a large cash transaction. In such cases, “yes” must be selected in the 24-hour rule indicator field of the large cash transaction report sent to FINTRAC, and the report must contain information on all of the cash transactions considered to be a single transaction of $10,000 or more.

Therefore, it is possible for a cash transaction to be reported more than once. In the example 3 from FIN no.4, the 4:00 p.m. Monday cash transaction would be an example of such a case. With that being said, a financial entity that uses a rolling system may choose to review the cash transactions conducted within a 24 hour period at a later date, within the reporting time frame, and aggregate the cash transactions into a single large cash transaction report. This would allow for the reporting of each cash transaction only once.

Specifically, in the example you provided, the first cash transaction of $4,000, conducted at 8:00 a.m. on Monday, is less than $10,000 and is not combined with any other cash transactions of less than $10,000. As a result, the 24-hour rule does not apply.

Later on, at 4:00 p.m. on Monday, a second cash transaction of $4,000 is conducted by the same individual. As detailed above, on a rolling system, all previous cash transactions under $10,000 that are made by or on behalf of the same individual within a 24 hour period must be considered, and if combined they total $10,000 or more, and the person, employee or senior officer of the entity knows they were conducted by or on behalf of the same individual or entity, then they meet the 24-hour rule and must be reported as a large cash transaction. In this example, when the financial entity reviews the cash transactions from the past 24 hours, it would see that the first cash transaction was conducted at 8:00 a.m. Monday. Therefore, at this time, multiple cash transactions of less than $10,000 have been conducted by or on behalf of the same individual or entity, but the amounts combined do not total $10,000 or more. So this is not reportable as a large cash transaction.

At 4:01 p.m. on Monday, a third cash transaction of $4,000 is conducted by the same individual. The financial entity would, again, have to consider all previous cash transactions made by or on behalf of that same individual within a 24 hour period under $10,000, and would see the first cash transaction at 8:00 a.m. and the second cash transaction at 4:00 p.m. The three cash transaction amounts combined total $12,000. Therefore, the 24-hour rule applies and a large cash transaction report must be submitted. The 24-hour rule indicator field on the report must identify “yes”, and the report must contain information about each of the three cash transactions.

At 4:02 p.m. on Monday, a fourth cash transaction of $4,000 is conducted by the same individual. In reviewing the previous cash transactions, the financial entity would see that three previous cash transactions of amounts less than $10,000 were made by the same individual within a 24 hour period. Combined, these transactions total $16,000 (an amount of $10,000 or more). Therefore, a large cash transaction report must be submitted to FINTRAC. The 24-hour rule indicator field on the report must identify “yes”, and the report must contain information about each of the four cash transactions. This same action would be required for the 4:03 p.m., 4:04 p.m., and 4:05 p.m. cash transactions once they occur.

At 4:06 p.m. on Monday, a cash transaction of $12,000 is conducted by the same individual. This amount on its own totals $10,000 or more, therefore, pursuant to paragraph 12(1)(a) of the PCMLTFR, a large cash transaction report must be submitted to FINTRAC with information about this cash transaction only. The 24-hour rule indicator field on the report should identify “no”.

If an additional cash transaction in an amount of less than $10,000 was made by or on behalf of the same individual after the 4:06 p.m. cash transaction on Monday, the financial entity would again have to consider all previous cash transactions of less than $10,000 made by or on behalf of that same individual within a 24 hour period from that new cash transaction, and would see the previous cash transactions prior to the 4:06 p.m. transaction. As a result, a large cash transaction report would have to be submitted to FINTRAC with the 24-hour rule indicator field identifying “yes”, and the report would have to include information about all of the cash transactions under $10,000 or more, that occurred within that 24 hour period. For example, if another $4,000 cash transaction was conducted by the same individual at 4:07pm on Monday, when the financial entity reviewed the cash transactions over the previous 24 hours, it would see the cash transactions at 8:00 a.m., 4:00 p.m., 4:01 p.m., 4:02 p.m., 4:03 p.m., 4:04 p.m., and 4:05 p.m. Combined, these cash transactions would amount to $10,000 or more, therefore a large cash transaction report would need to be submitted. The report should have “yes” identified in the 24-hour rule indicator field, and should contain information for each of the cash transactions.

The expectation to report large cash transactions conducted at multiples locations is consistent with the obligations outlined at section 3 and paragraph 12(1)(a) of the PCMLTFR. As a result, cash transactions that form a single transaction but that occur at multiple locations must be reported on separate reports with the information for each location identified in Part A. The 24-hour rule indicator field on each of the related reports should identify “yes”.

Date answered: 2016-05-13

PI Number: PI-6422

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4,

Regulations: 3, 12(1)(a)

LCTR obligations when multiple Money Services Businesses involved

Question:

Guidance regarding the large cash transaction reporting obligations of money services businesses (Money Services Businesses) has been requested. More specifically, a situation has been outlined where Money Services Businesses1 receives cash in an amount of $10,000 or more from a second Money Services Businesses (Money Services Businesses2) that has also received cash in an amount of $10,000 or more from a third Money Services Businesses (Money Services Businesses3), and it has been asked “whether there should be one report submitted, two reports submitted, or no report submitted”.

Answer:

Pursuant to paragraph 28(1)(a) of the Proceeds of Crime (Money laundering) and Terrorist Financing Regulations (PCMLTFR), every MSB is required to 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 a financial entity or a public body.”

A client is defined at section 2 of the Proceeds of Crime (Money laundering) and Terrorist Financing Act (PCMLTFA) as “a person or an entity that engages in a financial transaction or activity with a person or an entity referred to in section 5, and includes a person or an entity on whose behalf the person or the entity that engages in the transaction or activity is acting”.

Therefore, in regards to the described scenario, MSB1 has the obligation to submit a large cash transaction report (LCTR) to FINTRAC, as it received an amount in cash of $10,000 or more from MSB2 as a client. Similarly, MSB2 must submit an LCTR, as it received an amount in cash of $10,000 or more from MSB3 as a client.  

Date answered: 2016-05-05

PI Number: PI-6420

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 28(1)(a)

Act: 2

Applicability of the PCMLTFA to private sales

Question:

Are private sales directly between sellers and buyers subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations?

Answer:

Subsection 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. It is only every real estate broker or sales representative, when they act as an agent in respect of the purchase or sale of real estate that is subject to Part 1 of the PCMLTFA.

As such, when a person buys or sells property from another person without the involvement of a real estate broker or sales representative, the obligations of the PCMLTFA do not apply.

Date answered: 2016-03-23

PI Number: PI-6407

Activity Sector(s): Real estate

Obligation(s): Reporting

Regulations: 1(2)

Act: Part 1

Post office box as civic address

Question:

A financial entity is seeking to obtain clarifications from FINTRAC related to record-holding requirements and large cash transaction records (LCTRs) for clients “resident in regions where there are no civic addresses." More specifically, the financial entity asked “which information should be entered into which fields related to the civic address (number, street, postal code), considering that LCTRs are sent automatically” and that the address in the client’s (account holder's) file cannot be modified before it is sent?

Answer:

Sub-paragraph 1(2)(a)(ii) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) requires in the case of a large cash transaction that financial entities record the following information in the files of each of their clients: “the name of the person from whom the amount is in fact received, their address and date of birth and the nature of their principal business or their occupation.” Moreover, paragraph 12(1)(a) of the Regulations stipulates that “Subject to section 50 and subsection 52(1), every financial entity shall report … to the Centre 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 this amount is received from another financial entity or a public body.” Schedule 1 of the Regulations indicates the address is a mandatory field.

Although the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations do not define an address, FINTRAC has indicated previously that a post office box is not considered a valid or legitimate address because post office boxes are allocated to clients by the post office so they can receive their mail. The required address refers instead to the client’s physical address. When the client resides in a region where there is no civic address, FINTRAC has previously indicated that the financial entity should record in the client’s file all the smallest details, all the information or all the characteristics which might be useful for locating the person’s physical location. In light of these facts, and since the number and the street are included in a single field in the same LCTR, it seems that the proposed description of “the third house to the right after the community centre” meets the requirements related to the number and street address.

With regard to the postal code in an address, it is not mandatory to indicate it so that the address is “valid” or “complete.” Nevertheless, the financial entity must take reasonable measures to obtain or determine the client’s postal code, mainly based on the region where the client is living. We understand that there is no region in Canada that has not been assigned a postal code. If the financial entity knows the region where the client is living, it can use the Canada Post electronic search tool to find the postal code corresponding to the region of residence. If the financial entity has the information requested, it is required to provide it in the case of an LCTR. If the information is not available at the time of the transaction or recorded in the files, the financial entity can leave the corresponding field empty.

Having said this, for the purposes of the LCTR, the financial entity is mandated to collect information on the person making a large cash transaction and not the account holder. Thus, a system or a method must be put in place to allow the financial entity to obtain information on the person who actually deposits the cash. It is therefore not acceptable to enter the information related to the account holder in the fields related to the civic address, given the fact that this information may not be information on the person doing the transaction.

Date answered: 2016-03-02

PI Number: PI-6400

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

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

LCTR - "deposit to an account"

Question:

If a customer comes in with $10, 000 cash to send an international outgoing electronic funds transfer (EFT), does the large cash transaction report (LCTR) disposition in Part B2 have to be an outgoing EFT? In cases where the bank’s process is to deposit the funds into the customer’s account first before sending the EFT, should the disposition be “deposit to an account”, even though the customer’s intention is to send the outgoing EFT and not to deposit to an account?

Answer:

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), financial entities must report to the Centre 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. Schedule 1 of the PCMLTFR specifies that the financial entity must indicate both a “transaction” amount and a “disposition” amount.

Where a financial entity receives $10,000 cash for the purpose of a $10,000 electronic funds transfer, and the financial entity requires that the amount first be deposited to the client’s account, FINTRAC would expect the disposition to the transaction to be “deposit to an account.”

Date answered: 2016-03-01

PI Number: PI-6399

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7, 8

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

Reasonable efforts to report fields

Question:

What information may be entered into the fields representing a phone number on the large cash transaction report (LCTR), electronic funds transfer (EFT) report, and suspicious transaction report (STR) in situations where there is no phone number available? In such cases, should a series of zeros be entered or should the field be left blank?

Answer:

As indicated in Module 1 of FINTRAC’s Standard ASCII Batch Reporting Instructions and Specification document, reporting entities should refer to the “Reasonable Efforts” instructions contained in the Reporting suspicious transactions to FINTRAC guidance, Guideline 7A: Submitting Large Cash Transaction Reports to FINTRAC Electronically or Guideline 8: Submitting Electronic Funds Transfer Reports.

These guidelines specify that for “reasonable efforts” fields, such as the phone number, if the information is available to the reporting entity, then the reporting entity must provide it in the report.

If the information was not available at the time of the transaction, and it is not contained in the reporting entities files or records, the field may be left blank. As such, the reporting entity should not be filling the field with zeros.

Date answered: 2016-02-25

PI Number: PI-6398

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7A, 8

Knowing by or on behalf

Question:

FINTRAC has previously stated that "should a reporting entity have, as a business practice, the requirement to collect “by” or “on behalf of” details for transactions, then the entity would be deemed to know that the deposits were made “by” or “on behalf of” the same individual or entity". Please clarify the extent to which this guidance can be applied.

Answer:

Pursuant to subsection 3(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.

If the same client card is used to conduct the transactions in question, then FINTRAC has taken the position that the reporting entity can use this fact to determine that the transaction was conducted by the same person. When a client card is not used, FINTRAC has taken the position that should there be a process in place to gather the “by or on behalf of” information, then the entity is deemed to know that the transaction was conducted by or on behalf of the same person, even where there is not a process in place to reconcile the information gathered. For example, if the transactions were conducted at three different branches and “by or on behalf of” was gathered and is the same at each branch, then the entity is deemed to know that one person or entity conducted these transactions, even if there isn’t a process in place to compare the information collected.

The expectation is consistent across all reporting obligations. However, with suspicious transactions, the reporting obligation isn’t based on whether transactions were conducted by or on behalf of the same person; Rather the requirement is to report the transaction within 30 days after the person or entity or any of its employees or officers first detects a fact respecting a financial transaction or an attempted financial transaction that constitutes reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering or terrorist financing offence. The knowledge that two or more transactions were conducted by or on behalf of the same person may or may not trigger the suspicious transaction report obligation.

Date answered: 2016-02-16

PI Number: PI-6391

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4

Regulations: 3(1)

Refusal to complete a transaction

Question:

What obligations are casinos under to not only report, but also refuse to pay out large sums if it is reasonably suspected that the money is being paid out not to a lucky gambler, but someone trying to legitimize ill-gotten gains?

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations provide parameters for casinos to determine that transactions or clients should be monitored more closely for suspicious activity and when suspicious transaction, or other reports, should be filed. Specifically, casinos must report the:

  • Transactions where there are reasonable grounds to suspect a money laundering or terrorist financing offence;
  • Receipt of $10,000 or more over 24 hours from or on behalf of the same client;
  • Disbursement of $10,000 or more over 24 hours to or on behalf of the same client;
  • Sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more over 24 hours; and
  • Receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more over 24 hours.

Casinos also have to develop and apply policies and procedures to assess the risks related to money laundering and terrorist financing in the course of their activities. Using a risk-based approach casinos can identify potential high risks of money laundering and terrorist financing and develop strategies to mitigate them. The risk assessment carried out must consider:

  • the products, services and delivery channels offered by the casino
  • the geographic locations of the clients and the activities conducted
  • the clients and the business relationships a casino has
  • other factors that the casino considers relevant.

By monitoring their activities, clients and business relationships, casinos can develop a robust framework for assessing when they may consider refusing a particular transaction or client. The guidance FINTRAC has issued for all reporting entities also outlines a number of indicators that casinos can include in their assessments, and that may lead to the refusal to continue with a transaction. The PCMLTFA and its associated Regulations do not prescribe transactions that must be refused, but casinos may refuse to pay out any amount or to conduct any transaction where they deem that a transaction or client is suspicious.

The policies and procedures also outline how the casino will comply with the requirements to ascertain identification, keep records and send reports to FINTRAC. Pursuant to the PCLMTFA and its associated Regulations, there are a number of transactions that trigger record-keeping and identification requirements. If a casino is unable to fulfill the requirements, the casino can refuse to complete the transaction. For example, if a client refuses to provide the necessary identification, the casino cannot verify the clients identity and keep the records as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), so can refuse to continue with the transaction.

Date answered: 2016-01-26

PI Number: PI-6387

Activity Sector(s): Casinos

Obligation(s): Reporting

Act: 7

STR and LCTR obligations of real estate sector

Question:

Could you confirm whether real estate brokers, agents, or developers are obligated to submit a suspicious transaction report (STR) for aspects of the transaction they are not directly involved in? How is it determined whether the buyer’s agent or the seller’s agent must report an STR or a large cash transaction report (LCTR)?

Answer:

Pursuant to section 37 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), “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.”

Subsection 39.5(1) of the PCMLTFR indicates that “Every real estate developer is subject to Part 1 of the Act when
(a) in the case of a person or of an entity other than a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building; and
(b) in the case of an entity that is a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building on their own behalf or on behalf of a subsidiary or affiliate.”

As such, once a real estate broker, sales representative, or developer becomes subject to Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), it has an obligation to report suspicious transactions as per section 7. Section 7 of the PCMLTFA specifies that “subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.”

Therefore, so long as it relates to their activities, a real estate broker, sales representative, or developer can report on any aspect of the transaction, even those for which they are not directly involved.

Regarding who must submit an STR, the buyer’s agent and the seller’s agent both have obligations under Part 1 of the PCMLTFA, when engaging in the activities described above, to report transactions in respect of which there are reasonable grounds to suspect the transaction is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence. Therefore, both reporting entities would be required to submit an STR in situations where they both became aware of suspicious activity, regardless of whether they were dealing with their own clients or not. Alternatively, if only one of the reporting entities encounters a suspicious situation then only that reporting entity has the obligation to file an STR.

The obligations for real estate brokers, sales representatives, and developers to report large cash transactions are outlined at sections 38 and 39.6 of the PCMLTFR. As per these sections, and subject to subsection 52(1), reporting entities under the real estate sector who receive an amount in cash of $10,000 or more in the course of a single transaction must report the transaction to FINTRAC, together with the information set out in Schedule 1, unless the amount is received from a financial entity or a public body. Therefore, there is no determination to be made as to who is accountable for reporting. The reporting entity that receives $10,000 or more in cash as a single transaction must file the LCTR.

FINTRAC's STR guidance is a helpful resource that contains a list of indicators to consider when identifying suspicious transactions, and supports the determination that a real estate broker, sales representative, or developer can report on any aspect of the transaction. You may wish to consult this information for additional detail.

Date answered: 2015-12-21

PI Number: PI-4444

Activity Sector(s): Real estate

Obligation(s): Reporting

Guidance: 7

Regulations: 37, 39.5(1)

Act: Part 1, 7

STR obligations - time of transaction

Question:

Where does FINTRAC stand with regards to a "financial transaction" and the "time of the transaction" in the real estate sector, especially in cases where a suspicious transaction might be reported?

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a real estate broker or sales representative “means 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 clarifies 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.”

As per section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), all reporting entities, including real estate agents and brokers, must “report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that
“(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.”

FINTRAC has previously taken the position that, in the real estate sector, the “time of the transaction” can vary depending on the requirement. That said, based on the requirement to report a completed or attempted suspicious transaction, real estate sales representatives or brokers, who act as agents in respect of the purchase or sale of real estate, have suspicious transaction reporting obligations from their first interaction with a client in respect of those transactions. The reporting entity does not have to wait for the purchase or sale to be completed (i.e. the closing date) to report a suspicious transaction. In fact, if at any time during the course of their activities, a real estate sales representative or broker, subject to Part 1 of the PCMLTFA, has reasonable grounds to suspect that a transaction or attempted transaction is related to the commission or attempted commission of either a money laundering offence or a terrorist activity financing offence, they must report a suspicious transaction report (STR) to FINTRAC within 30 days.

It is important to note that pursuant to section 10 of the PCMLTFA, no criminal or civil proceedings lie against a reporting entity for making a report in good faith under section 7, or for providing the Centre with information about suspicions of money laundering or of the financing of terrorist activities. Furthermore, the PCMLTFA does not prohibit a real estate sales representative or broker from completing a transaction for which it has submitted an STR.

Date answered: 2015-12-10

PI Number: PI-4439

Activity Sector(s): Real estate

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 37

Act: Part 1, 7, 10

LCTR obligations of MSB conducting transactions on its own behalf

Question:

Scenario:

  • MSB A has a business relationship with MSB B, who is their supplier.
  • MSB A initiates contact with MSB B to obtain foreign currency in cash. Amounts totalling over $10,000 CAD.
  • MSB B brings the cash to MSB A and MSB A pays MSB B via direct debit.

Does MSB A have a Large Cash Transaction reporting obligation in this instance?

Answer:

Pursuant to paragraph 28(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every MSB is required to report “the receipt from a client of an amount in cash of $10,000 CAD or more in the course of a single transaction, together with the information referred to in Schedule 1, unless the cash is received from a financial entity or a public body.”

As per the scenario, it appears that MSB A is initiating the foreign exchange transactions with MSB B for its own purposes and is not conducting these transactions at the request of a client, nor is it receiving an amount in cash of $10,000 CAD or more from a client. MSB A appears to be the client in these transactions. As such, MSB A has no large cash transaction reporting obligations as per the legislative reference at paragraph 28(1)(a) of the PCMLTFR.

Date answered: 2015-12-10

PI Number: PI-4437

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 28(1)(a)

Requirements to report LCTR on an aggregated basis

Question:

Could you provide clarification of the requirements to report large cash transactions on an aggregated basis?

Specifically:

  1.  Are transactions conducted by an individual on his/her own behalf required to be aggregated with transactions conducted by the individual on his/her employer’s behalf?
  2.  Does the answer to Q1 change if the transaction conducted on behalf of the employer is a cash deposit - i.e. can we apply the principles that are inherent to PCMLTFR section 7[1] and Schedule 1 Part E[2], which are that cash deposits made by an employee to his/her employer’s account are considered to be lower risk, to the aggregation of cash deposits?
  3. Does the answer to Q1 change if the employer is a financial entity or public body - i.e. can we apply the same general reporting carve-out of transactions for these entities that is outlined in PCMLTFR section 12 to the aggregation of cash deposits?

Answer:

Paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specifies that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre […] 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.”

Subsection 3(1) of the PCMLTFR specifies that “two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if
(a) where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and
(b) where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.”

Additionally, subject to subsection 52(2) of the PCMLTFR, every financial entity shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction. As outlined in subsection 8(1) of the PCMLTFR, every person or entity that is required to keep a large cash transaction record under the PCMLTFR shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party. When determining whether a "third party" is involved, it is not about who "owns", or benefits from, the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual conducting the transaction is acting on someone else's instructions. If so, that someone else is the third party.

Therefore, in light of these provisions and for the purposes of large cash transaction reporting, transactions conducted by individuals into their own accounts are to be aggregated with the transactions they conduct on their employer’s behalf when the transactions are conducted in a 24-hour period and the reporting threshold amount is met. In situations where an employer instructs an employee to conduct a deposit into the employer’s account, the employer becomes a third party to the transaction, despite being the account holder, because they are giving instructions.

Conversely, as per section 7 of the PCMLTFR, a person acting on behalf of their employer is not acting on behalf of a third party if the deposit is made to the employer’s business account. This does not negate the presence of a large cash transaction, but addresses the issue of third party. A report must still be submitted, but will not contain any third party information.

Also, in situations where a deposit is made by the employee of a financial entity or public body, a large cash transaction report is not required as per the exclusion of these entities from 12(1)(a) of the PCMLTFR.

 

Date answered: 2015-11-24

PI Number: PI-6374

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 3(1), 7, 8(1), 12(1)(a), 52(2)

EFT reporting requirements for agent that is an MSB itself

Question:

My question concerns an outgoing electronic funds transfer (EFTO) scenario involving a money services business (MSB) and the agent of that MSB, that is also an MSB itself. Accordingly, for ease of reference, I will refer to the agent MSB as MSB 1 and the other MSB as MSB 2.

MSB 1 receives 200 requests from various clients to send funds outside of Canada. The 200 requests total an amount of $175,000 to be sent, and this total amount includes two individual requests that meet the reporting threshold of $10,000. MSB 1 provides the total amount of $175,000 to MSB 2 with a list that details how the amounts should be distributed. MSB 2 then provides the total amount of $175,000 along with the list to a financial institution in Canada that subsequently transfers the instructions and funds to an entity outside of Canada for distribution to the various beneficiaries identified on the list.

As a result, who has the responsibility to report this transaction, which amounts must be reported, and how it should be reported?

Answer:

Based on the information provided, it is unclear in what capacity the agent MSB actually operates as an agent. Instead, it appears the agent MSB may simply be using the other MSB’s services to carry out the transactions of its clients, in which case it is not operating as an agent. Because it is an MSB itself, subject to Part 1 and Part 1.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations, it has reporting obligations of its own that must be met.

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer (EFT) as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Subsection 28(1) of the PCMLTFR further specifies that every MSB must report the receipt from outside Canada of an EFT, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be, as well as the sending out of Canada, at the request of a client, of an EFT of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5. For this reason, we have said in the past that to be reportable an EFT must be client initiated, and the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

In addition, as per subsection 28(3) of the PCMLTFR, an MSB does not have to report an EFTO if it orders another MSB, financial entity, or casino within Canada, to conduct the transfer, so long as it provides that other reporting entity with the ordering client’s name and address. That said, section 9.5 of the PCMLTFA states that “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.”

As such, for the two $10,000 EFTOs that meet the reporting threshold, MSB 1 may choose to retain its clients’ info, and report the EFTOs itself, or order MSB 2 to conduct the transactions.

MSB 1 orders MSB 2 to conduct the transactions and provides its clients’ info: If the list provided by MSB 1 to MSB 2 contained not only the beneficiary information, but also the ordering client information (name, address, and account number or reference number, if any), then as per section 9.5 of the PCMLTFA, this information would have to be passed along by MSB 2 to the financial institution in Canada. The financial institution in Canada would then be required to report the two $10,000 EFTOs. The accumulated $175,000 would not be reportable on its own, as the instructions would not originate from the same ordering client but each individual client identified on the list, and each of the separate amounts would not meet the reporting threshold.

The reports would look like this:
Part A – Transaction Info – General info
Part B – Ordering Client – MSB 2
Part C – Sending Institution - Financial Institution in Canada
Part D – Third Party information – Ordering client (Individual/Business requesting the transfer with MSB 1)
Part E – Receiving Institution – Entity outside Canada receiving EFT instructions
Part F – Beneficiary - Beneficiary outside Canada (Individual/Business, identified on the list provided by MSB 1, that will receive the funds)

MSB 1 orders MSB 2 to conduct the transactions, but does NOT provide its clients’ info: If the ordering client information (name, address, and account number or reference number, if any) is NOT provided by MSB 1 to MSB 2, MSB 1 is required to report the two $10,000 EFTOs.

The reports would look like this:
Part A – Transaction Info – General info
Part B – Ordering Client – Individual/Business requesting the transfer with MSB 1
Part C – Sending Institution – MSB 1
Part D – Third Party information – If applicable
Part E – Receiving Institution – Entity outside Canada receiving EFT instructions
Part F – Beneficiary - Beneficiary outside Canada (Individual/Business, identified on the list provided by MSB 1, that will receive the funds)

The $175,000 transaction must also be reported as the instructions for the transfer of funds are requested by the same ordering client – MSB 1. Additionally, when an ordering client requesting an EFT conducts a transaction with the initial amount of $10,000 or more and instructs that it be divided between multiple beneficiaries, the EFT must be reported using multiple reports (one per beneficiary with the 24-hour-rule indicator selected). Therefore, because MSB 1, as the ordering client, provides instructions to MSB 2 for the distribution of the $175,000 to the multiple beneficiaries identified on the list, the EFT must be reported using multiple reports with the 24-hour-rule indicator on, and MSB 1 must be identified as the ordering client in Part B of the reports. As explained above, section 9.5 of the PCMLTFA will apply and the ordering client information - MSB 1 (name, address, and account number or reference number, if any), would have to be passed along by MSB 2 to the financial institution in Canada. The financial institution in Canada would then be required to report.

If it was determined that MSB 1 was in fact operating as the agent of MSB 2 and this was evident to each individual ordering client, and a written agreement existed between the two, then as per subsection 6(2) of the PCMLTFR, MSB 2 would be responsible for the EFTO reporting requirements. Subsection 6(2) of the PCMLTFR states “where a person or entity who is subject to the requirement 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.”

Therefore, similar to the above, the two $10,000 transactions would be reportable and MSB 2 could choose to report the transactions itself or pass the client names, addresses, and account numbers or other reference numbers, if any, on to the financial institution in Canada that must then report. For the $175,000 transaction, if MSB 2 provided a list containing the ordering clients’ information (names, addresses, account numbers or other reference numbers, if any) on to the financial institution in Canada, then the $175,000 transaction would not be reportable as the instructions would not be from the same ordering client and the amounts would all be under the reporting threshold. If the list provided by MSB 2 did not contain the ordering client information, but only the beneficiary information, then the financial institution in Canada would have to submit a separate EFTO report for each beneficiary of the $175,000, with the 24-hour-rule indicator selected and the ordering client identified as MSB 2.

Date answered: 2015-11-10

PI Number: PI-6371

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 6(2), 28(1), (3)

Act: Part 1, 1.1, 9.5

Requirements for Non-SWIFT EFT

Question:

Could you provide guidance as to whether we are required to report non-SWIFT electronic funds transfers (EFTs) when our financial entity acts as the sole trustee of a fully discretionary trust and sends/receives funds through its account with the bank.

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer (EFT) as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Subsection 12(1) of the PCMLTFR further specifies that every financial entity must report the receipt from outside Canada of an EFT, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be, as well as the sending out of Canada, at the request of a client, of an EFT of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5.

For this reason, we have said in the past that to be reportable an EFT must be:

  • Client-initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Based on the information provided, it is not entirely clear whether your financial entity sends/receives EFTs through the bank as a result of client-initiated instructions, or whether it initiates the transfers on its own accord; however, if the former is true and it sends client-initiated instructions outside Canada or receives client-initiated instructions transmitted by an entity outside Canada, then your financial entity would be required to submit outgoing EFT (EFTO) reports and incoming EFT (EFTI) reports to FINTRAC. Whether an EFT is reported as a SWIFT EFT or a NON-SWIFT EFT depends on whether the reporting entity is a SWIFT member and whether the EFT sent/received is a SWIFT message or not.

That said, pursuant to subsection 12(3) of the PCMLTFR, if your financial entity receives client-initiated instructions for the transfer of funds outside of Canada and provides the instructing client’s name and address to the bank to conduct the transfer, it would not be required to submit an EFTO report to FINTRAC. Similarly, pursuant to subsection 12(5) of the PCMLTFR, if your financial entity receives a client-initiated EFT from outside of Canada, it would not be required to submit an EFTI report to FINTRAC if the transfer contained the name and address of the beneficiary. In both cases, the information would be reported by the bank.

Date answered: 2015-11-09

PI Number: PI-6370

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 12(1), (3), (5)

Domestic EFT reporting guidance

Question:

Could you provide information regarding domestic electronic funds transfers? Specifically, a Canadian financial entity has indicated that foreign based entities use its services to conduct transactions from one Canadian account to another.

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer (EFT) as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Subsection 12(1) of the PCMLTFR further specifies that every financial entity must report the receipt from outside Canada of an EFT, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be, as well as the sending out of Canada, at the request of a client, of an EFT of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5.

For this reason, we have said in the past that to be reportable an EFT must be:

  • client initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Based on our understanding of the information provided, it appears that the Canadian financial entity holds Canadian accounts for foreign clients and will, at the request of a client, transfer funds from the account in Canada to another account in Canada. Therefore, because the client-initiated instructions are provided directly to the Canadian financial entity and not transmitted through a foreign entity, and because the transfer occurs within Canada only, there are no EFT reporting obligations associated.

That said, the Canadian financial entity is required to report incoming electronic funds transfers (EFTIs) when it receives client-initiated instructions for the transfer of funds from a foreign financial institution to the client’s Canadian account. The Canadian financial entity indicates its clients will initiate these transfers to fund their Canadian accounts prior to executing the domestic transfers within Canada to pay suppliers.

Date answered: 2015-11-03

PI Number: PI-6368

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 12(1)

Obligations when operating as client

Question:

Scenario 1:
I am an MSB and I often travel overseas to initiate a transaction with a foreign MSB to acquire currencies I need or dispose of currencies I'm overstocked on.

  • Do I need to file a report?
  • Do I have to ask for ownership information, IDs, etc..?

Scenario 2: 
I travel overseas, and initiate a transaction with a foreign Coin shop/Numismatic store, to buy any foreign coins or banknotes that they do not have a numismatic market for, and I buy it as currency to add to my stock of foreign currency.

  • Do I need to file a report?
  • Do I have to ask for ownership information, IDs, etc..

Answer:

Based on the information provided, it appears that your MSB is initiating the foreign exchange transactions with the foreign entities for its own purposes and is not conducting the transactions on behalf of a client. Moreover, your MSB appears to be the client in these transactions. As such, there are no obligations associated. There is also no legislative requirement within the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) or its associated Regulations that requires your MSB to keep the receipt issued by the foreign entity, unless this is its own business practice.

In addition to the above, because the transaction is conducted in a "coin shop, to buy any foreign coins…”, we should clarify whether your MSB is engaged as a dealer in precious metals and stones (DPMS) within Canada, since your MSB would be buying coins that are made of precious metals. Subsection 1(2) of the PCMLTFR defines a DPMS as “a person or an entity that, in the course of its business activities, buys or sells precious metals, precious stones or jewellery. 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 the activity, referred to in section 39.1, of selling precious metals to the public.” Entities that fall under this definition are covered once they engage in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction, as per section 39.1 of the PCMLTFR.

Date answered: 2015-09-29

PI Number: PI-6362

Activity Sector(s): Dealers in precious metals and stones, Money services businesses

Obligation(s): Reporting

Guidance: 7,8

Regulations: 1(2), 39.1

Act: Part 1

Reportable EFTs

Question:

  1. Are all incoming electronic funds transfers covered?
  2. What types of electronic funds transfers are excluded?
  3. Are electronic funds transfers only for transactions from individuals or companies too?

Answer:

  1. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

    Reporting entities must report the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, as the case may be, as well as the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction.

    For this reason, we have said in the past that to be reportable an electronic funds transfer must be:

    • client initiated, and
    • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).
       
  2. As previously indicated, the definition of electronic funds transfer excludes the transfer of funds from one location in Canada to another location in Canada, and SWIFT messages that are not MT 103. Therefore, they cannot be reported to FINTRAC.
     
  3. To be reportable, an electronic funds transfer must be client initiated. The word “client” is defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) as “a person or an entity that engages in a financial transaction or activity with a person or an entity referred to in section 5 [reporting entities], and includes a person or an entity on whose behalf the person or the entity that engages in the transaction or activity is acting.” Therefore, reportable electronic funds transfers can be initiated by individuals or companies.

Date answered: 2015-09-04

PI Number: PI-6355

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2)

Act: 2

No EFTs for real estate

Question:

Are real estate agents expected to report large EFTs? If not, why not?

Answer:

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the real estate sector has the obligation to report to FINTRAC suspicious transactions, terrorist property and large cash transactions. The real estate sector does not report electronic funds transfers to FINTRAC because there is no such requirement under the PCMLTFA and its associated Regulations.

Date answered: 2015-09-04

PI Number: PI-6354

Activity Sector(s): Real estate

Obligation(s): Reporting

Guidance: 8

EFTI required for returned wire

Question:

A financial entity has received an incoming electronic funds transfer (EFTI) that lacks information and does not include a beneficiary that is their client. As such, is the financial entity required to submit an EFTI report for this transaction?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer (EFT) as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

Subsection 12(1) of the PCMLTFR further specifies that every financial entity must report the receipt from outside Canada of an EFT, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be, as well as the sending out of Canada, at the request of a client, of an EFT of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or.

For this reason, we have said in the past that to be reportable an EFT must be:

  • client initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Based on the information provided, it appears that the financial entity receives client initiated instructions transmitted across our border by a foreign entity and is therefore required to report an EFTI to FINTRAC. This report must be submitted regardless of whether the transaction is ultimately not completed and returned to the originating entity.

Date answered: 2015-08-28

PI Number: PI-6351

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 12(1)

Payments related to ransomware

Question:

Does FINTRAC require companies that provide a medium for victims to make payments related to ransomware (a type of malware that prevents or limits users from accessing their system) to file STRs/ASTRs in Canada?

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that “Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.”

As a result, for a transaction to qualify as a suspicious transaction, reportable under the PCMLTFA and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations, the reporting entity must have reasonable grounds to suspect it is related to the commission or attempted commission of either a money laundering offence or a terrorist activity financing offence. A money laundering offence is typically committed or attempted with the intention to conceal or convert proceeds derived from the commission of a designated offence, which could include drug trafficking, bribery, or fraud. A terrorist activity financing offence occurs when property (including funds) are knowingly collected to carry out terrorist crimes.

It is therefore for the individuals and entities that are reporting entities under Part 1 of the PCMLTFA, to determine whether they have reasonable grounds to suspect that a transaction or attempted transaction is related to a money laundering or a terrorist activity financing offence. If so, an STR must be sent within 30 calendar days.

Date answered: 2015-08-11

PI Number: PI-6342

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Act: Part 1, 7

Property owned by a terrorist group

Question:

  1. At what moment is a financial institution considered to know or should know that an entity is a terrorist or a terrorist group?
  2. What information must a financial institution have so that it “has the knowledge" that the entity is engaged in terrorist activities?

Answer:

Under subsection 7.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), “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.“

FINTRAC only administers the PCMLTFA and its associated Regulations. Thus, it can only issue comments and advice on issues in this regard. It does not have the authority to interpret section 83.1 of the Criminal Code or section 8 of the United Nations Resolutions on the Suppression of Terrorism.

Having that said, once the reporting entity satisfies the requirements of subsection 7.1(1) of the PCMLTFA, that is, it 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; it must also submit a report to FINTRAC. Reporting entities must submit such reports as soon as they realize that they have in their possession property that:

  1. they know is owned or controlled by or on behalf of a terrorist or a terrorist group. This includes information on any transaction or proposed transaction relating to that property; or
  2. they believe is owned or controlled by or on behalf of a listed person available directly or not. This includes information on any transaction or proposed transaction relating to that property.

Although the PCMLTFA does not stipulate the time at which reporting entities must know or believe that the property in its possession or available to it belongs to a terrorist, a terrorist group or a listed person, and the PCMLTFA does not require that they specifically ascertain the identity of designated persons according to lists or prescribe the information to be used, it does require, however, that they submit to the Centre the terrorist property reports required by the Criminal Code and the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism. To duly prepare these reports, FINTRAC also expects reporting entities to develop principles and measures that are aligned with the requirements of the Criminal Code and the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism in order to comply with the law.

