Archived FINTRAC Policy Interpretations

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Record Keeping

Real estate – FE as executor to the property

Question:

As part of its licensing, a provincially regulated trust company, carries on the business as executor of the estate of deceased persons. As an example:

  1. Appointed by Will to be the Executor of a deceased’s estate;
  2. Title to a property would be registered in the name of the estate with the FE as Executor or Administrator;
  3. The FE would not own the property, it would hold the property in trust for the deceased’s estate and ultimately its beneficiaries; and
  4. The FE would eventually sell the property and distribute the net proceeds to the estate’s beneficiaries in accordance with the deceased’s Will.

For greater certainty, the deceased’s estate and not the trust company is the owner of a property; the trust company merely holds property in trust for its beneficiaries. The notion that the real estate agent or broker “ …has to keep a client information record with respect to the sale of property owned by the trust company, a corporation…” should not apply as the trust company is not the owner of the property and therefore para. 39(1)(c) of Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) should not apply, but para. 39(1)(b) “client information record” should.

In addition, could you please confirm the following:

  1. Para 39(1)(a) exempts the trust company from a “receipt of funds record” reporting as the trust company is a Financial Entity;
  2. Para. 39(1)(b) requires a “client information record” in respect of every transaction irrespective of the entity;
  3. Para. 39(1)(c) requires corporate binding reporting only where a “receipt of funds record” is required;
  4. Subsection 59.2(1) defines the reporting requirement when a “record” is required. Presumably this includes both a “receipt of funds record” and a “client information record”; and
  5. Para. 59.2(1) provides for confirmation of every entity, other than a corporation. This could be satisfied with a copy of the deceased’s Will confirming the estate of the deceased as the entity conducting the transaction.

Answer:

The obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations apply to those persons and entities referred to at section 5 of the Act, commonly referred to as reporting entities (REs), which include financial entities (FEs) and real estate brokers and sales representatives. The mere status of “corporation” does not make an entity an RE. Rather, a person or entity must fall within one of the sectors listed at section 5, at which point that person or entity is subject to the PCMLTFA and has obligations, including reporting to FINTRAC.

It is important to note the distinction between when an RE has obligations of its own, versus when it is the client of another RE. Further, the reporting and record-keeping obligations of REs are separate obligations. The obligations outlined in this question are those of a real estate broker or sales representative and, as such, are not requirements that the incorporated trust company, as a financial entity (FE), must carry out.

The incorporated trust company’s obligations, if any, with respect to this transaction are separate and apart from the obligations of the real estate broker or sales representative engaged by the trust company to sell the property.

Pursuant to the PCMLTFR, a real estate broker or sales representative:

  • 39(1) shall, when engaging in an activity described in section 37, keep the following records:
    • (a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
    • (b) a client information record in respect of every purchase or sale of real estate; and
    • (c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative.
  • 59.2(1) shall, in respect of a transaction for which a record is required to be kept under subsection 39(1),
    • (a) ascertain the identity of every person who conducts the transaction;
    • (b) confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
    • (c) confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted .

It is the broker or sales representative who is acting with respect to the sale of this property that has an obligation to keep a client information record. This record would be kept on their client. Please note that the obligations contained within the PCMLTFR relate to the conductor of the transaction or client of the broker or sales representative, and are not specific to the owner of the property. Where the client information record is for a corporation, the real estate broker or sales representative must also keep 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 real estate broker or sales representative. As such, if the trust company is the client of the real estate broker or sales representative and is a corporation, then the real estate broker or sales representative would be required to keep a client information record and obtain a copy of the corporate record relating to the power to bind.

Where the real estate broker or sales representative is required to keep a record, such as a client information record in respect of a corporation, the real estate broker or sales representative is also required to confirm the existence of and ascertain the name and address of the corporation (in this case the trust company) and the names of its directors. In addition, please note that subsection 59.2(1) of the PCMLTFR speaks to the requirement to verify a client’s identity and not to reporting as noted in your email.

Finally, if the real estate broker or sales representative were to receive funds they would have to keep a receipt of funds record unless those funds were received from a financial entity.

Date answered: 2020-12-01

PI Number: PI-11069

Activity Sector(s): Financial entities, Real estate

Obligation(s): Record Keeping

Regulations: ss. 39(1), 59.2(1)

Act: 6

Real estate – receipt of funds – amounts not towards the purchase

Question:

Does the receipt of funds record obligation apply when :

  • in accordance with the Agreement of Purchase and Sale, the real estate developer may receive administrative fees or penalty fees directly from a purchaser in the event a deposit cheque is returned NSF; or
  • the purchaser takes interim occupancy prior to the transfer of title, and the purchaser pays an interim occupancy fee directly to the Vendor in accordance with the Agreement of Purchase and Sale?

 

Answer:

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) state the following:

  • Subsection 39.5(1) Every real estate developer is subject to Part 1 of the Act when:
    • 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
    • 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.
  • Subsection 39.7(1) Subject to subsections (3), 52(2) and 62(2), every real estate developer shall, when engaging in an activity described in section 39.5, keep the following records:
    • (a) receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
    • (b) a client information record in respect of every sale of a house, a condominium unit, a commercial or industrial building or a multi-unit residential building; and
    • (c) where the receipt of funds record or the client information record is in respect of 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 real estate developer.

As such, real estate developers are only subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations when they are engaged in selling to the public, as outlined above. Therefore, your client is only subject to the obligations under the Act and its associated Regulations when engaged in said activities, including the obligation to keep a receipt of funds record (ROFR) and to verify the identity of their clients.

Should the developer receive funds related to the sale of a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building, then the obligations apply. For instance, amounts received that result from or are directed at the purchase/sale are subject to the ROFR obligation, if payment is made to the real estate developer.

In the examples provided, amounts received that do not go towards the purchase/sale of the new condo, building, or home, such as administrative fees or penalties that result from a cheque being returned as insufficient funds, would not be subject to the ROFR obligation.

As previously indicated, amounts received that do go towards the purchase/sale, would be subject to the ROFR obligation. Therefore, the interim occupancy fees would be subject, so long as, they form part of the purchase/sale. For instance, if the interim occupancy fee is put towards the final purchase price of the property. However, if the interim occupancy fee is the equivalent of a rental fee, that is, it is separate from the purchase/sale, then it would not be subject to the ROFR obligation.

Date answered: 2020-09-11

PI Number: PI-10884

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 39.5(1), 39.7(1)

Act: 6.1

Occupation information – NOC Index

Question:

Does the Canadian NOC Index (https://noc.esdc.gc.ca/Home/Welcome/3cfdff585f164b90a79bebe78f7988de) provide a fulsome list of possible occupations for reporting entities required to collect this information?

Answer:

FINTRAC has consistently indicated that reporting entities (REs) must be as descriptive as possible when recording the occupation of a client, in order to be able to determine whether a transaction or activity is consistent with what would be expected for that client. For example, in the case of a person who is a manager, the occupation recorded should reflect the area of management, such as “hotel reservations manager” or “retail clothing store manager”.

The NOC Index was developed as part of a collaborative partnership between Employment and Social Development Canada and Statistics Canada for collecting, analyzing, and disseminating occupational data for labour market information and employment-related program administration.

Upon review of the NOC codes it appears that many group titles such as “5252 - Coaches” would not be sufficiently detailed for use by REs to meet their obligations. The occupations within a group, while related, are sufficiently diverse that simply stating the group title (e.g. NOC 5252) would not allow an RE to reasonably assess the expected activities, expected income and other factors of that individual. For example, A University basketball coach, a Canadian Football League football Coach and a National Hockey League Coach all fall within code 5252 – Coaches, but they are not interchangeable and would encompass different activities and salary ranges. Therefore the use of NOC codes in lieu of specific occupation titles for record keeping purposes is not acceptable.

That said, an RE could consider a combination of the NOC code and additional detail, to meet its obligations pursuant to the PCMLTFA and its associated Regulations. For example, NOC 5252 – XYZ University basketball coach.

Finally, given that an RE’s record-keeping obligations support its reporting obligations, it is important to consider how this information will be reported to FINTRAC. If an RE chooses to use the combination of the NOC code and additional detail, then, when completing a report, the RE should first provide the additional detail in the field to ensure that this information is not truncated due to the character limitations of the field.

Date answered: 2020-06-05

PI Number: PI-10654

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): Record Keeping

Act: 6

Occupation for record-keeping purposes

Question:

Does a real estate broker or sales representative have to record the name of the employer as part of the requirement to record the client’s occupation?

Answer:

Pursuant to subsections 39(1) and 39(2) of the PCMLTFR, every real estate broker or sales representative must keep receipt of funds records, client information records and large cash transaction records, as applicable.

Pursuant to subsection 1(2) of the PCMLTFR, receipt of funds records, client information records and large cash transaction records must contain information about the occupation of the client, if the client is a person.

The Guidance glossary defines an occupation as “the job or profession of a client”. While there are no specific requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations to provide the name of a client’s employer as part of the “occupation”, FINTRAC expects a reporting entity to be as descriptive as possible when recording the nature of the occupation of a client. For example, in the case of a person who is a manager, the occupation recorded should reflect the area of management, such as “hotel reservations manager” or “retail clothing store manager”.

Date answered: 2019-11-26

PI Number: PI-10456

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 1(2), 39(1), 39(2)

Act: 6

Keeping client identification INFORMATION up to date

Question:

How do we keep client identification documents up to date?