Date answered: 2015-07-10

PI Number: PI-6330

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 5

Act: 7.1(1)

Returned wires

Question:

I have a question about returned wires. A reporting entity sent a client-initiated wire (EFTO) and it was returned. The returned wire had a note stating “No beneficiary branch details indicated.” Another returned wire had a note that said “invalid intermediary bank”. Therefore, the reporting entity does not believe the returned wires were “client initiated”.

I would like to confirm that if a wire is not client initiated, but simply returned by the receiving bank, then it is not reportable as an EFTI.

Answer:

Subsection 12(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “ Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: […] the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and […] the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.”

Furthermore, subsection 1(2) of the PCMLTFR defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

For this reason, we have said in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Based on the information you have provided, namely that a client ordered an electronic funds transfer to be sent outside of Canada (EFTO), and that this EFTO was ultimately returned by the receiving financial institution, it seems the receiving financial institution returned these EFTs because some information was missing in order to complete the transaction. Therefore, it would appear that these “returned EFTs” do not constitute reportable EFTs, as per our definition, since it is not client initiated.

Date answered: 2015-06-23

PI Number: PI-6322

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 12(1)

non-SWIFT Interac email money transfers

Question:

The following are questions regarding non-SWIFT, Interac email money transfers sent/received within Canada. To summarize, we are looking for clarity/answers to three questions:

  1. Whether FINTRAC considers a non-SWIFT Interac e-mail money transfer of funds sent/received within Canada, an Electronic Funds Transfer ("EFT").
  2. Whether non-swift Interac e-mail money transfers of funds sent/received within Canada have any EFT reporting obligations to FINTRAC.
  3. Whether non-SWIFT Interac e-mail money transfers sent/received within Canada have any EFT record keeping requirements.

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.

Furthermore, section 9.5 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires every person or entity 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) of the PCMLTFR, 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.

With respect to client identification obligations for EFTs, subparagraph 54(1)(b)(ii) of the PCMLTFR states: "Subject to section 62 and 63, every financial entity shall, in accordance with subsection 64(1), ascertain the identity of every person who has not signed a signature card in respect of an account held with the financial entity and has not been authorized to act with respect to such an account but who conducts an electronic funds transfer, as prescribed by subsection 66.1(2), in an amount of $1,000 or more sent at the request of a client […]".

Therefore, a financial entity will only be required to ascertain a client’s identity when the financial entity conducts an electronic funds transfer as defined in subsection 1(2) of the PCMLTFR or a transfer within Canada that is a SWIFT MT 103 message.

Based on the foregoing, since you have requested a policy interpretation on non-SWIFT Interac email money transfers sent/received within Canada, it appears that you would have no client identification, record keeping or reporting obligations when conducting domestic EFTs.

Date answered: 2015-06-23

PI Number: PI-6321

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 54(1)(b)(ii), 66.1(2)

Act: 9.5

EFT or foreign exchange only?

Question:

What are the MSB’s EFT reporting obligations in the following scenario? The MSB offers both foreign exchange and remittance services. The transaction is in excess of $10k Canadian

  • Client A wishes to purchase Euros from said RE.
  • The MSB has a Euro-denominated bank account held at a financial entity located in Europe .
  • The client holds a Euro-denominated bank account at a financial entity located in Canada.
  • In order to pay for its Euros, client A presents a bank draft denominated in Canadian funds to the MSB and once said draft is received by the MSB it wires the Euros from its bank account in Europe to the client’s bank account located here in Canada.

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada.”

Subsection 28(1) of the PCMLTFR, further specifies that every MSB must report the sending out of Canada, at the request of a client, of an electronic funds transfer (EFTO) of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be, as well as the receipt from outside Canada of an electronic funds transfer (EFTI), sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

For this reason, we have said in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • the transmission, across our border, of instructions to transfer funds (except instructions for the transfer of funds from one location in Canada to another location in Canada).

Based on the information provided, the MSB does not appear to be conducting EFTs as it is not transmitting client initiated instructions for the transfer of funds across the Canadian border, nor is it receiving instructions, transmitted across the Canadian border at the request of a client, for the transfer of funds. Instead, it is solely conducting a foreign exchange transaction.

As a result of the foreign exchange transaction, the MSB would be required to keep a transaction ticket, as outlined in subsection 30(f) of the PCMLTFR, and identify its client subject to subsection 63(1) and in accordance with subsection 64(1).

Date answered: 2015-06-22

PI Number: PI-6319

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1), 30(f)

Reporting requirements for Casinos

Question:

With regard to the regulation in Guideline 10A: 2. Casino Disbursement Report Requirements and Guideline 7A: 3. Large Cash Transaction Reporting Requirements, am I correct in my understanding that any single disbursement of $10,000 or more in a 24 hour period, rolling or static, requires a CDR reported to FINTRAC? And that any subsequent two or more disbursements of less than $10,000 but totaling $10,000 or more, in a 24 hour rolling or static time period, also require a CDR reported to FINTRAC? Or are all transactions for one patron for a 24 hour period, rolling or static, aggregated to one CDR/CTR whether disbursed or received?

For example, FinCEN guidelines require that if there is more than one transaction in a 24 hour period, maybe one for $10,500 and one for $3,000, and one for $8,000, disbursed or received, that one CTR would be filed for that 24 hour period totaling $21,500. But FINTRAC filings would be one CDR/CTR for $10,500 and one for $11,000. Is this correct?

Answer:

Subsection 40(1) and 42(1) of the Proceeds of Crime (Money Laundering) and Terrorist Regulations (PCMLTFR) require that every casino shall report the following transactions and information to the Centre:

  • 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 a financial entity or a public body;
  • the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 5;
  • the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 6
  • the disbursement of $10,000 or more in the course of any of the following transactions, together with the information set out in Schedule 8:

(a) the redemption of chips, tokens or plaques;
(b) front cash withdrawals;
(c) safekeeping withdrawals;
(d) advances on any form of credit, including advances by markers or counter cheques;
(e) payments on bets, including slot jackpots;
(f) payments to a client of funds received for credit to that client or any other client;
(g) the cashing of cheques or other negotiable instruments; and
(h) reimbursements to clients of travel and entertainment expenses”.

In section 3 of the PCMTLFR, the definition of single transaction, otherwise known as “the 24-hour rule”, specifically applies to situations where two or more cash transactions or electronic funds transfers of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more. This is considered to be a single transaction of $10,000 or more if “the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.”

In a situation where multiple transactions under $10,000 are conducted within 24 consecutive hours of each other, by or on behalf of the same individual or entity, depending on the values, the 24-hour rule may apply and the transactions might be reportable.

Depending on what type of system the casino is using, the 24-hour period can vary. In the rolling 24-hour system, the 24-hour period begins with each new transaction of less than $10,000 (if the casino knows they were made by or on behalf of the same individual or entity). In the static 24-hour system, the casino is required to report the multiple transactions that the casino knows were made by or on behalf of the same individual or entity in that 24-hour period (e.g. from 9:00 a.m. to 9:00 a.m. the next day). The 24-hour rule indicator must be selected for each report sent to the Centre that is below $10,000. Therefore, the 24-hour rule applies only to transactions or disbursements that are under $10,000. As such, if the casino receives an amount of $10,000 or more in cash or disburses an amount of $10,000 or more in the course of a single transaction, each such transaction must be report to FINTRAC separately, in its own report (that is, an LCTR or a CDR).

Therefore, in response to your query, any single disbursement of $10,000 or more must be reported in its own CDR to FINTRAC. Any large cash transaction of $10,000 or more must be reported in its own LCTR to FINTRAC. Any subsequent two or more disbursements of less than $10,000 but totaling $10,000 or more, in a 24-hour period, rolling or static, might be reportable to FINTRAC. Any subsequent two or more cash transactions of less than $10,000 but totaling $10,000 or more, in a 24 hour period, rolling or static, might be reportable to FINTRAC. As a result, based on the example of transactions you provided, namely that $10,500, $3,000, and $8,000 are disbursed or received within a 24-hour period by a casino, the casino should report a single CDR or LCTR for the $10,500 and, depending on the system in place, might report a CDR or LCTR for the two other transactions totalling $11,000.

Date answered: 2015-06-22

PI Number: PI-6318

Activity Sector(s): Casinos

Obligation(s): Reporting

Guidance: FIN-4

Regulations: 3, 40(1), 42(1)

Obligations for new and old housing

Question:

Your website states "new" housing. What is in place to ensure real estate agents local or overseas, are reporting large cash purchases? Why does this not apply to all housing. What controls are in place to crosscheck this? If not old housing, is there anything in place on this going forward and examining past practices?

Does FINTRAC monitor ALL real estate deals, be it OLD or NEW? Or just new? If foreign agents are involved in the sale, what measures does FINTRAC undertake to ensure the validity of the transaction? Is this left to the agent to report? What expertise does the agent possess with money laundering transactions? Are they sufficiently trained to report such transactions to FINTRAC? Will FINTRAC look at reporting by agents in regards to foreign ownership more closely for ALL real estate transactions?

Answer:

On its website, FINTRAC provides a plain language interpretation of the obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations for each of the sectors identified under Part 1. In addition to the specific sector information, FINTRAC has written guidelines that outline in detail the requirements for each report, the record keeping and client identification requirements for each sector, and information on creating and maintaining a compliance regime.

Regarding the real estate sector, subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines a real estate broker or real estate 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 indicates that every real estate broker or sales representative is subject to Part 1 of the PCMLFTA when they act as an agent in respect of the purchase or sale of real estate.

Also included in the real estate sector, a real estate developer is defined as “on any given day in a calendar year, a person or entity who, in that calendar year and before that day or in any previous calendar year after 2007, has sold to the public, other than in the capacity of a real estate broker or sales representative,
(a) five or more new houses or condominium units;
(b) one or more new commercial or industrial buildings; or
(c) one or more new multi-unit residential buildings each of which contains five or more residential units, or two or more new multi-unit residential buildings that together contain five or more residential units.”

According to subsection 39.5(1) of the PCMLTFR, “Every real estate developer is subject to reporting obligations under Part 1 of the PCMLTFA when
(a) in the case of a person or of an entity other than a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building; and
(b) in the case of an entity that is a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building on their own behalf or on behalf of a subsidiary or affiliate.”

Therefore, in response to your query, the references to “new” housing, made in the sector profile page for the real estate sector, that you have identified, relate to real estate developers who sell new houses, new condominium units, new commercial or industrial buildings, and new multi-unit residential buildings. Real estate brokers and sales representatives, who act as an agent in the purchase or sale of existing real estate, are identified in the first paragraph of the sector profile page you referenced and are also obligated to report to FINTRAC in certain situations, such as when they receive cash in amounts of $10,000 or more.

In response to your second question, the definitions indicate that only real estate brokers and sales representatives, registered or licensed under provincial legislation, are required to report to FINTRAC, when they act as an agent in respect of the purchase or sale of real estate. As such, foreign real estate agents are only subject to the Act and Regulations if they are also registered or licensed under provincial legislation within Canada and only when they act as agents in the purchase or sale of real estate within Canada.

Regarding your question about whether real estate agents and developers are sufficiently trained to report to FINTRAC, subsection 71(1) of the PCMLTFR requires that reporting entities implement a compliance regime which must include, amongst other things, written compliance policies and procedures that are kept up to date, as well as a written ongoing compliance training program for all employees. The compliance regime is put in place to ensure reporting entities are aware of the record keeping, client identification, and reporting requirements under the Act and Regulations. As a result, it is up to the real estate broker, sales representative, and developer to ensure they are equipped to identify and accurately report information to FINTRAC when cash is received in an amount of $10,000 or more, when there are financial transactions that they have reasonable grounds to suspect are related to the commission of a money laundering offence or terrorist financing offence, including transactions that they have reasonable grounds to suspect are related to the attempted commission of a money laundering or terrorist financing offence, and when the transaction involves property that is owned or controlled by or on behalf of a terrorist or terrorist group.

Date answered: 2015-06-19

PI Number: PI-6317

Activity Sector(s): Real estate

Obligation(s): Compliance Program, Reporting

Guidance: Compliance Program

Regulations: 1(2), 37, 39.5(1)

Act: Part 1

EFT questions

Question:

Wondering if you can help with some specific policy interpretation questions we have re: EFTs.

  1. Under the 24 hour rule the wording seems to imply that in order to be a valid EFT under the 24 hour rule it must be the sender that is common amongst all transactions. Eg. If ABC INC orders 3 transactions totalling 10,000 these are valid EFTs. However, if ABC INC is the beneficiary of 3 EFTs totalling $10,000 but the ordering client is different, does this constitute valid EFTs under the 24 hour rule?
  2. How are correspondent banks treated? If an EFT is reported only based on the correspondent institution being in Canada, but the other parties to the transaction are outside of Canada, how is this treated? Would this be reportable under the PCMLTFA?
  3. If an EFT is conducted in Canadian $ it must clear through the Canadian system. In that case the transaction would be reported even though the parties to the transaction are outside Canada. How are these treated? Would these be reportable under the PCMLTFA?

Answer:

  1. With respect to your question on the 24-hour rule:

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the 24-hour rule applies for the receipt of two or more electronic funds transfers of less than $10,000 each that total $10,000 or more within a 24-hour period. The reporting entity has to make an electronic funds transfer report if their employee or senior officer knows the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity. FINTRAC’s guidelines specify that “on behalf of” refers to the instructing party to a transaction and not the beneficiary of said transaction.

The electronic funds transfer obligations are triggered by the transaction(s) of a conductor, so are determined at the conductor level, not at the account level.

  1. With respect to your question on correspondent banking relationship:

It is a question of fact to be able to determine whether a person or entity subject to Part 1 of the PCMLTFA must report an EFT. However, I am able to provide you with some general comments:

As per subsection 9.4(3) of the PCMLTFA, a correspondent banking relationship “means a relationship created by an agreement or arrangement under which an entity referred to in any of paragraphs 5(a), (b), (d) and (e) or an entity that is referred to in section 5 and that is prescribed undertakes to provide to a prescribed foreign entity services such as international electronic funds transfers, cash management, cheque clearing and any prescribed services.” As such, two banks that are not in a direct relationship and are not both participants in the same clearing house might have a correspondent banking relationship if, in order to complete an electronic funds transfer (EFT), they have an arrangement to pass through one or more intermediary banks.

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer as “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.”

To be reportable, an EFT must be:

  • client-initiated; and
  • include the transmission of instructions to transfer the funds across the Canadian border.

As such, in your example, I can only assume that the client gave instructions to transmit funds from his bank account outside of Canada to the bank account of another individual outside of Canada. The intention (or the purpose) of the transfer is to move funds from a country other than Canada to another country other than Canada. Even if the funds are routed through Canada, our position is that this transaction does not constitute an EFT as defined in subsection 1(2) of the PCMLTFR, and therefore is not reportable by the Canadian intermediary bank.

  1. With respect to your question on a transaction routed through Canada because the Canadian funds must be cleared through the Canadian system:

It is a question of fact to be able to determine whether a person or entity subject to Part 1 of the PCMLTFA must report an EFT. However, I am able to provide you with some general comments:
In the example you provided, it appears that the entity outside of Canada will use its corresponding banking relationship to clear the Canadian funds through the Canadian system.

As indicated above, subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.”

To be reportable, an EFT must be:

  • client-initiated; and
  • include the transmission of instructions to transfer the funds across the Canadian border.

As such, in your example, I can only assume that an individual instructs an entity outside of Canada to send money to another individual outside of Canada in Canadian Dollars. Because the EFT currency is in Canadian Dollars, the entity outside of Canada will send the EFT to its Canadian corresponding bank. Subsequently the Canadian corresponding bank will re-transmit the EFT to another Canadian corresponding bank as they are the correspondent bank responsible for transmitting EFTs to the other entity outside of Canada (the beneficiary’s account holder).

In this case, the client gave instructions to transmit funds from his bank account outside of Canada to the bank account of another individual outside of Canada, in Canadian currency. The intention (or the purpose) of the transfer is to move funds from a country other than Canada to another country other than Canada. Even if the funds are routed through Canada because they are in Canadian Dollars, our position is that this transaction does not constitute an EFT as defined in subsection 1(2) of the PCMLTFR, and therefore is not reportable by the Canadian intermediary banks.

Date answered: 2015-05-14

PI Number: PI-6307

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 1(2), 3

Act: Part 1, 9.4(3)

Authorized signer conducting EFT

Question:

There has been confusion recently in the financial sector over FINTRAC’s interpretation of the reporting requirements for non-SWIFT EFTO transactions - specifically, how to identify and report information about a third party on the EFTO when an EFT is sent by an entity.

What specific sections of the Outgoing International non-SWIFT Electronic Funds Transfer Report (EFTO) must be completed for reporting for the following scenario?

  • An entity sends an international wire transfer in excess of $10,000 Canadian equivalent.
  • The transaction is conducted by the authorized signer for the entity.
  • The authorized signer is not acting on someone else's instructions.

Based on the FINTRAC guidance, in our specific scenario, the person "in front of you" is not a third party because they are NOT acting on someone else's instructions, and consequently there is no requirement to report Part G - because there is no third party determination. However, there is a RECORD KEEPING requirement to collect and record information about the conductor of the transaction - FINTRAC Guideline 6G - Section 3.9 - EFT Record - The EFT record has to include the following: "if the client is an entity, the name, address, date of birth and telephone number of the individual who initiated the transaction on behalf of the entity, as well as the nature of the individual's principal business or occupation."

In making a third party determination when employees are acting on behalf of their employers, they are considered to be acting on behalf of a third party. The only exception to this is when an employee deposits cash to the employer's account. In that case, the employee is not considered to be acting on behalf of a third party. This is only true if the account in which the employee deposits cash is a business account.

As such, the individual conducting the transaction (be it the owner(s), director(s) or shareholder (who is a director or owner)) would not be a separate body from the entity.

Therefore, the entity would be the client and its information should be entered in Part B. Since the director and/ or owner is the voice of the entity, there would be no third party in this scenario?

Answer:

Before it can be determined whether the authorized signer is acting on behalf of a third party, you must first determine the type of relationship that exists with the entity. In most cases it is likely that the authorized signer will be an employee of the entity, the owner of the entity, or a separate individual or entity authorized by the entity to conduct certain transactions (e.g. an accountant).

FINTRAC’s guidelines state that when determining whether a "third party" is involved, it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual in front of you is acting on someone else's instructions. If so, that someone else is the third party. In addition, section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) provides that “a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.” Since conducting an EFTO is not the same as depositing cash into an employer’s business account, an employee requesting an EFTO for their employer is doing so on behalf of that entity. That entity is therefore considered to be a third party to the transaction.

Regarding your scenario, and in line with the above, if the authorized signer is determined to be an employee of the entity, they are considered to be conducting the EFTO on behalf of their employer. The authorized signer’s (employee’s) information would be required in Part B of the EFTO report and the entity’s (employer’s) information would be required in Part D, as they are considered to be the third party to this transaction. If the authorized signer is determined to be a separate individual or entity authorized by the entity to conduct these types of transactions, such as an accountant or lawyer, it is understood that these transactions are conducted on behalf of the entity. Again, the authorized signer’s information would be required in Part B of the EFTO report and the entity’s information would be required in Part D of the report. Conversely, if the authorized signer is the owner or director of the entity, and is not considered an employee of the entity, he/she would be considered to be the voice of the entity and would be speaking directly for it, as the entity can only speak by means of a physical person. In this case, the entity’s information would be required in Part B of the EFTO report and there would be no third party to the transaction.

Please note, the terms “employee”, “owner”, and “director” are not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), nor the PCMLTFR. As such, it will always be a question of fact to determine who occupies these positions. Having signing authority, or the authority to bind or act on an account is not necessarily a determining factor for employment or ownership.

Additionally, as you made reference to Part G of the EFTO report, it should be noted that Part G is only meant for information on a third party to the beneficiary of the transaction. That is, if the recipient of the EFTO receives the payment on behalf of another individual or entity, that individual or entity is considered to be a third party and their information would be required in Part G of the report.

 

Date answered: 2015-05-04

PI Number: PI-6304

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 7

Part G of the STR

Question:

When completing a suspicious transaction report (STR), are we able to place information about the individual conducting the transaction in Part G instead of Part D?

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that “subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.”

Part D of the STR is intended to capture conductor information, and contains a mandatory field (“Client number provided by reporting person or entity, if applicable”), therefore it must not be left blank, if applicable. With respect to non-mandatory fields in Part D, if the reporting entity has the information, these non-mandatory fields become mandatory and the information must be submitted in Part D. Part G is meant to capture details about the suspicion of the transaction and not conductor information.

Date answered: 2015-02-18

PI Number: PI-6286

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Act: 7

No EFT Reporting

Question:

Customer A goes to the reporting entity requesting to transfer funds from their bank account in a foreign country to their bank account in Canada. As a component of their internal procedure, the reporting entity contacts their agent in the foreign country, who provides the agent's foreign bank account information to the reporting entity. The reporting entity also provides Customer A's foreign country and Canada bank information to the foreign agent.

The reporting entity then provides Customer A with the foreign agent's bank account information and instructs Customer A to transfer the funds from their personal bank account in the foreign country to the foreign agent's bank account. After receiving the information, Customer A wires funds from their foreign country bank account to the foreign agent's bank account.

Once the foreign agent receives the funds in their foreign country bank account, they will verify the Canadian bank account information provided and will transfer the funds to Customer A's bank account in Canada.

Questions:

  1. Is this a reportable transaction?
  2. If it is a reportable transaction, what information would be in each field of the report?

Answer:

Subsection 28(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), states that every money services business shall, subject to subsection 52(1), report to FINTRAC:

  • the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
  • the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada.”

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission of instruction to transfer funds across our border.

Therefore, based on the scenario you’ve provided, and specifically that the MSB “instructs Customer A to transfer the funds from their personal bank account in a foreign country to the foreign agent’s bank account in the foreign country,” it appears as though there is no EFT conducted by the MSB. There are no client-initiated instructions transferred by the MSB to the agent outside of Canada, only the transfer of the client’s banking information, which does not fulfil the definition of an EFT.

Date answered: 2015-02-16

PI Number: PI-6284

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)

Accountant - Receipt of Funds Record Triggering Activity

Question:

We would appreciate your assistance with respect to the requirements to complete receipt of funds records in certain circumstances.

ABC Ltd. (“ABC”), is a small business. Bank accounts are established in the name of the company.

The duties we perform as part of our mandate are as follows:

  1. We post all accounting transactions into a database based on source documents provided by our clients (e.g. copies of invoices issued to customers and invoices received from suppliers).
  2. We complete monthly bank reconciliations for ABC’s owner.
  3. We complete monthly financial statements for ABC’s owner.
  4. We prepare the quarterly HST return and provide them to ABC’s owner for review.
  5. ABC employees are paid monthly and one of our bookkeepers handles the payroll processing transactions and records the transactions in the books of account.
  6. Annually we will provide a complete set of financial statements for tax purposes and we prepare the company’s corporate tax return.
  7. ABC has instructed all its customers to mail their payments to our office and we are responsible for depositing the cheques in the company’s bank account at a bank. All ABC’s customers pay by cheque.
  8. ABC’s owner spends the winter in the U.S.. While he is away he provides blank cheques to us and will provide instructions to issue payment cheques on his company’s corporate bank account to his employees for payroll, pay source deductions and HST balances owing and to pay his major supplier. The cheques are stored in a locked cabinet and two partners in our firm are authorized signatories on the company’s bank account and accordingly both partners must sign the cheque.

Clarifying Questions

  1. Would the duties outlined in item 7 and item 8 be considered “receiving funds“ or “paying funds“ on behalf of a client?
  2. If the answer to question one above is “Yes”, would we be required to keep a receipt of funds record for the cheques deposited in item 7?
  3. FINTRAC Guideline 6D: “Record Keeping and Client Identification for Accountants“ requires that a receipt of funds record include the following:
    a) The name, date of birth and address of the individual from whom you received the funds and that individual’s business or occupation.
    b) If the receipt of funds is a corporation, a copy of the official corporate records showing provisions relating to the power to bind the corporation to the transaction is also required
  4. Would the name, date of birth and address of the owner of ABC and ABC’s official corporate records be required to address the record keeping requirements outlined in a) and b) above?
  5. Would we be required to obtain this information (name, date of birth etc.) for all of the customers that pay ABC Inc. for the services it provides?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines 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.” Accountant is defined as “a chartered accountant, a certified general accountant or a certified management accountant.” Pursuant to subsection 34(1) of the PCMLTFR and 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).”

Regarding the receipt of funds record requirement, subsection 36(1) of the PCMLTFR states that “subject to subsection 62(2), every accountant and every accounting firm shall, when engaging in an activity described in section 34, keep the following records:
(a) a receipt of funds record in respect of every amount of $3,000 or more that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body; and
(b) where the receipt of funds record is in respect of a client that is a corporation, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of transactions with the accountant or accounting firm.”

The obligations for accountants and accounting firms only apply if they are carrying out the activities described above. The requirement to keep a receipt of funds record only exists when the accountant or accounting firm receives funds. Therefore, based on the information provided, namely that your firm “is responsible for depositing the cheques in the company’s bank account” and that the ABC owner will provide instructions to your firm to issue payment cheques on his company’s corporate bank account, it would appear as though your firm is not directly “receiving” or “paying” funds on behalf of their client, as the transactions are conducted through the client’s accounts rather than their own. However, your firm is giving instructions on behalf of its client for the receipt, payment, and transfer of funds. As a result, your firm is covered under Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), but it would not be required to keep a receipt of funds record for situations, as described, where it does not receive funds.

That being said, while your firm may not “receive” funds in a scenario such as the one you have suggested, the following obligations would still exist and it would be required, where applicable, to:

  • report suspicious transactions, suspicious attempted transactions, and large cash transactions, and send terrorist property reports to FINTRAC;
  • in addition to ascertaining the identity of any individual who conducts a large cash transaction or for whom they have to keep a receipt of funds records, they also have to take reasonable measures to ascertain the identity of any individual for whom they have to send a suspicious transaction report (some exceptions may apply);
  • meet the requirements of the PCMLTFR in relation to business relationships that they enter into; and
  • have a compliance regime.

In the event that your firm meets the triggering activity identified at subsection 36(1) of the PCMLTFR, and is required to keep a receipt of funds record, it would be required to obtain the specified information for each individual or entity from whom it received funds, rather than its client’s information.

Date answered: 2015-02-03

PI Number: PI-6282

Activity Sector(s): Accountants

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2),34(1), 36(1)

Act: Part 1

STR Reporting - Related Transactions

Question:

Company A provided an overview of a case in which a person is suspected of committing fraud. The fraud was committed with funds provided by 500 individuals. The 500 individuals may be, either knowingly or not, involved in tax evasion.

The primary question is whether or not the 500 individual transactions are required to be reported, or if only the transactions subsequent to the receipt of the funds, which would be the point in time at which the predicate offense (fraud) was completed, must be reported.

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) stipulates that, "Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence."

If the reporting entity has reasonable grounds to suspect that a financial transaction that occurs or that is attempted in the course of their activities is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence, a suspicious transaction report must be submitted to FINTRAC.

Based on the information provided, the reporting entity has, reasonable grounds to suspect that these financial transactions, which occurred in the course of their activities, are related to the commission or the attempted commission of a money laundering offence. They are therefore reportable.

Date answered: 2015-01-19

PI Number: PI-6280

Activity Sector(s): Financial entities

Obligation(s): Reporting

Act: 7

Indirect clearers - Recipients of White label services

Question:

Who has the obligation to report a large cash transaction in the case where a financial entity has entered into an agreement that allows their clients to make deposits at another financial entity’s place of business

Answer:

In the case where a financial entity has entered into an agreement that allows their clients to make cash deposits at another financial entity’s place of business, it is the responsibility of the financial entity that holds the client's account to fulfill the record keeping and reporting obligations. The agreement generates a principal/agent relationship whereby the client is deemed to be engaged in a financial transaction with the financial entity that holds his/her account, by means of an agent. As such, the financial entity that holds the client’s account continues to be responsible for the large cash reporting and record keeping obligations of the PCMLTFA and its associated Regulations. This interpretation is further supported by subsection 6(2) of the PCMLTFR, which states 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.”

To establish such a relationship, FINTRAC anticipates that the formal agreement will outline the agent/principal relationship and establish the obligations of both parties. FINTRAC anticipates that such an agreement would outline, but not be limited to, the following:

  • The financial entity holding the client's account must be informed, by the agent financial entity receiving the deposit, that the client has conducted a large cash transaction, whether in a single transaction or under the 24 hour rule.
  • The financial entity holding the client's account must obtain the appropriate information from the agent financial entity, including all information required to complete a large cash transaction report. This includes information such as the time, the date, the exact amount of the cash transaction, and all required information on the conductor of the transaction as well as the complete address of the place of business where the transaction occurred.

The financial entity holding the client's account needs to ensure that their locations in F2R are updated to include the address information of the agent financial entity's place of business where the transaction in question took place. This information will be included in the large cash transaction report.

It is possible that both parties agree that cash deposited at the agent financial entity’s place of business will be reported by the agent financial entity on behalf of the financial entity holding the client’s account. In this case, the financial entity chosen to send large cash transaction reports to FINTRAC on behalf of the financial entity holding the client’s account will have to be registered as a service provider. The financial entity holding the client’s account will need to designate that financial entity as their service provider and delegate the appropriate reports. In such situations, the legal obligation to report remains with the financial entity holding the client’s account.

Given that Part 1 of the PCMLTFA applies to entities as outlined in section 5 of the same, the determination above is specific to situations where a financial entity is offering services to other financial entities, as defined in subsection 1(2) of the PCMLTFR. If a financial entity is conducting transactions for an entity outside of Canada, not subject to the PCMLTFA, then the financial entity in Canada retains the obligations for the transactions conducted on behalf of the entity outside of Canada.

Date answered: 2014-12-23

PI Number: PI-6276

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2), 6(2)

Act: Part 1

EFTO reporting obligations

Question:

An MSB in Canada sends its client’s (Client A) instructions to a financial entity to transmit funds to a beneficiary outside of Canada. The financial entity provides the MSB’s information (as client info) to another MSB to complete the transaction.

As a result of this scenario, is the financial entity relieved of their reporting obligation, as they provide the MSB’s information, as client info, to the other MSB, or is the financial entity instead required to provide the information for Client A to FINTRAC and if so should both the client's and the MSB'S information be provided?

Answer:

According to subsection 9.5(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), prescribed entities are required to include the originator information when they send prescribed EFTs.

Pursuant with subsection 66.1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), 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. As per subsection 66.1(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.

While it would appear that the requirement to include originator information offsets a prescribed entity’s option to retain information as long as they too will report, this is not, in fact, the case.

Subsection 9.5(a) of the PCMLTFA requires that:

  1. if a prescribed reporting entity has the originator information they cannot strip this information when they send the EFT; however
  2. a prescribed reporting entity can choose not to include the requesting client details when using a domestic intermediary reporting entity for EFT purposes, instead choosing to include their own information as the originator of the prescribed EFT.

Should the prescribed reporting entity choose to withhold the originator information, then both the reporting entity and the intermediary reporting entity are required to report, should it be a reportable transaction.

Therefore, because you state that “the MSB provides the name and address of Client A (the original ordering client) to the financial entity and requests that the financial entity send funds to Beneficiary B”, the financial entity must consider Client A as the client ordering payment of the electronic funds transfer and must provide Client A’s information to the other MSB rather than the original MSB’s information. This would allow the financial entity to fulfill its reporting obligation as per section 12 of the PCMLTFR. The other MSB would then submit an EFT report.

Alternatively, had the original MSB decided to provide its own information as the client ordering payment of electronic funds transfer information, instead of Client A’s information, then it would be sufficient for the financial entity to provide the MSB’s information to the other MSB to fulfil its reporting obligation. In this case, both the original MSB and the other MSB would be required to submit reports to FINTRAC. The original MSB would submit Client A’s information in Part B of Schedule 5 and the other MSB would submit the original MSB’s information in Part B of Schedule 5.

The interpretation of section 9.5 of the PCMLTFA was interpreted this way in order to enforce the fact that the information about the client who requested the transfer (the original ordering client) cannot get lost in the transmission of the transaction. However, how the original ordering client’s information is reported to FINTRAC will always be a question of facts. The key is that section 9.5 of the PCMLTFA conveys what information must be passed along with the request, while the PCMLTFR provides the reporting requirements.

Ultimately, the decision lies with the first reporting entity (RE), who receives the instructions from the original ordering client, as it can choose to either report the transaction to FINTRAC (if it decides not to pass the original ordering client’s information along) or pass the original ordering client’s information along to another RE to fulfil its reporting obligation.

If an RE chooses to pass the original ordering client’s information along to another reporting entity, then, as per section 9.5, this same information must continue to be passed along to each subsequent RE, that is a part of the transaction, and the final RE must report to FINTRAC, providing the original ordering client’s information as third party information (Part D for non-SWIFT reporting). If any of the intermediary REs choose to also report to FINTRAC, they may do so but must also continue to pass along the original ordering client’s information to the final RE.

Given that in the scenario you’ve described, the MSB provides Client A’s information to the financial entity as the original ordering client’s information. The MSB is therefore fulfilling its reporting obligation by passing the original ordering client’s information along, as per subsection 28(3) of the PCMLTFR. As per section 9.5 of the PCMLTFA, the financial entity must provide Client A’s information to the other MSB, which would also fulfil its reporting obligation under subsection 12(3) of the PCMLTFR. Being the last RE in the transaction, the other MSB must report the EFTO to FINTRAC, providing the financial entity's information as client information (Part B for non-SWIFT reporting) and Client A’s information as third party information (Part D for non-SWIFT reporting). In scenarios such as these, because the third party information is provided to the RE it becomes mandatory information and must be included in the report to FINTRAC.

In the described scenario, if the MSB had not provided Client A’s information to the financial entity, then the MSB would be required to report to FINTRAC, providing Client A’s information as client information (Part B for non-SWIFT reporting).

Date answered: 2014-12-22

PI Number: PI-6274

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8A

Regulations: 12, 28(3), 66.1(2)

Act: 9.5

Large Cash Transaction Report and Armoured car delivery

Question:

My questions pertain to LCTRs filed for business accounts, where the deposits are being conducted by an armoured car delivery service. I would like to confirm:

  1. What information should be entered into fields E1, E2 and E3 of the LCTR in this case? Is it necessary to enter the name of the delivery person, or would it be acceptable to enter the name of the delivery company instead? For this question, I am referring to Guideline 7A ("Submitting Large Cash Transaction Reports to FINTRAC Electronically"), specifically Appendix 1 ("Field-by-Field Instructions for a Large Cash Transaction Report").
  2. Is an employee of an armoured car delivery service that is engaged by a business considered to be an employee of the business when making a third party determination during the LCTR? For this question, I am referring to Part 7 of the PCMLTFR ("For the purposes of these Regulations, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer's business account.").

Answer:

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), 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.” Part E of Schedule 1 is a mandatory field and indicates that the full name of the person conducting the transaction must be provided for deposits into a business account, other than a night deposit or a quick drop. Therefore, the full name of the driver must be provided, not the name of the delivery company.

In response to your second question, section 7 of the PCMLTFR states that “for the purposes of these Regulations, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.” FINTRAC has previously taken the position that a third party is an individual or entity who gives instructions in regards to an account. It is only when an employee makes a large cash deposit into the employer’s business account that this exemption applies. Therefore, while it is always a question of fact to determine who is considered an employee of a business, FINTRAC does not consider the employee of an armoured car delivery service to be the employee of the hiring business.

Date answered: 2014-12-15

PI Number: PI-6269

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7A

Regulations: Part 7, 12(1)(a)

Occupation information as Unemployed

Question:

Is “unemployed” an acceptable occupation in all cases (record keeping and FINTRAC reporting), or only in the case of Large Cash Transaction Reports (LCTRs) and Suspicious Transaction Reports (STRs)?

Answer:

“Unemployed” is an acceptable occupation in all reporting and record keeping cases, as applicable.

Date answered: 2014-11-18

PI Number: PI-6258

Obligation(s): Reporting

Guidance: 7 and 8

Regulations: 53

Administrative monetary penalties - failure to provide Terrorist Property Reports

Question:

We are seeking information regarding the administrative monetary penalty (AMP) provisions associated with the failure to provide FINTRAC with Terrorist Property Reports (TPRs) in the prescribed form and manner, particularly for the Real Estate sector.

Answer:

Since subsection 7.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) applies to all reporting entities, real estate agents and brokers, when they are subject to Part 1 of the Act (i.e. when they engage in activities described in subsection 39(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations), they would be subject to the AMPs provision.

This information can be found in the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, Part 3.
The provision 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."

The provision 10 of Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations indicates that :
" REPORT MADE 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
10. Subject to section 11, a report made under section 7.1 of the Act shall be sent without delay to the Centre and shall contain the information set out in Schedule 2."

Therefore, the failure of a person or entity to send a report containing the prescribed information without delay consists in a very serious violation.