Answer:

Neither the Act nor the associated Regulations require a reporting entity (RE) to keep up‑to-date client identification documents. The requirement concerning the re‑verification of the identity of a person or an entity pursuant to subsections 64(1), 65(1) or 66(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations) only applies when an RE has doubts about previously gathered information (see section 63 of the Regulations).

Otherwise, pursuant to subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, ongoing monitoring is done to:

1.  detect any suspicious transactions that are required to be reported to FINTRAC;

2.  keep client identification information, beneficial ownership information, and the purpose and intended nature of the business relationship record up to date;

3.  re-assess the level of risk associated with a client’s transactions and activities; and

4.  determine whether the transactions or activities are consistent with the information obtained about a client, including the risk assessment of the client.

 

It should be noted that in order to meet the requirement to keep up-to-date information on the identities of clients, it is not necessary to re-verify the client’s identity according to the identity verification methods provided. It is only necessary to update the information on the client’s identity. Even if the Act and the associated Regulations do not specify the items of information relative to the client’s identity that must be updated, you must set out in your policies and procedures items that must be updated and that must support what is necessary for your risk-based approach (with supporting documents). As for all the ongoing monitoring elements, the measures in place must be complete and take into account all of your areas of activity and products and services, which will help you ensure that all of your clients undergo ongoing monitoring. (PI-8446 published).

Similarly, the wording of subparagraph 71.1(b)(i) refers to client identification information in such a way that it is not necessary to re-verify the identity of a person in compliance with the Regulations. This requirement may seem redundant alongside the ongoing monitoring requirement, but it applies to clients with whom an RE perhaps has no business relationship, such that no ongoing monitoring is initiated.

Date answered: 2019-04-15

PI Number: PI-9980

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): Record Keeping

Regulations: 1(2), 71.1(b)(i)

Act: 6

Retention of account-related records

Question:

Is there a requirement for financial entities and securities dealers to retain a record of a client’s name, address, date of birth and occupation, or principal business, for duration of the account-based business relationship?

Answer:

Pursuant to paragraphs 14(c), 14.1(a), and 23(c) of the PCMLTFR, where a financial entity opens an account or a credit card account, or where a securities dealer opens an account, in the name of a client that is a person or an entity other than a corporation, a record must be kept of the client’s name and address, and

 

(i) if the client is a person, their date of birth and the nature of their principal business or their occupation, as applicable, and

 

(ii) if the client is an entity other than a corporation, the nature of their principal business.

 

Given that the above information is laid out separately at paragraphs 14(c), 14.1(a) and 23(c) of the PCMLTFR, and is not specifically referred to in the Retention of Records sections of the PCMLTFR, it would appear that, the relevant record retention obligation is that of paragraph 69(1)(c) of the PCMLTFR, which requires that, all other records be retained for a period of at least five years following the day on which they were created.

 

That said, financial entities and securities dealers do have other record-keeping obligations outlined at sections, 14, 23 and 14.1 of the PCMLTFR, specific to accounts and credit card accounts. These include:

 

  • Financial entities:
    • signature cards [para. 14(a)]
    • a record that sets out the intended use of the account [para. 14(c.1)]
    • every account operating agreement that it creates in the normal course of business [para. 14(d)]
    • in respect of every credit card account it opens, every credit card application that the financial entity receives from the client in the normal course of business [14.1(e)]

 

  • Securities dealers:
    • a signature card of every person who is authorized to give instructions in respect of the account or an account operating agreement or account application that contains that person’s signature [23(a)]
    • in respect of every account that the securities dealer opens, a record that sets out the intended use of the account [23(a.1)]
    • every new account application […] that the securities dealer creates in the normal course of business [23(d)].

 

Pursuant to paragraph 69(1)(a) of the PCMLTFR, signature cards, account operating agreements, account application forms, credit card applications and records setting out the intended use of the account must be retained for a period of at least five years following the day on which the account to which they relate is closed.

 

As such, should the name, address, date of birth and principal business or occupation details be captured by one of these other records, then pursuant to subsection 69(1)(a) of the PCMLTFR, the record, along with these details, must be retained for a period of at least five years following the day on which the account to which they relate is closed.

Date answered: 2019-04-05

PI Number: PI-9954

Activity Sector(s): Financial entities, Securities dealers

Obligation(s): Record Keeping

Regulations: 14, 14.1, 23 and 69

Act: 6

Obligations when BIN Rental Agreement is in place

Question:

A Trust Company issues a Visa Access card on behalf of a Bank.
 
This Visa Access card is pretty unique in that it really doesn’t have a life or separate existence of its own, it is simply a means by which borrowers may access funds available from the Bank's HELOC product.   Generally, the use of the Visa Access card is akin to other means of accessing an account, for example, such as a debit/credit card or a cheque.  In addition:
 
a. The Visa Access card does not result in transactions that are billed separately (from all the transactions) on the HELOC account;
b. The Trust Company only has access to some of the information related to the use of the HELOC, that is through the Visa Access card (other transactions not through the card would not be available to the Trust Company);
c. The HELOC agreement is between the customer and the Bank, with the card holder information being a schedule to that agreement (the Trust Company’s role is disclosed in this Schedule); and
d. As these are customers of the Bank and not the Trust Company, the Bank would be in a better position to view the customer relationship holistically.
   
It is clear that the Bank has a direct arrangement with the borrower.  However, in this case (where the Trust Company is simply the issuer of the Visa Access card), does the Trust Company have an arrangement with the Bank and not the borrower?

Answer:

Financial entities have obligations outlined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) for a number of activities. In particular, pursuant to sections 14 and 54 of the PCMLTFR, there are obligations for record-keeping and ascertaining identification, respectively, specific to the opening of an account in the name of a client. It is from this perspective that FINTRAC has reviewed the information provided by the Trust Company.   

While the term “account” is not defined in the PCMLTFA or its associated Regulations, the opening of an account for the purpose of holding a client’s assets is clearly understood to be an account opening. In other cases, however, FINTRAC has taken the position that it is generally for a reporting entity to determine whether or not an account has been opened. It is important to note that to be considered an account, there does not need to be a deposit component. As indicated, in cases other than deposit taking accounts, FINTRAC will generally respect the entity’s determination of whether or not it has opened an account in any given case. Generally, financial institutions have their policies and procedures and know when an “account opening” has taken place.

Based on the information that the Trust Company has provided, and the HELOC Agreement Terms and Conditions, namely that:
• the HELOC account is opened and held by the Bank;
• the Trust Company has no direct relationship with the customer;
• there is an agreement between the Client and the Bank for the mortgage and HELOC, which includes the terms and conditions for the use of the Access Card to access HELOC funds 
• the Bank is the sole adjudicator of credit;
• debts owed on the access card may be drawn on the Client’s bank account by the Bank; and  
• the BIN Sponsorship Agreement specifies that for the Trust Company, the Bank is the client; 

FINTRAC has determined that the Trust Company does not have account-related obligations under the PCMLTFA and its associated Regulations as a result of BIN Sponsorship Agreement with the Bank. The Trust Company does, however,  agree that the Bank is its client, so would have the associated obligations with respect to the Bank, as applicable.  

Furthermore, while the BIN Sponsorship service is not subject to account-related obligations, the Trust Company must still conduct a risk assessment of the service, 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, the Trust Company must consider any financial transaction conducted through this service against its obligation to submit suspicious transaction reports, should there be reasonable grounds to suspect that it is related to the commission or the attempted commission of a money laundering offence or a terrorist activity financing offence. 

Date answered: 2018-04-30

PI Number: PI-9110

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14, 54

Act: 6

Records when an entity buys real estate

Question:

My question pertains to the obligations of real estate brokers/agents with respect to the keeping of client information records and ascertaining identity, specifically when the real estate broker’s/ agent’s vendor or purchaser client is a corporation.  

Does the real estate broker/agent have to ascertain the identity of the person signing the agreement of purchase and sale on behalf of the corporate vendor/purchaser (i.e. the authorized signing officer of the corporate vendor or purchaser) and keep records of his/her identification, or is confirming the existence of the corporation sufficient? 

Answer:

Pursuant to subsection 39(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every real estate broker or sales representative, when they act as an agent in respect of the purchase or sale of real estate, must “keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative”.

A client information record is defined at subsection 1(2) of the PCMLTFR as “a record that sets out a client’s name and address and
(a)   If the client is a person, their date of birth and the nature of their principal business or their occupation, as applicable; and
(b)   If the client is an entity, the nature of their principal business”.

Furthermore, subsection 59.2(1) of the PCMLTFR, states that “every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1),
(a)   in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction;
(b)   in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
(c)   in accordance with section 66, confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted”.

For the purposes of the PCMLTFR, a client is defined at section 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and means “a person or entity that engages in a financial transaction with another person or entity”.

As a result,  when acting as an agent in the purchase or sale of real estate, a real estate broker or sales representative must satisfy all of the requirements associated with every person and every corporation engaged in the transaction. Specifically, when the purchaser or vendor is an entity, the client information record must reflect both the person engaged in the transaction, as well as the entity on whose behalf they are acting, as that entity is also engaged in the transaction with the real estate broker or sales representative. With regard to the corporation, along with the client information record, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of the transaction must also be kept. In terms of identification, as per section 59.2  of the PCMLTFR, the real estate broker or sales representative must ascertain the person’s identity in accordance with the identification methods set out at subsection 64(1) of the PCMLTFR, and must fulfil the associated record keeping requirements outlined at section 64.2 of the PCMLTFR. The real estate broker or sales representative must also confirm, in accordance with section 65 of the PCMLTFR, the corporation’s existence and ascertain its name and address, as well as the names of its directors.