Date answered: 2014-11-13

PI Number: PI-6255

Activity Sector(s): Real estate

Obligation(s): Enforcement, Reporting

Guidance:

Regulations: 10, 39(1)

Act: Part 1, 7.1(1)

Life Insurance Sector - Use of policy numbers as account information for Part C of the STR

Question:

We are wondering whether or not a policy number is an account number to be included in PART C - Account Information, of the Suspicious Transaction Report (STR)?

Answer:

The term “account” is not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act or its associated Regulations. While accounts for the purpose of holding client assets are clearly understood to be accounts subject to account opening and other obligations, FINTRAC has taken the position that, in other cases, it is generally for a reporting entity to determine whether or not they offer accounts subject to the account opening and other obligations.

That said, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) do not outline account-related obligations for the life insurance sector, which would suggest that the PCMLTFR does not recognize the life insurance sector as having accounts. Furthermore, Part B 5 of Schedule 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations makes the distinction between account numbers and policy numbers, which would suggest that the policy number is not considered to be an account number.

Based on the above, FINTRAC cannot require an insurance company to include the policy number in Part C – Account Information of the STR. However, policy numbers are required in Part B of the STR, if applicable, and must be a full number.

Date answered: 2014-10-20

PI Number: PI-6251

Activity Sector(s): Life insurance

Obligation(s): Reporting

Regulations: Part B 5 of  Schedule 1

MSB reporting requirements for EFTI/EFTO

Question:

What are the reporting requirements for an MSB in regard to EFTI/EFTO?

Answer:

An electronic funds transfer is defined in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) as the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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. Pursuant to paragraphs 28(1)(b) and (c), respectively, every money services business must report the sending out of Canada, or the receipt from outside Canada, an electronic funds transfer of $10,000 or more in the course of a single transaction, carried out at the request of a client.

With this, we turn to the scenarios provided and we have assumed that all EFTs conducted are $10,000 or more in a single transaction.

Scenario 1

  • Company A instructs their bank in Canada to send EUR funds to the MSB’ bank account in the United Kingdom.
  • Once the MSB receives these funds in the UK, they provide an exchange rate to Company A, who accepts, and the MSB transfers the CAD equivalent from their ABC account in Canada to Company A’s bank account in Canada.

There is no EFT conducted by the MSB. Therefore, there are no reporting obligations for the MSB, but rather foreign exchange transaction obligations, namely ascertaining identity and record keeping.

Scenario 2

  • Company C in the United Kingdom is sending funds to Company B.
  • Company C transfers funds from their bank in the United Kingdom to the MSB’ bank account in the United Kingdom.
  • Once the MSB receives these funds into its bank account in the United Kingdom, the MSB provides an exchange rate to Company B, who accepts, and requests that the MSB send USD to Company B’s bank account in the United States.

While Company C is using the MSB to transfer funds to Company B, there are no incoming or outgoing instructions for the transfer of funds from Company C. There is, however, an outgoing EFT sent at the request of Company B, when Company B instructs an outgoing transfer of funds from the MSB’ ABC bank account to Company B’s bank account in the United States.

Therefore, the MSB would be required to report an outgoing EFT done at the request of Company B. However, pursuant to subsection 28(3) of the PCMLTFR, if the MSB provides ABC with all of the necessary information then ABC would be required to send the outgoing EFT report, and the MSB would no longer have the reporting obligation.

Scenario 3

  •  Company A/B instructs their bank in the United Kingdom to transfer funds to the MSB’ bank account in the United Kingdom
  • Once the MSB receives these funds into its bank account in the United Kingdom, the MSB provides an exchange rate to Company A, who accepts, and instructs the MSB to send USD to Company A’s supplier in the United States.
  • ALTERNATIVELY - the MSB provides an exchange rate to Company B, who accepts, and instructs the MSB to send USD to Company B’s supplier in the United States.

The initial instructions from Company A/B while leaving the country are not doing so via a reporting entity, so there is no EFT conducted.

There is, however, an outgoing EFT sent at the request of Company A or B, when that company instructs an outgoing transfer of funds from the MSB’s ABC bank account to the Supplier’s bank account in the United States. Therefore, the MSB would be required to report an outgoing EFT done at the request of Company A or B. However, pursuant to subsection 28(3) of the PCMLTFR, if the MSB provides ABC with all of the necessary information then ABC would be required to send the outgoing EFT report, and the MSB would no longer have the reporting obligation.

In both Scenarios 2 and 3, the funds the MSB receives into its bank account in the United Kingdom do not constitute incoming EFTs, as an incoming EFT is instructions that cross from outside of Canada into Canada for the transfer of funds.

Date answered: 2014-08-22

PI Number: PI-6224

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8, FIN 1

Regulations: 1(2), 28(1), 28(3)

Definitions of Cash and Funds

Question:

Can you please clarify the definition of cash for the purpose of Large Cash Transaction report and How that differed with funds for a receipt of funds record? Can you provide clarification on what constitutes ''funds''?

Answer:

As per the PCMLTFR, “cash” means “coins referred to in section 7 of the Currency Act, notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are intended for circulation in Canada or coins or bank notes of counties other than Canada. Whereas, “funds” means “cash, currency or securities, or negotiable instruments or other financial instruments, in any form, that indicate a person’s or an entity’s title or interest in them.”

You’ll note that EFTs do not fall within the definition of “cash.” An “Electronic Funds Transfer” means “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – 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.” That said, an individual can give a reporting entity cash to be sent as an EFT.

Date answered: 2014-08-07

PI Number: PI-6211

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2)

Originator information required when sending an EFT

Question:

Can you please confirm whether the "originator information", that is required to be included when sending an EFT, applies to both domestic and international EFT's sent from financial institutions?

Answer:

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.

For the purpose of section 9.5 of the PCMLTFA a prescribed Electronic Funds Transfer (EFT) is defined in subsections 1(2) and 66.1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). Subsection 1(2) of the PCMLTFR defines EFTs as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.” However, subsection 66.1(2) goes on to clarify that, for the purposes of the travel rule, transfers within Canada that are SWIFT MT 103 messages are also included.

Therefore, the “originator information” as described in a) above must be included when sending EFTs, domestically, if sent via SWIFT MT 103, and internationally.

Date answered: 2014-07-30

PI Number: PI-6208

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 66.1(2)

Act: 9.5

Confidentiality of suspicious transaction reports

Question:

We would like FINTRAC to confirm whether a financial institution can produce suspicious transaction reports (STRs) before the court in its own defence. If not, what is the interpretation of section 8?

Answer:

Section 8 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) stipulates that "No person or entity shall disclose that they have made a report under section 7, or disclose the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun." This ban on disclosing a suspicious transaction report applies only when the disclosure is made with the intention of prejudicing an ongoing or future criminal investigation. If there is no such intent, there is no ban and the reporting entity can disclose that it has made a report pursuant to section 7 and disclose the content.

In this case, the financial institution's intent is a matter of fact and the financial institution is in the best position to know whether or not it intends to prejudice an ongoing or future criminal investigation.

Date answered: 2014-07-09

PI Number: PI-6175

Activity Sector(s): Financial entities

Obligation(s): Reporting

Act: 8

Electronic Funds transfer

Question:

Do we have an obligation to report either the EFTI received from the Canadian financial institution or the EFTO to the Country1 correspondent financial institution?

Answer:

As per subsection 9.4(3) of the PCMLTFA, a correspondent banking relationship “means a relationship created by an agreement or arrangement under which an entity referred to in any of paragraphs 5(a), (b), (d) and (e) or an entity that is referred to in section 5 and that is prescribed undertakes to provide to a prescribed foreign entity services such as international electronic funds transfers, cash management, cheque clearing and any prescribed services.” As such, two banks that are not in a direct relationship and are not both participants in the same clearing house might have a correspondent banking relationship if, in order to complete an EFT, they have an arrangement to pass through one or more intermediary banks.

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.” To be reportable, an electronic funds transfer (EFT) must be:

  • client-initiated; and
  • include the transmission of instructions to transfer the funds across the Canadian border.

In question is whether funds transferred from one bank account in Country1 to another bank account in Country1, but routed through Canada, constitutes an EFT as per subsection 1(2) of the PCMLTFR. The client gave instructions to transmit funds from his bank account in Country1 to the bank account of another individual in Country1. The intention (or the purpose) of the transfer is to move Canadian funds within Country1. Our position is that this transaction does not constitute an electronic funds transfer as defined in subsection 1(2) of the PCMLTFR, and therefore is not reportable by the Canadian intermediary bank.

Date answered: 2014-06-16

PI Number: PI-6164

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2)

Act: 9.4(3)

Indirect clearers & recipients of White label services

Question:

Who has the obligation to report a large cash transaction in the case where a financial entity has entered into an agreement that allows their clients to make deposits at another financial entity’s place of business?

Answer:

Paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: […] 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”.

Section 13 of the PCMLTFR indicates that “Subject to subsection 52(2), every financial entity shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction, unless the cash is received from another financial entity or a public body”.

Section 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) defines a client as “a person or an entity that engages in a financial transaction or activity with a person or an entity referred to in section 5, and includes a person or an entity on whose behalf the person or the entity that engages in the transaction or activity is acting”.

In the case where a financial entity has entered into an agreement that allows their clients to make cash deposits at another financial entity’s place of business, it is the responsibility of the financial entity that holds the client's account to fulfill the record keeping and reporting obligations. The agreement generates a principal/agent relationship whereby the client is deemed to be engaged in a financial transaction with the financial entity that holds his/her account, by means of an agent. As such, the financial entity that holds the client’s account continues to be responsible for the large cash reporting and record keeping obligations of the PCMLTFA and its associated Regulations.

To establish such a relationship, FINTRAC anticipates that the formal agreement will outline the agent/principal relationship and establish the obligations of both parties. FINTRAC anticipates that such an agreement would outline, but not be limited to, the following:

  • The financial entity holding the client's account must be informed, by the agent financial entity receiving the deposit, that the client has conducted a large cash transaction, whether in a single transaction or under the 24 hour rule.
  • The financial entity holding the client's account must obtain the appropriate information from the agent financial entity, including all information required to complete a large cash transaction report. This includes information such as the time, the date, the exact amount of the cash transaction, and all required information on the conductor of the transaction as well as the complete address of the place of business where the transaction occurred.

The financial entity holding the client's account needs to ensure that their locations in F2R are updated to include the address information of the agent financial entity's place of business where the transaction in question took place. This information will be included in the large cash transaction report.

It is possible that both parties agree that cash deposited at the agent financial entity’s place of business will be reported by the agent financial entity on behalf of the financial entity holding the client’s account. In this case, the financial entity chosen to send large cash transaction reports to FINTRAC on behalf of the financial entity holding the client’s account will have to be registered as a service provider. The financial entity holding the client’s account will need to designate that financial entity as their service provider and delegate the appropriate reports. In such situations, the legal obligation to report remains with the financial entity holding the client’s account.

Date answered: 2014-05-26

PI Number: PI-6152

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a), 13

Act: 2

EFT reporting - incoming versus outgoing

Question:

I would like to request a policy interpretation regarding EFT reporting that concern a registered MSB, headquartered in the central region, which conducts remittances mainly for the Country1 community in Canada?

Answer:

Pursuant to subsection 28(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) , every money services business shall, subject to subsection 52(1), report to FINTRAC :

  • the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
  • the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

As per subsection 1(2) of the PCMLTFR, an electronic funds transfer (EFT) means the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada, and includes transferring funds from one individual or organization to another using any other method such as hawala, hundi, fei ch'ien, and chit.

The scenario you have described appears to reflect a hawala system, whereby an individual approaches the MSB to have money sent to a beneficiary in Country 1, and the MSB, rather than physically sending the funds to the recipient, relies on an agent to pay the requested amount to the beneficiary in Country 1. The MSB will also pay out funds to a Canadian beneficiary upon request by the agent, based on funds that the agent in Country 1 was given for the purpose of getting to the beneficiary. The MSB and the agent either allow for multiple transactions to offset any amount(s) owing one to the other, or conduct a settlement to ensure that the amounts received and paid out balance.

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission of instruction to transfer funds across our border

As such, it is not typically the settlement between the MSB and its agent(s) that triggers the reporting obligation, but the client initiated EFTs, should they meet the thresholds.
That said, in the scenario provided, where the agent in Country 1 asks the MSB to remit funds to a beneficiary in Country 2 on their behalf instead of receiving settlement funds from the MSB, a reportable EFT is conducted.

The MSB submits that the agent in Country 1 is the initiator of the EFT and that the agent gives instructions to the MSB to transmit funds to the beneficiary in Country 2. As the client ordering the payment of the electronic funds transfer, the agent includes in the instructions the payment and banking details for the payment . The intention (or the purpose) of the payment is to transfer funds from Canada to the beneficiary in Country 1. Here is the electronic funds transfer as defined in our regulations. The agent initiates the transmission of instructions to transfer funds across the Canadian border.

Our position is that this transaction constitutes an outgoing non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

The report should be completed as follow:
Part A – Transaction Information
Part B – Information on Client ordering payment of an EFT: The agent in Country1
Part C – Information on Sender of EFT: MSB in Canada
Part E – Information on Receiver of EFT: Entity in Country1
Part F – Information on Client to whose benefit the payment is made: beneficiary in Country1

This transaction will only be an EFTO. The agent instructed the MSB in Canada to transmit funds to the foreign country. The intention (or purpose) of this transaction is to have the funds moved out of Canada to the foreign country.

Date answered: 2014-05-23

PI Number: PI-6151

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)

STR filing - Who is responsible to file

Question:

ABC Trust Company uses DEF as an agent to distribute their prepaid card product. Should DEF encounter any suspicious situation should they be filing the STR on behalf of ABC Trust or should ABC Trust be filing the STR? Should DEF alone file the STR and only if ABC Trust have additional details to add they can file a STR of their own?

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires every entity referred to in section 5 of the PCMLTFA to report every financial transaction that occurs or that is attempted in the course of their activities where there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence. Both ABC Trust Company and DEF are reporting entities covered under the PCMLTFA so both have reporting obligations pursuant to section 7 in the event they become aware of one or more suspicious transactions, regardless if they are dealing with their own clients or not. If, in the course of its activities, ABC Trust Company becomes aware of one or more suspicious transactions involving its clients, it has an obligation to report these transactions. Alternatively, should DEF encounter any suspicious situation, then DEF has the obligation to file an STR.

Date answered: 2014-04-30

PI Number: PI-6143

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance:

Act: 7

Report EFTOs ordered by an employee when there is an ongoing agreement between the Money Services Businesses and employer.

Question:

How to report EFTOs ordered by an employee when there is an ongoing agreement between the Money Services Businesses and employer.

Answer:

Subsection 10(1) of the Proceeds of Crime (Terrorist Financing) and Money Laundering Regulations (PCMLTFR) requires that reporting entities take reasonable measures to determine whether a client is acting on behalf of a third party when they are required to keep a client information record. When a money service business (MSB) enters into an ongoing electronic funds transfer agreement with an entity, it is required to keep a client information record with respect to the entity and a list containing the name, address and date of birth of every employee authorized to order transactions under the agreement (s. 32 PCMLTFR). Additionally, section 7 of the PCMLTFR makes it clear that a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.

When making a third party determination it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual conducting the transaction is acting on someone else's instructions. If so, that other individual is the third party. As each situation will be different, this determination must always be based on the facts of each specific scenario. Each entity will be responsible for making their own determination based on the information available to them. You have provided the following three scenarios:

Scenario 1

There is an ongoing service agreement between the MSB and the entity. The employee, who is on the list of authorized employees orders an EFTO. You have asked whether the entity’s name should be entered in Part B, and whether Part D should be left blank.

Answer: In this situation, the employee is the client as he or she is conducting the transaction and his/ her information should be entered in Part B. The third party would be the entity/employer, as it is instructing the employee to order the EFTO. As such, the entity’s information should be recorded in Part D.

Scenario 2

There is an ongoing service agreement between the MSB and the entity. The employee, who is not on the list of authorized employees, orders an EFTO. You have indicated you would record “the individual name” in Part B and “the entity name” in Part D.

Answer: In this scenario, I have assumed that by “individual,” you mean “employee”. If this is the case, the employee would be the client, as he or she is conducting the transaction. As such, his/ her information, including full name and address, should be entered in Part B. As the employee is not on the list of authorized employees, the MSB would be required to ascertain this individual’s identity in the event the EFTO being ordered is $1000 or more, pursuant to paragraph 59(1)(b) of the PCMLTFR. Subsection 59(4) of the PCMLTFR provides an exception to this obligation if the employee is authorized to order transactions under an ongoing service agreement. The entity is the third party as it is providing instructions to the employee. As such, the entity’s information should be entered in Part D.

Scenario 3

There is no ongoing service agreement in place. The employee, who is the owner, director or shareholder of the entity, orders an EFTO.

Answer: At the outset, it should be noted that the terms owner, director and shareholder may not always be synonymous with each other. To explain further, the shareholder could either be an employee, or the shareholder could be a director, the owner or one of the owners, which would change the way in which an EFTO report must be filled out. For example, if the shareholder is an employee, he or she is acting on the instructions of another individual or the entity so the shareholder will be considered the client (Part B) and the party providing this individual with instructions to order the EFTO will be the third party (Part D). If, on the other hand, the shareholder is the owner, one of the owners or a director of the entity, he or she may be speaking directly for the entity when ordering the EFTO. The entity can only speak by means of a physical person, which may be the Board of Directors (if the company has one) or the owner(s) (if the company is a sole proprietorship and/or the company does not have a Board of Directors). As such, the individual conducting the transaction (be it the owner(s), director(s) or shareholder (who is a director or owner)) would not be a separate body from the entity. Therefore, the entity would be the client and its information should be entered in Part B. Since the director and/ or owner is the voice of the entity, there would be no third party in this scenario. That being said, pursuant to paragraph 59(1)(b) of the PCMLTFR, the MSB must still ascertain the identity of the person who conducts the electronic funds transfer if it is $1,000 or more.

Date answered: 2014-04-30

PI Number: PI-6142

Obligation(s): Reporting

Guidance: 8

Regulations: 7, 10(1), 32, 59(1)(b), 59(4)

Guidance on how to submit an LCTR in the case of a third party transaction conducted on behalf an embassy

Question:

Can we receive guidance on how to submit a Large Cash Transaction in the case of a third party transaction in which the transaction is conducted by an employee of an embassy ?

Answer:

Pursuant to paragraph 28(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) a money services business must 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 a financial entity or a public body. Furthermore, as per section 29, subject to subsection 52(2), every money services business shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction, unless the cash is received from a financial entity or a public body.

Where a reporting entity is required to keep a large cash transaction record under these Regulations, they must take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party.

In this particular case, the conductor (the employee) of the transaction has indicated that the transaction is being conducted on behalf of the embassy for which he works. Based on information provided by the conductor (the employee), the embassy is the third party to this transaction. It is, therefore, up to the reporting entity to determine how to appropriately record the information on the entity (embassy) on whose behalf the transaction is being conducted in the LCTR.

Although we have previously determined that an embassy is not an entity under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), for the purposes of submitting the LCTR, certain information on the embassy is necessary to include. Part F – Information on Entity on Whose Behalf Transaction is Conducted (if applicable) is best suited to capture information on the embassy.

Date answered: 2014-04-22

PI Number: PI-6141

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 28(1)(a), 29

Reporting large cash transactions

Question:

How we should report transactions and dispositions on a Large Cash Transaction Report where the transaction included a cash and non-cash component?

Answer:

Pursuant to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), financial entities must 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, the Large Cash Transaction Report. As such, the entity is required to report to FINTRAC cash received, this does not include cheques, funds drawn on an account, etc.

Part B of the Large Cash Transaction Report requires the reporting entity to include information on the disposition of the funds. As per subsection 1(2) of the PCMLTFR, funds means cash, currency or securities, or negotiable instruments or other financial instruments, in any form, that indicate a person’s or an entity’s title or interest in them. As such, the disposition of funds in Part B of the Large Cash Transaction Report may include the full disposition of a particular transaction, so may reflect the addition to the cash portion of funds drawn on an account, a cheque, etc.

Based on the above, it is possible for a reporting entity to report a large cash transaction with different transaction and disposition amounts.

Date answered: 2014-04-11

PI Number: PI-6137

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

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

Obligations with respect to domestic EFTs of $1,000 or more

Question:

  1. Considering the EFT was not an international EFT, was a third party determination even required?;
  2. The fact that there is an electronic image of the cheque drawn on the lawyer’s in trust account at ABC with the lawyer’s signature on the cheque in the financial institution’s records, was the financial institution required to obtain additional information and ID on the lawyer when they had the lawyer’s assistant/employee’s ID on file?
  3. Was there a deficiency issue with the financial institution recording themselves as the Sender and not the lawyer’s name and account information on the actual MTS EFT transmission?

Answer:

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.

With respect to client identification obligations for EFTs paragraph 54(1)(b)(ii) of the PCMLTFR states:

54. (1) Subject to section 62 and 63, every financial entity shall
(b) in accordance with subsection 64(1), ascertain the identity of every person who has not signed a signature card in respect of an account held with the financial entity and has not been authorized to act with respect to such an account but who conducts
(ii) an electronic funds transfer, as prescribed by subsection 66.1(2), in an amount of $1,000 or more sent at the request of a client […]

Therefore, when conducting an EFT, a financial entity will only be required to ascertain a client’s id when the entity conducts an electronic funds transfer as defined in subsection 1(2) of the PCMLTFR or a transfer within Canada that is a SWIFT MT 103 message.

Date answered: 2014-04-07

PI Number: PI-6134

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 54(1)(b)(ii), 66.1(2)

Act: 9.5

Definition of PAD

Question:

what constitutes a pre-authorized debit for the purposes of EFT record keeping as required by subsection 14(m) of the PCMLTFR ?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines electronic funds transfer (EFT) as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada.” Section 9.5 of the PCMLTFA requires entities referred to in section 5 to include certain information with prescribed EFTs when they occur in the course of their financial activities. Subsection 66.1(2) of the PCMLTFR goes on to state that the prescribed EFTs to which section 9.5 of the Act applies are those as defined in subsection 1(2), and also include transfers within Canada that are SWIFT MT 103 messages. That being said, subsection 66.1(3) of the PCMLTFR specifies that subsection 66.1(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.

Whether a transaction constitutes a pre-authorized debit is a question of fact, and must be determined by the RE, based on the available information in each given situation and in consideration of the definition of EFT.

Date answered: 2014-04-07

PI Number: PI-6133

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 66.1

Act: 9.5

Obligations associated with large cash transactions

Question:

Can you give us a series of examples highlighting situations that may trigger the obligations associated with large cash transactions ?

Answer:

  1. In the case of a financial entity, paragraph 12(1)(a) of the Proceeds of Crime Money Laundering and Terrorist Financing Regulations (PCMLTFR) states that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre […] 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.”
     
  2. The large cash transaction obligations are triggered by the transaction(s) of a conductor, so are determined at the conductor level, not at the account level.
     
  3. As per subsection 3(1) of the PCMLTFR, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if

    (a) where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and
    (b) where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.
     

  4. Subject to subsection 52(2), every financial entity shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction.
     
  5. As outlined in subsection 8(1), every person or entity that is required to keep a large cash transaction record under the PCMLTFR shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party. When determining whether a "third party" is involved, it is not about who "owns", or benefits from, the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual conducting the transaction is acting on someone else's instructions. If so, that someone else is the third party. For example, if a father gives his son $10,000 to deposit into the father’s account, the father is the third party, even though he is the account holder. This is because the son is conducting the transaction (depositing the funds) on the instructions of his father. In the case of a business account, it is important to be clear that for the purposes of the PCMLTFR, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.
     
  6. “On behalf of” does not refer to the beneficiary of a transaction, but rather is a reference to the individual or entity giving instructions on a transaction.
     
  7. If the reporting entity has, as a business practice, the requirement to collect “on behalf of” details for any/all transactions, then the entity would be deemed to know that the deposits were made “on behalf of” the same individual or entity, should this be the case.
     
  8. If the same client card is used for any/all transactions, then this can be used to determine that the transactions were made “by” the same individual or entity

Date answered: 2014-03-27

PI Number: PI-6126

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 3(1), 8(1), 12(1)(a), 52(2)

Third party to EFT

Question:

EFTs may or may not be CASH so may or may not be a LCT. Is this third party information only applicable if the EFT was a LCTR?

What about the case of a business account, owned by a husband and wife (both have signing authority)? If the wife comes in and conducts a reportable International Electronic Funds Transfer on behalf of the company; when asked if this EFT was conducted on behalf of a third party, the wife indicated that it was the husband who gave her the instructions to send the transfer. In this case, would the husband be the third party?

Answer:

Pursuant to section 7 of the PCMLTFR the only time an employee conducting a transaction for an entity is NOT doing so on behalf of a third party is where the individual is an employee depositing cash to the business account. As such, where an employee is requesting an EFT for an entity, they are doing so on behalf of said entity, as this is not a cash deposit to the business account.

That said, it is a question of fact as to whether the owner is an employee:

  • If the owner is not an employee, then they are requesting the EFT as the voice of the business and Part B would be populated with information on the business.
  • If the owner is an employee, then they are requesting the EFT on behalf of the business and Part B would be populated with the individual’s information and the business’ information would be put into Part D.

Date answered: 2014-03-11

PI Number: PI-6119

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 7

Clarifications - Attempted vs Completed STRs

Question:

We wanted a clarification on “attempted” vs. “completed” STRs. Thus far, we have interpreted “attempted” STRs as transactions where we have declined a transaction or where a patron has decided not to follow through with the transaction for whatever reason.

We have treated “completed” STRs as transactions that have been completed regardless whether or not the patron has been identified.

We want to ensure that we are accurately capturing our future STRs.

Answer:

The “conducted” or “attempted” label for transactions is not determined by whether or not the client’s identification was ascertained. A completed transaction is one that was carried out to completion, whereas an attempted transaction is one that was not finalized, either because the client did not follow through with the transaction or the reporting entity did not process the transaction.

Regardless of whether or not the transaction was conducted or attempted, when a reporting entity has to send a suspicious transaction report to FINTRAC, they have to take reasonable measures, before the transaction is reported, to ascertain the identity of the individual who conducted or attempted to conduct the transaction, except where:

  • the reporting entity had already ascertained the identity of the individual as required and has no doubts about that previous identification information; or
  • the reporting entity believes that doing so would inform the individual that they are submitting a suspicious transaction report.

Date answered: 2014-03-04

PI Number: PI-6112

Activity Sector(s): Casinos

Obligation(s): Reporting

Act: 7

Quick Drops are associated with Accounts

Question:

When the cash is sent by courier, can an Money Services Businesses do LCT?

Answer:

Money Services Businessess can accept cash from a courier, they just can’t accept them as quick drops because quick drops are associated with accounts and Money Services Businessess aren’t recognized as having accounts.

Where a large cash transaction triggers a large cash transaction record, the Money Services Businesses must ascertain the identity of the person with whom the Money Services Businesses conducts the transaction. In the case of a courier, that would mean ascertaining the identity of the courier as the person with whom the Money Services Businesses conducts the transaction.

Date answered: 2014-02-26

PI Number: PI-6106

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

EFTI Reporting

Question:

It would be beneficial if FINTRAC could confirm that the information we are purporting to provide in the respecting reporting sections of the non-SWIFT incoming funds report is accurate.

Essentially there are 2 scenarios. Please keep it in mind that Company 123 has operations and clients domiciled, in Canada, the US, US and Australia (this is particularly poignant to Scenario 2).

Do those two scenarios constitute reportable EFTIs and if so, which party would be considered the ordering client in each scenario?

Scenario 1: Where Instructions Refer to a Company 123-Canada Client
ABC Corp. is a Company 123-Canada client. XYZ Corp., located in the UK, is ABC Corp’s customer and sends 10,000 EURO from its account at Bank Y in the UK to Company 123-UK’s bank account in the UK. An internal inter-company accounting function is completed and Company 123-Canada sends the exchanged CAD from its Canadian bank account to ABC Corp.’s bank account in Canada.

Part A: Transaction Data
Part B: Information XYZ Corp.
Part C: Bank Y (XYZ’s bank account in the UK)
Part D: 3rd party (if XYZ sending on behalf of a 3rd party)
Part E: Company 123 Canada
Part F: Information on ABC Corp.
Part G: 3rd party (if ABC is receiving on behalf of a 3rd party)

These are instructions sent electronically for the transfer of $10,000 or more from outside Canada at the request of a client.

Scenario 2: Where Instructions Refer to a Beneficiary in Canada
DEF Inc. is a Company 123-UK client. TUV Inc., located in Canada, is DEF Inc.’s customer (and not a customer of Company 123-Canada). DEF Inc. sends 10,000 EURO from its account at Bank Y in the UK to Company 123-UK’s bank account in the UK. An internal inter-company accounting function is completed and Company 123-Canada sends the exchanged funds from its Canadian bank account to TUV Inc.’s bank account in Canada.

Part A: Transaction Data
Part B: DEF Inc.
Part C: Bank Y (DEF’s Bank account in the UK)
Part D: 3rd party (if DEF is sending on behalf of a 3rd party)
Part E: Company 123 Canada
Part F: Information on TUV Inc.
Part G: 3rd party (if TUV Inc. is receiving on behalf of a 3rd party)

Answer:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada.”

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission of instructions to transfer funds across our border

Paragraph 28(1)(c) of the PCMLTFR states that, subject to subsection 52(1), every money services business shall report to the Centre the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction.

In both of the scenarios, the intention (or the purpose) of the payment is to transfer funds from the payor’s account in the foreign country (XYZ Corp.’s account in Scenario 1 and DEF Inc.’s account in Scenario 2) to the payee’s bank account in Canada (ABC Corp.’s account in Scenario 1 and TUV Inc.’s account in Scenario 2). The payor, who is the client (XYZ Corp. in Scenario 1 and DEF Inc. in Scenario 2), initiates the transmission of instructions to transfer funds across the Canadian border. Furthermore, the payor’s instructions to transfer these funds include information, a unique order ID or reference number that will make it possible for Company 123 Canada to identify the transaction and banking details for depositing the exchanged funds into ABC Corp. and TUV Inc.’s respective bank accounts in Canada. Given the foregoing, it is our position that these transactions constitute incoming non-swift international electronic funds transfers as defined in subsection 1(2) of the PCMLTFR.

The report for each scenario must be filed as follows:

Scenario 1:
Part A: Transaction Data
Part B: XYZ Corp.
Part C: Company 123-UK
Part D: 3rd party (if XYZ sending on behalf of a 3rd party)
Part E: Company 123 Canada
Part F: Information on ABC Corp.
Part G: 3rd party (if ABC is receiving on behalf of a 3rd party)

Scenario 2:
Part A: Transaction Data
Part B: DEF Inc.
Part C: Company 123-UK
Part D: 3rd party (if DEF is sending on behalf of a 3rd party)
Part E: Company 123 Canada
Part F: Information on TUV Inc.
Part G: 3rd party (if TUV Inc. is receiving on behalf of a 3rd party)

Date answered: 2014-02-26

PI Number: PI-6105

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 28(1)(c)

LCTR Reporting and Receipt of funds record (ROFR)

Question:

  1. What should the brokerage indicate on the ROFR? (eg. Funds received in brokerage's account, via cash deposit by the client OR should this be considered as funds received in cash?)
     
  2. Is an LCTR required for the following scenario?
  • the brokerage represents a buyer who purchased a property
  • the buyer deposited $20,000 cash into the brokerage's bank account at a bank, as deposit for the purchase; the bank will be sending a copy of the deposit slip to the brokerage
  • the buyer went directly to the bank to make the deposit, no cash was physically given to the brokerage
  • it is the brokerage's regular practice to give clients their (brokerage's) deposit account information so that the funds can be deposited directly into their account

Answer:

Pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, the receipt of funds record “means, in respect of a transaction in which an amount of funds is received, a record that contains the following information:

(a) if the information is not readily obtainable from other records that the recipient keeps and retains under these Regulations, the name of the person or entity from whom the amount is in fact received and
(i) where the amount is received from a person, their address and date of birth and the nature of their principal business or their occupation, and
(ii) where the amount is received from an entity, their address and the nature of their principal business;
(b) the date of the transaction;
(c) the number of any account that is affected by the transaction, and the type of that account, the full name of the person or entity that is the account holder and the currency in which the transaction is conducted;
(d) the purpose and details of the transaction, including other persons or entities involved and the type and form of the transaction;
(e) if the funds are received in cash, whether the cash is received by armoured car, in person, by mail or in any other way; and
(f) the amount and currency of the funds received."

The receipt of funds record should accurately reflect the transaction whereby the funds were received. As such, the reporting entity should, in this scenario, indicate that the funds were received by means of a deposit, by the client, directly into the brokerage's account at the bank.

The LCTR is intended to indicate the receipt, in cash, of $10,000 or more in a single transaction. A deposit made by the client into the brokerages account, where the brokerage did not handle the cash at any point, is not deemed as the receipt of funds in cash. In this instance, the transaction is not a cash transaction, therefore a large cash transaction report is not required.

Date answered: 2014-02-26

PI Number: PI-6104

Activity Sector(s): Real estate

Obligation(s): Record Keeping, Reporting

Guidance:

Regulations: 1(2)

DPMS - Triggering activity and Reporting Clarifications

Question:

  1. Is a person or entity, not in the business of the sale, purchase, or manufacturing of precious metals, precious stones or jewellery, who, in two transactions within a short period, has sold approximately $100,000.00 of gold bars held as an investment by that person or entity, considered a DPMS?
  2. If such a person or entity is considered a DPMS, my understanding is that the only reporting obligations arise in connection with (i) a cash transaction, and (ii) a suspicious transaction. As neither transaction was a cash transaction, the question is whether this would be a suspicious transaction. In this particular case, part of the gold was sold to a reputable foreign exchange company and the other part was sold to a non-arms length individual on the condition of anonymity. From the organization's perspective, this could be suspicious as they do not know the identity of one of the purchasers. From the perspective of the employee who facilitated the transaction there is nothing suspicious since they know the purchaser well. Ultimately this is not a suspicious transaction since my client knows the full details of the transaction, but the organization does not have sufficient information to reach the same conclusion. Would this transaction give rise to a reporting requirement?
  3. Finally, if there is a reporting requirement, could the employee provide the details of the transaction in confidence to FINTRAC in order to satisfy the organization's reporting requirement, if any, in order to avoid breaching the confidentiality provision of the agreement of sale?

Answer:

While a business may be incorporated for the purposes of one activity, should it, in the course of its business activities, buy or sell precious metals, stones or jewellery, then it may meet the definition of a dealer in precious metals and stones (DPMS), as per subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). Should the DPMS buy or sell precious metals, stones or jewellery that total $10,000 or more in a single transaction, it becomes subject to the PCMLTFA and its associated Regulations, which include the obligations to report to FINTRAC, keep records, identify clients, and have a compliance regime. 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.

In the dealers in precious metals and stones sector, large cash transactions and suspicious transactions trigger the reporting, identification and record-keeping obligations of the PCMLTFA and its associated Regulations. If a purchase or sale is not carried out in cash, then the DPMS is not required to report the transaction or keep a large cash transaction record, thereby also negating the need to identify the individual or entity making the purchase or sale, unless the transaction is deemed to be suspicious.

Suspicious transaction obligations are triggered when a reporting entity has reasonable grounds to suspect that a transaction, or an attempted transaction, is related to money laundering or terrorist activity financing. “Reasonable grounds” are determined by what is reasonable in the circumstances, including normal business practices and systems within the industry. For the purposes of suspicious transactions only, an employee of a reporting entity is also a "reporting entity". This requires that the employee make a report to FINTRAC about a suspicious transaction unless they report it to their superior. The PCMLTFA and its associated Regulations do not apply to former employees of reporting entities.

Where an employee does not deem a transaction or an attempted transaction to be suspicious, the employer is not precluded from reporting said transaction, should the employer suspect that the transaction or attempted transaction be related to money laundering or terrorist activity financing. Pursuant to subsection 53.1(1) of the PCMLTFR, a DPMS must take reasonable measures to ascertain, in accordance with 64(1), the identity of every person with whom the DPMS conducts, or attempts to conduct, a transaction that is required to be reported to the Centre under section 7 of the PCMLTFA, unless the DPMS had already ascertained the identity of the individual or believes that complying with subsection 53.1(1) would inform the person that the transaction and the related information is being reported (ss. 53.1(2) PCMLTFR).

After taking reasonable measures to ascertain the identity of the person who conducted, or attempted to conduct, the transaction, the DPMS is expected to complete the suspicious transaction report providing the mandatory information, where applicable. 

Date answered: 2014-02-20

PI Number: PI-6100

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

Obligation(s): Reporting

Guidance: 7

Regulations: 39.1, 53.1(1), 53.1(2)

Act: 1(2)

LCT from client branches and franchise and Quick Drop

Question:

How does the reporting of large cash transactions work when a courier/armoured car driver drops off bags of foreign currency collected from client branches and a franchise?

Answer:

In the case of a money services business, paragraph 28(1)(a) of the Proceeds of Crime Money Laundering and Terrorist Financing Regulations (PCMLTFR) states that “Subject to subsection 52(1), every money services business shall report the following transactions and information to the Centre […] 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.”