Additional record keeping requirements exist in relation to the third party determination. As per section 10 of the PCMLTFR, “every person or entity that is required to keep a client information record under these Regulations in respect of a client shall, at the time the client information record is created, take reasonable measures to determine whether the client is acting on behalf of a third party”. FINTRAC’s Guidance: Third party determination requirements, indicates that “A third party is a person or entity who instructs another person or entity to conduct an activity or financial transaction on their behalf. When you are determining whether a third party is giving instructions, it is not about who owns or benefits from the money, or who is carrying out the transaction or activity, but rather about who gives the instructions to handle the money or conduct a transaction or particular activity. If you determine that the individual in front of you is acting on someone else's instructions, that someone else is the third party”. Section 7 of the PCMLTFR further states 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”. Consequently, if a third party determination is made, or cannot be made but there are reasonable grounds to suspect that this is the case, additional records must be kept.

Please note that, pursuant to subsection 52(2) of the PCMLTFR, if a real estate broker or sales representative is required to keep a record about information that is readily available in other records that they have kept, then they do not have to record the same information again.

Date answered: 2018-03-06

PI Number: PI-8453

Activity Sector(s): Real estate

Obligation(s): Record Keeping, Third Party Determination

Regulations: 1(2), 7, 10, 39(1), 59.2(1), 64(1), 64.2

Act: 2, 6

ROFR - who to ascertain identity and keep a record on

Question:

1. Please clarify when an account is “affected” by the transaction when completing a receipt of funds record. Particularly in the case of an electronic funds transfer, cash, or a bank draft that is received, do the requirements differ depending on the form of the funds received?

2. Are we required to ascertain the identity of a person who signs the cheque, but does not physically provide the funds? Are we required to ascertain the identity of both account holders if the cheque is drawn from a joint account even if only one is involved in the real estate transaction?

3. When an entity that is a corporation is buying or selling real estate, are we required to confirm its existence? Must the identity of the person acting on behalf of the corporation be ascertained? Should the corporation be recorded as a third party?

4. Is obtaining account information a reasonable measures requirement at all times, or only when funds are provided directly to the listing agent by a buying agent’s client? For example: Buyer Agent A’s client, John, provides a deposit cheque to Listing Agent B directly. Buyer Agent A only has to take ‘reasonable measures’ to determine John’s account information.

Answer:

Before addressing your specific questions, it is important to review the overarching principles that apply.

• Subsection 39(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to subsections (3), (4), (5), (6), 52(2) and 62(2), every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative.”

• Subsection 1(2) of the PCMLTFR details the information to be kept in the receipt of funds record, and is described as the following: “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.”

• In accordance with subsection 39(4) of the PCMLTFR, where the parties to a real estate transaction (buyer and seller) are each represented by a real estate broker or sales representative, and one party provides funds to the other party’s real estate broker or sales representative, it is the real estate broker or sales representative of the party providing the funds that is responsible for keeping the receipt of funds record.

• In relation to subsection 39(4) of the PCMLTFR, subsection 39(5) of the PCMLTFR states that “A real estate broker or sales representative that is responsible for keeping a receipt of funds record under subsection (4) is not required to include in that record any of the following information if, after taking reasonable measures to do so, they are unable to obtain that information:
(a) the number and type of any account that is affected by the transaction; and
(b) the full name of the person or entity that is the holder of that account.”

• Additionally, subsection 39(6) of the PCMLTFR states that “A real estate broker or sales representative that is responsible for keeping a receipt of funds record under subsection (4) and that determines that one or more of the accounts affected by the transaction is a trust account held by another real estate broker or sales representative must include that information in that record but is not required to include
(a) the number of that trust account or those trust accounts; or
(b) the full name of the person or entity that is the holder of that trust account or those trust accounts.”

• Regarding the related identification requirements, subsection 59.2(1) of the PCMLTFR states that “subject to subsection 62(2) and section 63, every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1),
(a) in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction;
(b) in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
(c) in accordance with section 66, confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted.

1. An affected account is any account related to the transaction. This includes any account the funds are drawn from (such as in the case of a cheque, wire transfer, etc.) and any account where the funds are deposited into (such as a broker’s trust account). Information about any account that is affected by a transaction must be kept in the receipt of funds record.

When funds are received in cash, the account information from where the cash was withdrawn is not required to be included in the receipt of funds record. Instead, information about how the cash was received must be included, as per paragraph (e) of the receipt of funds record definition at subsection 1(2) of the PCMLTFR. That said, information about any account the cash is deposited into is considered affected and is to be included in the receipt of funds record.

It should be noted that if each party to a real estate transaction is represented then it is the real estate broker or sales representative of the party providing the funds that must keep the receipt of funds record, and in this case, information about the account number, the type of account, and the full name of the account holder is required to be included in the receipt of funds record if it can be obtained through reasonable measures. Similarly, if both parties are represented, the real estate broker or sales representative is not required to include the account number or the full name of the account holder in the receipt of funds record if the account is a trust account held by another real estate broker or sales representative. In this case, the receipt of funds record would only have to indicate that a trust account for another real estate broker or sales representative was involved.

2. Where a receipt of funds record is required to be kept by a real estate broker or sales representative, they must ascertain the identity of the person who conducts the transaction. The identity of the person who signs the cheque is not required to be ascertained if they are not conducting the transaction, but their information is required to be obtained and kept in the receipt of funds record. Specifically, information about any account affected by the transaction, including the full name of the account holder, or both account holders for a joint account, must be kept in the receipt of funds record, along with all other required information listed in the definition. As indicated for the previous question, if each party to the real estate transaction is represented and information about the account number, the type of account, and the full name of the account holder can be obtained through reasonable measures, this information is required to be included in the receipt of funds record.

3. When acting as an agent in the purchase or sale of real estate, a real estate broker or sales representative must keep a client information record. Where the client information record is in respect of 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 the transaction must also be kept. In terms of identification, a real estate broker or sales representative must ascertain the identity of every person who conducts the transaction and confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted, and the names of its directors.

As per section 10 of the PCMLTFR, “every person or entity that is required to keep a client information record under these Regulations in respect of a client shall, at the time the client information record is created, take reasonable measures to determine whether the client is acting on behalf of a third party.” If a third party determination is made, or cannot be made but there are reasonable grounds to suspect this is the case, additional records must be kept. The FINTRAC Guidance: Third party determination requirements, indicates that “A third party is a person or entity who instructs another person or entity to conduct an activity or financial transaction on their behalf. When you are determining whether a third party is giving instructions, it is not about who owns or benefits from the money, or who is carrying out the transaction or activity, but rather about who gives the instructions to handle the money or conduct a transaction or particular activity. If you determine that the individual in front of you is acting on someone else's instructions, that someone else is the third party.” As per section 7 of the PCMLTFR, and as stated in the FINTRAC Guidance, a person that is acting on behalf of their employer is considered to be acting on behalf of a third party, except when depositing cash in the employer’s business account.

4. The information of any account affected by the transaction is required to be included in the receipt of funds record. When certain conditions are met, if this information can be obtained through reasonable measures, then it is required to be included. Specifically, as indicated in the response to questions 1 and 2, if each party to a real estate transaction is represented, then it is the real estate broker or sales representative of the party providing the funds that must keep the receipt of funds record, and information about the account number, the type of account, and the full name of the account holder is required to be included in the receipt of funds record if it can be obtained through reasonable measures. Similarly, if both parties are represented, the real estate broker or sales representative is not required to include the account number or the full name of the account holder in the receipt of funds record if the account is determined to be a trust account held by another real estate broker or sales representative. Instead, the receipt of funds record would only have to indicate that a trust account for another real estate broker or sales representative was involved.

Therefore, in the example you provided where John (a buyer represented by Agent A) provides a cheque to Listing Agent B (the representative of the seller), Buyer Agent A must keep the receipt of funds record and must take reasonable measures to obtain the account number, type of account, and full name of the account holder for any account affected by the transaction. This includes the account from which the cheque is drawn and the account the cheque is deposited into. If Buyer Agent A determines that any account affected by the transaction is a trust account held by another real estate broker or sales representative, such as Listing Agent B or Listing Agent B’s broker, then the receipt of funds record must indicate that a trust account was involved in the transaction, but the number of that trust account or the full name of the trust account holder is not required to be included.

Date answered: 2017-11-14

PI Number: PI-8150

Activity Sector(s): Real estate

Obligation(s): Verifying identity, Record Keeping

Guidance: Third party determination requirements

Regulations: 39(1), 1(2), 39(4), 39(6), 10, 7

ROFR - Joint account and bank draft

Question:

We would like to obtain guidance about the identification requirements related to the receipt of funds for the real estate sector, specifically in regards to the following situations:

1. When we receive a cheque that is signed by John Doe for an account that is jointly owned by John Doe and Jane Doe, are we required to keep an identification record for Jane Doe?

2. When we receive a bank draft or a certified draft from a financial institution for a deposit from a buyer, it does not indicate whose account the funds originated in. As such, do we need to ascertain the identity of that party or do we consider the funds received from the financial institution?

Answer:

Pursuant to paragraph 39(1)(a) of the Proceeds of Crime (Money laundering) and Terrorist Financing Regulations (PCMLTFR), every real estate broker or sales representative shall, when they act as an agent in respect of the purchase or sale of real estate for an individual, keep certain records, including “a receipt of funds record in respect of every amount that they receive 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 details the information to be kept in the receipt of funds record, and includes “(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.” An affected account is any account related to the transaction, which includes any account the funds are drawn from (such as in the case of a cheque) and any account where the funds are deposited into (such as a broker’s account).

In accordance with subsection 39(4) of the PCMLTFR, where each party to a real estate transaction (a buyer and a seller) is represented by a real estate broker or sales representative, and one party provides funds to the other party’s real estate broker or sales representative, it is the real estate broker or sales representative of the party providing the funds that is responsible for keeping the receipt of funds record. In this case, as per subsection 39(5) of the PCMLTFR, if the account number, type of account, and the full name of the account holder(s) cannot be obtained through reasonable measures, then this information is not required to be included in the receipt of funds record.

Additionally, in relation to subsection 39(4) of the PCMLTFR, subsection 39(6) of the PCMLTFR states that “A real estate broker or sales representative that is responsible for keeping a receipt of funds record under subsection (4) and that determines that one or more of the accounts affected by the transaction is a trust account held by another real estate broker or sales representative must include that information in that record but is not required to include:

(a) the number of that trust account or those trust accounts; or
(b) the full name of the person or entity that is the holder of that trust account or those trust accounts.”

When a receipt of funds record is required to be kept for an individual, paragraph 59.2(1)(a) of the PCMLTFR states that every real estate broker or sales representative shall “in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction.” As per subsection 59.2(2) of the PCMLTFR, when both parties (the buyer and seller) are each represented by a different real estate broker or sales representative, each real estate broker or sales representative is responsible for identifying the party that they represent.

Therefore, to address both questions, a receipt of funds record is required to be kept by a real estate broker or sales representative when funds are received, and the real estate broker or sales representative must ascertain the identity of the person who conducts the transaction. That means, for the example provided in the first question, if John Doe provides a cheque from the account he holds with Jane Doe, then a receipt of funds record must be kept and John Doe must be identified in accordance with the methods outlined at subsection 64(1) of the PCMLTFR, because he conducts the transaction. Information about any account affected by the transaction, including the full name of the account holder, or both account holders for a joint account, must be kept in the receipt of funds record. So, while the identity of Jane Doe does not have to be ascertained in accordance with subsection 64(1) of the PCMLTFR, her information must be obtained and kept in the receipt of funds record as an account holder of an affected account. The same requirements would apply for a deposit provided by an individual using a bank draft or certified cheque.

It should be noted that, as explained above, if each party to a real estate transaction is represented, then it is the real estate broker or sales representative of the party providing the funds that must keep the receipt of funds record, and in this case, information about the account number, the type of account, and the full name of the account holder is required to be included in the receipt of funds record if it can be obtained through reasonable measures. Similarly, if both parties are represented, the real estate broker or sales representative is not required to include the account number or the full name of the account holder in the receipt of funds record if the account is a trust account held by another real estate broker or sales representative. In this case, the receipt of funds record would only have to indicate that a trust account for another real estate broker or sales representative was involved.

Date answered: 2017-11-14

PI Number: PI-8142

Activity Sector(s): Real estate

Obligation(s): Verifying identity, Record Keeping

Regulations: 39(1)(a), 1(2), 64(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

No requirement to record a Yes/No check box for identification purposes

Question:

Do credit unions need to include in records an actual Yes or No check box confirming that the person's identity was verified or do robust policies and procedures fulfill the obligation?

Answer:

The new methods to ascertain the identity of individual clients are detailed at subsection 64(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). For all of the new identification methods, certain information must be verified in order to ascertain the identity of a client.

There are specific record keeping requirements outlined at section 64.2 of the PCMLTFR, that prescribe the information that must be kept when ascertaining identity. While a Yes or No check box confirming that a person’s identity was verified is not included in the prescribed information, there is a requirement to record the date on which an identification method was used and the information relating to the method used.

Additionally, as part of its compliance program, a financial entity must have written policies and procedures for client identification. The policies and procedures must be clearly communicated, understood and adhered to by all who deal with clients. 

Therefore, while a financial entity is not required to include a Yes or No check box confirming that a person’s identity was verified, a financial entity is required to document its policies and procedures for client identification, and keep accurate records, as per section 64.2 of the PCMLTFR.

Date answered: 2017-03-13

PI Number: PI-7658

Activity Sector(s): Financial entities

Obligation(s): Compliance Program, Record Keeping

Guidance: Record keeping requirements for financial entities

Regulations: 64(1), 64.2

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

Reference number must be from the credit file provider

Question:

A financial entity intends to use the credit file method in order to ascertain the identity of clients. In order to meet the record keeping requirements, it needs to record “the number of the person’s credit file”. The financial entity is proposing to retain a unique reference number. The unique reference number is created by the financial entity and is sent to the credit file provider along with the client’s name, address and date of birth for verification.  The credit file provider confirms a successful match to the name, address and date of birth information, confirms a credit history of at least three years and provides confirmation back to the financial entity which includes the full unique reference number originally submitted by the financial entity.

Please advise if this unique reference number, generated by the financial entity and returned by the credit file provider, meets the record keeping requirements for “the number of the person’s credit file”.

Answer:

According to paragraph 64.2(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a reporting entity that ascertains a client’s identity using the credit file method must keep a record that includes the person’s name, the date on which they verified the person’s identity, the source of the information, and the number of the person’s credit file.

The number must be unique to the person and must be associated to the person’s credit file. This means the number must remain the same regardless of which reporting entity obtains the information or the frequency at which they access it. As a result, only the credit file provider may generate the person’s credit file number.

Consequently, it appears the unique reference number generated by the financial entity would not fulfil the record keeping requirements related to the credit file method.

Date answered: 2016-10-25

PI Number: PI-7648

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance: Record keeping requirements for financial entities

Regulations: 64.2(c)

Electronic signature and signature card

Question:

I am seeking clarification regarding the definitions of signature and signature card under the amended Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). More specifically, I am wondering what forms of e-signatures FINTRAC will accept. For example, will typing initials, typing in a name, etc. be accepted as a valid electronic signature?

Answer:

The recently amended PCMLTFR expands upon the previous definition of a signature to more broadly include electronic signatures.

Subsection 1(2) of the PCMLTFR now defines a signature as “an electronic signature or other information in electronic form that is created or adopted by a client of a person or entity referred to in section 5 of the Act and that is accepted by the person or entity as being unique to that client”. Additionally, pursuant to subsection 1(2) of the PCMLTFR, a “signature card, in respect of an account, means a document that is signed by a person who is authorized to give instructions in respect of the account, or electronic data that constitutes the signature of such a person”.

Therefore, reporting entities may define what is considered to be a signature. It can be numeric or character based or even voice, so long as it is unique to the client and a record can be kept.

Date answered: 2016-08-15

PI Number: PI-6895

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): Record Keeping

Regulations: 1(2)

Foreign currency exchange transaction ticket requirements for a Canadian branch

Question:

Could you confirm the following: a Canadian branch of an authorized foreign bank does not have foreign currency exchange transaction record keeping obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations?

Answer:

Regarding foreign exchange transactions, paragraph 14(j) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that, subject to subsection 62(2), every financial entity shall keep “a transaction ticket in respect of every foreign currency exchange transaction”.

The information provided specifies that the Canadian branch does not have an FX business and conducts no FX transactions with its customers and that the Bank located outside of Canada also has relationships with certain of these customers for FX transactions. It on-boards these customers using its own processes and has its own agreements with these customers, in compliance with applicable law in the foreign country, and there is no involvement by the Canadian branch in this connection.

As a result, based on our understanding, it appears that the Canadian branch of the Bank is not conducting foreign currency exchange transactions, and therefore, is not required to keep foreign currency exchange transaction tickets as outlined under the PCMLTFA and its associated Regulations.

Date answered: 2016-08-08

PI Number: PI-6891

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 14(j)

Opening an account in its name - exception 62(2)(l)

Question:

We are seeking guidance regarding the application of the exceptions provided under paragraphs 62(2)(j) and 62(2)(l) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) with respect to record-keeping and ascertaining the identity of clients.

By way of background, a law firm acting on behalf of its client has contacted our financial institution to have funds held in escrow until a judgment is handed down, and our financial institution must open a trust account into which a deposit can be made.

The account holder is our financial institution, and the persons authorized to act on the account are employees acting as trustees who are duly authorized by means of corporate resolutions. Deposits in this account will only be released upon an order in a court judgment.

Answer:

Pursuant to subsection 62(2) of the PCMLTFR, there are certain exceptions to the requirements relating to record-keeping and ascertaining identity, namely in the case of 

"(j) the opening of an account established pursuant to the escrow requirements of a Canadian securities regulator or a Canadian stock exchange or any provincial legislation; and
(l) the opening of an account in the name of, or in respect of which instructions are authorized to be given by, a financial entity, a securities dealer or a life insurance company or by an investment fund that is regulated under provincial securities legislation."