Section 29 requires that, subject to subsection 52(2), every Money Services Businesses keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction, unless the cash is received from a financial entity or a public body.

Pursuant to section 53, subject to subsection 63(1), every person or entity that is required to keep and retain a large cash transaction record under these Regulations shall ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts a transaction in respect of which that record must be kept, other than a deposit made to a business account or a deposit made by means of an automated banking machine.

As per subsection 3(1) of the PCMLTFR, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if

  • where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and
  • where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity

Furthermore, as outlined in subsection 8(1), every person or entity that is required to keep a large cash transaction record under the PCMLTFR shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party. When determining whether a "third party" is involved, it is not about who "owns" the money, but rather about who gives instructions to deal with the money.

With respect to the 24-hour rule, it is important to remember that while the 24-hour rule is “by or on behalf of” the same person or entity, one does not negate the other; rather the two options support each other to ensure a complete picture of the transaction(s) being conducted at a reporting entity. While a transaction may not be reportable based on who it was conducted “by” it may be reportable based on who it was conducted “on behalf of” and vice versa. That is why it is important to consider both. To miss reporting opportunities because a reporting entity is only considering one or the other, that is “by” or “on behalf of”, could put the reporting entity into a position of non-compliance with the PCMLTFA and its associated Regulations.

Upon further discussion, it was determined that the branches and the branch manager are deemed to be Corporate ABC.

Finally, the quick drop is not an option for Money Services Businessess. This is because the quick drop is associated with accounts and Money Services Businessess are not recognized as having accounts.

With these comments in mind, we turn to the scenario outlined in your e-mail. Where :

  1. At 9:00 a.m., an armoured car driver drops off 3 deposits in one bag for each branch (Branch A - 2K, Branch B - 4K, Branch C - 6k), one person is conducting a $12,000 cash transaction, so the large cash transaction obligations are triggered and the Money Services Businesses must keep a large cash transaction record, ascertain identity, make a third party determination and send a large cash transaction report. As such, the report should be completed as follows:

    Part A: Information on place of business where the transaction occurred
    Part B: Information on the $12,000 transaction
    Part C: N/A (Money Services Businessess are not recognized as having accounts)
    Part D: Information on the courier as the person conducting a transaction that is not a deposit into a business account because Money Services Businessess are not recognized as having accounts
    Part E: N/A (Money Services Businessess are not recognized as having accounts)
    Part F: Information on Corporate ABC (both the branch manager and the ABC branch are deemed to be Corporate ABC) or the DEF Franchise
    Part G: N/A
     

  2. At 12:00 p.m. a courier drops off 3 deposits (Branch D - 2K, Branch A - 8K and Branch E - 9K), one person is conducting a $19,000 cash transaction, so the large cash transaction obligations are triggered and the Money Services Businesses must keep a large cash transaction record, ascertain identity, make a third party determination and send a large cash transaction report. The report should be completed as follows:

    Part A: Information on place of business where the transaction occurred
    Part B: Information on the $19,000 transaction
    Part C: N/A (Money Services Businessess are not recognized as having accounts)
    Part D: Information on the courier as the person conducting a transaction that is not a deposit into a business account because Money Services Businessess are not recognized as having accounts
    Part E: N/A (Money Services Businessess are not recognized as having accounts)
    Part F: Information on Corporate ABC (both the branch manager and the ABC branch are deemed to be Corporate ABC) or the DEF Franchise
    Part G: N/A

NOTE: While the “on behalf of” fields (Part F) may trigger subsequent LCT filing requirements (e.g., Corporate ABC was the entity in Part F both times so $31,000 was conducted on behalf of Corporate ABC), we would not expect to receive an LCTR to this effect because it would be a repeat of all of the information already reported. However, if no LCT obligations were triggered because instead the 9:00 a.m. transaction total was $8,000 and the 12:00 p.m. transaction totaled $7,000, we would expect an LCTR to be triggered if it was known by an employee or a senior officer of the reporting entity that both the courier and the armoured car driver conducted their respective transaction “on behalf of” the same individual or entity (i.e., either Corporate ABC or the DEF franchise.)

Date answered: 2014-02-18

PI Number: PI-6098

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: FIN-4, 7

Regulations: 3(1), 8(1), 28(1)(a), 29, 53

LCTRs 24 hour Rule - Aggregation on the basis of the "Conductor" and not the "Account Holder"

Question:

An employee is coming in to deposit on behalf of the employer. The employer (has account with bank) is seen as the bank’s client. The question is: Should the bank aggregate on the basis of the account holder (employer) or conductor (employee) or both?

Answer:

With the information you have provided, the response is still that the aggregation must be at the conductor level, which will be the employee, in this case.

In fact, the 24-hour rule applies for the receipt of two or more cash amounts of less than $10,000 each that total $10,000 or more within a 24-hour period. The reporting entity has to make a large cash transaction report if their employee or senior officer knows the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity. In the case of a financial entity, paragraph 12(1)(a) of the Proceeds of Crime Money Laundering and Terrorist Financing Regulations (PCMLTFR) states that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre […] 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.” As indicated in FINTRAC’s guidelines, “on behalf of” refers to the instructing party to a transaction and not the beneficiary of said transaction.

The large cash transaction obligations are triggered by the transaction(s) of a conductor, so are determined at the conductor level, not at the account level.

In addition, section 7 of the PCMLTFR makes it clear that a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account. Therefore, there will be no third party in this situation.

Date answered: 2014-01-28

PI Number: PI-5689

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4, 9

Regulations: 7, 12(1)(a)

Alternative to LCTR - Reporting conditions

Question:

When can reporting entity send an alternative to large cash transaction report?

Answer:

As written in subsection 50(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), there are several conditions required to be met before a reporting entity can choose to send the alternative to large cash transaction report. One of the requirements is that the financial entity has records that indicate that the client has deposited $10,000 or more in cash into that account on an average of at least twice in every week for the preceding 12 months. An average of two deposits a week in a 12 month period would result in 104 deposits. Therefore, should the financial entity have records to indicate that the client has made at least 104 deposits for the preceding 12 months, and satisfies the other conditions outlined in subsection 50(1)(c) of the PCMLTFR, then the alternative to large cash transaction report option can be selected.

Date answered: 2013-12-23

PI Number: PI-5673

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 9

Regulations: 50(1)(c)

STRs reported by employees

Question:

I have a question regarding the agents of a mutual fund dealer or life insurance licensed agents. They are not "employees". Is it OK for the agents to make reports for anything to their 'superior' i.e. dealer and/or managing general agency and the dealer or agency will file the report with FINTRAC? Or are the agents required to report directly to FINTRAC?

Answer:

Subsection 5(g) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) specifies 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 the PCMLTFA. Furthermore, as per Section 16 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) Part 1 of the PCMLTFA applies to a life insurance broker or agent, defined under subsection 1(2) of the 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.”

Section 7 of the PCMLTFA requires every person or entity referred to in section 5 of the PCMLTFA to report every financial transaction that occurs or that is attempted in the course of their activities where there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence.

Where entities working together are both reporting entities covered under the PCMLTFA, and no employer/employee relationship exists, both have reporting obligations pursuant to section 7. That said, reporting entities may enter into an agreement with a service provider, which may be another reporting entity, to have that provider fulfill part or all of the contracting reporting entity’s obligations. As a best practice we encourage reporting entities to ensure that the agreement clearly outlines the responsibilities of each party. Where such an agreement does exist, the reporting entity is still responsible for ensuring compliance with the PCMLTFA and its associated Regulations.

Date answered: 2013-12-20

PI Number: PI-5671

Activity Sector(s): Securities dealers

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 16

Act: 5(g), 7

ID when accepting a Large Cash Transaction

Question:

What type of questions a financial institution can request from a business depositing a large transaction, namely can a bank request a business to disclose information on its clients when depositing a large amount?

Answer:

As per the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), and explained in the Guidelines, reporting entities are subject to certain reporting, record keeping and client identification obligations in relation to large cash transactions (the receipt from a client of an amount in cash of $10,000 or more in the course of a single transaction), suspicious transactions, and electronic funds transfers. Should the large amount of a transaction trigger any of these obligations, the reporting entity must ask or have access to the information necessary to satisfy the requirements.

In addition, subsection 9.6 (1) of the PCMLTFA requires that reporting entities establish and implement a compliance program. The compliance program must include the assessment and documentation of potential risks to the reporting entity, taking into consideration their clients and business relationships, whereby the reporting entity may consider assessing a business client’s activities, transaction patterns, how they operate and so on.

It is important to note that a reporting entity is not limited by the PCMLTFA. Entities might, as a business practice, or as required by other governing legislation, ask for or obtain other information throughout the transaction process.

Date answered: 2013-12-20

PI Number: PI-5670

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Act: 9.6(1)

International Sanctions - STR

Question:

I would like your opinion on cases in which we find potential breaches of international sanctions and on whether or not we have to report to FINTRAC.

For example:

  1.  A Canadian entity wants to conduct a transaction with a foreign entity against which sanctions have been imposed by the U.S. After we intervened, the Canadian entity changed the name of the foreign entity with which it wants to do business to a name that is not sanctioned. Our analysis shows that this transaction relates to the entities' trade activities and we do not question the legitimacy of these activities, so there is no doubt under the PCMLTFR. However, we question the Canadian entity's behaviour and its compliance with international sanctions. Should we submit a suspicious transaction report in accordance with the PCMLTFA?
     
  2.  We are receiving or sending an electronic funds transfer out of Canada (to a country that is not sanctioned) and we have reason to believe that the electronic funds transfer could be in breach of international and Canadian sanctions even though the sending/receiving country is not sanctioned. The transaction relates to the business activities of the entities in question and we do not question the legitimacy of these activities. Should we submit a suspicious transaction report in accordance with the PCMLTFA? In all cases of possible sanction breaches, we apply risk management measures to international sanctions, but we are still unsure as to whether or not we have to report these activities to FINTRAC even though there is no doubt under the PCMLTFR.

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) stipulates that, "Subject to section 10.1, every person or entity referred to in section 5 shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or
(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

If you have reasonable grounds to suspect that the financial transaction that occurred or that was attempted in the course of your activities is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence, a suspicious transaction report must be submitted to FINTRAC. "Reasonable grounds to suspect" are determined based on what is reasonable for the reporting entity's circumstances, including its common business practices and the systems in place in its industry. It is up to the reporting entity to judge the legitimacy of transactions, taking into account what is appropriate in the circumstances and consistent with common industry activities as well as the client's level of knowledge.

Moreover, section 7.1 of the Act indicates the following:

  • 7.1 (1) 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.

If a reporting entity concludes that it is necessary to make a disclosure under section 7.1 of the Act, the entity must also make a report to the Centre.

Moreover, it is important to note that, according to subparagraph 71(1)(c)(i) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations), every person or entity must assess the risks of their clients and business relationships. If the risk assessment reveals that the client or business relationship is high risk, then the reporting entity would be required to take special measures to identify clients, keep records and monitor financial transactions for high risk activities, in accordance with subsection 9.6(3) of the Act, and discussed in more detail in section 71.1 of the Regulations.

Date answered: 2013-12-19

PI Number: PI-5668

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Regulations: 71(1)(c)(i), 71.1

Act: 7, 7.1, 9.6(3)

Confirmation of EFTO Transaction

Question:

A customer in Canada pays Currency Exchange ABC $118,000 CAD at Currency Exchange ABC’s office in Vancouver, BC.

The customer then instructs Currency Exchange ABC to send 86,555.39 EUR (which is the equivalent to $118,000 CAD) to the customer’s bank account in Austria.

Currency Exchange ABC will then send 86,555.39 EUR from Currency Exchange ABC’s account in Europe to the client’s bank account in Austria.

Does this scenario constitute a reportable outgoing electronic funds transfer (EFTO)?

Answer:

Paragraph 28(1)(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) indicates, every money services business shall report the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction.

Furthermore, subsection 1(2) of the PCMLTFR defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”

Therefore, to be reportable, an electronic funds transfer must be:

  • client initiated, and
  • the transmission of instructions to transfer funds across the Canadian border (except where the instructions are to transfer funds from a place in Canada to another place in Canada).

In the scenario outlined above, the intention (or the purpose) of the payment of $118,000 CAD at Currency Exchange ABC’s office in Vancouver, BC, is to transfer funds to the customer’s bank account in Austria. The customer’s instructions include information, a unique order ID or reference number, that will make it possible for the bank in Austria to identify the transaction and banking details for depositing 86,555.39 EUR into the customer’s bank account in Austria. This information constitutes the instructions for the transfer of funds. Based on the foregoing, Currency Exchange ABC is conducting EFTOs subject to the relevant obligations.

Date answered: 2013-12-19

PI Number: PI-5667

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)(b)

LCTR - Quick Drop - Conductor Information

Question:

One of our business clients brings their deposits into the branch but the person bringing the deposit in doesn't stay to verify the contents, it is just dropped off at a teller wicket. The deposit is a multiple cash deposit and the # of deposits will number anywhere from 15 to 25 individual deposits with dollar values from $5.00 and upwards.

We would like to confirm that's it's ok to report it as follows:

B1: How was the transaction conducted?: In Branch/Office/Store

B2:
On behalf of: an entity (other than an individual)
Disposition of funds: deposit to an account

C: Applicable account information provided

F: Information about the entity provided

E: Left blank

Answer:

When sending large cash transaction reports (LCTR), section 53 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states as follows, “Subject to subsection 63(1), every person or entity that is required to keep and retain a large cash transaction record under these Regulations shall ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts a transaction in respect of which that record must be kept, other than a deposit made to a business account or a deposit made by means of an automated banking machine.”

In the scenario you have explained, the deposit is merely being dropped off and the individual is not present while it is being verified and/ or deposited into the account. Based on this information, it would be considered a quick drop and the conductor’s name would not need to be recorded. As such, the transaction can be reported as follows:

B1
3. Night deposit/ Quick drop indicator: select “quick drop”
7. How was the transaction conducted?: select “quick drop”
Note: Once “quick drop” is selected, sections D and E should disappear

B2
On behalf of: Select “cash deposit employer business account” (section F should disappear)
8. Disposition of funds: select “deposit to an account”

C: 3. Account type: Business

D: Disappears when “quick drop” is selected in B1

E: Disappears when “quick drop” selected in B1

F: Disappears when “cash deposit employer business account” selected in B2

Date answered: 2013-12-16

PI Number: PI-5662

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 53

Transactions considered as EFTO or not?

Question:

The Company ABC operates a payment platform through which its clients are able to transfers funds from one e-wallet account to another e-wallet account. The Company ABC is a Canadian MSB located in Canada.

Based on the type of transactions described below, we would like clarification with respect to whether the Company ABC is conducting EFTs:

A client of the Company ABC who is a Canadian resident transfers funds from their ABC e-wallet account to a non-Canadian ABC client who has an e-wallet account. The entity is currently reporting these transactions as EFTOs.

Answer:

Pursuant to subsection 28(1)(b) of the PCMLTFR, every money services business shall report the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction. The fact that Company ABC is a Canadian company also located in Canada means that all of its e-wallet accounts are also located in Canada. As such, when one client transfers funds from their ABC e-wallet to another client’s ABC e-wallet, the transfer remains within Canada. In that vein, subsection 28(2) of the PCMLTFR reads, “For greater certainty, paragraph (1)(b) does not apply when the money services business sends an electronic funds transfer to a person or an entity in Canada, even if the final recipient is outside Canada.” Given the foregoing, the transactions you have described do not qualify as EFTOs and are not reportable.

Date answered: 2013-12-11

PI Number: PI-5660

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 28(1)(b), 28(2)

The Caisse - SWIFT electronic fund transfer compliance regime

Question:

As concerns the relationship between the Caisse and its members with respect to electronic fund transfers, the Caisse has confirmed that the Caisses populaires do not have an account at the Caisse. They do, however, have the option of opening foreign currency accounts in the books of the Caisse. Whenever an electronic fund transfer request is sent to the Caisse, the Caisse populaire must debit the member's account and credit this amount in their liquidity fund. If the member has a foreign currency account other than CAD or USD, however, the Caisse populaire does not need to debit the member's account. Once the electronic funds transfer is processed, the Caisse debits the liquidity fund in question or the member's foreign currency account, which is on the books of the Caisse.

If the transfer request is made through businesses or individuals accounts, the member's account is debited once the transaction is confirmed/signed. At the current time, the Caisse populaire receives a credit in the CAD or USD liquidity fund, which is debited once the electronic funds transfer is processed by the Caisse. Only in the case of a business account does the financial settlement take place at the Caisse.

Who is responsible for implementing a compliance regime for SWIFT electronic funds transfers?

Answer:

As regards the implementation of a compliance regime, FINTRAC expects the documentation, such as policies and procedures, as well as the risk-based approach, etc., to reflect the reality of each reporting entity, by taking into account the products and services that it provides for its clients. In other words, the Caisse needs to have a compliance regime that reflects the obligations associated with its SWIFT electronic funds transfer activities when it sends these funds on behalf of its clients (such as the Caisses populaires). It also means that the Caisses populaires must have a compliance regime that reflects the obligations associated with their electronic funds transfer activities when they forward, to the Caisse, electronic funds transfer requests from their clients (business clients or individuals).

In terms of responsibility for reporting electronic funds transfers, subsection 12(1)(b) of the Regulations reads as follows: "Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre (...) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be."

On the other hand, subsection 12(3) of the Regulations notes that "Paragraph (1)(b) applies in respect of a financial entity that orders a person or entity, to which subsection (1), 28(1) or 40(1) applies, to send out of Canada an electronic funds transfer made at the request of a client, unless it provides that person or entity with the name and address of that client." Hence, the Caisse populaire is not obliged to report the electronic funds transfer if it provides the Caisse with the client's name and address. In such cases, the electronic funds transfer is reported as a SWIFT electronic funds transfer by the Caisse, which must complete the following fields:

Outgoing SWIFT messages report information

Part A: Transaction Information
Part B: Information on Client Ordering Payment of Electronic Funds Transfer (in this case, an individual who is a client of the Caisse populaire)
Part C: Information on Person or Entity Sending Electronic Funds Transfer (in this case, the Caisse)
Part D: Information on Person or Entity Ordering Electronic Funds Transfer on Behalf of a Client (in this case, the Caisse populaire)
Parts E, F, G, H, I or J: As applicable
Part K: Information on Client to Whose Benefit Payment is Made
Part L: As applicable

Date answered: 2013-12-02

PI Number: PI-5656

Activity Sector(s): Financial entities

Obligation(s): Compliance Program, Reporting

Guidance: Compliance Program

Regulations: 12(1)(b), 12(3)

LCTRs - Multiple branches

Question:

It is possible to have some guidance regarding LCTR reporting where the reporting entity’s (RE) client has multiple branches?

The RE, Company ABC, processes foreign exchange transactions on behalf of 400 Company DEF locations in Canada (399 locations are branches of the same company and 1 location is a franchise). The bags of foreign currency are delivered to ABC by courier in separate bags, divided by branch. ABC is currently processing LCTRs according to each DEF branch, treating each DEF outlet as a separate client for LCTR purposes. Additionally, ABC records the manager of each branch as the third party. The ABC compliance officer has asked whether it is required to aggregate all DEF branch incoming CAD values. ABC has also asked whether they should be aggregating all branch incoming amounts under $10,000, in accordance with the 24 hour rule.

Answer:

A reporting entity has to send a large cash transaction report to FINTRAC in the following situations:

  • If they receive an amount of $10,000 or more in cash in the course of a single transaction. Each such transaction must be sent to FINTRAC separately, in its own report.
  • If they receive two or more cash amounts of less than $10,000 each that total $10,000 or more. In this case, if the reporting entity is an individual, they have to complete an LCTR if they know the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity. If the reporting entity is an entity, they have to complete an LCTR if their employee or senior officer knows the transactions were made within 24 consecutive hours of each other, by or on behalf of the same individual or entity.

We have said in the past that “by or on behalf of the same individual or entity” means the person actually giving the instructions to deal with the money.

ABC has indicated they are currently recording the name of the branch manager as the third party when they complete an LCTR. Subsection 8(1) of the PCMLTFR states that, “every person or entity that is required to keep a large cash transaction record under these Regulations shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party”. We indicate in our Guidelines that, when determining whether a "third party" is involved, it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the crucial aspect to keep in mind is whether the individual in front of you is acting on someone else's instructions. If so, that someone else is the third party. In the scenario ABC has described, it would remain a question of fact whether the person giving the instructions is indeed the branch manager or whether this person is DEF’s client. Having said that, there is nothing in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) nor its associated regulations that prevents ABC from reporting LCTRs per DEF branch as it is currently doing.

Date answered: 2013-11-28

PI Number: PI-5650

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a), 8(1)

Large Corporation Exemption (ongoing service agreement)

Question:

An MSB, Company XYZ, receives foreign denomination coins from various airlines and subsequently pays the airlines for these coins in Canadian currency at an exchange rate set by Company XYZ. These transactions are deemed to be foreign currency exchanges.

  1. Do the airlines that Company XYZ deals with meet the large corporation exemption under paragraph 62(2)(m) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)?
  2. In general, can MSBs avail themselves of this exemption?
  3. If Company XYZ can rely on this exemption, does it have to identify the individual conducting those particular transactions and submit a large cash transaction report (LCTR)?
  4. If they do have to identify the individual, would this be the individual that authorizes Company XYZ to engage in these transactions or do they have to identify the individual from who they pick up the coins?

Answer:

To respond to the above questions, it is necessary to refer to paragraph 59(1) of the PCMLTFR, which requires that MSBs ascertain the identity of every person who conducts a foreign currency exchange transaction of $3,000 or more. Subsection 59(2) goes on to state that MSBs must confirm the existence of every corporation in respect of which they are required to keep a client information record and ascertain the name and address of the corporation and the names of the corporation’s directors. However, subsection 59(6) makes it clear that subsection (2) does not apply in respect of an entity referred to in paragraph 62(2)(m) with which the MSB has entered into a service agreement referred to in section 32. Section 32 of the PCMLTFR reads as follows:

"Every MSB that enters into an ongoing electronic funds transfer, funds remittance or foreign exchange service agreement with an entity, or a service agreement for the issuance or redemption of money orders, traveller’s cheques or other negotiable instruments, shall keep a record of the name, address, date of birth and occupation of every person who has signed the agreement on behalf of the entity, a client information record with respect to the entity and a list containing the name, address and date of birth of every employee authorized to order transactions under the agreement."

As such, an MSB is only required to keep a client information record when it enters into an ongoing service agreement.

Where an MSB has an ongoing agreement with an entity referred to in paragraph 62(2)(m), subsection 59(6) of the PCMLTFR states that subsection 59(2) does not apply. This means that, where an MSB enters into an ongoing agreement with an entity referred to in paragraph 62(2)(m), it must:

  • ascertain the identity of the person conducting the foreign currency exchange transaction (paragraph 59(1)(c) of the PCMLTFR) unless this individual is acting on behalf of their employer pursuant to an ongoing service agreement under section 32 of the PCMLTFR (paragraph 59(4) of the PCMLTFR)
  • keep a record of the name, address, date of birth and occupation of every person who has signed the agreement on behalf of the entity (section 32 of the PCMLTFR)
  • keep a client information record with respect to the entity (section 32 of the PCMLTFR)
  • keep a list containing the name, address and date of birth of every employee authorized to order transactions under the agreement (section 32 of the PCMLTFR)

Where an MSB enters into an ongoing agreement with an entity that does not fall under paragraph 62(2)(m), it must comply with subsection 59(2) as well as section 32. As such, it will be required to:

  • ascertain the identity of the person conducting the foreign currency exchange transaction (paragraph 59(1)(c) of the PCMLTFR) unless this individual is acting on behalf of their employer pursuant to an ongoing service agreement under section 32 of the PCMLTFR (paragraph 59(4) of the PCMLTFR)
  • confirm the existence of the corporation (subsection 59(2) of the PCMLTFR)
  • ascertain the name and address of the corporation and the names of the corporation’s directors (subsection 59(2) of the PCMLTFR)
  • keep a record of the name, address, date of birth and occupation of every person who has signed the agreement on behalf of the entity (section 32 of the PCMLTFR)
  • keep a client information record with respect to the entity (section 32 of the PCMLTFR)
  • keep a list containing the name, address and date of birth of every employee authorized to order transactions under the agreement (section 32 of the PCMLTFR)

Conclusion

In response to questions 1 and 2 above, namely, whether paragraph 62(2)(m) applies to Company XYZ and MSBs in general, if an MSB has an ongoing agreement with an entity that meets the requirements of 62(2)(m) of the PCMLTFR, it does not have to confirm the existence of the corporation; however, it still has the obligation to ascertain the identity of the person conducting the transaction, in addition to the record keeping obligations listed above. As such, paragraph 62(2)(m) of the PCMLTFR has a limited application with respect to MSBs.

Question 3 above asks whether Company XYZ must identify the individual conducting the transaction(s) and whether it must submit an LCTR. As discussed above, MSBs must ascertain the identity of every person who conducts a foreign currency exchange transaction of $3,000 or more pursuant to paragraph 59(1)(c). As to whether Company XYZ must submit an LCTR for these transactions, paragraph 28(1)(a) of the PCMLTFR affirms that every MSB must report the receipt from a client of an amount in cash of $10,000 CAD or more in the course of a single transaction, unless the cash is received from a financial entity or a public body.

Question 4 asks whether Company XYZ must identify the individual who authorizes these transactions or the individual from who they are picking up the coins. As paragraph 59(1)(c) of the PCMLTFR indicates, MSBs must ascertain the identity of every person who conducts a foreign currency exchange transaction of $3,000 or more. This must be done at the time of the transaction.

Date answered: 2013-11-01

PI Number: PI-5641

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 28(1)(a), 32, 59(1)(c), 59(2), 59(4), 59(6), 62(2)(m)

24-hr rule: Aggregation based on Conductor

Question:

I need guidance concerning the reporting of transactions conducted under the 24-hour rule. I would like to know whether the reporting entity can aggregate these transactions based on the account information as opposed to the information of the individual conducting the transactions. For example, in cases where a transaction is conducted in a joint personal account, where it could be either the account holder or the joint account holder who is conducting the specific transaction(s), I'm seeking clarification on how the LCTR should be sent to FINTRAC. I would like to know whether the reporting entity is required to know which account holder conducted the transaction(s) and whether the reporting entity must include the conductor’s name and particulars in Part D of the Reports.

Answer:

The 24-hour rule applies for the receipt of two or more cash amounts of less than $10,000 each that total $10,000 or more within a 24-hour period. The reporting entity has to make a large cash transaction report if their employee or senior officer knows the transactions were made within 24 consecutive hours of each other by or on behalf of the same individual or entity.

Paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: […] 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”.

Therefore, at the time the large cash transaction is conducted, the identity of the individual must be ascertained by the reporting entity (the exception under section 63 of the PCMLTFR may apply). Schedule 1, Part D requires that the reporting entity reports information about the individual who conducted the transaction that is not a deposit into a business account, not the information about the account holder(s). Therefore, the reporting entity must include the conductor’s information in Part D. If Part C is completed, the system used by the reporting entity must not auto populate the fields in Part D.

Date answered: 2013-10-29

PI Number: PI-5638

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7, FIN 4

Regulations: 12(1)(a), 63, Schedule 1

Casino Disbursement Reports & Bank of Canada Noon Rate

Question:

As per the PCMLTFR, casinos hardcode the daily Bank of Canada Noon Rate into our reporting systems to look for reportable foreign currency transactions.

Here are the three scenarios in question:

SCENARIO 1:

Reason for Disbursement: CAD $10,000 front money account withdrawal

Method of Disbursement

  • CAD $4,900 cash
  • USD $5,000 cash (CAD $5,100 commercial exchange rate)

That day's Bank of Canada Noon Rate was 1.0114 so the USD portion of the transaction came out to CAD $5,057 for reporting purposes.

The method of disbursement therefore totals CAD $9,957 and no CDR was created.

SCENARIO 2:

Reason for Disbursement: CAD $10,000 slots jackpot

Method of Disbursement

  • CAD $5,000 cash
  • USD $5,000 cheque (CAD $5,000 commercial exchange rate)

That day's Bank of Canada Noon Rate was 0.9937 so the USD portion of the transaction came out to CAD $4,968.50 for reporting purposes.

The method of disbursement therefore totals CAD $9,968.50 and no CDR was created.

SCENARIO 3:

Reason for Disbursement: CAD $10,000 poker tournament prize

Method of Disbursement

  • CAD $1,000 cash
  • USD $8,911 cheque (CAD $9,000 commercial exchange rate)

That day's Bank of Canada Noon Rate was 1.006 so the USD portion of the transaction came out to CAD $8,916.35 for reporting purposes.

The method of disbursement therefore totals CAD $9,916.35 and no CDR was created.

I need some clarification on the application of the Bank of Canada noon rate with respect to Casino Disbursement Reports (CDRs).

Answer:

Section 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that, “where a transaction is carried out by a person or entity in a foreign currency, the amount of the transaction shall, for the purposes of these Regulations, be converted into Canadian dollars based on

  • (a) the official conversion rate of the Bank of Canada for that currency as published in the Bank of Canada’s Daily Memorandum of Exchange Rates that is in effect at the time of the transaction; or
  • (b) if no official conversion rate is set out in that publication for that currency, the conversion rate that the person or entity would use for that currency in the normal course of business at the time of the transaction.”

FINTRAC’s Guideline 10A: Submitting Casino Disbursement Reports to FINTRAC Electronically, section 2.3 further clarifies that, “If a disbursement is in foreign currency, you will need to check whether it is the equivalent of 10,000 Canadian dollars or more to determine whether or not it is reportable. For this purpose only, use the last noon rate provided by the Bank of Canada available at the time of the transaction. This calculation is not based on the actual exchange rate used to process the transaction - this is only to check whether the $10,000 threshold is met for the transaction to be reportable.”

FINTRAC has previously decided that the official conversion rate of the Bank of Canada (known as the noon rate) must only be used for determining whether the transaction is reportable. The reporting entity provided the following scenarios and requested that you confirm whether it's application of the noon rate is consistent with the PCMLTFR and FINTRAC's guidance:

SCENARIO 1:

Reason for Disbursement: CAD $10,000 front money account withdrawal

Method of Disbursement

  • CAD $4,900 cash
  • USD $5,000 cash (CAD $5,100 commercial exchange rate)

That day's Bank of Canada Noon Rate was 1.0114 so the USD portion of the transaction came out to CAD $5,057 for reporting purposes.

The method of disbursement therefore totals CAD $9,957 and no CDR was created.

SCENARIO 2:

Reason for Disbursement: CAD $10,000 slots jackpot

Method of Disbursement

  • CAD $5,000 cash
  • USD $5,000 cheque (CAD $5,000 commercial exchange rate)

That day's Bank of Canada Noon Rate was 0.9937 so the USD portion of the transaction came out to CAD $4,968.50 for reporting purposes.

The method of disbursement therefore totals CAD $9,968.50 and no CDR was created.

SCENARIO 3:

Reason for Disbursement: CAD $10,000 poker tournament prize

Method of Disbursement

  • CAD $1,000 cash
  • USD $8,911 cheque (CAD $9,000 commercial exchange rate)

That day's Bank of Canada Noon Rate was 1.006 so the USD portion of the transaction came out to CAD $8,916.35 for reporting purposes.

The method of disbursement therefore totals CAD $9,916.35 and no CDR was created.

After reviewing the above scenarios, it would appear as though the reporting entity has correctly applied the Bank of Canada’s noon rate for the purposes of submitting CDRs.

Date answered: 2013-10-25

PI Number: PI-5636

Activity Sector(s): Casinos

Obligation(s): Reporting

Guidance: 10A

Regulations: 2

Reporting EFTs or not

Question:

  • Company ABC is an MSB based in Canada, with no other servers or locations outside of Canada and anticipates doing business with a German bank with no operations in Canada
  • Company ABC would like to provide Bank DEF with international money transfer services and will retain MSBs in the UK (“UK MSBs”) to carry out these money transfers
  • When Bank DEF wishes to transfer funds internationally at the request of its clients, it will instruct Company ABC to carry out this transfer
  • Bank DEF will provide Company ABC with the requesting client’s information, in addition to information on the beneficiary
  • Company ABC will then instruct the UK MSB to deliver these funds to the beneficiary • Beneficiaries may include residents of Canada and other countries

Does Company ABC must report electronic funds transfers (EFTs) for certain international funds transfers initiated by the client of Bank DEF, a foreign bank with which Company ABC anticipates doing business?

Answer:

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”. We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission, across our border, of instructions to transfer funds (except where the instructions are to transfer funds from a place in Canada to another place in Canada).

As the above indicates, and in response to your question, it is the instructions that must cross the Canadian border, not the funds, in order to trigger an EFT reporting obligation.

It is Bank DEF’s client who provides the instructions to Bank DEF to transmit funds to the beneficiary. Bank DEF’s client is the ordering client, and his or her instructions include the necessary banking details for the transfer of funds. It is our position that the purpose of the transaction is to transfer funds from the ordering client to the beneficiary.

According to subsection 28(1) of the PCMLTFR, every money services business shall report the following transactions and information to the Centre:

(b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
(c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

Given the foregoing, it is our position that the following two aspects of the transactions you have described constitute EFTs and must be reported by Company ABC:

  1. Incoming EFT: When the ordering client provides instructions to Bank DEF, Bank DEF then provides instructions to Company ABC, which is situated in Canada. Bank DEF’s instructions, sent at the request of its client, are crossing the Canadian border, and qualify as an incoming EFT, reportable under paragraph 28(1)(c) of the PCMLTFR, if it meets the required threshold.
     
  2. Outgoing EFT: Once the instructions from Bank DEF (on behalf of the ordering client) are received by Company ABC, Company ABC then sends the funds to the UK MSB and provides instructions (on behalf of the ordering client and Bank DEF) to the UK MSB to transmit the funds to the beneficiary. As such, these instructions again cross the Canadian border to the UK MSB and constitute an outgoing EFT, reportable under paragraph 28(1)(b) of the PCMLTFR, if it meets the required threshold.

It is important to note the final destination of the instructions and funds is irrelevant as the instructions will always cross the Canadian border in order to reach Company ABC, and will always be crossing the Canadian border again in order to reach the UK MSB. Moreover, the purpose of this transaction is to transfer funds from the ordering client to the beneficiary and this is done by moving the instructions through Company ABC, which is situated in Canada. As such, based on the transaction information you have provided, Company ABC must report an incoming EFT when instructions are transmitted from Bank DEF and an outgoing EFT when it sends instructions to the UK MSB.

You have also asked whether Company ABC may rely on an exception to reporting EFTs based on the inclusion of Bank DEF’s name and address in the instructions to the UK MSB. Section 28 of the PCMLTFR creates the following two exceptions to EFT reporting:

(3) Paragraph (1)(b) applies in respect of a money services business that orders a person or entity, to which subsection (1), 12(1) or 40(1) applies, to send out of Canada an electronic funds transfer made at the request of a client, unless it provides that person or entity with the name and address of that client.

(5) Paragraph (1)(c) applies in respect of a money services business that receives an electronic funds transfer for a beneficiary in Canada from a person or entity to which subsection (1), 12(1) or 40(1) applies where the initial sender is outside Canada, unless the electronic funds transfer contains the name and address of that beneficiary.

As paragraph 28(3) of the PCMLTFR states, an MSB will not be required to report an outgoing EFT if the request to send the EFT is being made to an MSB, financial entity or casino covered under the PCMLTFR, and that entity is provided with the name and address of the ordering client. Similarly, paragraph 28(c) of the PCMLTFR states an MSB will not be required to report an incoming EFT if it originates from an MSB, financial entity or casino covered under the PCMLTFR, where the EFT contains the name and address of the beneficiary. To our knowledge, neither Bank DEF nor the UK MSB are reporting entities covered under the PCMLTFR. Therefore, Company ABC cannot avail itself of the above exceptions.

Date answered: 2013-10-11

PI Number: PI-5634

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)(b), 28(1)(c), 28(3)

Reporting EFTI

Question:

We have account in an European bank country in STG and Euro. Our Canadian client who have account in Europe wire amount to our account and we give them cheque or bank draft to them in Canadian currency as our exchange rate is better than the bank.

Also, our client’s intent to do foreign exchange and to transfer money into Canada as they have money in other currency in other countries and want to bring here to spend, they can do it easily through their bank but exchange rate from their bank is very higher than us, they get rate from us then compare with their bank then back to us.

Would you please inform me whether we should report such transactions or not.

Answer:

Pursuant to paragraph 28(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every money services business must report the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be. Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.”

We have indicated in the past that to be reportable an electronic funds transfer (EFT) must be:

  • client-initiated; and
  • include the transmission of instructions to transfer the funds across the Canadian border.

Our position is that the intention (or the purpose) of the wire is to transfer funds from your client’s account in the foreign country to your account in Canada and to give your client a cheque or bank draft in Canadian currency.

This transaction constitutes an incoming non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR and must be reported if it meets the above threshold.