It is important to note that, since the entities mentioned in paragraph 62(2)(l) of the PCMLTFR are defined in subsection 1(2) of the PCMLTFR, the application of this exception is very specific.

Based on the information provided, it is our understanding that your financial entity is opening a trust account in its name, and that it is the financial entity's employees, acting as trustees as part of their duties for the financial entity, who are authorized to give instructions in respect of the account. Hence, the exception in paragraph 62(2)(l) of the PCMLTFR appears to apply as long as the financial entity meets all the specified requirements.

Date answered: 2016-07-21

PI Number: PI-6919

Activity Sector(s): Financial entities

Obligation(s): Verifying identity, Record Keeping

Regulations: 1(2), 62(2)(j), 62(2)(l)

Additional party added to a real estate offer

Question:

We are wondering whether we need to obtain client identity information for an additional party that has been added to an accepted real estate offer?

Answer:

According 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.”

According to paragraph 59.2(1)(a) of the PCMLTFR, “Subject to subsection 62(2) and section 63, every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1), in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction”.

Subsection 39(1) of the PCMLTFR states that certain records must be kept by a real estate broker or sales representative when engaging in the activity described in section 37 of the PCMLTFR, and as per paragraph 39(1)(b) of the PCMLTFR, “a client information record must be kept in respect of every purchase or sale of real estate”.

Therefore, to answer your question, you must ascertain the identity, and keep the required records, of every person who conducts the transaction. This includes the party added to the offer, as per the PCMLTFR.

Date answered: 2016-07-20

PI Number: PI-6879

Activity Sector(s): Real estate

Obligation(s): Verifying identity, Record Keeping

Regulations: 37, 39(1), 59.2(1)a)

Receipt of funds record - Exception for financial entities and public bodies

Question:

  1. What triggers the obligation to verify the identity of an individual for the ROFR? Is it “the person delivering the funds or the person who has legal ownership over them” who needs to be identified? More specifically, whose identity should be verified for the receipt of funds record in the following circumstances:
     
    1. Funds in the form of a personal cheque with the name of one person detailed on the cheque, but physically delivered by another person
    2. Funds in the form of a bank draft with no name detailed on it and physically delivered by someone who is not the client
    3. Funds in the form of a personal cheque with two names detailed on it and physically delivered by a third person or by only one of the people named on the cheque
       
  2. Is there an exception for when funds are received from a financial entity or a public body? For example, if I am a Developer and a purchaser gives me a deposit through a wire transfer that is technically a payment through a financial entity (assuming the entity qualifies) so would that qualify for the exemption? Or would I have to keep a ROFR?

Answer:

Real estate agents and brokers, while engaged in the purchase or sale of real estate, are required to keep certain records under subsection 39(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). One of the records that real estate agents and brokers are required to keep is the ROFR. The ROFR is required in respect of every amount that a real estate agent or broker receives, in the course of a single transaction, unless the amount is received from a financial entity or a public body.

According to subsection 1(2) of the PCMLTFR, the ROFR is kept in respect of a transaction in which an amount of funds is received and 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.

  1. Paragraph 59.2(1)(a) of the PCMLTFR states, “every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1), in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction.”

    Therefore, when an ROFR is required to be kept, the real estate agent or broker must verify the identity of the individual who delivers the funds, or conducts the transaction, as opposed to the person who has legal ownership over the funds. I trust this information also answers your question as to what “conducting the transaction” means for the purpose of determining who the ROFR is to be completed on.

    As explained above, according to paragraph 59.2(1)(a) of the PCMLTFR, in all three circumstances, so long as the funds are received by (i.e. the personal cheque or bank draft is made out to) the real estate agent or broker, the ROFR is to be completed on the person who is physically delivering the funds.
     

  2. Paragraphs 39(1)(a) and 39.7(1)(a) of the PCMLTFR apply to real estate brokers/sales representatives and real estate developers respectively. These provisions state that, a receipt of funds record (ROFR) must be kept for every amount received in the course of a single transaction, unless the amount is received from a financial entity or a public body.

The reference to financial entity and public body in this context is meant to refer to situations where the financial entity or public body is the client in the real estate transaction. This exception may only apply in situations where the funds being "received from a financial entity or a public body" come from a financial entity or public body. That is, the funds must be those of the financial entity or public body to give to the real estate broker, sales representative, or developer, with the receipt of funds record obligations. If the funds are received from an individual or entity that is not a financial entity or public body, then they are not received from a financial entity or public body. For example, if an individual provides a real estate broker with a bank draft, then the funds are received from that individual, not the financial entity.

To address the example you provided, if you are a real estate developer and a purchaser gives you a deposit through a wire transfer from a financial entity, the funds belong to the purchaser and therefore, are considered to be received from the purchaser, not the financial entity. Therefore, the ROFR obligations would apply to the real estate developer in this scenario.

Date answered: 2016-06-29

PI Number: PI-6432

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 39(1), 39.7(1)(a), 59.2(1)(a)

Opening an account in the case of syndicated lending

Question:

What is considered to be opening an account in the case of syndicated lending? More specifically, we would like to know whether in the case of syndicated lending, a client is considered to be opening an account with all participating banks or simply with the bank that has the central relationship.

Answer:

The term “account” is not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) or its associated Regulations. While the opening of an account for the purpose of holding client assets is understood to be an account opening, FINTRAC has taken the position that, in other cases, it is generally for a reporting entity to determine whether or not an account has been opened. Generally, financial institutions have their policies and procedures and, as such, know when an “account opening” has taken place. It is important to note that a financial deposit component does not have to be present. In cases other than deposit taking accounts, FINTRAC will generally respect the entity’s determination of whether or not it has opened an account.  

As reporting entities, subject to the PCMLTFA and its associated Regulations, financial entities are obligated to fulfill certain record keeping and client identification obligations when they open accounts for clients. In the case of syndicated loans, the client identification and record keeping obligations apply to all of the financial entities involved in the syndicated loan that are opening accounts.

In such cases, and as necessary to fulfil the client identification obligations of subsection 64(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), each of the participating banks and the bank that has the central relationship may put in place a written agreement or arrangement so that all the participating banks may rely on the information gathered from the bank that holds the central relationship. The participating banks would then have the responsibility to obtain from the bank that holds the central relationship the client information obtained under that agreement or arrangement.

Date answered: 2016-05-06

PI Number: PI-6421

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 64(1)

When to deny a transaction?

Question:

If a person wishing to offer on a property has not complied with the request for identification of the real estate agent, either due to not understanding or otherwise, should the real estate agent refuse to put the offer in?

Answer:

Every real estate broker or sales person is subject to Part 1 of the Proceeds of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTA) when they act as an agent in respect of the purchase or sale of real estate. When subject to the PCMLTFA, the real estate broker or sales representative must keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body; (b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative.

If the real estate broker or sales representative receives an amount of $10,000 or more in cash in the course of a single transaction, then they must keep a large cash transaction record instead of the receipt of funds record.

Pursuant to subsection 59.2(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, for any of the records listed above, the real estate broker or sales representative must ascertain the identity of every person who conducts the transaction, and, in accordance with sections 65 and 66, respectively, confirm the existence of every corporation or entity other than a corporation on whose behalf the transaction is conducted.

In the case of a corporation, the real estate broker or sales representative must also ascertain the name and address of the corporation, as well as the names of its directors.

While none of the PCMLTFA or its associated Regulations specify when a real estate transaction may or may not proceed, every real estate broker or sale representative who acts in respect of the purchase or sale of property without keeping the necessary records, or ascertaining identity, as outlined above, is in non-compliance with the obligations of the PCMLTFA and its associated Regulations, and to be in non-compliance with Part 1 of the PCMLTFA may result in criminal or administrative penalties.

Date answered: 2016-03-30

PI Number: PI-6410

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 39(1), 59.2(1), 64(1)(a)

Act: Part 1

Existence of a corporation and ascertaining identity of clients

Question:

What type of document is sufficient to prove the existence of the corporation? Also, please confirm that there is no requirement to re-identify our clients at closing?

Answer:

Every real estate broker or sales person is subject to Part 1 of the Proceeds of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTA) when they act as an agent in respect of the purchase or sale of real estate. When subject to the PCMLTFA, the real estate broker or sales representative must keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative.

If the real estate broker or sales representative receives an amount of $10,000 or more in cash in the course of a single transaction, then they must keep a large cash transaction record instead of the receipt of funds record.

Pursuant to subsection 59.2(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, for any of the records listed above, the real estate broker or sales representative must ascertain the identity of every person who conducts the transaction, and, in accordance with sections 65 and 66, respectively, confirm the existence of every corporation or entity other than a corporation on whose behalf the transaction is conducted. In the case of a corporation, the real estate broker or sales representative must also ascertain the name and address of the corporation, as well as the names of its directors.

As outlined in FINTRAC’s Guideline 6B - Record Keeping and Client Identification for Real Estate, to confirm the existence of a corporation as well as the corporation's name and address, a reporting entity may refer to the following documents:

  • the corporation's certificate of corporate status;
  • a record that has to be filed annually under provincial securities legislation; or
  • any other record that confirms the corporation's existence (e.g., the corporation's published annual report signed by an independent audit firm, or a letter or a notice of assessment for the corporation from a municipal, provincial, territorial or federal government).

When a real estate broker or sales representative is also required to keep a record a copy of the part of the official corporate records showing the provisions relating to the power to bind the corporation regarding the transaction, FINTRAC has suggested referring to a certificate of incumbency, the articles of incorporation or the bylaws of the corporation that set out the officers duly authorized to sign on behalf of the corporation, such as the president, treasurer, vice-president, comptroller, etc.

If there were changes subsequent to the articles or bylaws that relate to the power to bind the corporation regarding the purchase and these changes were applicable at the time that the record had to be kept, then the board resolution stating the change would be included in this type of record.

You will note that the examples provided in the FINTRAC Guidelines are different for each requirement (confirmation of existence vs. power to bind the corporation), however should there be one document that does meet both requirements, then a real estate broker or sales person would be able to use this.

Regarding your question on ascertaining identification, as outlined above, a real estate broker or sales person is required to ascertain identity in relation to the keeping of certain records. In addition, identity must be ascertained, with some exceptions, if the real estate broker or sales person is filing a large cash or suspicious transaction report. If the real estate broker or sales person refers to the client’s birth certificate, driver’s licence, provincial health insurance card (if such use of the card is not prohibited by the applicable provincial law), passport or other similar document, then at the time this document is referred to, it must be valid and not have expired. There is not a specific requirement to ascertain the identity of your client again at closing, unless another obligation triggers such a requirement (i.e., receipt of funds, large cash transaction, client information record, etc.) If one of these other obligations triggers the need to ascertain identity again at closing, and should the real estate broker or sales person refer to the client’s birth certificate, driver’s licence, provincial health insurance card (if such use of the card is not prohibited by the applicable provincial law), passport or other similar document, then that document must be valid and not have expired.

Date answered: 2016-03-30

PI Number: PI-6409

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 39(1), 59.2(1)

Act: Part 1

Real estate investment trusts and exception under 62(2)

Question:

Can a real estate investment trust, although it is not a corporation, qualify for the exception described in paragraph 62(2)(m) of the PCMLTFR if it meets the other criteria mentioned in that paragraph (e.g. It has minimum net assets of $75,000,000, its shares are traded on a Canadian stock exchange and it operates in a country that is a member of the Financial Action Task Force (FATF))?

If it does not meet the above criteria, can the real estate investment trust qualify as an investment fund which is regulated under provincial securities legislation, as described in paragraph 62(2)(l) of the PCMLTFR?

Answer:

It has been determined that Real Estate Investment Trusts are neither public bodies nor corporations. As such, although they may meet the other requirements of paragraph 62(2)(m), that is they have the minimum net assets, are traded on an applicable stock exchange and operate in an FATF country, a reporting entity cannot apply paragraph 62(2)(m) of the PCMLTFR because the Real Estate Investment Trust does not satisfy all of the requirements.

That said, it is my understanding that Real Estate Investment Trusts are regulated under provincial securities legislation. As such, a reporting entity could apply the exception outlined in paragraph 62(2)(l) of the PCMLTFR, whereby certain sections and subsections of the PCMLTFR do not apply in respect of the opening of an account in the name of, or in respect of which instructions are authorized to be given by, a financial entity, a securities dealer or a life insurance company or by an investment fund that is regulated under provincial securities legislation.

Date answered: 2016-03-17

PI Number: PI-6404

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

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

Address records requirements

Question:

Is it a requirement for reporting entities to obtain a physical address for ongoing monitoring purposes?

Answer:

As outlined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), the obligations when the credit union opens an account for a person include:

  1. keeping a signature card in respect of each account holder for that account [subsection 14(a) of the PCMLTFR];
  2. ascertaining the identity of every person who signs a signature card in respect of an account [subsection 54(1) of the PCMLTFR]; and,
  3. keeping a record of the client’s name, address, date of birth, and the nature of their principal business or their occupation, as applicable (client identification information)[subsection 14(c) of the PCMLTFR].

We have said previously that a postal box is not a valid or legitimate address, it is only a box allocated by the post office to clients to receive their mail. The address referred to in the PCMLTFR is the physical address where the client lives.

Stemming from the opening of an account, where the identity of a signatory to the account is ascertained, is the establishment of a business relationship for which the financial entity is required to conduct ongoing monitoring [paragraph 54.3(1)(a) of the PCMLTFR]. This means that, on a periodic basis, the credit union must monitor their business relationships for the purpose of, among other things, keeping client identification information up to date. Given that client identification information includes the client’s address, the credit union is required to keep this information up to date through ongoing monitoring.

Date answered: 2016-01-22

PI Number: PI-6386

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14(a), 14(c), 54(1), 54.3(1)(a)

Provincial public records

Question:

Under section 20 and paragraph 23(1)(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, what are the requirements related to keeping a copy of the part of the official records for insurance companies and securities dealers? More specifically, can the copy of the public records be considered as a copy of the part of the official corporate records in order to open an account with a securities dealer and/or purchase an insurance product from an insurer?

Answer:

Subject to subsection 20.2, “every life insurance company or life insurance broker or agent who keeps a client information record in respect of a corporation under subsection 19(1) shall also keep 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 life insurance company or life insurance broker or agent, if the copy of that part is obtained in the normal course of business."

Paragraph 23(1)(b) of the Regulations stipulates that “Subject to subsection 62(2), every securities dealer shall keep the following records ... where the securities dealer opens an account in respect of 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 that account."

On this topic, concerning the types of documents that are considered official records, FINTRAC has previously indicated that they could consist of a certificate of incumbency, articles of incorporation or by-laws of the corporation that specify the officers duly authorized to sign for the account on behalf of the corporation, for example, the president, treasurer, vice-president and controller. If changes are made later to the articles of incorporation or by-laws in respect of the power to bind the corporation for the account opened and these changes were in effect when the account was opened, the resolution adopted by the board in this respect must be indicated in this type of document. It is also essential that the document include a provision on the power to bind the corporation regarding transactions with a life insurance company or a securities dealer.

Therefore, regarding the copy of the part of official records from the public records, as long as it contains provisions to bind the corporation to the account, requirements presented in section 20 and paragraph 23(1)(b) of the Regulations will be met.

Date answered: 2015-08-21

PI Number: PI-6347

Activity Sector(s): Life insurance, Securities dealers

Obligation(s): Record Keeping

Guidance:

Regulations: 20, 23(1)b)

The normal course of business

Question:

Section 20 of the Regulations states: every life insurance company or life insurance broker or agent who keeps a client information record in respect of a corporation ... shall also keep 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 life insurance company or life insurance broker or agent, if the copy of that part is obtained in the normal course of business.“

I am not sure that I understand the end of the section, “ if the copy of that part is obtained in the normal course of business.“ What is meant exactly?

Answer:

Section 20 of the Regulations stipulates that “Subject to section 20.2, every life insurance company or life insurance broker or agent who keeps a client information record in respect of a corporation under subsection 19(1) shall also keep 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 life insurance company or life insurance broker or agent, if the copy of that part is obtained in the normal course of business.“

Knowing whether the copy of the part is obtained in the normal course of business is always a question of fact. However, we understand this expression to mean that the copy of the part is obtained as part of the entity's business model. Basically, if the copy of the part is obtained in order to accomplish other obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its related regulations or if it is obtained during the course of the business's daily activities outside the Act's requirements, the life insurance company or its representative needs to keep a copy. So a copy must be kept if the life insurance company or its representative receives this document at any time and for any reason as part of its services offered to clients. However, it should be noted that the life insurance company or its representative may not receive an extract copy. Nevertheless, if this copy of the part exists and it is obtained in the normal course of business, the copy of the part must be kept.

Date answered: 2015-07-23

PI Number: PI-6331

Activity Sector(s): Life insurance

Obligation(s): Record Keeping

Guidance:

Regulations: 20

Obligations and Exception for a type of Trust account

Question:

What record keeping and client identification obligations do we have for a specific type of trust account we open? Also, do the exceptions listed under section 62 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) apply?

Answer:

Based on the information you provided, it is our understanding that you open this specific type of trust account for companies who receive provincial approval to operate a community economic development investment fund (CEDIF) and “raise capital through an exempt public offering in Nova Scotia.” These trust accounts are opened in the name of your entity, and its employees are identified as signers for the account, however, it appears that instructions for the account are given by the CEDIF approved company.

Reporting entities subject to the PCMLTFA have record keeping and reporting obligations, including client identification obligations. They must take certain measures to ascertain the identity of individuals or to confirm the existence of entities.

Having said that, paragraph 62(2)(l) of the PCMLTFR provides an exception to record-keeping and ascertaining identity for reporting entities when “the opening of an account in the name of, or in respect of which instructions are authorized to be given by, a financial entity, a securities dealer or a life insurance company or by an investment fund that is regulated under provincial securities legislation” occurs. Of course, the exceptions are not mandatory, so it is for the reporting entity to decide whether it will apply them or not.

Date answered: 2015-01-16

PI Number: PI-6279

Activity Sector(s): Financial entities

Obligation(s): Verifying identity, Record Keeping

Guidance:

Regulations: 62(2)(l)

Real estate brokers or sales representatives selling private property

Question:

Would the brokerage be legally liable for the completion of any forms required in a scenario where the agent, licensed under a brokerage, is privately selling property?