Date answered: 2013-10-07

PI Number: PI-5633

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)(c)

LCTR: Multiple currencies

Question:

Our customer would have contacted the Bank and sold to us, in one transaction the following currencies (banknotes)

Transaction details in the attached LCTR:

  • 1,500,000 JYP
  • 12,100 EUR
  • 7,500 AUD
  • 2,000 SEK
  • 495 GBP
  • 12,500 SAR
  • 15 BZD
  • 4,500 CHF
  • 6,300 NOK
  • 70 GBP
  • 40 GBP
  • 330 HRK
  • 50 NIO
  • 840 BND
  • 200 KES
  • 7,000 RUB

This would be part of a single transaction and we would have credited our customer’s CDN dollar account with the CDN equivalent which was $52,227.17 at the time of the transaction. The transaction would have been booked by one of our wholesale banknote traders as a single transaction. The currency would then have been shipped in a single package to our Toronto vault who would open the package confirm the amounts, take the currency into out bank currency supply, and complete the LCTR.

The concern that was identified is that the LCTR report section B-2 fields 9 and 10 only allow for one amount and one currency. In this situation we have multiple amounts and multiple currencies which are part of one transaction that was credited to one account.

Answer:

It is FINTRAC’s position that all amounts involving multiple currencies that are part of a same instance and meet the $10,000 CAD threshold must be reported in the same Large Cash Transaction Report (LCTR), with each currency being recorded as a separate transaction. Even if one of these currencies, on its own, is equivalent to $10,000 CAD or more, it must be reported in the same LCTR as the other currencies that each amount to less than $10 000 on their own. The 24 hour rule indicator box should be used and each currency must be listed as a separate transaction. In this case, the dispositions should be repeated for all transactions in the LCTR.

The following examples may assist in illustrating this position:

Example:
At 9am, a client gives $10,000 GBS, $4,000 USD and $6,000 EUR in cash to the teller. He then asks him to deposit the funds into his account.

In this scenario, the entity would be required to report each of these currencies as separate transactions in one LCTR. In this case, the 24 hour rule indicator box must be ticked.
The information about how the transactions were initiated and completed should be reported as follows:

Report 1

  • 24 hour rule indicator: ON
  • Transaction 1:
  • Amount of transaction (Field B5): $10,000
  • Transaction currency (Field B6): GBS
  • Transaction 1: Disposition 1:
  • Disposition of funds (Field B8): Deposit to an account
  • Amount of disposition (Field B9): $27,500 (approx.)
  • Disposition currency (Field B10): CAD
  • Transaction 2:
  • Amount of transaction (Field B5): $4,000
  • Transaction currency (Field B6): USD
  • Transaction 2: Disposition 2:
  • Disposition of funds (Field B8) Deposit to an account
  • Amount of disposition (Field B9) $27,500 (approx.)
  • Disposition currency (Field B10) CAD
  • Transaction 3:
  • Amount of transaction (Field B5): $6,000
  • Transaction currency (Field B6): EUR
  • Transaction 3: Disposition 3:
  • Disposition of funds (Field B8): Deposit to an account
  • Amount of disposition (Field B9): $27,500 (approx.)
  • Disposition currency (Field B10): CAD

In the scenario you have provided in your email below, the customer sold 16 different currencies to the financial entity at one time. If the multiple currencies that are part of a same instance meet the $10,000 CAD threshold, they must be reported in the same LCTR. The 24 hour rule indicator box must also be used. FINTRAC expects to find the information on the person conducting the transaction (that is not a deposit into a business account) to be included in Part D of the LCTR.

Date answered: 2013-10-04

PI Number: PI-5631

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a)

Armoured Car - Quick Drop Deposits and in Branch Deposits

Question:

Here are questions with respect to quick drop deposits and in branch deposits:

  1. When is the deposit considered a quick drop vs. in branch?
  2. The driver of the armoured car drops off the secured bag with the front receptionist who does not post any transactions. Is this a quick drop or in branch?
  3. The driver of the armoured car brings the secure bag in a supervised area where two staff members complete a physical check of the bag to ensure it is properly sealed and the staff signs the armoured car receipt. The bag is placed in a vault then verified and posted at a later time. Is this a quick drop as the bag was received in a supervised area or is it considered in branch?
  4. One RE argued that the driver of the armoured car may not know the amount in the secured bag hence it may not be a large cash deposit? In that case, why would the RE need to get the name of the driver? The RE would only know that it is a large cash transaction once they post the transaction which may not be in the presence of the driver.

Answer:

  1. What amounts to a quick drop is typically determined by the reporting entity, who may decide to have a drop box physically located outside the branch or may designate a specific area within the branch for deposits.

All reporting entities must keep a record of the receipt of an amount in cash of $10,000 or more in a single transaction, unless the cash is received from a financial entity or a public body.

Pursuant to section 53 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), “Subject to subsection 63(1), every person or entity that is required to keep and retain a large cash transaction record under these Regulations shall ascertain, in accordance with subsection 64(1), the identity of every person with whom the person or entity conducts a transaction in respect of which that record must be kept, other than a deposit made to a business account or a deposit made by means of an automated banking machine.” As such, a reporting entity is not required to ascertain the identity of the person conducting the transaction if the deposit is into a business account or if the deposit is made via an automated banking machine, regardless if the deposit is made into a personal account.

If an individual or entity conducts a large cash transaction, then the reporting entity is required to keep a large cash transaction record and send a large cash transaction report to FINTRAC.

Subsection 1(2) of the PCMLTFR defines a large cash transaction record as “a record that indicates the receipt of an amount of $10,000 or more in cash in the course of a single transaction and that contains the following information:

(a) as the case may be
(i) if the amount is received for deposit by a financial entity, the name of each person or entity in whose account the amount is deposited, or
(ii) in any other case, the name of the person from whom the amount is in fact received, their address and date of birth and the nature of their principal business or their occupation, if the information is not readily obtainable from other records that the recipient keeps and retains under these Regulations;
(b) the date of the transaction;
(c) where the transaction is a deposit that is made during normal business hours of the recipient, the time of the deposit or, where the transaction is a deposit that is made by means of a night deposit before or after those hours, an indication that the deposit was a night deposit;
(d) the number of any account that is affected by the transaction, and the type of that account, the full name of any person or entity that holds the account and the currency in which account transactions are conducted;
(e) the purpose and details of the transaction, including other persons or entities involved and the type of transaction (such as cash, electronic funds transfer, deposit, currency exchange , the purchase or cashing of a cheque, money order, traveller’s cheque or banker’s draft or the purchase of precious metals, precious stones or jewellery);
(f) whether the cash is received by armoured car, in person, by mail or in any other way;
(g) the amount and currency of the cash received; and
(h) where the amount is received by a dealer in precious metals and stones for the sale of precious metals, precious stones or jewellery,
(i) the type of precious metals, precious stones or jewellery involved in the transaction,
(ii) the value of the transaction, if different from the amount of the cash received, and
(iii) the wholesale value of the transaction.”

Paragraph 12(1)(a) states that, “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: […] 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”.

  1. In this scenario, the secured bag is merely being dropped off and is not immediately being verified and/ or deposited into the account. Therefore, it seems as though this would be considered a quick drop and the conductor’s name would not need to be provided.
     
  2. A physical check of the bag is done to ensure it is sealed but the amount in the bag is not verified nor is the amount being deposited into the account at that time. As such, this is considered a quick drop and therefore the conductor’s name does not need to be provided.
     
  3. If the secured bag is not being verified/ deposited at the time it is brought into the branch, it seems as though it would be considered a quick drop. As such, the conductor’s name would not need to be recorded.

Date answered: 2013-10-02

PI Number: PI-5628

Activity Sector(s): Financial entities

Obligation(s): Reporting, Verifying identity

Guidance: 7

Regulations: 1(2), 12(1), 53

Terrorist Property Report - Obligation

Question:

Our question concerns the Terrorist Property Report. If an IDE firm has completed a Monthly Suppression of Terrorism Form with a positive report, must the IDE firm also complete the FINTRAC Terrorist Property Report? If so, must the FINTRAC Terrorist Property Report be completed for any customer of the IDE firm, or only Canadian customers? While the Monthly Suppression of Terrorism Form contains only aggregate customer information, the FINTRAC Terrorist Property Report requires disclosure of personal customer information. Our concern is that laws in the local jurisdiction of a non-Canadian customer may prohibit an IDE firm from providing personal information of a non-Canadian customer to a non-local (e.g. Canadian) governmental authority. As a comparison, we have been told that firms operating in multiple jurisdictions (including Canada) would not provide personal information concerning Canadian customers to a non-Canadian financial regulator.

I understand that there may be alternative ways for a Canadian financial regulator such as FINTRAC to cooperate with financial regulators outside of Canada to share information on terrorist property. For example, I understand that there are various judicial or administrative processes under which information may be shared. On this basis, I’m hoping that you can confirm that an IDE firm that files a positive Monthly Suppression of Terrorism Form need not also file a Terrorist Property Report, if the terrorist property in question belongs only to non-Canadian customers of the IDE firm, and the IDE firm reports the terrorist property to the relevant government agency in the non-Canadian customer’s home jurisdiction.

Answer:

Subsection 7.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) indicates that every person or entity 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 must also make a report on it to the FINTRAC. Therefore, if the entity is required to complete a Monthly Suppression of Terrorism Form, it will also be required to complete a TPR for submission to FINTRAC. Terrorist property reporting requirements apply to any IDE clients, whether they are Canadian clients or foreign clients, with respect to their activities in Canada only.

Date answered: 2013-09-27

PI Number: PI-5621

Activity Sector(s): Securities dealers

Obligation(s): Reporting

Guidance: 5

Act: 7.1(1)

Obligation to file STR when in the process of the Acquisition of a portfolio of credit card accounts

Question:

Bank ABC is in negotiations with another FE to purchase a portfolio of credit card accounts. There will be a period of time after Bank ABC takes ownership of these accounts during which the other FE will continue to service them. I want to know which entity will be responsible for filing STRs with respect to the acquired accounts during that time.

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires every entity referred to in section 5 of the PCMLTFA to report every financial transaction that occurs or that is attempted in the course of their activities where there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence. Both Bank ABC and the other FE are reporting entities covered under the PCMLTFA and both have reporting obligations pursuant to section 7, regardless if they are the owners of an account or not. If, in the course of its activities, the other FE becomes aware of one or more suspicious transactions involving the acquired accounts, it has an obligation to report these transactions. As such, both Bank ABC and the other FE are subject to the reporting obligation found under section 7 of the PCMLTFA with respect to the acquired accounts in the event they become aware of one or more suspicious transactions.

Date answered: 2013-09-20

PI Number: PI-5619

Activity Sector(s): Financial entities

Obligation(s): Reporting

Act: 7

Submitting EFTR - Currency to be Reported

Question:

The question relates to EFT reporting as required under section 12(b) of the PCMLTFR, specifically outgoing wires sent through the MTS service. The scenario that I am dealing with is a transfer of Canadian funds (from a credit union) to a foreign bank account that is in a non-Canadian currency. For instance, a transfer of $10,000 CDN from a Canadian bank account to a bank account in Poland where the currency is Zloty (PLN). In this case, the credit union would enter the transfer amount as $10,000 CDN. Credit Union Entity, seeing that the receiving account is in the PLN currency, will process a conversion from CDN to PLN, and send the wire.

The conversion is done by Credit Union Entity, and not the sending credit union. Since Credit Union Entity is exempt from reporting requirements for EFTRs, it is the responsibility of the credit union to submit an EFTR for this transfer.

The question is: in which currency should the EFTR be submitted? From the credit union’s perspective, the member requested a transfer of $10,000 CDN, not the equivalent amount in PLN. No conversion was done at the credit union. Should the report in this example contain the amount of $10,000 CDN or the equivalent in PLN that was sent by Credit Union Entity?

Answer:

Subparagraph 12(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) requires that every financial entity report the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction. The wording of this provision clearly emphasizes the EFT is at the request of the client. Applying this logic, the currency that should be reported is the currency in which the client instructs the EFT be sent. In the above-mentioned scenario, the client requested that $10,000 CDN be sent electronically to the foreign bank. As such, the EFTR should be reported in Canadian currency.

Date answered: 2013-09-11

PI Number: PI-5611

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 12(b)

Transactions involving Digital Currency that are Reportable

Question:

I am registered as a money services business. I want to accept bitcoin currency besides regular currencies such as CAD or USD. How do I report each transaction if bitcoin, virtual currency.

Answer:

At this time, there are several transactions involving digital currency that are reportable under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). These include:

  • Outgoing EFTs for which an MSB, at the request of a client, accepts funds from that client, and converts those funds to virtual currency for the purpose of sending out of Canada. Then, subsequently re-converts the virtual currency into funds for a beneficiary outside of Canada
  • Incoming EFTs for which an MSB receives virtual currency from outside of Canada, sent at the request of a client, converted from funds for the purpose of being re-converted to funds once in Canada to be paid to the beneficiary.
  • Foreign exchange occurs when funds are exchanged for virtual currency and are subsequently re-converted to foreign funds. In this transaction, the virtual currency is used as a vehicle between two national funds. FINTRAC has informed Canadian officials that they do not consider businesses providing virtual currency -related services covered as MSBs under the PCMLTFA.

I note that performing a simple conversion of non-digital currency into digital currency or converting digital currency into non-digital currency is not, at this time, subject to the PCMLFTA. Similarly, the straight purchase and sale of digital currency is not, in and of itself, subject to the PCMLTFA.

However, when conducting transactions that fall under the three above-mentioned scenarios, and when the threshold is reached, you are required to report them in the same manner you would if they were conducted in non-digital currency. For example, if you are conducting an outgoing EFT (in the first scenario above) you are required to report it pursuant to paragraph 28(1)(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) and to keep a record pursuant to subsection 30(e) of the PCMLTFR. Additionally, pursuant to section 7 of the PCMLFTA, MSBs are required to report every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or the transaction is related to the commission or the attempted commission of a terrorist activity financing offence. This obligation extends not only to MSB activities enumerated under paragraph 5(h) of the PCMLTFA but to all other activities of the MSB where there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

Date answered: 2013-08-28

PI Number: PI-5607

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 28(1)(b), 30(e)

Act: 5(h), 7

24 hour rule - Alternative LCTR

Question:

A credit union is seeking clarification regarding one of the conditions for Alternative to LCTRs: If a client makes multiple deposits totalling $10,000 or more within a 24 hour period, at least twice weekly, has the client met the below indicated condition? Does the 24 hour rule apply?

Answer:

According to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), 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. Additionally, section 13 of the PCMLTFR specifies that every financial entity shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction, unless the cash is received from another financial entity or a public body.

Paragraph 50(1)(c) provides an exception to the reporting obligation found under paragraph 12(1)(a) if the financial entity has records that indicate that the client has deposited $10,000 or more in cash into that account on an average of at least twice in every week for the preceding 12 months.

It is also important to note that, pursuant to paragraph 3(1)(a) of the PCMLTFR, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction of $10,000 or more if, where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.

In light of the foregoing, and because the PCMLTFR clearly indicates that the report includes two or more cash transaction of less than $10,000 each that are made within 24 consecutive hours and total $10,000, we can conclude that the 24 hour rule applies to ALT-LCTRs.

Date answered: 2013-08-21

PI Number: PI-5600

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 3(1)(a), 12(1)(a), 13, 50(1)(c)

International STRs

Question:

An FE doing business in Canada, who also has various branches and ATMs located outside of Canada, determined that a group of transactions were suspicious. Several of the transactions took place at one of the entity’s ATMs outside of Canada. The FE has asked whether a suspicious transaction should be reported and if so, how this should be done.

Answer:

It is our position that FEs operating in Canada and abroad are required to report suspicious transactions occurring at their foreign branches and/ or ATMs if these transactions have a material connection to Canada.

Subsection 5(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) states that Part 1 applies to, “authorized foreign banks within the meaning of section 2 of the Bank Act in respect of their business in Canada, or banks to which that Act applies.” As this subsection illustrates, the PCMLTFA will apply to an FE’s business in Canada. This is directly in line with the purpose of the PCMLTFA, which is to assist in protecting the integrity of Canada's financial system through the detection and deterrence of money laundering and terrorist financing. In furtherance of this objective, FEs must also report suspicious transactions that have a material connection to Canada.

A material connection to Canada should be determined on a case by case basis, given the specific facts of each situation. In most instances, if the only link to Canada is the client’s Canadian mailing address, this will not be sufficient enough to require an STR. However, if the suspicious transaction(s) happen to involve funds originating from or to a Canadian account, this may amount to a connection sufficient enough to require an STR. Again, this determination should be made based on the facts of each individual case.

Date answered: 2013-08-16

PI Number: PI-5597

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Act: 5(a), 7

Submitting 3 EFT reports using the with 24 hour indicator

Question:

EFT reports need to be submitted when an organization conducts an international transfer of $10,000 or more on behalf of the same individual or entity. Referring to the following example:

Foreigner A sends to Customer B: $5000
Foreigner A sends to Customer C: $5000
Foreigner D sends to Customer C: $5000

Assuming that the above example occurs within a 24 hour period, how would these transactions be reported?

To that end, would it be 3 EFT reports (with 24 hour indicator)?

Also, when submitting a non-SWIFT EFT report, there is a 24-hour rule indicator but is there such an indicator for SWIFT EFT reports or under the batch reporting? Can you please indicate where the 24 hour rule indicator is?

Answer:

Paragraphs 12(1)(b) and (c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) require that financial entities report to FINTRAC the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

In section 3 of the PCMTLFR, the definition of single transaction, otherwise known as “the 24-hour rule”, specifically applies to situations where two or more cash transactions or electronic funds transfers of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more. This is considered to be a single transaction of $10,000 or more if “the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.” The 24 hour rule applies when multiple transactions (that are less than $10,000 individually but total $10,000 or more) are conducted by or on behalf of the same person (this being the person giving the instructions as opposed to the beneficiary).

Depending on what type of system the financial entity is using, the 24-hour period can vary. In the rolling 24-hour system, the 24-hour period begins with each new EFT of less than $10,000 (if you know they were made by or on behalf of the same individual or entity). In the static 24-hour system, you are required to report the multiple transactions that you know were made by or on behalf of the same individual or entity in that 24-hour period (e.g. from 9:00 a.m. to 9:00 a.m. the next day). Each EFT that the reporting entity has to report will be on a separate report (one per beneficiary). The 24 hour rule indicator must be selected for each report sent to the Centre that is below $10 000.

The 24 hour rule applies when two or more electronic funds transfers of less than $10,000 each are made within 24 consecutive hours, on behalf of the same individual, and total $10,000 or more. Therefore, in the above example, only the two transactions sent by Foreigner A would be reportable as they total $10,000. Since there are two different beneficiaries, two separate reports need to be filed and the 24 hour rule indicator must be selected on each report.

SWIFT BATCH reporting as well as Non-SWIFT BATCH reporting both have the 24 hour indicator option. For non-SWIFT Batch reporting, the 24 hour rule indicator information can be found in the link below, under the heading “Standard Batch Reporting Instructions and Specifications”, Module 4, on page 3, Section 5.2.3.1, Part A, Field number ±3A. Information on SWIFT Batch reporting can be found on the same page, under the heading “SWIFT Batch Reporting Instructions and Specifications” (only document), page 15, Section 5.2.1, Tag 0: FINTRAC Header.

Date answered: 2013-08-15

PI Number: PI-5595

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4, 8A

Regulations: 3,12(1)(b), 12(1)(c),

LCTR: Bank is accepting cash deposits on behalf of another Bank

Question:

I need guidance on who has the obligation to report a large cash transaction in the case where a financial entity has entered into an agreement that allows their clients to make deposits at another financial entity’s place of business. For instance, Bank 1 is accepting cash deposits on behalf of Bank 2 for Bank 1s clients.

Answer:

Paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: […] 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”.

Section 13 of the PCMLTFR indicates that “Subject to subsection 52(2), every financial entity shall keep a large cash transaction record in respect of every amount in cash of $10,000 or more that is received from a client in the course of a single transaction, unless the cash is received from another financial entity or a public body”.

Section 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) defines a client as “a person or an entity that engages in a financial transaction or activity with a person or an entity referred to in section 5, and includes a person or an entity on whose behalf the person or the entity that engages in the transaction or activity is acting”.

In this situation, the client is engaged in a financial transaction with the financial entity that holds his/her account.

As such, the financial entity that holds the client's account has the reporting obligations and record keeping requirements associated with any large cash transaction conducted for this account through the other financial entity. The agreement between the financial entities is a form of agent/principal relationship that has been established. Therefore, the financial entity holding the client's account must be informed, by the other financial entity receiving the deposit, when the client has conducted a large cash transaction. The financial entity holding the client's account also needs the appropriate information from the other financial entity, such as the time, date and exact amount of the cash transaction, as well as the complete address of place of business where the transaction occurred.

The financial entity, holding the client's account, needs to ensure that their locations in F2R are updated to include the address information about the other financial entity's place of business where the transaction in question took place. This information will be included in the large cash transaction report.

Date answered: 2013-07-30

PI Number: PI-5589

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a), 13

Act: 2

Auditor suspected of an incidence of "nefarious activity" - Reportable or not?

Question:

Can you tell me please is there an obligation to inform the “Centre”, subject to PCMLTFR, Sections 34/35 if any auditor were to suspect an incidence of nefarious activity? I expect it is a client responsibility, yes?

Answer:

You have asked whether an auditor who suspects an incidence of “nefarious activity” has the obligation to report this activity to FINTRAC, or if this obligation belongs to the reporting entity. For the purposes of this response, I will assume that by “nefarious activity” you are referring to the reporting obligation found under section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This section specifies that every person or entity referred to in section 5 of the PCMLTFA shall report every financial transaction that occurs or that is attempted in the course of their activities where there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence or the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

Section 5 of the PCMLFTA specifically lists the following persons and entities subject to Part 1, namely,
(a) authorized foreign banks within the meaning of section 2 of the Bank Act in respect of their business in Canada, or banks to which that Act applies;
(b) cooperative credit societies, savings and credit unions and caisses populaires regulated by a provincial Act and associations regulated by the Cooperative Credit Associations Act;
(c) life companies or foreign life companies to which the Insurance Companies Act applies or life insurance companies regulated by a provincial Act;
(d) companies to which the Trust and Loan Companies Act applies;
(e) trust companies regulated by a provincial Act;
(f) loan companies regulated by a provincial Act;
(g) 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;
(h) persons and entities engaged in the business of foreign exchange dealing, of remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network, or of issuing or redeeming money orders, traveller’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity;
(i) persons and entities engaged in a business, profession or activity described in regulations made under paragraph 73(1)(a);
(j) persons and entities engaged in a business or profession described in regulations made under paragraph 73(1)(b), while carrying out the activities described in the regulations;
(k) casinos, as defined in the regulations, including those owned or controlled by Her Majesty;
(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, 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); and
(m) for the purposes of section 7, employees of a person or entity referred to in any of paragraphs (a) to (l).

Additionally, sections 11.2 to 50 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) outline the reporting obligations of each specific reporting entity sector. As you can see, consultants are not captured therein. Accountants, on the other hand, are captured under section 34 of the Regulations, which states that every accountant and every accounting firm is subject to Part 1 of the PCMLFTA when they engage in any of the following activities on behalf of any person or entity, namely:

  • receiving or paying funds,
  • purchasing or selling securities, real properties or business assets or entities, or
  • transferring funds or securities by any means; or

They are also subject to Part 1 if they give instructions on behalf of any person or entity in respect of any of the above activities. However, subsection 34(2) makes it clear that subsection 34(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. Given the foregoing, it would appear that only persons or entities listed under section 5 of the PCMLFTA and referred to in sections 11.2 to 50 of the PCMLTFR are subject to the reporting obligations found in Part 1 of the PCMLFTA. That being said, FINTRAC can also receive voluntary information from the public about suspicions of money laundering or of the financing of terrorist activities pursuant to section 54 of the PCMLFTA.

Date answered: 2013-07-25

PI Number: PI-5581

Activity Sector(s): Accountants

Obligation(s): Reporting

Guidance:

Regulations: 5,7, 11.2 to 50, 34, 54

Alternative LCTR

Question:

The client comes into the RE about once a week and has multiple deposit slips for different days and thus makes multiple deposits for different days all on one day. The RE then sees in their system that there is in fact only one deposit despite the multiple deposit slips.

For a client to qualify for an Alt-LCTR they need to conduct 2 deposits a week for 12 months. Therefore, do we count one deposit as a deposit slip or one deposit as one visit to the RE?

On the same topic, the Alt-LCTR regulations and guidelines speak of number of deposits however, the Alt-LCTR form provides an RE an exemption from submitting Large Cash Transaction Reports. Therefore, when reading the legislation and regulations do we understand a deposit to be the same as a transaction? If so, is one deposit or one transaction mean one visit to the RE?

Answer:

According to Section 50(1) of the PCMLTFR, “A financial entity is not required to report transactions under paragraph 12(1)(a) in respect of a business client if the following condition [is] met:
c) the financial entity has records that indicate that the client has deposited $10, 000 or more in cash into that account on an average of at least twice in every week for the preceding 12 months”.

In other words, when the financial entity annually submits the Alt-LCTR report to FINTRAC, there must be a record of a minimum of 104 visits in which their business client made a deposit. Since the Alt-LCTR reports submitted to FINTRAC only require a total number for deposits, whether the financial entity sees in their system that there is only one deposit, although multiple deposit slips have been received, is not a concern to FINTRAC.

Date answered: 2013-07-03

PI Number: PI-5571

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 50(1)

Night deposits and automated teller transactions for commercial accounts

Question:

We have been informed that some financial entities give commercial clients the opportunity to make commercial deposits using the night deposit box to deposit cash and then immediately update their account, thus enabling commercial clients to do their accounting in real time with an automated teller machine (ATM).

To make this deposit, commercial clients must use an ATM (using their card and PIN). The transaction is recorded as an ATM transaction by the financial entity’s system. For someone who uses an automated information system, the transaction appears as an ATM transaction and is likewise identified as an ATM transaction.

As a result, commercial clients are immediately credited their deposits and deposits are verified the following day.

Should these transactions be recorded as night deposits or ATM transactions?

Answer:

According to paragraph 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, “Subject to section 50 and subsection 52(1), every financial entity shall report the following transactions and information to the Centre: 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”.

The transaction described above is not considered to be a night deposit and should not be treated as such. The operation was carried out using an ATM and the cash was deposited in the night deposit box.

Since the transaction is carried out with an ATM in a commercial account (other than a night deposit or quick drop), Part E becomes a mandatory field. The transaction must be reported and the name of the person who deposited the money must be entered in Part E of the large cash transaction report (LCTR). In the past, we indicated that this person was the cardholder of the ATM card. The name of the business should not be entered in this field. However, if the name on the card is the business, one of the three signing authorities for the commercial account may be designated as the individual carrying out the transaction.

Date answered: 2013-06-05

PI Number: PI-5564

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a), Schedule 1-Part E

Reporting EFTs – EFTI Exchange

Question:

What is the rate to declare on the report if the customer does not want the exchange yet because rates are unfavourable?

Two scenarios:

  • EFT transaction did not specify currency for payout. The beneficiary decides when claiming the funds which currency it wants the payout in.
  • EFT transaction specifies the currency for the payout but not the exchange rate. The beneficiary will receive the rate of the day when payout occurs, but the beneficiary controls when the payout occurs.

Answer:

Section 2 of the PCMLTFR states that “where a transaction is carried out by a person or entity in a foreign currency, the amount of the transaction shall, for the purposes of these Regulations, be converted into Canadian dollars based on

(a) the official conversion rate of the Bank of Canada for that currency as published in the Bank of Canada’s Daily Memorandum of Exchange Rates that is in effect at the time of the transaction; or

(b) if no official conversion rate is set out in that publication for that currency, the conversion rate that the person or entity would use for that currency in the normal course of business at the time of the transaction.”

In addition, Guideline 8A: Submitting Non-SWIFT Electronic Funds Transfer Reports to FINTRAC Electronically, section 3.5 Electronic funds transfers in foreign currency indicates the following:

“If you send or receive an EFT in a foreign currency, you will need to check whether it is the equivalent of 10,000 Canadian dollars or more to determine whether or not it is reportable to FINTRAC. For this purpose only, use the last noon exchange rate provided by the Bank of Canada available at the time of the transaction, instead of the actual exchange rate used to process the transaction. This calculation is only to check whether the $10,000 threshold is met for the transaction to be reportable as an EFT transaction.”

It could happen that an entity receives an incoming EFT and by means of how their business functions they are required to report the incoming EFT before the client has actually “withdrawn” the money from the MSB. There are two possible scenarios that arise.

Scenario 1 – no currency for transaction because client hasn’t yet “withdrawn” the funds and can choose the currency into which the funds will be converted when they “withdraw” the funds

In the world of foreign currency EFTs, the EFT and the foreign currency exchange can be viewed as two separate transactions:

  1. The receipt of the incoming EFT
  2. The conversion to pay out that transaction

For reporting an EFT, the emphasis is on the EFT portion of the transaction. Field A4 is a mandatory field for the currency of the transaction. Because the transaction being reported is the incoming EFT, the currency reported in A4 should be the currency in which the EFT was received by the MSB. This holds especially true for transactions where the MSB holds onto the funds until the client chooses to “withdraw” them, but has to report before this happens. As a mandatory field, A4 has to be filled in and can only be filled in using the currency the MSB already knows about.

In this example, Field A5 will be left blank since 1) the last noon exchange rate provided by the Bank of Canada used at the time of the transaction is only for the purpose of determining whether or not it is reportable to FINTRAC (CAD10,000 or more), and 2) there was no exchange rate applied to this transaction yet to convert the amount sent to Canadian dollars (since we don’t know yet if the client would want the funds to be paid out into CAD).

Scenario 2 – no exchange rate indicated because the client is waiting for the best rate for the conversion from the currency in which the funds were received by the MSB to the currency in which they will “withdraw” the funds.

As indicated in Scenario 1, there may be two transactions in a foreign currency EFT. The EFTI is one transaction, and the conversion to pay out the EFT is a second transaction and completes the processing of the EFT. While an entity is expected to use the Bank of Canada noon rate to determine whether or not the EFT is reportable, the exchange rate reported in Field A5 should be the rate actually used to process the conversion of the EFT. The following is an excerpt from Guideline 8A – Section 3.5: Once you have determined that an EFT in a foreign currency is reportable based on the Bank of Canada noon rate, you will have to send an EFT report to FINTRAC. On the EFT report in Part A, enter the amount of the transaction in the foreign currency. If you converted this amount to or from Canadian dollars when you processed the transaction (other than using the Bank of Canada noon rate to determine whether or not it was reportable), enter the actual exchange rate you used to process the EFT in Part A of the report.
It is important to note that:

  • If the client has not yet “withdrawn” the funds then the MSB has not processed conversion of the EFT, at which point they would not be able to include an exchange rate in Field A5 of the EFT report.
  • In addition to this, the exchange rate in Field A5 should only be filled in if the MSB converts the amount received through the incoming EFT into Canadian dollars.

Date answered: 2013-05-02

PI Number: PI-5542

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8A

Regulations: 2

EFTI / EFTO

Question:

I would appreciate your confirmation regarding my analysis of the following arrangement in light of FINTRAC Guideline 8A (the “Guideline"). The arrangement involves a Canadian money services business that is subject to The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “AML Regime”).

I am satisfied that the arrangement does not give rise to any reporting obligation on the part of the Canadian money services business under the AML Regime. However, in light of the importance of the issue, I wanted to ensure that FINTRAC agreed with my opinion.

Assume the following:

  1. A Canadian resident (the “Canadian Exporter”) which is a client of Bank #1 in Toronto sells goods to a purchaser located in the United States (the “Foreign Purchaser”) for a purchase price of $20,000 U.S.
  2. The Canadian Exporter requests a Canadian resident money services business (the “Canadian MSB”), which is a client of Bank #2 in Toronto, to:
    • collect the $20,000 U.S.; and
    • forward the exchange equivalent ($22,000 Cdn.) to the Canadian Exporter.
  3. The Canadian MSB is part of a worldwide money services group and has an affiliate in the United States (the “US MSB Affiliate”) which will be involved in this transaction.
  4. The Canadian Exporter instructs the Foreign Purchaser to effect the payment of the $20,000 U.S. by having those funds transferred to a bank account in the United States of the US MSB Affiliate at Bank #3 (the “U.S. Bank Account of the US MSB Affiliate”). Bank #3 is not related to the US MSB Affiliate.
  5. The Foreign Purchaser requests its bank in the United States, Bank #4 to transfer $20,000 U.S. to the U.S. Bank Account of the US MSB Affiliate. Bank #4 is not related to the US MSB Affiliate
  6. The $20,000 U.S. is received by the US MSB Affiliate through credit to the U.S. Bank Account of the US MSB Affiliate.
  7. The US MSB Affiliate then notifies the Canadian MSB that the $20,000 U.S. has been received by the US MSB Affiliate.
  8. The Canadian MSB then advances the exchange equivalent of $20,000 U.S., $22,000 Cdn. to the Canadian Exporter and, as a result, a $20,000 U.S. or a $22,000 Cdn. receivable is created on the books of the Canadian MSB in respect of the indebtedness owed to it by the US MSB Affiliate.
  9. The Canadian MSB then requests its bank, Bank #2, Toronto to transfer $22,000 Cdn. to Bank # 1 in Toronto, for the credit of the Canadian Exporter.
  10. As a result of there being a series of similar transactions daily involving the Canadian MSB and the US MSB Affiliate, there is a daily netting of the amounts owed by the two entities to each other. However, no funds are ever transferred from one to the other as a result of any indebtedness owing after the netting takes place.

In my view, the most material aspect of this arrangement from the standpoint of the AML Regime is that there are no transfers of funds into, or from, Canada. Specifically:
• The Canadian Exporter receives funds in Canada from a Canadian bank account of the Canadian MSB.
• The funds sent by the Foreign Purchaser in payment of its debt to the Canadian Exporter are sent to the U.S. Bank Account of the US MSB Affiliate outside Canada.

The Guideline deals with the circumstances in which reports must be filed in respect of electronic funds transfers to, or from, Canada, in connection with a transaction or series of transactions where the amount of the funds being transferred is greater than $10,000 Cdn.

The Guideline defines an ETF as:

“...the transmission of instructions for a transfer of funds through any electronic, magnetic or optical device, telephone instrument or computer. In this context SWIFT EFT messages are excluded, as explained in subsection 3.3.”

In the above arrangement, since there is no cross border funds transfer of any kind, electronic or otherwise, there cannot possibly be any cross-border electronic funds transfer.

I believe that this conclusion is consistent with the principles of the AML Regime. The fundamental purpose of the Guideline is to ensure that electronic funds transfers into Canada from another country, or from Canada to another country are monitored pursuant to the AML Regime. In the above arrangement, there is no cross-border transfer of funds into Canada from another country, or from Canada, to another country. The Foreign Purchaser does not make any payment into Canada and the Canadian Exporter does not receive any payment from the Foreign Purchaser. This arrangement is essentially a collection and foreign exchange arrangement.

However, that is not to say that the arrangement is not "tested" from an AML standpoint. In fact, the transaction is tested at various levels since several banks are intimately involved in the arrangement and should have scrutinized their involvement in the arrangement from an AML standpoint. Significantly,

  • the Canadian Exporter is a client of Bank #1
  • the Canadian MSB is a client of Bank #2
  • the US MSB Affiliate is a client of Bank #3
  • the Foreign Purchaser is a client of Bank #4

and each of these banks has its own AML responsibilities in connection with this arrangement.

As a result, there is no policy purpose in having the Canadian MSB make any filing in respect of this transaction since each step in the arrangement takes place separately and individually within the banking systems of two countries.

I would appreciate your confirmation of the views I have expressed above.

Answer:

We have reviewed the information and have the following comments:

All of the examples explaining your scenario are essentially describing the same payment architecture, namely: the Canadian payee contacts the foreign payor to request that the foreign payor effect the payment of his/her debt by having funds transferred from the payor’s foreign bank account to the bank account of your business’s foreign affiliate. When this is done, there is a settlement between your business’s foreign affiliate and your business in Canada, and the funds are released to the Canadian payee.

To explain this payment architecture further, we will use an example provided by you, namely: ABC Farms receiving payment from a third party.

MSB holds an agreement with its customer, ABC Farms, to receive payments on its behalf from customers outside of Canada. One such customer, DEF Company, located in the United States of America, was given instructions on how to submit the payment to ABC Farms in its local currency.

DEF Company was instructed to send payment to a MSB bank account in the United States of America. Under the arrangement agreed to between ABC Farms and MSB, MSB converts payment collected for ABC Farms outside of Canada to CAD and remits those amounts to ABC Farms.

Subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

To be reportable an electronic funds transfer must be:

  • client initiated, and
  • the transmission of instructions to transfer funds across the Canadian border.

You submit that the payee is a client of MSB that has directed a third party owing it funds to pay the funds to an account held by a MSB foreign affiliate.

Our position is that the payor gives instructions to his/her foreign bank to transmit funds to the payee. As the account holder, the payor is the client ordering the payment of the electronic funds transfer. His/her instructions include information, a unique order ID or reference number, that will make it possible for the MSB to identify the transaction and banking details for settling the payment.

In our example, DEF Company, as the account holder, is the client ordering the payment of the electronic funds transfer. Its instructions include the payment and banking details for settling the payment.

You submit that such a transaction is not reportable under the current FINTRAC regulations. You state that the payor has not sent funds across border, but has only made a payment to a foreign bank account held by the MSB foreign affiliate, that later will be subject to a settlement between the MSB foreign affiliate and MSB in Canada.

Our position is that the intention (or the purpose) of the payment is to transfer funds from the payor’s bank account in the foreign country to the payee’s bank account in Canada. The payor initiates the transmission of instructions to transfer funds across the Canadian border.

In our example, the intention of this transaction is to transfer funds from DEF Company’s bank account in the United States of America to ABC Farms’ bank account in Canada. This represents an electronic funds transfer as defined in our regulations. DEF Company, the client, initiates the transmission of instructions to transfer funds across the Canadian border.

Furthermore, we note that the payor’s instructions travel through the unique order ID or reference number transmitted to every player involved in the process of this payment.

Our position is that this transaction constitutes an incoming non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

This transaction would be an incoming non-swift international electronic funds transfer even if the payor was located in Canada and instructed his/her bank in the foreign country to transmit funds to Canada, because the intention (or purpose) of this type of transaction is to have the funds moved from the foreign country into Canada.

 

Date answered: 2013-05-02

PI Number: PI-5541

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8A

Regulations: 1(2), 12(1)(b), 12(1)(c)

EFTI/EFTO - Reportable transactions or not?

Question:

I am providing you with a scenario that frequently occurs and would like to reconfirm that the transactions are reportable as both EFTI and EFTO.

  1. MSB X in Canada has clients who send funds to Sri Lanka. The instructions are sent via informal channels (fax, email, text, etc) to MSB Xs correspondent in Sri Lanka, company Y, who pays out the funds to the beneficiaries. . Company Y may be an MSB in Sri Lanka, but just as possible they are not an MSB but a contact only.
  2. Company Y has clients who have imported goods from countries such as China and Hong Kong and need to pay for the goods in those countries.
  3. Instead of MSB X sending money to an account of Company Y in settlement, Company Y asks MSB X to send funds to bank accounts in China and Hong Kong (not owned by Company Y) on behalf of Company Y’s clients.
  4. MSB X will use either another MSB in Canada or a Canadian bank to send the EFTOs to China and Hong Kong to the bank account requested by Company Y. MSB X is recorded as the ordering client on the EFTO (I have seen hundreds of the EFTO payment orders over the years to know this is how it is recorded).
  5. The cycle starts again.

Of importance is that while the MSB may call this a settlement, it is not a true settlement in that MSB X is not paying money to Company Y, but rather to third parties.

In reference to #3 above my understanding is that an EFTI report is to be submitted by MSB X (assuming of course the transaction is at least $10K). In #4 my understanding is that an EFTO is then required once the payment instructions are sent out to China or Hong Kong (assuming again that the ordering client name and address is not provided to the entity sending the payment instructions outside of Canada). Would you agree that both reports are required?

My second question is if my above understanding is correct, which party appears in Part B of both the EFTI and EFTO report – Company Y or Company Y’s clients who actually are really requesting funds be sent to Hong Kong and China?

Answer:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission, across our border, of instruction to transfers funds (except where the instructions are to transfer funds from a place in Canada to another place in Canada)

Subsection 28(1) of the PCMLTFR states that “Subject to subsection 52(1), every money services business shall report the following transactions and information to the Centre: […]

(b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and

(c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.”

If a money services business in Canada sends, at the request of a client, instructions to someone outside Canada ordering them to transfer funds, the MSB in Canada has to file an outgoing EFT report with FINTRAC. This is the case, in your example, where a client in Canada instructs MSB X in Canada to send funds to Sri Lanka. The instructions are sent by MSB X via informal channels (fax, email, text, etc.) to MSB X’s correspondent in Sri Lanka (Company Y) who pays out the funds to a beneficiary in Sri Lanka. MSB X in Canada would file the following EFTO with FINTRAC:

Outgoing Non-Swift international electronic funds transfer report information:
Part A – Transaction information
Part B – Client in Canada
Part C – MSB X in Canada
Part E – Company Y in Sri Lanka
Part F – Beneficiary in Sri Lanka

If a money services business in Canada (MSB X) received instructions, from outside Canada, to transfer funds (and those instructions where sent by a person or entity at the request of their client), MSB X would have to file an incoming EFT report with FINTRAC. This is the case, in your example, where a client in Sri Lanka asks Company Y in Sri Lanka to send funds to a bank account in China via MSB X in Canada. MSB X in Canada would file the following EFTI with FINTRAC:

Incoming Non-Swift international electronic funds transfer report information:
Part A – Transaction information
Part B – Client in Sri Lanka
Part C – Company Y in Sri Lanka
Part E – MSB X in Canada
Part F – Holder of bank account in China

In addition, if MSB X in Canada instructs another MSB in Canada or a Canadian Bank, to send instructions to a Bank in China for the transfer of funds, that other MSB or that Canadian Bank will have to report an EFTO to FINTRAC with the following fields:

Outgoing Non-Swift international electronic funds transfer report information:
Part A – Transaction information
Part B – Client in Sri Lanka
Part C – MSB X in Canada
Part E – Bank in China
Part F – Holder of bank account in China

*It should be noted that if MSB X in Canada provided the other MSB in Canada (or Canadian Bank) with the name of the client who asked MSB X to ask for the transfer of funds, MSB X would not have to file an EFTO with FINTRAC (subsection 28(3) of the Regs).

Date answered: 2013-04-26

PI Number: PI-5537

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1), 28(3)

EFT Reporting - Iran

Question:

According to the following scenarios, could you confirm if they need to be reported to FINTRAC and if so, what parts of the EFTI report need to be filled out and who should be listed in those parts?

Scenario 1:

The Company 123, MSB in Vancouver, receives funds from Iran for the MSB’s customers in Vancouver. This Company has an agent in Iran.

  • Person A in Iran wants to send money (under $20,000 to Person B in Vancouver)
  • Person A will contact the agent in Iran and provide the money to the agent in Iran
  • The agent in Iran will contact Company 123
  • Company 123 will provide the funds to Person B in Vancouver from its bank account
  • The agent and Company 123 will settle their books (this is a Hawala system)

Incoming International Non-SWIFT Electronic Funds Transfer Report information

Scenario 2 (transactions of $20,000 and above):

Company 123 currently offers one option for Incoming International Non-SWIFT Electronic Funds Transfer of $20,000 and above from Iran to Canada; that being through a Kuwaiti MSB and a Kuwaiti Bank. Person A does not request this specific routing of the funds, but agrees to accept the only option offered by Company 123 and their agent in Iran. The agent in Iran operates under the instructions of Company 123 management in Canada. Company 123 is not privy to the exact instructions provided by other entities in this delivery channel.

In this scenario, funds sent are $20,000 and above and follow this process:

  • Person A in Iran wants to send money ($20,000 and above to Person B in Vancouver). Person A instructs the agent in Iran to send funds to the beneficiary in Canada and provides the necessary information to do so. No specific routing instructions are provided by Person A and Person A accepts routing offered by the agent in Iran
  • Person A will contact the agent in Iran (of Company 123 in Vancouver) and provide the money to the agent in Iran
  • The agent in Iran sends instructions to a Kuwaiti MSB to route the transaction through a Kuwaiti Bank, and then, to the beneficiary’s bank account in Canada. The Kuwaiti MSB forwards the instructions to the Kuwaiti Bank to transfer funds to the Canadian beneficiary’s bank account in Canada
  • The Kuwaiti bank will send the money directly to the bank account of Person B in Vancouver
  • The agent in Iran will get a commission

Scenario 3:

In this scenario, funds follow these instructions: a Canadian resident, who has assets in Iran (Mr. ABC junior), instructs his father (Mr. ABC senior), who is in Iran, to sell his assets and then transfer the funds belonging to Mr. ABC junior to Canada. The funds being transferred belong to Mr. ABC junior who is the beneficiary of the EFTI transaction. Mr. ABC senior contacts the agent in Iran and provides the money to the agent in Iran.

Answer:

All scenarios submitted by the reporting entity are in relation to Iran. We would like to remind the reporting entity of the warning issued by Department of Foreign Affairs and International Trade (DFAIT), concerning Iran, which is posted on the FINTRAC Public website.

FINTRAC encourages reporting entities to be aware of the obligations, under the new sanctions, on all persons in Canada and any Canadians outside of Canada; particularly, in respect of dealings with designated entities and persons and the prohibition on the provision or acquisition of financial services to or from Iran.

Subsection 1(2) of the PCMLTFR defines an electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

In the past, we have indicated that to be reportable, an electronic funds transfer must be:

  • client initiated, and
  • the transmission, across our border, of instruction to transfers funds (except where the instructions are to transfer funds from a place in Canada to another place in Canada)

Subsection 28(1) of the PCMLTFR states that “Subject to subsection 52(1), every money services business shall report the following transactions and information to the Centre: […]

(b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and
(c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.”

Scenario 1:

Company 123has reported the following in the EFTI report to FINTRAC, and we confirm it is correct:

Incoming International Non-SWIFT Electronic Funds Transfer Report information:
Part A: Transaction information
Part B: Person A in Iran
Part C: Agent in Iran
Part E: Company 123
Part F: Person B in Vancouver

Scenario 2:

Based on this scenario, Company 123 does not have to report this transaction. Because it is a bank to bank transfer, the Canadian bank, as the receiver of the EFT, will report this transaction to FINTRAC.

Scenario 3:

Based on this scenario, we assumed that the instructions included in the proceeds of the sale of Mr. ABC junior’s assets were entirely transferred to Mr. ABC junior in Canada. We also assumed that Mr. ABC junior instructed the specific amount of money to be transferred (being the same as the proceeds from the sale).

If the transaction is under $20,000: the process described in Scenario 1 applies.

Incoming International Non-SWIFT Electronic Funds Transfer Report information:
Part A: Transaction information
Part B: Mr. ABC senior
Part C: Agent in Iran
Part D: Mr. ABC junior
Part E: Company 123
Part F: Mr. ABC junior

If the transaction is $20,000 and above: the process described in Scenario 3 applies; Company 123 does not have to report this transaction. Because it is a bank to bank transfer, the Canadian bank, as the receiver of the EFT, will report this transaction to FINTRAC.

Date answered: 2013-04-24

PI Number: PI-5535

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1)

Condominium Developer's Obligations

Question:

Please be advised that our law firm acts on behalf of a condominium developer, engaged in the development and sale of new condominium units, and our client (the “Developer”) has also retained the services of an independent real estate agency/brokerage firm (the “Agency”) to market and sell the new condominium units to third party purchasers. It’s my understanding that although real estate developers and builders are reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (hereinafter referred to as “FINTRAC”), the Developer does not have to comply with the reporting and record-keeping requirements of FINTRAC in those circumstances where the sale of all the condominium units being developed are handled by the Agency, because real estate brokers and sales representatives are also reporting entities under FINTRAC, and accordingly the Agency (being an external real estate broker or agent with whom the Developer has a contractual relationship) will correspondingly be compelled to keep the requisite records and make any required reports relating to the sale of the units available to the government.

Can you kindly confirm:

  1. Whether my understanding (regarding the Developer not having to comply with the reporting and record keeping requirements of FINTRAC in the above-noted circumstances) is correct;
  2. Whether the Developer would be exposed to any negative ramifications (such as a fine or any criminal or quasi-criminal sanction, or any civil action) in the event that the Agency inadvertently failed to comply with its FINTRAC obligations in connection with any sale of a unit by the Developer in the condominium project under development; and
  3. Whether the monies received by the Developer on the closing of any unit sale transaction (in respect of which the FINTRAC requirements were not followed by the Agency) are susceptible to being seized by (and forfeited to) the government any time after the closing date.

Answer:

To answer your questions regarding your client, the Developer, and their contractual relationship with an external real estate broker or agent, the Proceeds of Crime (Money Laundering) Terrorist Financing Act (PCMLTFA) outlines the reporting obligations for real estate developers.

Subsection 1(2) of the PCMLTFR states, “a real estate developer means, on any given day in a calendar year, a person or entity who, in that calendar year and before that day or in any previous calendar year after 2007, has sold to the public, other than the capacity of a real estate broker or sales representative,

(a) five or more new houses or condominium units;
(b) one or more new commercial or industrial buildings; or
(c) one or more new multi-unit residential buildings each of which contains five or more residential units, or two or more new multi-unit residential buildings that together contain five or more residential units.”

According to subsection 39.5(1) of the PCMLTFR, “Every real estate developer is subject to reporting obligations under Part I of the PCMLTFA when

(a) in the case of a person or of an entity other than a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building; and

(b) in the case of an entity that is a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building on their own behalf or on behalf of a subsidiary or affiliate.”

It would be a question of fact to be able to determine who has to fulfill the requirements under the PCMLTFA and PCMLTFR in a case where the real estate developer has retained the services of an independent real estate agency/brokerage firm to market and sell the new condominium units to third party purchasers. In fact, it would depend on the nature of the contractual relationship between the builder and the sales agency.

  • If the contract makes the sale agency the builder's agent (and makes the individual sales representatives the employees of the builder), then the builder would remain responsible for the obligations (i.e. the usual rules for agents and employees, with the usual exception that the agent or employee might have a personal obligation to report STRs for which they have reasonable grounds themselves).
  • If the contract is simply a contract for services (i.e. the sales agency has contracted to do advertising, give info to prospective clients, but they do not act as agents for the sale, they simply help a buyer fill out the offer and act as a mail box to hand the offer to the builder who may or may not accept it), then the builder is still responsible for all obligations, and the sales representative has absolutely no obligations (not even STR obligations).

Date answered: 2013-04-12

PI Number: PI-5534

Activity Sector(s): Real estate

Obligation(s): Record Keeping, Reporting

Regulations: 39.5(1)

Act: 1(2)

Instances where beneficiary information is missing when we act as intermediary on a transfer

Question:

We receive from Bank A an outbound wire transfer to Australia. They are required by section 9.5 of the PCMLTFA to include originator information. If they do so (name, address and account number of their client) then the reporting obligation shifts to us as per subsection 12(3) of the PCMLTFR. If they don't include beneficiary information then the report we make to FINTRAC doesn't have that information. So, we would be in non-compliance as beneficiary information is mandatory for outgoing reporting.

The transfer doesn't include the full beneficiary information. It would make sense that beneficiary information would be explicitly named in section 9.5 of the PCMLTFA along with originator information if the PCMLTFA was meant to cover it.

If we take reasonable measures to get beneficiary information (which in this case includes asking for it- as per FINTRAC PI) and Bank A doesn't give it to us because they are too busy or don't care, we have done our due diligence pertaining to section 9.5 of the PCMLTFA. However, then we have to report.

The reporting obligation has shifted from Bank A to us because they provided us with the name and address of their client (as per the section 12.3 of the PCMLTFR).
Beneficiary name, address & account number are mandatory fields as per Schedule 2 Part K. We have a legal obligation to report beneficiary information and Bank A may not have a legal obligation to give us the information.

Would FINTRAC expect we would not perform the transfer if it doesn't include beneficiary information that is required in our report to FINTRAC or would they expect us to report what we have (after we exercise our due diligence and ask for it) and be in non-compliance with Part K requirements for beneficiary information- i.e. compliant with section 9.5 of the PCMLTFA but still not compliant with the Regulations. Could/would we get cited for not including all beneficiary information? Or would we be able to stand on evidence that Bank A didn't provided us with the information as required. We did our best efforts to ensure that the transfer included the information, but we are the ones in non-compliance with reporting obligations.

Answer:

Paragraph 12(1)(b) of the PCMLTFR states that every financial entity shall report to the Centre "the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be". As such, all mandatory fields outlined in Schedule 2 and 5 must be completed. Fields marked '"if applicable" must be completed if the information is available to the reporting entity as these fields will also become mandatory fields in the outgoing EFT report.

In the scenario provided above, if you (Bank Z) determines that an EFTO must be reported to the Centre, all mandatory fields must be completed (including “Information on Client to Whose Benefit the Payment is Made” in Part F – Schedule 5). In order to comply, you (Bank Z) must provide all required information to FINTRAC.

Date answered: 2013-04-10

PI Number: PI-5532

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7A

Regulations: 12(1)(b), Schedule 5 (Part F)

Accounts for MSB

Question:

Can a MSB have accounts and do we recognize that they are called accounts on the LCTR form?

Answer:

It is clear in the Regulations that there is no concept of an "account" for the MSB sector. The MSB sector is not recognize as having accounts, since the prescribed obligations applies only to financial entities, securities dealers and casinos.

Therefore, in not having accounts, the exemption found in section 53 of the PCMLTFR cannot be used by MSBs.

However, to ensure consistency and permit a better quality of reporting, we recommend, for reporting purposes only, that the MSB should be informed that, when filling out the LCTR for the example described below, they should use the drop down menu option - "other" and specify with "holding funds".

The "holding funds" caption indicates more accurately that the reporting entity is holding an amount of $10,000 or more in cash for the future transaction.

Date answered: 2013-04-10

PI Number: PI-5531

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 53

Reporting EFTs

Question:

When is an MSB required to report an EFT to FINTRAC?

Answer:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

As a result, the transactions processed via MT 101 are not to be considered as MT 103 messages, and are not reportable.

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission of instruction to transfers funds across our border

Subsection 28(1) of the PCMLTFR states that “Subject to subsection 52(1), every money services business shall report the following transactions and information to the Centre: […]

(b) the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and

(c) the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.”

Subsection 28(3) of the PCMLTFR states that “Paragraph (1)(b) applies in respect of a money services business that orders a person or entity, to which subsection (1), 12(1) or 40(1) applies, to send out of Canada an electronic funds transfer made at the request of a client, unless it provides that person or entity with the name and address of that client.”

If the MSB sends an EFT to an individual or entity in Canada, they do not have to report it, even if the final recipient of the funds is outside Canada.

It can happen that a client requests a transfer of funds and, instead of sending the EFT itself, the money services business orders someone else that is a financial entity, another money services business or a casino in Canada to send it. In this case, they have to make the related EFT report (EFTO) to FINTRAC unless they provide that other reporting entity with the client's name and address. In other words, if the first entity gives their client's name and address to the second entity, the first entity does not have to report the EFT.

Subsection 28(5) of the PCMLTFR states that “Paragraph (1)(c) applies in respect of a money services business that receives an electronic funds transfer for a beneficiary in Canada from a person or entity to which subsection (1), 12(1) or 40(1) applies where the initial sender is outside Canada, unless the electronic funds transfer contains the name and address of that beneficiary.”

If a money services business received instructions for a transfer of funds from outside Canada, they have to make the related incoming EFT report to FINTRAC, even if they have to forward the same instructions to a financial entity, another money service business or a casino in Canada. However, if they receive instructions for a transfer of funds from outside Canada from a financial entity, another money services business or a casino in Canada, they do not have to make an incoming EFT report, as long as the EFT contained the name and address of the beneficiary. If the EFT did not contain the name and address of the beneficiary and the original sender was outside Canada, the money services business who received it from another entity will also have to make an incoming EFT report. This is true even if they do not get a copy of the instructions received by the financial entity, other money services business or casino.

Date answered: 2013-03-18

PI Number: PI-5520

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2), 28(1), 28(3), 28(5)

EFTI Reporting based on the ordering client’s name or beneficiary’s name

Question:

My question is whether the reporting determination for EFTI is based on the ordering client’s name or beneficiary’s name. This is especially important when the 24 hour rule is considered.
It may be based on either or and I will give two examples:

  1. Joe Blow sends two EFTIs of $6,000 from the US to Canada to two different beneficiaries within 24 hours. Would this be reportable?
  2. John Smith sends $6,000 from the US to Canada to Jane Doe. Within 24 hours, Joe Blow sends $6,000 from the US to Canada to Jane Doe. Would this be reportable under the 24 hour rule?

Answer:

Subsection 3(1) of the PCMLTFR states, “In these Regulations, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single translation of $10,000 or more if

(a) where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and

(b) where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.

The 24 hour rule above applies when multiple transactions (each that are less than $10,000 but total $10,000 or more) are conducted by or on behalf of the same person (this being the person giving the instructions as opposed to the beneficiary). Therefore, to answer your questions below:

Scenario 1
Yes, this would be reportable under the 24 hour rule. In this scenario, Joe Blow, the same person giving both sets of instructions, is conducting multiple transactions (each that are less than $10,000 but total $10,000 or more) within 24 hours. It does not matter that there are two different beneficiaries as the 24 hour rule applies to the person giving the instructions as opposed to the beneficiary.

Scenario 2
No, this would not be reportable under the 24 hour rule. There are two individuals in this scenario, John Smith and Joe Blow, giving instructions to conduct their respective transactions. In order to be reportable, it would have to be the same person giving instructions to conduct the transactions. Also, it does not matter that Jane Doe is the beneficiary of both these transactions since the 24 hour rule applies to the person giving the instructions as opposed to the beneficiary.

Date answered: 2013-02-26

PI Number: PI-5502

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 3(1)

Correspondent banking relationship

Question:

If two banks are not in a direct relationship and are not both participants in the same clearing-house, the funds transfer instruction may have to pass through one or more intermediary banks which are the correspondent bank of both.

Example: A client of Bank 1 in New York requests a wire to his account with Bank 2 in London (England). However, the two banks do not have the same clearing house and have to go through a correspondent bank of both, Bank ABC in Canada, to send the instructions.

Could you provide a clarification on Flow Through accounts?

Answer:

Before answering, we made the following assumptions:

  • The example is not a real life scenario, but an example describing the mechanism of a flow through of an EFT;
  • We assumed there is only one set of instructions.

As per subsection 9.4(3) of the PCMLTFA, a correspondent banking relationship “means a relationship created by an agreement or arrangement under which an entity referred to in any of paragraphs 5(a), (b), (d) and (e) or an entity that is referred to in section 5 and that is prescribed undertakes to provide to a prescribed foreign entity services such as international electronic funds transfers, cash management, cheque clearing and any prescribed services.”

As such, two banks that are not in a direct relationship and are not both participants in the same clearing house might have a correspondent banking relationship if, in order to complete an EFT, they have an arrangement to pass through one or more intermediary banks.

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.”

We have indicated in the past that to be reportable an electronic funds transfer (EFT) must be:

  • client-initiated; and
  • include the transmission of instructions to transfer the funds across the Canadian border.

Concerning your example, the question is whether funds transferred from one England bank account to one US bank account, but routed through Canada, constitutes an EFT as per subsection 1(2) of the PCMLTFR. The client gave instructions to transmit funds from his bank account in London to his bank account in the US. The intention (or the purpose) of the transfer is to move funds from London (England) to New York (US). Our position is that this transaction does not constitute an electronic funds transfer as defined in subsection 1(2) of the PCMLTFR, and therefore is not reportable by the Canadian intermediary bank.

Date answered: 2013-02-15

PI Number: PI-5499

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7A

Regulations: 1(2)

Act: 9.4(3)

24-hour rule - EFT

Question:

What does "conducted by or on behalf of the same person" means in the context of the 24-hour rule?

Answer:

Subsection 3(1) of the PCMLTFR states, “In these Regulations, two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more are considered to be a single translation of $10,000 or more if

(a)  where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity; and

(b) where an entity is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, an employee or a senior officer of the entity knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.

As a reminder, the 24 hour rule above applies when multiple transactions (each that are less than $10,000 but total $10,000 or more) are conducted by or on behalf of the same person (this being the person giving the instructions as opposed to the beneficiary).

Date answered: 2013-02-15

PI Number: PI-5498

Obligation(s): Reporting

Guidance: FIN 4

Regulations: 3(1)

24-hour rule - EFTR

Question:

I’m following up on behalf of our wire reporting group for guidance on the correct procedure to follow when multiple wire transactions are conducted on the 24 Hour Rule.

SITUATION
Multiple transactions under $10,000 are conducted within 24 hours by or on behalf of the same party. For illustrative purposes, let me provide the following example.

10:00 AM $4000
02:00 PM $3000
04:00 PM $4000

An EFTR is filed for the transactions that total $12000 but on three different ‘forms’ (Use a separate form for each EFT that you have to report, whether or not the 24-hour rule applies).

A further transaction occurs the following morning at 11:00 AM for $4000. Another EFTR is required because this transaction combines with the previous two transactions matching the 24 hour rule.
02:00 PM $3000 (EFTR completed previous day)
04:00 PM $4000 (EFTR completed previous day)
11:00 AM $4000

GUIDANCE REQUEST
Is the Financial institution required to complete EFTR’s for the previous two transactions that have already been reported?

  1. Since the wire transactions are reported on separate EFTRs (unlike LCTRs that report multiple transactions within the same report), can the FI exclude the first two transactions and just report the final transaction noting the 24 hour rule on the transaction.
  2. Should all of the transactions be reported when the 24 hour rule is triggered, even previously reported transactions?

Answer:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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”.

Paragraphs 12(1)(b) and (c) of the PCMLTFR require that financial entities report to FINTRAC the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

In section 3 of the PCMLTFR, the definition of single transaction, otherwise known as “the 24-hour rule”, specifically applies to situations where two or more cash transactions or electronic funds transfers of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more. This is considered to be a single transaction of $10,000 or more if “the person knows that the transactions or transfers are conducted by, or on behalf of, the same person or entity.”

In a situation where multiple transactions under $10,000 are conducted within 24 consecutive hours of each other, by or on behalf of the same individual or entity, depending on the values, the 24-hour rule may apply and the transactions might be reportable.

Depending on what type of system the financial entity is using, the 24-hour period can vary. In the rolling 24-hour system, the 24-hour period begins with each new EFT of less than $10,000 (if you know they were made by or on behalf of the same individual or entity). In the static 24-hour system, you are required to report the multiple transactions that you know were made by or on behalf of the same individual or entity in that 24-hour period (e.g. from 9:00 a.m. to 9:00 a.m. the next day).

Multiple transactions under $10,000 are conducted within 24 hours by or on behalf of the same party.

SCENARIO

A - 10:00 AM $4000
B - 02:00 PM $3000
C - 04:00 PM $4000

A further transaction occurs the following morning at 11:00 AM for $4000.

D - 11:00 AM $4000

In the scenario described above, depending on the reporting entity's system in place, the reporting entity will report as follow:

  • Transactions A, B, and C because these transactions amount to over $10 000 ($4 000 + $3 000 + $4 000 amounts for a total of $11 000)
  • Transactions B, C, and D because these transactions amount to over $10 000 ($3 000 + $4 000 + $4 000 amounts for a total of $11 000) (Transaction D will only be captured under the rolling 24-hour system)

Each EFT that the reporting entity has to report will be on a separate report (one per beneficiary).

While the reporting entity has the choice to file immediately or file later, they ultimately have 5 days to file an EFTR following the last entry.

The 24-hour rule indicator must be selected for each report sent to the Centre that is below $10 000.

In the case where the reporting entity reports the EFTR immediately, if any additional transaction be captured under the 24-hour rule, then this additional transaction is required be sent to the Centre e.g. transactions B and C will not be reported twice to the Centre.

 

Date answered: 2013-01-23

PI Number: PI-5488

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 1(2), 3, 12(1)(b), 12(1)(c)

EFT - Multiple Beneficiaries

Question:

Here are two scenarios:

  • Scenario 1: The client’s instructions are to pay out X amount to Beneficiary 1 and Y amount to Beneficiary 2; however, you can only fit one name on the report.
  • Scenario 2: The client’s instructions are to pay out X amount to a joint account; however, you can only fit one name on the report.

Answer:

Scenario 1:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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”.

Paragraphs 12(1)(b) and (c) of the PCMLTFR require that financial entities report to FINTRAC the sending out of Canada, at the request of a client, of an electronic funds transfer of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 2 or 5, as the case may be; and the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction, together with the information referred to in Schedule 3 or 6, as the case may be.

In a situation where the client ordering an EFT enters with the initial amount of $10,000 or more and instructs that it be divided between multiple beneficiaries, the EFT is still being carried out by the same client. Therefore, the EFT should be reported using multiple reports (one per beneficiary).

Note: This EFT with the initial amount of $10,000 or more to be divided between multiple beneficiaries is NOT considered to be a single transaction of $10,000 or more as defined under section 3 of the PCMTLFR. The definition of a single transaction, also known as the “24-hour rule”, is specifically for situations where two or more cash transactions or EFTs of less than $10,000 each are made within 24 consecutive hours and total $10,000 or more.

Here are some examples:

  • Example 1: At 9AM, Client A requests an EFT of $25,000 to be sent to Beneficiary Y alone. The $25,000 will be reported to the Centre because it is over $10,000.
  • Example 2: At 9AM, Client A requests an EFT of $25,000 to be sent as follows: $20,000 to be sent to Beneficiary Y and $5,000 to be sent to Beneficiary Z. One report of $20,000 will be sent to the Centre; another report of $5,000 will also be sent to the Centre. In order to submit this $5,000-report, the 24-hour rule indicator must be selected. The EFT is reportable because it is over $10,000. The EFT will be reported using two separate reports because the $25,000 is divided between two beneficiaries.
  • Example 3: At 9AM, Client A requests an EFT of $25,000 to be sent as follows: $15,000 to be sent to Beneficiary Y, $5,000 to be sent to Beneficiary Z, and $5,000 to be sent to Beneficiary X. One report of $15,000 will be sent to the Centre; two reports of $5,000 will also be sent to the Centre. In order to submit theses $5,000-reports, the 24-hour rule indicator must be selected on each of them. The EFT is reportable because it is over $10,000. The EFT will be reported using three separate reports because the $25,000 is divided between three beneficiaries.
  • Example 4: At 9AM, Client A requests an EFT of $7,000 to be sent as follows: $4,000 to be sent to Beneficiary Y, and $3,000 to be sent to Beneficiary Z. The EFT is NOT reportable because it is below $10,000.

These examples will also be true in the case of the receipt from outside Canada of an electronic funds transfer, sent at the request of a client, of $10,000 or more in the course of a single transaction.

Scenario 2:

If the client's instructions name one beneficiary but the account the transfer is sent to is a joint account, the reporting entity must include the name of this one beneficiary (the instruction included the name of the beneficiary, in this example, it does not matter that the transfer is sent to a joint account.)

If the client's instructions name two beneficiaries for the entire aggregate amount of the transfer (e.g. $20,000 to John Doe & Jane Deer who have a joint account), the reporting entity must include the name of these two beneficiaries.

If the client’s instructions are to pay out X amount to a joint account and the instructions do not include the name of the beneficiary, the reporting entity must include the name of all account holders in the beneficiary customer field.

If the client’s instructions are being transmitted via SWIFT MT 103, and if the information exceeds the character capacity in the beneficiary customer field, the reporting entity should make best effort to use the remittance information field to include any remaining information. Efforts should be made to include the entire information. A best practice would be to document the measures taken.

If the client’s instructions are being transmitted via non-SWIFT, and if the information exceeds the character capacity in the beneficiary customer field, the reporting entity is required to include as much information that will help identify who the beneficiary/ies of the transfer is/are. Efforts should be made to include the entire information as the beneficiary customer field is mandatory. A best practice would be to document the measures taken.

 

Date answered: 2013-01-16

PI Number: PI-5484

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 3, 12(1)(b), 12(1)(c),

SWIFT message MT103s Reporting

Question:

The bank ABC processes a SWIFT EFT that was routed in the following (HONG KONG – CANADA – USA)

  • The ordering client is in Hong Kong.
  • The transaction is only routed through Canada as part of the SWIFT EFT MT103 process and there is no Canadian beneficiary or Canadian ordering client.
  • The transaction did not result in a payment / or instructions in Canada.
  • The beneficiary is in the USA.

The question remains if this type of EFT is reportable as both an EFTI and an EFTO – based on the instructions above.

Answer:

Based on the detailed information provided in relation to these types of transactions, it would appear that these specific transactions are non-reportable due to the following considerations:

  • The instructions do not specify an EFTO/EFTI to Canada
  • The amounts are settled within the bank ABC internally
  • No foreign exchange was noted as these only apply to CAD funds only

Although the SWIFT MT103 method was used – it was initiated with the intent of transmitting funds from Hong Kong to the USA – the internal process of the bank ABC (as noted) identified that the funds are run through the bank ABC (Canada) as a standard operating business process utilizing the SWIFT MT103 process, rather than two separate EFTI / EFTO transactions. While these types of internal transactions are currently being reported by the bank ABC as EFTI and EFTO – this is over reporting and is not a requirement.

Date answered: 2013-01-10

PI Number: PI-5483

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8B

Regulations: 1(2), 12(1)(b), 12(1)(c)

Reportable or not? - SWIFT Messages

Question:

If we receive a SWIFT EFT message that should have been sent (according to SWIFT rules) by the FI overseas as an MT103 (because it is not strictly bank to bank) do we have an obligation to reject it and insist on it being re-sent as an MT103?

MT202s are bank to bank transfers that SWIFT rules stipulate may not be used for individuals or non-bank entities. Apparently some banks incorrectly use this format regularly for various reasons. I have come up with the following reasoning:

The Regulations stipulate that only MT103s are reportable. No ifs/ands/or buts on that. (Subsection 1(2) of the PCMLTFR definition of an EFT: "In the case of SWIFT messages, only SWIFT MT103 messages are included.")

Therefore, we are left in a position where we think that the transaction should be reportable, in the SPIRIT of the legislation, but are not reportable in the letter of the legislation (because they are not formatted as MT103s).

We would like to request guidance from FINTRAC on what is required to be done as far as reporting these transactions or refusing them.

Answer:

If Company ABC receives a SWIFT message MT 202 that should have been sent (according to SWIFT rules) by the FI overseas as an MT 103 (because it is not strictly bank to bank) does Company ABC have an obligation to reject it and insist on it being re-sent as an MT 103?

MT 202s are bank to bank transfers that SWIFT rules stipulate may not be used for individuals or non-bank entities. Apparently, some banks incorrectly use this format regularly for various reasons.

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — 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.”

As a result, the transactions processed via MT 202 are not to be considered as MT 103 messages, and are not reportable.

FINTRAC is not in a position to provide guidance on what is required to be done by Company ABC as far as reporting these transactions or refusing them.

Date answered: 2012-12-19

PI Number: PI-5480

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2)

EFTI validation errors

Question:

ABC does not have a physical presence in Canada. ABC UK Ltd is based in the UK and ABC USA Inc. has an office in the US. This is as per our registration online.

As discussed, your form does not allow in Field E.5 to input a UK address. Hence the trouble we have been having in terms of reporting. ABC bank’s address was selected as our Canadian bank account is held with them. The system preselects ABC, which is correct, but we are unable to then fill in our UK address.

Please provide guidance regarding our activities.

For example:

A Canadian client requires a payment in GBP to an individual in the UK. They register with us and are subject to KYC, AML and our enhanced due diligence checks. Once registered, the client can book an exchange rate either over the phone or online. They then receive confirmation of the required CAD to send to our Canadian CAD account with ABC. Once the funds are received they are converted to GBP and deposited into our UK GBP account. If my understanding is correct this is the outflow that you require reporting on. We would then make the GBP payment from our London account to the client’s beneficiary scanning the beneficiary against sanctions lists, OFAC , BoE, Patriot and terrorist watch lists etc.

Answer:

In regards to your question about ABC UK Limited and ABC USA Inc., FINTRAC has previously determined, and continues to uphold the position, that any individual or entity that meets the definition of a money services business (MSB) as per the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, is carrying on these MSB activities in Canada and has “real and substantial connection to Canada”, is subject to the PCMLTFA and its associated Regulations. A Canadian bank account for the purposes of carrying on MSB activities is considered to be a “real and substantial connection to Canada”. Although ABC does not have a physical presence in Canada, the fact that they have a bank account in Canada with a Canadian Bank to remit funds to a Canadian beneficiary, ultimately means that they have a real and substantial connection to Canada and must report EFTs in accordance with paragraphs 28(1)(b) and (c) of the PCMLTFR, which reference the reporting form Schedules 2, 3, 5 and 6.

Schedule 6 requires that the full name and full address of the receiving institution be included on an incoming non-swift international electronic funds transfer report. Our systems require that this be an address in Canada because the funds are incoming to Canada. Until ABC has established a physical presence in Canada, they will have to use the address and bank account number they have with the Canadian Bank for the purposes of Schedule 6 – Part E when submitting EFTI reports.

Date answered: 2012-11-20

PI Number: PI-5470

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 28(1)(b), 28(1)(c), Schedule 2, 3, 5, 6

S. 34(1)(a)(i) - Retainer for services

Question:

A large accounting firm receives, albeit, on rare occasions retainers for services to be rendered.

Is this “retainer” considered a professional fee since it is received prior to rendering the service?

The reporting entity indicated they have received retainers in the past and that these funds were deposited in their regular account (not in an )

Answer:

Subsection 34(1) of the PCMLTFR states that “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;

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

The obligations for accountants apply only while they are carrying out the triggering activities described above. This means accountants are subject to Part 1, 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.

There is no definition of what a retainer is in our legislation. However, it is commonly understood in the field that a retainer means a service contract between a professional (such as an accountant) and his client, wherein the professional agrees to provide professional services, in exchange for money.