Answer:

Subsection 1(2) of the PCMLTFA states, “a real estate broker or sales representative means a person or entity that is registered or licensed under the provincial legislation in respect of the sale or purchase of real estate.” According 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 I of the Act when they act as an agent in respect of the purchase or sale of real estate”.

In this scenario, the real estate agent is privately selling personal property without involving the brokerage. If this real estate agent is acting as an agent in respect of the sale of real estate (representing another person/entity in this transaction), in the course of a private sale of a property, the brokerage wouldn’t be required to fulfil any obligations. However, the real estate agent would have to fulfill certain obligations, unless the real estate agent is selling this property for him/herself.

Date answered: 2014-11-18

PI Number: PI-6257

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 37

Act: 1(2)

Receipt of funds and associated obligations for accountants, and their use of their clients’ accounts.

Question:

  1. Receipt of Funds: Are these requirements only triggered by "receipt" in connection with one of the activities noted in s. 34(1) (i.e. the accounting firm directly receiving or giving instructions to receive $3,000 in cash, securities, real property, or business assets, or $10k+ in cash)? Or are they also triggered when the accounting firm pays or transfers out that amount in accordance with the client's instructions?
     
  2. Use of Client Accounts: Suppose an accounting performs financial services for its client through client authorizations to use the client's own accounts for specific purposes (e.g. payroll), rather than receiving money into and disbursing from the accounting firm's own accounts. As such, the accounting firm does not "receive" funds. Does the accounting firm incur reporting, record-keeping, and/or identification requirements when sums are received into/paid out of client accounts?

Answer:

  1. Paragraph 5(j) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) limits the application of Part 1 for accountants to activities described in regulations. The obligations for accountants apply only while they are carrying out the triggering activities described in subsection 34(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). This means accountants are subject to Part 1, but only when they conduct the following activities on behalf of any individual or entity, or give instructions relating to the following activities on behalf of any individual or entity:
  • receiving or paying funds;
  • purchasing or selling securities, real property or business assets or entities; or
  • transferring funds or securities by any means.

In addition, subsections 36(1) and 36(2) of the PCMLTFR state :
“(1) 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.

(2) Subject to subsection 52(2), every accountant and every accounting firm shall, when engaging in an activity described in section 34, keep a large cash transaction record in respect of every amount in cash of $10,000 or more that they receive in the course of a single transaction, unless the cash is received from a financial entity or a public body.”

You asked if the record keeping requirement “is also triggered when the accounting firm pays or transfers out that amount in accordance with the client's instructions.” When the accountant pays or transfers an amount in accordance with its client’s instructions, he or she is undertaking an activity for which he is covered under part 1 of the PCMLTFA. However, the requirement for record keeping is specific to the two triggering activities under subsections 36(1) and (2), and only exist when the accountant receives funds. Therefore, the accountant would not have any record keeping obligation in cases where he pays out or transfers funds.

It should be noted that while the record keeping requirement is limited to the triggering activities under subsections 36(1) and (2), accountants are required to meet other obligations under the PCMLTFR.

  1. As previously noted, accountants are subject to Part 1, but only when they conduct the following activities on behalf of any individual or entity, or give instructions relating to the following activities on behalf of any individual or entity:
  • receiving or paying funds;
  • purchasing or selling securities, real property or business assets or entities; or
  • transferring funds or securities by any means.

The obligations do not refer to the account being used by the accountant, rather the obligations are tied to whether or not the accountant is conducting an activity on behalf of any individual or entity or giving instructions on behalf of any individual or entity. As such, should the accountant be using the client’s account to conduct the triggering transactions, the accountant would still be subject to the obligations of the PCMLTFA and its associated Regulations.

That said, while the accountant may not “receive” funds in a scenario such as the one you have suggested, the following obligations would still exist and the accountant 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.

Date answered: 2014-09-12

PI Number: PI-6235

Activity Sector(s): Accountants

Obligation(s): Record Keeping

Guidance:

Regulations: 34(1), 36

Act: 5(j)

Receipt of funds record obligations

Question:

Could you please confirm that this means if funds greater than $3000 are received by a law firm, not for fees for professional services or disbursements but for any other purpose, in the form of a personal cheque or cash, then the law firm must record the transaction and ascertain the identity of every person and confirm the existence of every corporation who conducts the transaction?

Answer:

Pursuant to subsection 1(2) of the PCMLTFR, financial entity means an authorized foreign bank, as defined in section 2 of the Bank Act, in respect of its business in Canada or a bank to which that Act applies, a cooperative credit society, savings and credit union or caisse populaire that is regulated by a provincial Act, an association that is regulated by the Cooperative Credit Associations Act, a financial services cooperative, a credit union central, a company to which the Trust and Loan Companies Act applies and a trust company or loan company regulated by a provincial Act. It includes a department or agent of Her Majesty in right of Canada or of a province when the department or agent is carrying out an activity referred to in section 45.

Where, throughout the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated Regulations, there is reference to funds being “received from a financial entity” these funds must come from a financial entity as defined above. An individual does not meet this definition, even where an individual is sending funds by means of a personal cheque bearing the bank's business logo, because the funds are still received from the individual.

That said, legal counsel are not, at this time, subject to Part 1 of the PCMLTFA and its associated Regulations. Therefore, the receipt of funds record obligations outlined in subsection 33.4(a) are not currently in force. The [reporting entity] of Law Societies may, however, impose certain requirements similar to those outlined in the PCMLTFA and its associated Regulations.

Date answered: 2014-09-10

PI Number: PI-6232

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 33.4(a)

Clarification about the time of transaction for a real estate transaction

Question:

  1. Does FINTRAC define the "time of the transaction" for real estate transactions as the time when the deed is signed? If not, how do you define it?
     
  2. In the case of an LCTR, when should the LCTR be sent to FINTRAC:

a) within 15 calendar days after an amount of $10,000 or more in cash is received in the course of a single transaction (regardless of when the deed is signed)?
b) within 15 calendar days after the transaction, meaning within 15 calendar days of when the deed is signed (if this is how a real estate transaction is defined by FINTRAC for both client ID/record-keeping purposes and LCTR reporting purposes).
c) some other interpretation?

Answer:

According 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.” Section 38 indicates, “Subject to subsection 52(1), every real estate broker or sales representative who, while engaging in an activity described in section 37, 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 amount is received from a financial entity or public body.”

Record-keeping
Pursuant to subsection 39(1) of the PCMLTFR subject to subsections (3), (4), (5), (6), 52(2) and 62(2), every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative.

Additionally, pursuant to subsection 39(2) of the PCMLTFR, subject to subsection 52(2), every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep a large cash transaction record in respect of every amount in cash of $10,000 or more that they receive in the course of a single transaction, unless the cash is received from a financial entity or a public body. If the real estate broker or sales representative is required to keep a large cash transaction record in respect of a transaction, they do not also have to keep a receipt of funds record and the associated official corporate records in respect of a corporation, for that same transaction.

Ascertaining identity
Subsection 64(1) of the PCMLTFR states that the identification shall be ascertained at the time set out in subsection 64(2). Paragraph 64(2)(e) of the PCMLTFR states that “the identity shall be ascertained … in the cases referred to in paragraphs … 59.2(a), at the time of the transaction”.

Subsection paragraph 59.2(1) of the PCMLTFR states, “Subject to subsection 62(2) and section 63, every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1),
(a) in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction;
(b) in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
(c) in accordance with section 66, confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted.

Furthermore, pursuant to section 53 of the 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.

Time of the transaction
The “time of the transaction” can vary depending on the requirement. Where a receipt of cash or funds triggers the requirements, as is the case for the Large Cash Transaction Record or the Receipt of Funds Record, respectively, the obligations are triggered from the moment the cash or funds are received by the real estate broker or sales representative acting as an agent in respect of the purchase or sale of real estate. There is no requirement for the purchase or sale of a property to be completed. Subsequently, the ascertaining of identity associated with these record-keeping obligations is triggered with the record-keeping obligations. The reporting of a large cash transaction is required within 15 days after the large cash transaction.

If the triggering activity is a client information record, the timing for creating this record and any associated obligations, such as ascertaining identity, are tied to the purchase or sale of real estate. As such, the reporting entity has to create the client information record in respect of every purchase or sale of real estate. The client information record “in respect of a purchase or sale” would have to be created at the time of the transaction (i.e. that purchase or sale).

Given that a real estate broker or sales representative may not be present at the time of the transaction, consideration may be given to carrying out the obligations when the opportunity arises. For example, we understand that certain Real Estate agents’ associations recommend that, to ensure that the identification has occurred as required, even if their members are not present at the time of the transaction, they may want to proceed with the identification beforehand (i.e. at the time they first meet their client or sign an agreement to represent them).

Date answered: 2014-08-22

PI Number: PI-6222

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 37, 38, 39, 53, 59.2(1), 64(1), 64(2)

Life Insurance Company obligations

Question:

Does the Life Insurance Company have legal obligations under the Act and Regulations for the mortgage product? Are those obligations related to client identification/record keeping/beneficial ownership, RBA/high risk rating of client, and/or STR?