If the retainer is used to pay professional fees the amount is not covered.

With respect with the issue of funds received “in trust account” or “in an account other than an in trust account”, it would be a question of fact to be able to determine if we are in the presence of a retainer. In general, when the retainer fees are received to an in trust account, these funds are not the accountant’s yet, but still the client's funds, and may be considered as one of the triggering activities under 34(1)(a)(i) of the PCMLTFR. On the other hand, when the retainer fees are received in an account other than an in trust account, these funds are the accountant’s, and it must be determined if the accountant is receiving these funds on behalf of his client in respect of any activity referred to in paragraph (a), or to pay professional fees.

In the case described below, if the accountant is NOT receiving these funds on behalf of his client in respect of any activity referred to in paragraph (a), the amount would NOT be subject to any requirements.

Date answered: 2012-11-16

PI Number: PI-5469

Activity Sector(s): Accountants

Obligation(s): Reporting

Regulations: 34(1)

Act: 5(j)

Postal codes for record keeping / reporting obligations

Question:

All the research I have done on various government websites is conclusive that civic address consists of: "the number, the street or road name, and the community name assigned to residential, commercial, institutional and industrial buildings." No mention of Postal Code anywhere.

Further, Canada Post tells us that: "The Postal Code is an integral part of every postal address in Canada. The Postal Code was designed to aid in sorting mail by both mechanized and manual methods. It also enables the Customer to pre-sort mail, thereby bypassing a number of sorting processes within Canada Post and reducing costs."

So, here are my questions: does FINTRAC require Postal Code to be included in reports as part of a civic address? Can EFTs be reported when the Postal Code of the client is the only thing missing in the transfer? Also, what is required for international clients or First Nations clients when it is difficult to find the civic address? Could P.O. Boxes be acceptable?

Answer:

A "valid", "full", or "civic" address does not require a postal code.

That being said, if the Postal Code is the only thing missing then the transfer would not become reportable for the reporting entity (RE) - based on the above rational that postal code is not part of valid, full or civic address. So, for REs that are not the first RE in Canada to receive the transfer, it would not be reportable if only the postal code is missing.

In terms of international or foreign addresses, there is no specific formula. It should be information relevant to help locate the person physically, or as described in the case of First Nations clients "as many details as possible to where their personal housing unit is situated.” It is difficult to give you a complete answer since every country has its own conventions.

In regards to the First Nations clients, we would suggest that if they do not have a civic address, then they should provide as many details as possible in regards to where their personal housing unit is situated (i.e. the name of the street, and the name of the reserve they are on or any other similar type of information).

Unfortunately, our policy interpretation in regards to the civic/personal address would not allow any relief in this case, and P.O. Boxes would still not be acceptable.

Date answered: 2012-11-05

PI Number: PI-5464

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7, 8

Regulations: 12(1)(a), 12(5), Schedule 1

LCTR Reporting

Question:

  1. Does the RE need to file a LCTR in cases where a customer cashes a cheque denominated in Canadian funds and utilizes part of the proceeds to conduct an FX transaction in excess of $10k CAD?
  2. When one of ABC’s mandatory brings $10,000 or more to XYZ (owned by ABC) to pay the transfers our customer did in the business of this mandatory, do we have to report a Large Cash Transaction Report?;
  3. When one of ABC’s mandatory brings $10,000 CAD or more to XYZ (owned by ABC) and we have to change the Canadian dollars to US dollars to pay the US dollars transfers our customer did in the business of this mandatory, do we have to report a Large Cash Transaction Report? Because, sometimes we can have to change the CAD to USD to pay the amount due per the mandatory to ABC.

This question looks like the first one question but it is little bit different and I want to be sure. When a USD cheque of $10,000 or more is cashed for a customer, can we pay it directly in USD without making any foreign exchange between USD to CAD and CAD to USD?

(a) Do we have to report a large cash transaction if the cheque is cashed USD to USD dollars?
(b) Do we have to report a large cash transaction if the cheque is cashed USD to CAD dollars and CAD dollars to USD dollars in the same transaction?

Answer:

1. The RE does not have the obligation to file an LCTR in this case since the foreign exchange was purchased via cheque which was denominated in a different currency. There was no receipt of cash from a client and therefore the obligation enumerated under paragraph 28(1)(a) of the Regulations has not been triggered.

However, said transaction is a FX transaction thus the RE needs to keep the prescribed information on hand in relation to this transaction plus it must formally identify the conductor.

2. - 3. Because the requirement under paragraph is triggered in cases where the RE receives $10,000 or more cash from a client, the reception of cash from its agents does not trigger the requirements under said section of the Regulations. However, it may be worth reminding the reporting entity that when the $10,000 or more in cash is received from the client this must be reported by whoever is responsible for reporting as set out in the agreement between the agent and the principal.

4. Part A: no, since the RE did not receive $10,000 or more in cash from a client. It is a cheque cashing operation which does not entail any record-keeping or client identification requirements on the part of the RE.

Part B: no since in the RE did not receive $10,000 or more in cash from a client; however, the transaction in question is foreign exchange transaction and the RE needs to keep the prescribed information on hand in relation to this transaction plus it must formally identify the conductor.

However, I only question how in (b) the cheque is being cashed USD to CAD and CAD to USD in the same transaction. Is the entity cashing the USD cheque to CAD, handing over the CAD, and then taking it back to cash it BACK into USD? Same as in Q1, if there are two transactions here, then there may be the requirement to file an LCTR for the second transaction.

Date answered: 2012-09-12

PI Number: PI-5450

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2), 28(1)(a), Schedule 1

Domestic EFTs

Question:

Customer A of a FI in Canada requested that US funds be transferred to customer B of a credit union in BC. (The amount of the transfer in US funds was equivalent to $10K Canadian). The FI in Canada sent the US funds to the credit union in BC, however, the funds were routed from the FI in Canada to a FI in the USA before it arrived at the credit union in BC.

I have checked with my colleagues in my office, and they believe the above scenario is a domestic transfer. The rationale is that customer A did not request the funds to be transferred from the FI in Canada to the FI in the USA. The funds went to the USA as part of the routing process of this transfer.

Can you please confirm this.

Answer:

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • the transmission of instructions to transfer funds across the Canadian border

You provided the following facts namely: “Customer A of a FI in Canada requested that US funds be transferred to customer B of a credit union in BC. (The amount of the transfer in US funds was equivalent to $10K Canadian). The FI in Canada sent the US funds to the credit union in BC; however, the funds were routed from the FI in Canada to a FI in the USA before it arrived at the credit union in BC”.

In question is whether domestic or foreign currency funds transferred from one Canadian bank account to another Canadian bank account, but routed through a foreign country, constitutes an electronic funds transfer as per subsection 1(2) of the PCMLTFR.

Customer A gave instructions to transmit funds from his/her Canadian bank account to the customer B’s Canadian bank account. The intention (or the purpose) of the transfer is to move funds from Canada to Canada.

Our position is that this transaction DOES NOT constitute an incoming non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

Date answered: 2012-08-22

PI Number: PI-5442

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 1(2)

Triggering activities

Question:

From what I have read in previous PIs the 24 hr rule does not apply for triggering activities.

An example provided was if Customer A purchases a gold watch 6000$ in cash and then 4 hrs later Customer A purchases another gold watch for 4000$ in cash it would not trigger the application of the regime.

I just wanted to ensure that is still accurate?

Answer:

Section 39.1 of the PCMLTFR states that “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”.

Also, a single transaction means two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more.

Therefore, the 24-hour rule does not apply to triggering activities.

In subsection 3(1) of the PCMLTFR the definition of a “single transaction” states that two or more cash transactions or EFTs of less than $10,000.00 made within 24 consecutive hours and that total $10,000 or more are considered to be a single transaction if where a person is required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations, the person knows that the transactions or transfers were carried out by, or on behalf of, the same person or entity.

If a DPMS has not yet carried out that triggering activity, then they are not yet a “person required to keep a large cash transaction record or to report an electronic funds transfer in accordance with these Regulations.” As such, they are not required to monitor for repeat activity by, or on behalf of, the same person or entity within a 24-hour period.

The use of the term single transaction in Section 39.1 is a reference to the layman’s understanding of a single transaction – a transaction of $10,000 or more carried out at one time. Once the DPMS has carried out this one time transaction of $10,000 or more, they become a reporting entity that is obligated to monitor for “single transactions” as defined in subsection 3(1) of the PCMLTFR.

 

Date answered: 2012-07-27

PI Number: PI-5435

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

Obligation(s): Reporting

Guidance: FIN-4, 7

Regulations: 3(1), 39.1

LCTR and 3rd Party Determination Interpretation

Question:

I had thought the intention of the legislation is to know and understand who we are doing business with – we already know our customer/signer, but we do not necessarily know anything about the person conducting the transaction. Of course we are required to record their name as the conductor, but we are not obliged to record anything else. From a money laundering risk perspective, would it not make more sense to know more about the person who has brought a large amount of cash into the credit union to deposit to the account?

Answer:

If an individual conducts a large cash transaction, then you must keep a “large cash transaction record”, which is defined in the PCMLTF Regulations as follows:

  • “large cash transaction record” means a record that indicates the receipt of an amount of $10,000 or more in cash in the course of a single transaction and that contains the following information:

(a) as the case may be

(i) if the amount is received for deposit by a financial entity, the name of each person or entity in whose account the amount is deposited, or
(ii) in any other case, the name of the person from whom the amount is in fact received, their address and date of birth and the nature of their principal business or their occupation, if the information is not readily obtainable from other records that the recipient keeps and retains under these Regulations;

(b) the date of the transaction;

(c) where the transaction is a deposit that is made during normal business hours of the recipient, the time of the deposit or, where the transaction is a deposit that is made by means of a night deposit before or after those hours, an indication that the deposit was a night deposit;

(d) the number of any account that is affected by the transaction, and the type of that account, the full name of any person or entity that holds the account and the currency in which account transactions are conducted;

(e) the purpose and details of the transaction, including other persons or entities involved and the type of transaction (such as cash, electronic funds transfer, deposit, currency exchange , the purchase or cashing of a cheque, money order, traveller’s cheque or banker’s draft or the purchase of precious metals, precious stones or jewellery);

(f) whether the cash is received by armoured car, in person, by mail or in any other way;

(g) the amount and currency of the cash received; and

(h) where the amount is received by a dealer in precious metals and stones for the sale of precious metals, precious stones or jewellery,

(i) the type of precious metals, precious stones or jewellery involved in the transaction,
(ii) the value of the transaction, if different from the amount of the cash received, and
(iii) the wholesale value of the transaction.

Please note that the content of a large cash transaction record is different from the required contents of a large cash transaction report.

Date answered: 2012-06-27

PI Number: PI-5420

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2)

LCTR and 3rd Party Determination Interpretation

Question:

If we already have records about our customer, (the account holder), and a person other than the account holder is conducting the transaction, why would it be necessary to record the information about our account holder (or business account or signer), who, according to the guideline is considered to be the third party?

Answer:

Section 8(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTF Regulations) indicates that third party records must be kept and contain the following info:

  • 8(2) Where the person or entity determines that the individual is acting on behalf of a third party, the person or entity shall keep a record that sets out:

(a) the third party’s name, address and date of birth and the nature of the principal business or occupation of the third party, if the third party is an individual;
(b) if the third party is an entity, the third party’s name and address and the nature of the principal business of the third party, and, if the entity is a corporation, the entity’s incorporation number and its place of issue; and
(c) the nature of the relationship between the third party and the individual who gives the cash.

Please also note that section 7 of the PCMLTF Regulations states the following:
For the purposes of these Regulations, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.

Therefore, third party info must be recorded as indicated by section 8(2) unless section 7 applies. If the third party info (e.g. name, address, date of birth, and occupation) is already somewhere in your records, you do not have to record it again on the third party record. However, you should record at least the name of the third party on the third party record so that you know who the third party is, and be able to locate the third party info in your other records that you keep.

Because your record must also indicate the nature of the relationship between the third party and the individual who gives the cash, you must be sure to get this information even if you already have the other third party details on file.

Date answered: 2012-06-27

PI Number: PI-5419

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 7, 8(2)

LCTR completion- guidance and clarification of guideline 7A, Appendix 1

Question:

I am just unclear as to what makes an employee? What about the President makes him not an employee when he draws a salary from the company? At what point is the line drawn to define who is acting on behalf of the entity and who is just an employee? You indicated in your example that there is a definite difference between the person with authority vs. the person that is an employee. Is it the authority to act in respect to the account (I.e. the written/legal authority to act on behalf of the entity) that makes the President not an employee?

In the long run it makes a huge difference in the completeness of reporting because part F (all the info on the business that owns the account) drops off completely as soon as you choose the "Employee deposit to employer business account" for the On Behalf of Indicator (there is nowhere to put reasonable efforts information even if the RE had it). So we just want to make sure that we get the guidance fully understood.

Answer:

Just to clear up a few things first:

  1. Part F is not necessarily for information on the business that owns the account. Part F of the LCTR is for information on the THIRD PARTY TO THE TRANSACTION THAT IS AN ENTITY. That is why this drops away when you select that the disposition was a deposit by employee into employer’s account. As per section 7 of the Regulations, an employee depositing into their employer’s business account is not acting on behalf of a third party.
     
  2. Having authority to bind or act on an account is not what makes you an employee or not.

Below are a few scenarios that will hopefully explain our position :

  1. Joe is a cashier for ABC Inc. , a pet food store. At the end of the day, Joe is asked by his employer to take the money from his cash register and deposit it into the Bank account of ABC Inc. Part F would not appear because as an employee of ABC Inc. depositing into his ABC Inc. employer’s account, Joe is not acting on behalf of a third party.
     
  2. Joe is a cashier for ABC Inc., a pet food store. At the end of the day, Joe is asked by his employer to take the money from his cash register and deposit it into the Bank account of XYZ Inc. their dog food supplier. In this scenario, because the funds are being deposited by ABC Inc. into the XYZ Inc. account, ABC Inc. is a third party that is an entity. Part F would be completed as follows:

F1 – Entity’s full name - ABC Inc.
F2 – Entity’s incorporation number and place of issue of incorporation, if applicable: ON1234 , Ontario
F3 – Entity’s type of business – pet food store
F4 – Entity’s full address – 135 Dog Food Lane, Ottawa, Ontario, A1B 0C2
F5 – Entity’s telephone number – 613-111-1234
F6 – Full name of each person – up to three – who is authorized to bind the entity OR act with respect to the account. Because the deposit is being made by an employee of ABC Inc., a business not associated with the bank account of XYZ Inc., there is not likely to be anyone with the authority to necessarily act on the account, rather what likely applies here is the fact that there exist people with the authority to bind the entity (ABC Inc.) carrying out the transaction, so the names (up to three) would be ABC Inc. names with authority to bind ABC Inc.

  1. Joe is the president of ABC Inc., a pet food store. At the end of the day, Joe takes the money from the various cash registers and deposits it into the Bank account of ABC Inc. In this scenario, as president of the business, we’ve determined that Joe is not an employee of ABC Inc. Part F would be completed as follows:

F1 – Entity’s full name - ABC Inc.
F2 – Entity’s incorporation number and place of issue of incorporation, if applicable: ON1234 , Ontario
F3 – Entity’s type of business – pet food store
F4 – Entity’s full address – 135 Dog Food Lane, Ottawa, Ontario, A1B 0C2
F5 – Entity’s telephone number – 613-111-1234
F6 – Full name of each person – up to three – who is authorized to bind the entity OR act with respect to the account. Because the deposit is being made into an ABC Inc. bank account by someone affiliated with the ABC Inc. there is likely to be ABC Inc. people with the authority to act on the account or bind the entity, so either could apply.

Please note:

  • The person conducting the transaction may not be the individual who has authority to bind the entity, but rather the person conducting the transaction may be able to provide the names of up to three individuals who have this authority to bind OR the person conducting the transaction may not be the individual who has authority to act on the account, but rather the person conducting the transaction may be able to provide the names of up to three individuals who have this authority to act on the account.
  • Part F is only to be filled out as applicable, and Field F6 (or 12 as it’s numbered in the Guideline) is only reasonable efforts, as applicable
  • This information may not need to be requested of the individual conducting the transaction as it may already be on file with the bank.

 

Date answered: 2012-06-18

PI Number: PI-5416

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: Schedule 1- Part F

LCTR completion- guidance and clarification of guideline 7A, Appendix 1

Question:

Service providers and credit unions want to confirm the interpretation of the Large Cash Transaction Report guidelines in FINTRAC 7A – Appendix A – Part B2 and Part F.

There has been some confusion in the industry about when a part F is required – Information about the entity on whose behalf transaction was conducted (if applicable).

In the various scenarios presented in Part B2 – Information about the Disposition:

  • Not applicable
    This means that neither Part F (On behalf of entity) nor Part G (On behalf of another individual) applies to this report. "Not applicable" indicates that none of the other "On behalf of" selections is applicable to the transaction. For example, the transaction was a night deposit or a quick drop, or the disposition was not on anyone else's behalf (that is, it was on behalf of the individual that conducted it).
  • On behalf of an entity
    This indicates that the disposition was on behalf of an entity, such as a business, a partnership, a corporation, a trust or other entity, but was not an employee depositing cash to his or her employer's business account. For a transaction that was conducted on behalf of an entity, complete Part F for this report to provide the information about that entity.
  • On behalf of another individual
    This indicates that the disposition was on behalf of another individual but was not an employee depositing cash to his or her employer's business account. For a transaction that was conducted on behalf of another individual, complete Part G to provide the information about that other individual.
  • Cash deposit to employer's business account
    This indicates that the disposition was an employee depositing cash to his or her employer's business account. If it was an employee depositing cash to his or her employer's business account, neither Part F nor Part G of this report applies. Do not use this indicator if the employee deposited other than cash or if the employer's account was other than a business account.

When an owner or signer of an account makes a deposit to a business account, we have found some institutions have been given guidance that the disposition for these transactions is “Not Applicable” – which as noted above does NOT require the completion of Part F of the LCTR. Other institutions (and one service provider I have contacted) have recently been given guidance that the correct disposition for this disposition is “On Behalf of an Entity” which as noted above requires the completion of Part F of the LCTR.

The confusion exists because FINTRAC Guideline 7 – Appendix A – Part F (Information about the entity on whose behalf transaction was conducted) is described in the FINTRAC guidelines as follows:
Part F: Information about the entity on whose behalf transaction was conducted (if applicable)

This part only applies if the transaction's disposition was conducted on behalf of a third party that is an entity. Part F will only appear if you indicated "On behalf of an entity" in Part B2.

If an employee deposited cash in his or her employer's business account, or if the transaction was a deposit to a business account by night deposit or quick drop, Part F does not apply.

The definition of Part F implies it should ONLY be completed when the transaction is on behalf of a third party entity which by definition would NOT be the business on whose behalf the deposit was made. This conflict in the FINTRAC guideline has led to some Financial Institutions posting LCTRs without Part F and others posting with Part F (with information about the business account where the deposit was made).

Our request for guidance – When a signer/owner makes a deposit to an account – what is the correct disposition to be completed under Part B2? Additionally, can Part F of the Guidelines be clarified when this section is required.

I have another concern over the language in the Third Party (6G) and LCTR (7A) Guidelines.

6G 6.1 states the definition of a third party for an LCTR “a third party is an individual or entity other than the individual that conducts the transaction.” “When you are determining whether a "third party" is involved, it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual in front of you is acting on someone else's instructions. If so, that someone else is the third party.”

7A Appendix A Part F states “This part only applies if the transaction's disposition was conducted on behalf of a third party that is an entity.”
7A Appendix A Part G states “This part only applies when the transaction's disposition was conducted on behalf of a third party that is an individual.”

In your guidance below you’ve indicated that when an account owner makes a deposit to their business account that Part F is required. “In the context of determining whether a third party is involved, the point to remember is whether the individual in front of you is acting on someone else’s instructions.” If the owner of the entity account is depositing to their own account, how can they be acting on someone else’s instructions? The entity can’t give instructions, so therefore the entity would not be a third party and following the FINTRAC guidelines, Part F would not be required in this scenario.

The conflict resides in 7A Appendix A Part B2 that states “you have to indicate whether the individual who conducted the transaction was doing so on anyone else's behalf.” “For a transaction that was conducted on behalf of an entity, complete Part F for this report to provide the information about that entity.”

In part F6 of Schedule 1, you are supposed to enter the names (up to 3) of persons who are authorized to bind the entity or act with respect to the account. For a small company, usually the name(s) would be the owner(s) of the company. For a larger corporation, it may be employee(s) who are appointed to represent/bind/ act on behalf of the entity/company. Employees who are appointed to represent/bind/ act on behalf of the entity/company generally have to sign a form which gives them these extra powers. Employees who merely make deposits for the company but are not authorized to represent/bind/act on behalf of the entity/company do not complete this form.

My question is: When an employee who has been given the authorization to represent/bind/ act on behalf of the entity/company, does Part F need to be filled out when this employee makes a large cash deposit?

Answer:

Subsection 8(1)of the PCMLTFR states that “every person or entity that is required to keep a large cash transaction record under these Regulations shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party”.

We indicate in our Guidelines that when determining whether a "third party" is involved, it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual in front of you is acting on someone else's instructions. If so, that someone else is the third party.

With respect to a transaction conducted by an employee, section 7 of the PCMLTFR states that “for the purposes of these Regulations, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account”. It is only when an employee makes a large cash deposit into the employer’s business account that this exemption applies. In fact, and as an example, if the employee walks into a bank with $10k+ in cash and instructs the bank to make an electronic funds transfer, reasonable measures must be taken to determine if there is a third party instructing the employee to do so.

Here are a few comments with respect to Part F: Information about the entity on whose behalf transaction was conducted (if applicable):

  • It only applies if the transaction's disposition was conducted on behalf of a third party that is an entity
  • All of the information in this section pertains to the third party that is an entity
  • Reasonable measures must be taken to determine the names of up to three individuals who have authority to bind the entity OR conduct transactions through the account – the “or” indicates that the information in field F12 depends on the circumstances of the transaction.
  • The person conducting the transaction may not be the individual who has authority to bind the entity, but rather the person conducting the transaction may be able to provide the names of up to three individuals who have this authority to bind OR the person conducting the transaction may not be the individual who has authority to act on the account, but rather the person conducting the transaction may be able to provide the names of up to three individuals who have this authority to act
  • This information may not need to be requested of the individual conducting the transaction as it may already be on file with the bank
  • It does not apply if the employee makes a deposit in cash into his employer's business account, or if the transaction was a deposit to a business account by night deposit or quick drop

Now, to explain this further, here are some examples:

  • The employee of ABC Inc. makes a large cash deposit of $10k+ into the account of XYZ Inc. Reasonable measures must be taken to determine the names of up to three individuals who have authority to bind the ABC Inc.
  • The President of ABC Inc. makes a large cash deposit of $10k+ into the account of ABC Inc. As President, the individual is not an employee, so is carrying out the transaction on behalf of ABC Inc., which becomes the third party that is an entity. In this case, Part F information applies to ABC Inc. and the information in field F12 should include the name of each person – up to three – who is authorized to act with respect to the account.

Date answered: 2012-06-18

PI Number: PI-5415

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 7, 8(1), Schedule 1

Clarification- EFTs and MSB

Question:

Clarification in regards to the matters of electronic funds transfers (EFT) and being licensed as a money transmitter in Canada.

Answer:

In Canada, money transmitters are part of a sector known as money services businesses (MSB). MSBs are required to send EFT reports to FINTRAC when they send or receive, at the request of a client, EFTs of $10,000 or more in the course of a single transaction.

As per the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, an electronic funds transfer “means the transmission – through any electronic, magnetic or optical device, telephone instrument or computer – of instructions for the transfer of funds, other than the transfer of funds within Canada.”

As such, if an MSB sends or receives funds in a transaction not carried out at the request of a client, then they are not carrying out an EFT for which they have reporting obligations. Furthermore, when an MSB carries out an EFT, at the request of a client, which originates in Canada to be sent to a final destination in Canada, this does not constitute a reportable EFT.

Date answered: 2012-06-18

PI Number: PI-5414

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: FIN -1

Regulations: 1(2)

Act: 5(h)

ACH inquiry

Question:

Bank in Canada has provided an explanation as to why their client's information is being reported in both the ordering client (Part B) and beneficiary fields (Part F) of their EFTs. Per their explanation, in Debit Pull scenarios, the Canadian FI's client is both the client ordering the payment of the EFT, and the client to whose benefit the payment is made. Consequently, the client's information is reported in both Parts B & F.

The Canadian Bank’s “ACH Primer for FINTRAC":

Debit Pull:

In a Debit Pull transaction, funds are collected from a Receiver’s account and transferred to an Originator’s account, even though the Originator initiated the entry.

For example, the Originator of a pre-authorized debit is the company to which the amount is owed. Consumers authorize the company to debit their accounts for their monthly bills. Once a month, the company initiates a Debit Pull through its ODFI to withdraw the funds from all of the consumers’ accounts. The company is the Originator of the transaction, and the consumers are the Receivers – even though the funds flow in the opposite direction from this.

Examples of typical Debit Pull transactions include: utility payments; insurance premiums; monthly association or club dues; and mortgage/loan payments.

The Canadian Bank’s Stance:

The Canadian FI client is both the client ordering the payment of the EFT, and the client to whose benefit the payment is made. Consequently, the same client information is reported in both Parts B & F. In their reports, the Canadian Bank does not include information about the U.S. FI’s account-holder from which the funds are received.

Example:

Section 2a) - The Originator is the party that agrees to initiate an ACH transaction according to an agreement with a Receiver. The transaction may involve either a transfer to or from the Originator’s account.

Section 2e) - The Receiver is the party which has authorized the Originator to initiate an ACH entry to the Receiver’s account with the RDFI. The Receiver’s account may be debited or credited depending on the nature of the transaction.

Section 3b) - In a Debit Pull transaction, funds are collected from a Receiver’s account and transferred to an Originator’s account, even though the Originator initiated the entry. For example, the Originator of a pre-authorized debit is the company to which the amount is owed. Consumers authorize the company to debit their accounts for their monthly bills. Once a month, the company initiates a Debit Pull through its ODFI to withdraw the funds from all of the consumers’ accounts. The company is the Originator of the transaction, and the consumers are the Receivers – even though the funds flow in the opposite direction from this.

Entity’s Question:

Is this type of reporting of value to FINTRAC?

Answer:

It has been explained that, for example, a Canadian utility company would ask the Bank in Canada to contact an American financial institution to request that funds be put into the ACH system to be transferred into the Canadian Bank's account of the utility company. In this example, and according to the Bank in Canada, the utility company would be the initiator and the beneficiary of the funds and it would be reported as an outgoing EFT because the instructions for the transfer of funds would have gone from Canada to the US for the transfer of funds back into Canada.

All examples submitted by the Bank in Canada essentially describe the same payment architecture, namely: the Canadian utility company (the payee) contacts the client (the payor) to request that the payor effect the payment of her debt by having funds transferred from her foreign financial institution’s bank account to the payee’s Canadian bank account.

Subsection 1(2) of the PCMLTFR defines electronic funds transfer as “the transmission — through any electronic, magnetic or optical device, telephone instrument or computer — of instructions for the transfer of funds, other than the transfer of funds within Canada”.

We have indicated in the past that to be reportable an electronic funds transfer must be:

  • client initiated, and
  • must be the transmission of instruction to transfers funds across our border

The Bank in Canada submits that the company owed the funds is the initiator and the beneficiary of the incoming/outgoing EFT.

Our position is that the payor gives instructions, through the payee perhaps, to her foreign financial institution to transmit funds to the payee’s bank account. As the account holder, the payor is the client ordering the payment of the electronic funds transfer. Her instructions include the payment and banking details for the payment.

The intention (or the purpose) of the payment is to transfer funds from the payor’s bank account in the foreign country to the payee’s bank account in Canada. Here is the electronic funds transfer as defined in our regulations. The payor initiates the transmission of instructions to transfer funds across the Canadian border.

Our position is that this transaction constitutes an incoming non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

The report should be filled as follow:
Part A – Transaction Information
Part B – Information on Client ordering payment of an EFT: The payor
Part C – Information on Sender of EFT: the payor’s bank account in the foreign country (American financial institution)
Part E – Information on Receiver of EFT: the Canadian Bank
Part F – Information on Client to whose benefit the payment is made: The payee (Canadian utility company)

This transaction will only be an EFTI even if the payor was located in Canada and instructed her bank in the foreign country to transmit funds to Canada, because the intention (or purpose) of this transaction is to have the funds moved from the foreign country into Canada.

Another example would be that a foreign utility company would ask a foreign bank to contact a Canadian financial institution to request that funds be put into the ACH system to be transferred into the foreign bank account of the utility company. In this example, and according to the Bank in Canada, the foreign utility company would be the initiator and the beneficiary of the funds and it would be reported as an incoming EFT because the instructions for the transfer of funds would have gone from the foreign country to Canada for the transfer of funds back into the foreign country.

In this case, the intention (or the purpose) of the payment is to transfer funds from the payor’s bank account in Canada to the payee’s bank account in the foreign country. Here is the electronic funds transfer as defined in our regulations. Once again, the payor initiates the transmission of instructions to transfer funds across the Canadian border.

Our position is that this transaction constitutes an outgoing non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

The report should be filled as follow:
Part A – Transaction Information
Part B – Information on Client ordering payment of an EFT: The payor
Part C – Information on Sender of EFT: the payor’s bank account in Canada
Part E – Information on Receiver of EFT: Foreign bank outside of Canada
Part F – Information on Client to whose benefit the payment is made: The payee (foreign utility company)

This transaction will only be an EFTO. The payor was located in Canada and instructed her bank in Canada to transmit funds to the foreign country. The intention (or purpose) of this transaction is to have the funds moved out of Canada to the foreign country.

 

Date answered: 2012-05-29

PI Number: PI-5410

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8A, 8B

Regulations: 1(2), 12(1)(b), 12(1)(c), Schedule 5, Schedule 6

Online currency trading

Question:

I do currency trading through an online trading broker. Occasionally I get friends or families exchanging small amount of Canadian dollar into US dollar because I can get better rate with my online broker than the local banks do. I don't do it as a business hence there isn't really any profit involved. I heard about this "large cash transaction" rule from my banks all the time so my concern is at what point I should worry about reporting to FINTRAC?

For example, my aunt is thinking about buying a property in the US, she wants me to exchange $1 million CAD into USD. She will write me a cheque or bank draft to my bank account, then I will transfer that fund to my online trading account and exchange them to USD (all Canadian financial institutions); then I will write her a cheque back to her bank. For situation like this, am I in danger of money laundering and does this consider as "foreign exchange dealing"? Am I required to comply with certain financial laws since I'm just a doing trading as a hobby and I'm not interested in getting too complicated?

Answer:

Only reporting entities, as defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, have to report to FINTRAC. Based on the information in your e-mail, you are using an online broker to conduct the foreign exchange activity. As a client of the online broker, you are not carrying out the transaction and thus have no reporting obligations to FINTRAC. Any reporting obligations that arise as a result of the transactions you described would be handled by your bank and the online trading broker with which you have an account.

For your information, however, FINTRAC does have a reporting process by which we are able to receive voluntary information from the public about suspicions of money laundering or of the financing of terrorist activities.

In answer to your question about large cash transactions, a financial institution (or any other business that reports to FINTRAC) is only obligated to report a transaction if they receive $10,000 or more in physical cash (bills and/or coins). The obligation to report does not apply to funds received by cheque, bank draft, etc.

Date answered: 2012-04-11

PI Number: PI-5399

Activity Sector(s): Securities dealers

Obligation(s): Reporting

Regulations: 1(2)

Act: 5

Armoured cars

Question:

We have had past guidance that when an armoured car makes a deposit at a branch of a credit union or bank, the conductor of the large cash transaction is the driver of the armoured car company. A credit union has advised that sometimes, the driver will refuse to provide his/her name.

In this case, what should the credit union report as the conductor of this transaction?

Answer:

Paragraph 12(1)(a) of the PCMLTFR requires that, subject to section 50 and subsection 52(1), every financial entity report the receipt from a client of $10,000 or more in cash, along with the information referred to in Schedule 1. The conductor information, when applicable, is a mandatory field. FINTRAC does not have the authority to grant administrative forbearance with respect to the mandatory requirements of the PCMLTFR. Should the credit union proceed to file an LCTR without the name of the conductor, they would be in non-compliance with the legislation.

Date answered: 2012-03-21

PI Number: PI-5396

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: FIN-5, 7

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

EFTs reporting requirements

Question:

Questions regarding the reporting obligations

Example Scenario:

  1. Client is in China and goes to an MSB in China (the owner of the China MSB is also an owner of the MSB in BC).
  2. The client gives cash/cheque to the MSB and tells them to send the money to his daughter in Texas
  3. China MSB will send the instructions to BC MSB advising them to send the money to Texas and wires the money to BC MSB’s TD account (in BC)
  4. BC MSB receives the funds in their TD account
  5. BC MSB sends the money from the TD account to the recipient in Texas
  6. When the BC MSB sends the money to the recipient in Texas, they advise TD that they are a 3rd party sending the money on behalf of the client in China

Questions:

  1. Does the MSB in BC file an EFTI?
  2. Does the MSB in BC file an EFTO?
  3. Or does the MSB in BC file both EFTI and EFTO?
  4. If they do file an EFTI or EFTO, who would be the client, the beneficiaries and the recipient?

Answer:

When determining if a wire or a transfer of funds is an EFT (incoming or outgoing), we always have to look at the facts in question.

In this specific scenario, based on the facts described, we can look if there is a transmission of instructions or not that will help determine if there is an EFTI or EFTO as per the definition in our legislation.

We believe there are two set transmission of instructions happening in the specific case.

First set of instructions is given by the Chinese client: If the Chinese client gives instructions to send money to his daughter (Texas) to the Chinese MSB who in turn will send it internationally to Texas, since there is no other instructions from the Chinese client, namely to send the money via Canada, then there is no EFTI reportable.

Second set of instructions is given by the Chinese MSB: If the Chinese MSB gives instructions to send money in Texas to the Canadian MSB who in turn will send it internationally to Texas, then there is an EFTO reportable. In this case, the client will be the Chinese MSB, the beneficiary will be the daughter in Texas, and the recipient will be the entity in Texas.

Therefore, based on this scenario, we determined that there are an EFTI and an EFTO.

1. Incoming Non-Swift international electronic funds transfer report information:
Part A – Transaction information
Part B – Client in China
Part C – China MSB
Part D -
Part E – Canada MSB
Part F - Daughter in Texas

2. Outgoing Non-Swift international electronic funds transfer report information:
Part A – Transaction Information
Part B – China MSB
Part C – Canada MSB
Part D – Client in China
Part E – Texas entity
Part F – Daughter in Texas

Date answered: 2012-02-23

PI Number: PI-5386

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 28(1)(b), 28(1)(c), Schedule 5, schedule 6

Applying the definition of EFTs

Question:

Canadian Customer has a need to receive payment outside of Canada. Canadian Customer instructs payor to pay funds to an account held by ABC Inc or a ABC Inc affiliate outside of Canada. Upon receipt of those funds outside of Canada,ABC Inc wires funds from its bank account in Canada to the Customer's Canadian bank account.

Answer:

Our position is that the payor gives instructions to his/her foreign bank to transmit funds to the payee. As the account holder, the payor is the client ordering the payment of the electronic funds transfer. His/her instructions include information, a unique order ID or reference number, that will make it possible for the MSB to identify the transaction and banking details for settling the payment.

You submit that such a transaction is not reportable under the current FINTRAC regulations. You state that the payor has not sent funds across border, but has only made a payment to a foreign bank account held by the ABC Inc foreign affiliate, that later will be subject to a settlement between the ABC Inc foreign affiliate and ABC Inc in Canada.

Our position is that the intention (or the purpose) of the payment is to transfer funds from the payor’s bank account in the foreign country to the payee’s bank account in Canada. The payor initiates the transmission of instructions to transfer funds across the Canadian border.

Furthermore, we note that the payor’s instructions travel through the unique order ID or reference number transmitted to every player involved in the process of this payment.

Our position is that this transaction constitutes an incoming non-swift international electronic funds transfer as defined in subsection 1(2) of the PCMLTFR.

This transaction would be an incoming non-swift international electronic funds transfer even if the payor was located in Canada and instructed his/her bank in the foreign country to transmit funds to Canada, because the intention (or purpose) of this type of transaction is to have the funds moved from the foreign country into Canada.

However, and based on the other examples provided to us, we would like to specify that tuition fee payments are considered to be payment processing activities if, and only if, the tuition fee payment is made to a designated educational institution empowered to confer diplomas, certificates or other degrees inside or outside of Canada, and therefore are not reportable.

Date answered: 2011-12-08

PI Number: PI-5370

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance:

Regulations: 1(2), 28(1)(c), Schedule 6

CDR completion dates

Question:

On April 11, patron first wins 4 jackpots of $2000 each for a total of $8000, then patron wins 5th jackpot of $2000 bringing him to $10,000. Patron doesn't have sufficient ID so 5th jackpot is held until he returns on April 15 with proper ID.