Answer:

It is important to note, however, that certain of the obligations outlined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) only apply to specific types of products that a life insurance company may offer. Specifically, a client information record is only required for every purchase from the company, broker or agent of an immediate or deferred annuity or a life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy, regardless of the means of payment (ss. 19(1) PCMLTFR). Unless the product in question is “an immediate or deferred annuity or a life insurance policy for which the client may pay $10,000 or more over the duration of the annuity or policy” the PCMLTFR does not require a client information record. This has a trickle-down effect on ascertaining of identity, because the requirement to ascertain identity is tied in most cases, to the requirement to keep a client information record. This also impacts the beneficial ownership requirements, because the life insurance company is only required to determine beneficial ownership where they have to confirm the existence of an entity, and this confirmation is required only in cases where the life insurance company must keep a client information record.

Furthermore, the determination as to whether or not the life insurance company is dealing with a politically exposed foreign person (PEFP) is only required where a person makes a lump-sum payment of $100,000 or more in respect of an immediate or deferred annuity or life insurance policy on their own behalf or on behalf of a third party.

That said, the life insurance company is required to keep a large cash transaction record regardless of the product, unless they are dealing in reinsurance, ascertain identity, and submit a large cash transaction report (s. 18 PCMLTFR, s. 53 PCMLTFR, s. 17 PCMLTFR, respectively.) Furthermore, subject to section 10.1 of the PCMLTFA, the life insurance company must report, 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 (s. 7 PCMLTFA.) Where the life insurance company is required to submit an STR, they must take reasonable measures to ascertain the identity of every person who conducts or attempts to conduct a transaction that is required to be reported to the Centre under section 7 of the Act, unless identity was previously ascertained or the life insurance company believes that complying would inform the person of the report being submitted. The life insurance company would also be required to submit a terrorist property report to FINTRAC, if 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.

Finally, pursuant to subsection 9.6(2) of the PCMLTFA, the program established and implemented by the life insurance company under 9.6(1) if the PCMLTFA, shall include the development and application of policies and procedures for the person or entity to assess, in the course of their activities, the risk of a money laundering offence or a terrorist activity financing offence, taking into consideration :
(i) the clients and business relationships of the person or entity,
(ii) the products and delivery channels of the person or entity,
(iii) the geographic location of the activities of the person or entity, and
(iv) any other relevant factor;

If the life insurance company considers that the risk referred to in subsection (2) is high, the person or entity shall take prescribed special measures for identifying clients, keeping records and monitoring financial transactions in respect of the activities that pose the high risk. The prescribed special measures are those outlined in 71.1 of the PCMLTFR.

All of this to say that the life insurance company’s mortgage products would only be subject to the large cash transaction, suspicious transaction and terrorist property obligations. However, all of the life insurance company’s clients and products, among other things, would be subject to the life insurance company’s risk assessment obligations, and those clients for which identity had to be ascertained at least twice would be subject to the business relationship obligations (including ongoing monitoring and keeping a record that sets out the purpose and intended nature of each business relationship).

Date answered: 2014-08-13

PI Number: PI-6215

Activity Sector(s): Life insurance

Obligation(s): Record Keeping

Guidance:

Regulations: 17, 18, 19(1), 53, 71.1

Act: 7, 9.6(2)

Relationships of the parties - Applicability of client identification requirements to portfolio managers

Question:

Questions refer to Model 1: The client enters into an agreement with a PM

  1. Under whose name the account is opened – the client’s or the PM’s?
  2. From the SD’s perspective, would the client be considered a third party to the transaction? If so, would the SD clarify the third party aspect?

Questions refer to Model 2:The client enters into an agreement with a PM authorizing the PM to manage assets held in one or more accounts that the client has or will establish with a securities dealer(s)

  1. Please clarify the relationship between the client, the PMs and the SDs.

Answer:

First, we agree that Section 57 applies only where a securities dealer is required to keep records as required under subsection 23(1).

For Model 1, we understand that the securities dealer (SD) is opening an account in the name of a client, with the portfolio manager (PM) acting as an agent for the SD. Pursuant to subsection 6(2) of the PCMLTFR, which states that “Where a person or entity who is subject to the requirements of these Regulations, […], 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”, the SD is the reporting entity, and has the obligations to ascertain identity and keep records.

As per subsections 64.1(1) and (2) of the PCMLTFR, if the SD is relying on an agent or mandatary to take the identification measures described under subsection 64(1) of the PCMLTFR, it must enter into an agreement or an arrangement with the PM in writing and the SD would be obligated to obtain the customer information from the PM.

It should be noted that if the account were indeed to be opened in the name of the PM, then the SD would retain the obligations, and pursuant to Section 9 of the PCMLTFR, would have to conduct a third party determination and keep the associated records.

As for Model 2, the SD is doing the account opening. The SD is the reporting entity and has the obligations under the PCMLTFR. This is consistent with what we have indicated in the past: “Even if a management mandate is given to a portfolio manager, the client is the person who has the account and who assigns the mandate, so the client must be identified. Ultimately, in this case, the client holding the account is still the person "responsible" for the account and can, at any time, decide to give instructions regarding the account directly (without going through the portfolio manager).”

It should however be noted that in some cases, PMs could open accounts for their client, even if those accounts are not for deposit taking purpose. Changes to the PCMLTFA under paragraph 5(g) are now in force and, while associated regulations have not been developed, the Act has introduced a specific amendment to what constitute a securities dealers subject to Part 1 pf the PCMLTFA, which now reads: “5(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, other than persons who act exclusively on behalf of such an authorized person or entity.”

In this case, if they are acting “exclusively on behalf of” a securities dealer, they would not be considered a reporting entity for the purpose of our Act; however, in those cases, it would be a question of facts whether they are subject to the PCMLTFA or not.

Date answered: 2014-08-07

PI Number: PI-6210

Activity Sector(s): Securities dealers

Obligation(s): Record Keeping

Guidance:

Regulations: 6(2), 9, 23(1), 57, 64.1

Act: 5(g)

Banking relationships

Question:

  1. In case of entering into a relationship with a foreign bank to extend trade services, would the Letter of Credit related to a specific trade finance deal be accepted as a Correspondent Banking agreement/arrangement?
     
  2. Similarly in the case of exchanging SWIFT Relationship Management Application (RMA) with a foreign bank but no transactions or trade communication has been exchanged yet.
    a. Would FINTRAC deem the Bank has established a Correspondent Banking relationship and therefore the agreement/arrangement document is required?
    b. Would FINTRAC accept the SWIFT RMA itself as a form of Correspondent Banking agreement/arrangement?”

Answer:

A “prescribed financial entity” under subsection 15.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) requires it to be a foreign financial institution. Before entering into any correspondent banking agreement, you would also be required to take the measures described under section 9.4 of the Proceeds of Crime(Money Laundering) and Terrorist Financing Act (PCMLTFA) related to due diligence regarding shell banks.

  1. A “Correspondent banking relationship” is defined in subsection 9.4 (3) of the PCMLTFA as “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.”

Under 15.1(2)(f) of the PCMLTFR, the required record of the arrangement is “a copy of the correspondent banking agreement or arrangement, or product agreements, defining the respective responsibilities of each entity.” The acceptability of a Letter of Credit would depend on the extent of the information it includes about the responsibilities of each entity regarding the service being agreed to; typical letters of credit would define only financial responsibilities, and this would likely not satisfy the requirements under 15.1(2)(f).

  1. The SWIFT Web site defines the Relationship Management Application (RMA) as:

“a powerful and easy way to manage your business relationships. As a SWIFT user, you can easily control the traffic that you want to accept from other correspondents.
The solution consists of two parts:

  1. You establish authorisations ('who can send traffic to whom and when'). This can be done in two ways, either by exchanging authorisations using the RMA protocol or by creating authorisations locally.
  2. Your messaging interfaces apply these rules to control which traffic you can exchange with which correspondent.

The policy is that the use of RMA is decided by the service administrator on a service by service basis. RMA adds value in many-to-many environments where there is a requirement to be able to restrict the exchange of traffic to correspondents with whom there is a business relationship. It adds no value to many-to-one Closed User Group based services such as Market Infrastructures which are managed centrally by the Service Administrator.”

It seems that the existence of a “Correspondent banking relationship” in this case would depend on the services being agreed to between the entities under the SWIFT RMA, and if those services include the Canadian entity providing “services such as international electronic funds transfers, cash management, cheque clearing and any prescribed services” to the foreign entity, or not.

If a “Correspondent banking relationship” does exist, then the acceptability of the RMA document as “a copy of the correspondent banking agreement or arrangement, or product agreements” would again depend on it appropriately ”defining the respective responsibilities of each entity” .

Date answered: 2014-07-30

PI Number: PI-6207

Obligation(s): Record Keeping

Guidance:

Regulations: 15.1(1), 15.1(2)

Act: 9.4

Clarification on record keeping retention

Question:

How long is an investment institution required to keep records of financial transactions that have been undertaken on behalf of their clients? What happens when the institution changes ownership or name ABC is now DEF?

Can a client recover the information through an InforSource Privacy Act request? How far back? What about if a person is attempting to acquire the information on behalf of an elderly parent who has signed a consent for the institution to release the information?

If a representative of an elderly person believes that a financial institution might be short selling investments just to acquire a commission what recourse is available to protect the elderly?

Answer:

FINTRAC administers the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations, so we can only address record retention requirements that are outlined in the legislation. That said, Canadian financial institutions have an obligation to collect and retain certain specific records relating to financial transactions and activities. The timeframes for keeping records depends on the nature of those records, and are as follows:

  • In the case of signature cards, account operating agreements, client credit files, credit card applications, records