The 5th transaction would be completed on April 15 and no CDR will be triggered. My thought is that perhaps in both cases the CDR should actually be dated for April 11 to ensure a CDR is completed for when transaction was actually triggered and not necessarily when disbursement was completed. Is that the preference for FINTRAC? or should we complete according to date of disbursement and treat exceptions like this as a possible STR situation if warranted?

Answer:

The date of the actual disbursement is the date when the clients shows up with the ID In the regulations (s.60(b)(i)), the casino must identify every person that receives an amount from the casino for which a record is required to be kept under 43(g) (i.e. when a report is made to us).

There is no disbursement possible, if there is no identification - therefore the date of the disbursement cannot be prior to the identification of the person.

Date answered: 2010-05-18

PI Number: PI-5363

Activity Sector(s): Casinos

Obligation(s): Reporting

Guidance: 10

Regulations: 60(b)(i), 43(g)

Bank reporting obligations of deposits from Public Bodies

Question:

The CRA has adopted a "no cash" policy for payments on tax debtors accounts. While there are some procedures in place to accept cash in special circumstances, we have been advised by our Payment Processing section, that they would prefer the monies be converted to a bank draft or money order. This is where your written opinion is being sought.

As the amounts are almost always in excess of $10,000, the financial institutions are very reluctant to complete conversion of the cash to another negotiable instrument, due to the reporting requirements imposed by FINTRAC. Is there a way to obtain a written document, that we could provide to the financial institutions, that will allow them to process a transaction such as I've described, whereby they do not have to report? Our intention is to negotiate some type of arrangement with a financial institution(s) and we are sure that your reporting requirements would be an issue.

Answer:

The legislative reporting requirement applicable to financial entities you are referring to is found in subsection 12(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing (PCMLTF) regulations that indicate that financial entities benefit from an exemption to report the receipt of an amount in cash of $10,000 or more when the cash is received from another financial entity or a public body.

As your organization falls within the definition of a public body (department or agent of Her Majesty in right of Canada) within our legislation, the bank does not have to file a report with us when they receive the amount in cash of $10,000 or more from your organization.

Date answered: 2010-04-12

PI Number: PI-5346

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a)

Account opening and CDR

Question:

Regarding the potential for Disbursements when depositing back into e-wallets, regardless of whether the fact the patron actually is paid out the money (ie transferred to their e-walllet or holding account), is the casino is required to submit a CDReport each time for the disbursement? Also what if they transfer it to their e-wallet lose most of it in the casino and leave with an amounts below, is still CDR required?

Answer:

I believe that if the client hits the disbursement thresholds in regards to his casino account, it is really irrelevant where the money is sent afterwards i.e. whether it goes to his personal bank account or into his e-wallet. The casino account is the barometer to determine if a disbursement report is required within the prescribed requirements in subsection 42(1)- it would fall under (e) payments on bets - the "winnings" would transit from the client's casino account to eventually be deposited in his e-wallet as per the client's request or instructions.

The CDR takes places once it leaves the casino account (that is when the pay out takes place - payment on bets). Where the money is sent (e-wallet, bank account, etc) is not relevant - so basically if the client requires a pay out from his casino account, then that is when the casino needs to report a CDR. I don't believe that the online account should be treated differently than an account opened at the casino.

Date answered: 2010-03-29

PI Number: PI-5341

Activity Sector(s): Casinos

Obligation(s): Reporting

Guidance: 10

Regulations: 42(1)

Scrap Metal

Question:

Would scrap dealers (who typically receive their material from pawn shops) would fall under the DPMS definition? They have many scrap dealers as customers and, much like the banks when dealing with MSBs, want to know if potential clients are aware of their legislative obligations prior to accepting their business. Given the current high price in gold, they've seen a large increase in these types of customers wanting to do business.

Answer:

Scrap jewellery collectors if they hit the threshold of $10,000 or more through the sale or purchase of precious metals, precious stones or jewellery in a single transaction under subsection 39.1, then they are covered and are subject to Part I of our Act.

However, if the scrap jewellery collector happens to purchase for $10,000 or more, hits the threshold under 39.1, but this transaction is in the course of, in connection with or for the purpose of manufacturing jewellery (i.e. the scrap collector also happens to manufacture jewellery once the scrap metal is melted) then he would not be covered.

But in that business, from what I understand, the Scrap Collectors are not in the business of manufacturing jewellery, but are just in the business of collecting scrap jewellery to melt and then sell, so for all purpose would be covered as a DPMS.

Date answered: 2010-03-11

PI Number: PI-5336

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

Obligation(s): Reporting

Guidance:

Regulations: 39.1

When does a transaction start (24 hr rule)

Question:

Does an EFT (for the purposes of the 24 hour rule) start from the time the instructions are given, the funds are delivered to the MSB, or the funds are transferred by the MSB?

Guideline states: “An EFT is the transmission of instructions….”

S. 3.(1) states “…two or more cash transactions or electronic funds transfers of less than $10,000 each that are made within 24 consecutive hours…” This seems to imply the transactions have been action/transacted.

Answer:

The transaction which should be indicated in the EFT is the date that the transfer instructions cross the border (the date that the MSB submits the instructions to its bank to transfer funds internationally). Compliance Officer should also consider the following:

  1. If the MSB gave the name of the client and all the information to the Bank, the Bank would report - again the date of transaction = date of transfer of instructions across the border;
  2. If the instructions are given by phone and cross the border, the date would be: the date that the phone call took place and the instructions crossed the border.

Date answered: 2009-12-29

PI Number: PI-4757

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 3.(1)

Large Cash Transaction Reporting Obligations

Question:

High level overview of the process involved in a cash payment made at a retail store.

We remain of the view that cash payments made at the retail stores do not fall under the large cash transaction reporting regime as the payments are made at an entity that is not subject to the provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations (the "PCMLTFA" and "PCMLTFR", respectively). Section 5 of the PCMLTFA does not include retail stores in its list of entities subject to the application of the Act and section 12 of the PCMLTFR imposes reporting obligations only in respect of a "financial entity". Requiring large cash transaction reporting by a retailer is extending the PCMLTFA reporting obligations beyond the requirements established under the Act and Regulations and results in the acquisition of information by FINTRAC that extends beyond its legislative authority (cf. Final Audit Report of the Privacy Commissioner of Canada (2009)).

With respect to your comments concerning the potential loss of financial intelligence, it is respectfully submitted that FINTRAC would continue to receive financial intelligence through suspicious transaction reporting, as legislatively mandated under the PCMLTFA.

Generally, large cash payments at retail stores are unusual and would both (1) continue to be reviewed by our AML Investigation Team to determine whether the activity is suspicious of money laundering and (2) be reported as appropriate in accordance with the legislative requirements.

Cash Payment Process

  • Retail store credit card account holder makes cash payment at the retail store. Cash goes into the retail store register and is not sent to the retail store Bank.
  • Merchant settlement system records the payment amount, payment tender and masked credit card account number. No other customer information is recorded or retained by the retail store.
  • Retail stores provide the Retail store Financial Services a daily settlement file of the credit card purchases, returns, and payments.
  • Retail store Financial Services settles with the retail store by electronically transferring funds to the retail store’s financial institution. Settlement amount is equal to credit card purchases net of returns and credit card payments.

Answer:

The position of the Centre on this issue remains the same. We are not extending the application of the legislation to the retail stores... we are applying the legislation as it is written to the financial institution. It is the Bank that emits the credit cards, not the stores, and if the Bank mandates the stores that they can receive payments from clients towards their retail store Bank credit card, then the Bank has the obligation to ensure that the reporting of large cash be done.

In regards to the OPC argument - the Bank under the Act must report LCTR - and the information the Bank would provide is within our legislative authority to receive it.

Date answered: 2009-11-18

PI Number: PI-4729

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)

EFT's and the 24 hour rule

Question:

Our system has set a maximum cap of “the foreign exchange equivalent of Philippine Pesos: 250,000” for each remittance transaction. This cap was set for two (2) reasons:

  1. So that the system could trigger the review of the completeness of the documents submitted for “Philippine Anti-Money Laundering Council (AMLC) covered transactions of PhP250,000 or more”. Once the Canada personnel encodes this for delivery, the system automatically puts a hold on the transaction that would be released only once the designated responsible officer or staff both in Canada (Compliance Officer) and in Manila have reviewed the submitted documents and found them in order.
     
  2. So that more service fees could be collected for each transaction “’equivalent to PhP250,000 and below”.

Impact to ABC Inc. (Canada): When we have to process a remittance that amounts to more than PhP250,000 in equivalent, we have to “split” the remittance in 2 or more transactions within the day so that it could be processed by the system. We send copies of the required documents and collect service fee charges on each of the transactions.

Details: The client pays in total, by cash, interact or demand draft (or a combination of these payment modes) for the total remittance transactions; he fills in one encoding receipt form (ERF) and submits 1 declaration of source and use of funds. The sender, beneficiary, “entity sending the order” and “entity receiving the order” are the same for all the split transactions. The transactions are processed within 1 to 3 minutes of each other, by one teller/agent, in one day.

Work in Progress: We are currently making representations to ABC Inc. (Philippines), to lift the set maximum transaction cap, while continuing to “put on hold” transactions of PhP250,00 or more in order to apply the same requirements review process, and collect service fees for every PhP250,000 transaction equivalent.

Given the above details, would you allow reporting the split transactions in only one EFTO and one LCTR (if applicable)? In the past, we had to report these transactions as “24 hour rule” but we opine that it is not really what the 24 hour rule meant as this is ABC Inc.-initiated “split” not the clients’.

Answer:

Although there is only one set of instructions (and only one transaction in theory), there seems to be two separate EFTO that will take place in reality because of the constraints of their system (i.e. not more than 250,000 pesos).

Consequently, there is no split of instructions, but there will be two EFTOs

Date answered: 2009-09-10

PI Number: PI-4674

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance: FIN-4, 8

Regulations: 3(1), 28(1)

SWIFT Reporting

Question:

ABC’s platform generates MT103 messages, for the purpose of SWIFT upload, because it is a requirement of their institutional clients. We use the MT103 message to format our payment file to the specifications of our banking providers, primarily Bank X. The Bank X processes our EFT debit & credit’s. The vast majority of our outgoing payments are settled within North America using EFT or ACH credit. A smaller percentage would account for the SWIFT payments which largely go to Europe, UK and Japan. All outgoing international payments, processed by Bank X, would contain our client name and address. Outgoing payments processed by our Canadian banks would only have our customer beneficiary name and their account number. With this format should an RE using this platform report swift or non-swift?

Answer:

In light of the following that we can find on the ABC website in regards to SWIFT interface:

The SWIFT Interface module provides S.W.I.F.T. (Society of Worldwide Financial Telecommunications) messaging services including message generation and message upload capabilities. The SWIFT Interface Module has been designed using XML technologies to support any batch file formatting style.

Features

  • Output to SWIFT message batches to any file format using XSL templates
  • Electronically in-source/outsource SWIFT messaging to a partner institution

So the system that the entity uses in not SWIFT (but merely a copy of the SWIFT messages) - therefore they should be reporting non-SWIFT.

Date answered: 2009-07-16

PI Number: PI-4629

Activity Sector(s): Financial entities, Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: Schedule 5, and 6

Bullion Storage / Money Laundering

Question:

We currently provide armed courier and vault storage services to governments, merchants and corporations.

We are in the process of broadening our vault services to include the short and long term storage for precious metals (predominantly gold bullion). With the financial markets in turmoil, more and more investors are turning to the ownership of bullion.

We have been in talks with a few of the gold exchanges and dealers. My question is: what type of documentation would you like to see in place for us to store bullion on a short and long term basis?

We will inevitably deal with international citizens as well – companies and corporations that would utilize local exchanges to make their purchases and end up storing it with us.

Answer:

The "storage" of precious metals or precious stones is not covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations. Under the PCMLTFR, in subsection 39.1, a dealer in precious metals and stones is defined as a person or an entity that in the course of its business activities buys or sells precious metals, precious stones or jewellery, and is covered when they engage in the purchase or sale of precious metals, precious stones or jewellery in an amount of $10,000 or more in a single transaction, for purposes other than manufacturing.

We understand that your business model as submitted is comprised of armed courier and vault services (e.g. storage) of precious metals, and as such, does not fall within the definition of a dealer in precious metals and stones as defined in subsection 1(2) of our regulations. Therefore, your corporation is not covered by our legislation and has no legislative requirements under our Act to report or record keep.

Date answered: 2009-05-22

PI Number: PI-4586

Activity Sector(s): Securities dealers

Obligation(s): Reporting

Regulations: 39.1, 1(2)

Providing copies of LCTRs to Clients

Question:

Can a RE provide a copy of a LCTR (or its content) to a client that requests it? (the LCTR is of course on that particular client).

Answer:

It would be up to the RE to decide if they provide that information or not to the client. There is no legislative prohibition in our Act or regulations preventing a reporting entity from doing so.

The only provision worth mentioning is in regards to STR - subsection 8 of the Act indicates that that no person or entity shall disclose that they have made a STR or disclose the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun. However, this section only applies to STRs.

Date answered: 2009-05-04

PI Number: PI-4580

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Act: 8

Deciding which actor is responsible for reporting

Question:

The armoured car company (ACC) picks up the money from the various businesses and takes it back to their own ACC location to count the money. The ACC then takes the money in one big bundle to the bank on behalf of the credit union (and uses a deposit slip in the name of the credit union). The ACC does not have an account at this bank, they are merely delivering the money. As far as the bank is concerned, they have received this money from the credit union (via the ACC) and credits a general account at the credit union in one lump sum. I do not know if the bank is reporting that they have received this cash (if they believe that this is credit union money then they would be exempt, but it would seem pretty obvious that the bank knows about the credit union arrangement with the various businesses and the ACC). However, the bank does not receive any paperwork that would indicate who these deposits actually belong to. This is not a retail bank branch - it is a central bank processing centre that receives cash.

The credit union then receives separate paperwork from the ACC which tells them what each business' share of the deposit is. If the business has an account at the credit union, the credit union deposits that share to the business account. If the business does not have an account with the credit union, the credit union then deposits that which is owing to each other remaining business into an account held by the ACC at the credit union. It is then up to the ACC to wire the money to each of the other business' account at whatever financial institution that they deal with.

This arrangement has been in place with a credit union and an ACC since 2004. It started off on a small basis just picking up cash from a chain of gas stations and since 2007 has expanded to include fast food restaurants and other businesses Canada wide. The credit union just realized that no LCTRs have been filed on behalf of their clients and have since started filing them. They estimate that there are at least another 1800 transactions going back to 2004 that need to be filed.

So, does the receiving bank have an obligation to report the cash in? Do they report just on behalf of their client (the credit union) or on each individual business, or on behalf of the ACC (which is just delivering it)? Or, is it up to the credit union to report on behalf of their own clients and to advise the other financial institutions to report on their clients? Is it up to both the bank and the credit union to report this and would this be double reporting? Does the credit union have any obligation to report for those businesses who do not bank with them? Reporting of the ACC wires is another story - one can only presume that the credit union is handling this correctly.

Answer:

Based on the following information provided:

  1. The ACC (armoured car company) acts as a courier and receives cash on behalf of the Credit Union; and
  2. the Bank processes the cash and does not have the information required to report on each individual businesses that hold an account at the Credit Union.

Our conclusion is that the obligation to report LCTRs lies with the Credit Union, in regards to the individual businesses that hold accounts at the CU, and the CU would also have the obligation to file a report on the ACC (Armoured Car Company) for LCTRs - after all the ACC holds an account with the Credit Union.

ACC is a client/member of the Credit Union and therefore the CU would file LCTRs on ACC.

ACC picks up money for the CU members/clients and ACC is one of those members/clients through CU (this is a service arrangement).

CU may advise other FIs that they are responsible for filing LCTRs for their clients (see FIN 5 draft) if that is the situation. Even though through ATMs the same principal would apply to Armoured car pickups.

I would also add if the CU is also facilitating these wire transfers for ACC to its related customers, I would question what kind of businesses they are servicing?? Risk assessment of the CU relative to this client (ACC) - almost looks like nested account to hide owners.

The Bank only acts as a transit (for a lack of better word) and the only one holding the account at the Bank is the Credit Union.The Bank is not required to report in this particular case due to the following rationale.

Subsection 12(1)(a) specifies that every financial entity shall report large cash transaction - unless the cash is received from another financial entity or a public body.

In this case the cash received by the Bank is received from another financial entity (i.e. the CU), therefore the Bank is exempted from reporting.

Date answered: 2009-04-16

PI Number: PI-4409

Activity Sector(s): Financial entities, Securities dealers

Obligation(s): Reporting

Guidance: 7

Regulations: 12(1)(a)

Reporting Time Limits

Question:

How do we calculate time limits?

Answer:

Pursuant to section 27 of the Interpretation Act: "Where there is reference to a number of clear days or "at least" a number of days between two events, in calculating that number of days, the days on which the events happen are excluded". With this being said, if a transaction occurred on the 1rst of the month and the report is sent on the 16th (this being the 15th day), the entity is in compliance.

For example: a transaction is completed at 3pm on June 1rst, the clock would start ticking from midnight on June 2nd. In other words, if the entity files the report before
midnight on the 16th of June, they would be ok.

Date answered: 2009-03-23

PI Number: PI-4552

Obligation(s): Reporting

Guidance: FIN-4

Act: 27

Definition of working days

Question:

I will need a definition of what "working days" means and also an interpretation on how to calculate time limits for multiple transactions under $10,000 that are conducted within 24 hours.

Answer:

Here is a bit of labour background: The provincial laws determine what in the province should be considered as the "labour" conditions and hours of work in general, although within a province the employer and employee may enter into an agreement to determine the terms of the employment. Of note, in Ontario, ninety percent of Ontario's employees are covered by Ontario provincial labour law. The remaining ten percent fall under federal labour law, in particular the Canada Labour Code.

When it comes to labour laws, it also depends whether the place of work is federally or provincially regulated. About 90% of Canadian workers are covered by employment laws that are enacted by the province that their workplace is located in. However, if part of an industry is federally regulated, then the federal government department is in charge of labour standards.

To complicate a bit more the labour standards, if a union covers the employee, then the union represents the employee and the "union agreement" will define the labour standards that are applicable to the unionized.

"Working Days" - Ontario: In Ontario, the Employment Standards Act (ESA) refers to wages, "normal" hours of work, holidays and vacations; the Act defines in general terms minimum standards applicable in Ontario, without defining per se a "working day". Normal hours of work are usually a 7.5 to 8 hours a day. As well, a usual working week would be a 5 day week. But again no standard Canada-wide definition is available (to my knowledge). The concept of work hours/work day/work week has evolved so much that it has become very difficult to determine a standardized definition.

Policy Interpretation:

Subsection 5(1) indicates that EFT reports must be submitted not later than 5 working days after the day of the transfer.

However, as a general rule the term "working days" has meant in the past - Monday to Friday and still rings true for the average office worker including federal employees. The same definition of "working days" has been used by financial entities in the past. So it would not be unreasonable for the Centre to consider "working days" as being Monday to Friday, exclude the week-ends, as well as statutory holidays.

Paragraphs 5(2) (a) and (b) refer to respectively within 30 days after the transaction or in any other case 15 days after the transaction.

As we are not referring to "working days", it could be either or - working days or days. However, in regards to when the delay for reporting starts running - it makes sense to rely on the Interpretation Act, section 27 - i.e. for example the delay would start running at midnight of the day of the transaction plus 15 or 30 days depending on the report.

Date answered: 2009-03-20

PI Number: PI-4548

Obligation(s): Reporting

Regulations: 5(1), 5(2)(a)(b)

Act: 27

Exchange rates: Bank of Canada

Question:

If the Bank of Canada doesn't list a particular currency then do we allow the RE to use an alternate site to obtain the exchange rate to determine reportable transactions?

Answer:

As per subsection 2(a) of PCMLTFA regulations - the conversion into Cdn dollars is based on the official conversion rate of the Bank of Canada. If there is no official conversion rate set out for that currency by the Bank of Canada, then yes the entity can rely on another alternative reliable system to determine the exchange rate - subsection 2(b) indicates that the entity would use the conversion rate for that currency in the normal course of business and the normal course of business would certainly include alternatives systems for currency rates not listed by the Bank of Canada.

Date answered: 2009-03-09

PI Number: PI-4542

Activity Sector(s): Financial entities, Money services businesses

Obligation(s): Reporting

Guidance: 8

Regulations: 2(a), 2(b)

Including or excluding fees in calculating transactions

Question:

If transaction fees take a transaction for an EFT to CAD 1,000 is ID required?

Answer:

ID would not be required in the case described. The reason is that the PCMLTFR at 30(e) state that a record (and identification) is required "where an amount of $1,000 is remitted or transmitted". Fees are not remitted or transmitted and therefore should not be included in determining the amount of the EFT.

The determination as to whether to include fees or not in the calculation of amounts will vary depending on the record that is kept/or transaction conducted. While fees are excluded from EFTs, they may be included in other records.

For example, in the case of a large cash transaction, fees would be included in the total amount to be reported because what is important here is the total amount of cash received (we don't care if a portion of it is for taxes or fees. $10,000 cash is $10,000 cash.

The requirement for accountants to keep a receipt of funds would not include the receipt of professional fees. The reason being that accountants are covered for funds received on behalf of another person/entity. Professional fees are paid to the accountant for services rendered and do not constitute funds that are received on behalf of someone else.

Date answered: 2009-02-11

PI Number: PI-4517

Activity Sector(s): Money services businesses

Obligation(s): Reporting

Guidance:

Regulations: 30(e)

Debrief Habitat for Humanity

Question:

Does Habitat for Humanity fall within our definition of a real estate developer covered by our legislation?

Answer:

Considerations have to be given to the fact that this is a charitable organization, with a very specific mandate, and more importantly is accessible to a very limited portion of candidates that can qualify, or are selected based on very specific sets of criteria.

So based on the fact that this organization does not sell to the "public" as in the general public, and "sell" to a very specific group of families, with very specific and restrictive set of criteria - we recommend that this entity is not subject to Part I of the Act, as it does not fulfill all the legislative requirements/definition of a real estate developer under our Act and associated regulations.

Date answered: 2009-02-10

PI Number: PI-4516

Activity Sector(s): Real estate

Obligation(s): Reporting

Regulations: 1(2)

RE that wants to submit an STR in court

Question:

Is it the bank that intends to submit the STR as evidence or is it the client who is requiring that this evidence be provided by the bank? In brief, who originally wanted to submit the STR? The client claims that if we had doubts concerning his activities, we should have informed the authorities (the police). We want to demonstrate that we did.

Answer:

If they are civil proceedings and not criminal, the Bank’s lawyer will have to ensure that the act of divulging the STR and introducing it as evidence does not contravene section 8 of the Act (ie the intention to harm a criminal investigation in progress or a potential investigation), which doesn’t seem to be the case in this situation anyway.

Consequently, the bank can divulge reports/information that it has in its possession during civil proceedings. The only issue is the private nature of the information and the client (business or individual) could very well oppose it or even declare it an invasion of his or her privacy. Moreover, the bank should consult the client's lawyer, who must have prepared his or her declaration as a defendant anyway, as well as the list of documents that he or she would like to submit as evidence in support of his or her position. This is a question of the interpretation and application of Part 1 of the Act. You can tell the bank that the Act does not prohibit submitting an STR as evidence (if the bank wishes to do so) unless it is done with the intention of harming a criminal investigation. In these circumstances, there is little risk in concluding that the bank is not doing it with that intention (but the bank is in a better position to know which intention is behind its actions).

Date answered: 2009-01-26

PI Number: PI-4504

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance:

Act: 8

Coverage of Coin Dealers

Question:

If coin dealers deal in rare and expensive coins worth 10-15 thousand canadian are they subject to the Act? The example of a rare 5-cent coin might be worth $15,000, it has negligible amounts of silver, but is valuable because it is rare.

In many cases these coin dealers are dealing with high value coins, that have negligible "melt value".

Answer:

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.

Some may think that risks of money laundering in the examples described in your previous emails are low. However, other key considerations come into play. We have looked at establishing thresholds for composition or value; however, and in all cases this would require special expertise in numismatic and coin evaluation from the compliance officers. Our compliance officers are not experts in the art of evaluating coins and thus a situation where we cannot verify the facts would greatly impede our mandate of ensuring compliance. Secondly, we need to remain as consistent as possible in our interpretation. We have already taken the position that plated jewellery which only contains very small quantities of gold or silver is covered in the regime.

So, all coin dealers are covered if they sell or purchase $10,000 or more of coins that contain silver, gold, palladium or platinum (which are the four prescribed precious metals in our legislation). This means that coin dealers that conduct such a transaction will have to implement a compliance regime. Dealers have STR, LCTR and TPR reporting obligations. They are only required to identify their clients and keep records when they receive a large amount of cash ($10,000) and when they submit an STR.

Date answered: 2009-01-20

PI Number: PI-4494

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

Obligation(s): Reporting

Regulations: 39.1

DMPS obligations-the mint

Question:

I thought PI had decided that once a DPMS is subject to the Act all of its activities would be subject to the Act.

For example, once a manufacturer who conducts $10,000 triggering transaction all of his activities, including those which strictly involve only manufacturing are covered. Would this not also apply to the Mint.

Answer:

The Mint is covered differently under our legislation. It is only covered when it sells prescribed precious metals as clearly set out in section 5(l) of the Act. This means that other activities such as refining is not covered. The regulations cannot go beyond what the Act says. Therefore our interpretation vis-à-vis the Mint has not changed:

The Mint will have obligations under the Act only with respect to sales of precious metals, precious stones and jewellery. As such, the Mint will have no obligation under the Act to include its buying activities (including from refiners, if that is where they fit in the Mint's business model) in its Risk Based Approach. However, it may be an area where it would behove them to apply best/ sound business practices and good corporate governance in assessing their overall risk exposure .

Date answered: 2009-01-08

PI Number: PI-4487

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

Obligation(s): Reporting

Regulations: 1(2), 39.1

Act: 5(l)

Accountant acting as Trustee in Bankruptcy

Question:

I am interested in determining whether the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA") applies in the following circumstances:

  • Entity A and Entity B are related entities (each is a separate legal entity);
  • Entity A engages in the business of providing chartered accountancy services;
  • Entity B is licensed as a Corporate Trustee in Bankruptcy (and is registered with the Office of the Superintendent of Bankruptcy);
  • Entity B does not engage in the business of providing accounting services to the public;

Certain officers or employees of Entity B may be chartered accountants, however they do not provide accounting services to the public. They do act in the capacity of trustee in bankruptcy, court appointed receiver, and court monitor and in these roles they act as officers of the court. They are regulated under the Bankruptcy and Insolvency Act.

Directives issued pursuant to the Bankruptcy and Insolvency Act, among other things, impose upon a trustee minimum standards for the accounting for and the proper custody of estate trust funds.

My understanding is that the PCMLTFA would not apply to Entity B in the above circumstances for the following reasons:

Entity B does not provide accounting services to the public - Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the "General Regulation") an "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."

While certain employees of Entity B may be accountants and may conduct the activities referred to in paragraph 34 (1)(a) or 34 (1)(b) of the General Regulation, there is an exemption in 34(2) of the General Regulation for accountants "when they engage in any of the activities referred to in paragraph 1(a) or (b) on behalf of their employer. Could you advise whether you believe the above interpretation of the PCMLTFA and General Regulation is correct.

Answer:

In regards to your question below, I would like to clarify a bit in regards to the triggering activities and to the trustee services provided.

In both cases, whether it is an individual accountant or an accounting firm - the trustee services are covered only if the trustee services offered is one (or falls within) of the triggering activities as described in section 34(1) of our regulations.

The only difference is that in the case of an accounting firm, in order to be considered a firm within our legislation, as per our definition, the firm must first and foremost provide accounting services to the public, plus have one partner, employee or administrator that is an accountant. That is just the definition of the firm, in the same way that we define the accountant as being a chartered accountant, a CGA or CMA.

Now once they are within those definitions - when they engage in any of the activities within 34(1), then they are subject to Part I of the Act.

In other words, if the accounting firm falls within the definition of an accounting firm under the PCMLTFA and its associated Regulations, or if an individual account (as defined within the Regulations) engage in any of the triggering activities, whether it is while acting as trustee (or accounting services to the public in the case of the firm), then the firm or the accountant would be subject to the PCMLTFA and its associated Regulations.

However, if the accountant engages in any of the activities (including as a trustee) found in section 34(1) on behalf of his employer, then under section 34(2) - he would not be covered.

Date answered: 2009-01-05

PI Number: PI-4479

Activity Sector(s): Accountants

Obligation(s): Reporting

Guidance: FIN-7

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

DPMS Activities / Coins

Question:

A company purchases the coins, they do so to add them to a larger order (of other pieces of scrap metals) and sent them off to a refinery to be melted. The coins do not make it back out into the market.

Answer:

Coins are considered cash. Cash is defined in the Act as "currency". The 1965 Silver Coins described in your scenario fall under the definition of "Currency" in the Currency Act (as would most Canadian coins out there). The criteria is really large.

So if A purchases $10,000 or more of silver coins from B with a sum of $10,000 in cash, there would be two large cash transaction reports. One from dealer A having received the silver coins from dealer B and one from dealer B who has received 10'000$ in cash from dealer A.

Date answered: 2008-11-14

PI Number: PI-4400

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

Obligation(s): Reporting

Guidance: 7

Regulations: 1(2), 39.1, 39.2

Reporting requirements

Question:

Accounts or accounting firms are subject to the legislative requirements when they engage in triggering activities. Most of the accounting firms that end up being covered under the legislations are the one that have trust accounts used by one or a few clients. The majority of activities such as audit, review & compilation, are exempted from the legislative requirements.

I would like to get clarification as to whether the RBA - special measure for high risk clients, only applies to clients where the accountant engages in triggering activities for or for every client that the accountant has (with or without the triggering activities). My understanding is that it only applies to clients where the accountant engages in the triggering activities. Would need confirmation on this.

Answer:

Yes you are right - the RBA only applies to the clients that are part of the triggering activities - because the accountants are only covered for certain triggering activities (e.g. receiving or paying funds, purchasing or selling securities etc., and transferring funds or securities by any means).

So you would do the RBA in regards to these triggering activities (and thus to those clients) . However, the accountants must ensure that should the client be part of any of those triggering activities, then this client should be part of the risk assessment. Yes the reporting requirements in regards to the accountants sector only apply to the clients/transactions that are part of the triggering activities. It does not apply to the audits, review & compilation etc.

Date answered: 2008-08-18

PI Number: PI-4312

Activity Sector(s): Accountants

Obligation(s): Reporting

Regulations: 34

EFT reporting obligations with incomplete beneficiary address

Question:

If is our understanding that credit unions must do best efforts on MT103s. If a credit union receives in an MT205 (bank to bank) funds transfer and it should have been an MT103 is the credit union still required to collect the best effort information? Would they still be required to complete an EFTI report if it was over the reporting threshold and the beneficiary address was not complete?

Answer:

Most CUs are not SWIFT members. Therefore, all the obligations that pertain to them must be looked at from the eyes of non-Swift obligations. Therefore, let's break it down by

  1. travel rule: The CU is responsible for all electronic wires it receives according to the definition in 1(2) Regs and 66.1(2). They are not SWIFT members, so the SWIFT message must stand the test of the definition a " transmission - through any electronic, magnetic or optical device, telephone instrument or computer - of instructions for the transfer of funds, other than the transfer of funds within Canada" as per 1(2) Regs." Therefore, according to 66.1(2) the CUs are only responsible for International wires (as per the definition) under the travel rule, as opposed to a Bank for example that is responsible for both international MT103 and Domestic SWIFT MT 103.

    Moreover, the "Best efforts' that the question refers to, relates to the travel rule 9.5(b) Act and not EFTRs, as for EFTRs, the field with asterisks are mandatory.
     

  2. EFTIs- CUs that are not SWIFT members are responsible for all wires they receive that fit the definition in 1(2). Again, they are not SWIFT members, however, they receive the wire from CU central via MTS after CU central received it via SWIFT. Although CU central received it via SWIFT, because the CU is a non-Swift member, it must report via non-SWIFT. So, CUs are responsible for submitting EFTRs when they receive " transmission - through any electronic, magnetic or optical device, telephone instrument or computer - of instructions for the transfer of funds, other than the transfer of funds within Canada". They are non SWIFT members, so we should not speak in terms of SWIFT when dealing with CUs. Once more, according to schedule 6, the full name and if applicable the account number are mandatory. There is no reasonable measures for those fields unless part of the 24 h rule.

    The best efforts applies to the incoming travel rule (9.5(b)Act) not EFTR Incoming (Schedule 6- full name and if applicable account number (mandatory)). Also, as mentioned above, if the CU is not a Swift member, we should not be speaking in terms of SWIFT. Rather, to answer that question we must apply the test of the definition: "transmission - through any electronic, magnetic or optical device, telephone instrument or computer - of instructions for the transfer of funds, other than the transfer of funds within Canada" . If the answer is "yes" then the CU has obligations. This said, usually, a bank to bank is NOT at the request of a client, so there would be no obligations, nor for EFTR Incoming, nor for the Travel rule (66.1(2)).

    The CU would have an obligation regarding EFTIs if the definition was met: "transmission - through any electronic, magnetic or optical device, telephone instrument or computer - of instructions for the transfer of funds, other than the transfer of funds within Canada" . And, as stated, we should avoid, for clarity, using the term SWIFT, if the RE is not a SWIFT member (even if its service provider received via SWIFT, because the RE is not a Swift member and it receives in the end the message via a non-SWIFT system). There may be some confusion here. If the definition is met, than two scenarios are possible:

    If the CU is the first FE in Canada to touch it (CU central may be the first to touch it and sent it via non-SWIFT (MTS) to the CU, however it is not a FE) than the CU has an obligation to report the wire under 12(1)(c) irrespective if the beneficiary information is present or not. It is mandatory and Schedule 6 must be followed (For fields in schedule 6 that have no asterisk, Policy Interpretation has said that if the RE has the information, it must include it).
     

  3. However, if on the other hand, the CU is not the first FE to touch the wire in Canada (eg. a bank to CU central to CU) than the CU would have to report the wire, again if 1- the definition was met and 2- if the name or address of the beneficiary were not in the wire. Again, CUs that are not Swift members would have to report according to Schedule 6 (For fields in schedule 6 that have no asterisk, Policy Interpretation has said that if the RE has the information, it must include it).

Date answered: 2008-08-13

PI Number: PI-4308

Activity Sector(s): Financial entities

Obligation(s): Reporting

Regulations: 1(2), 66.1(2), 12(1)(c), Schedule 6

Act: 9.5(b)

Confirmation on which wires need to be reported

Question:

Please confirm that the only wires that need to be “reported” to FINTRAC are to be in excess of $10,000 Canadian, international destination or origination with or without missing information. Is this correct?

Answer:

Of course, we cannot forget the 24 hour rule, if the RE "knows" about such transactions. Instructions that cross the border (Canada) electronically are covered!

As well as stated, in the question, "with or without missing information". I just want to ensure that they fully understand their obligations, as the term "with or without missing information'' raises questions. I just want to ensure the awareness that:

  • EFTI: if the CU is the first to touch in Canada an international EFTI, section 12(c) applies, and the RE must respect Schedules 3 (SWIFT) or 6 (non-SWIFT) and be aware of asterisks (mandatory) and non-asterisk fields (reasonable measure- if they have the information, they must include it). So for example, regarding beneficiary information, in Schedule 3, Part K, there are no asterisks, therefore, if, in this case, the CU does not have beneficiary information, they need not include it in the report. If they have it they must include it. However, if one looks at Schedule 6, Part F (beneficiary), the beneficiary name is mandatory, no matter what. Therefore, to answer his comment "with or without missing information'' , he must use the Schedules as his guide for reporting purposes.
  • EFTI: if the CU is not the first to receive the EFTI, but receive it from a Canadian correspondent, then 12(5) applies. Now, what trigger 12(5) will be determined based on the policy interpretation, If the wire the CU receives has everything but the postal code, will 12(5) be triggered. It remains to be seen with policy interpretation. Once more though if 12(5) is triggered, the CU must fill out the report according to Schedule 3 and 6, which ever applies, and respect the asterisks (mandatory) and non-asterisk fields (reasonable measure- if they have the information, they must include it).
  • EFTO: if the CU is the last FE to touch the EFTO, 12(b) applies and Schedules 2 or 5 applies. Once more, the CU must fill out the report according to Schedule 2 and 5, which ever applies, and respect the asterisks (mandatory) and non-asterisk fields (reasonable measure- if they have the information, they must include it).
  • EFTO: if the CU is not the last FE to touch on EFTO that it initiates, it does not have to report the EFTO as well if it provides the FE sending the EFTO with the name and address of the CU ordering client.

Date answered: 2008-07-17

PI Number: PI-4273

Activity Sector(s): Financial entities

Obligation(s): Reporting

Guidance: 8

Regulations: 12(c), Schedule 3 Part K, Schedule 6, 12(5), 12(b), Schedule 2, Schedule 5

Date Modified: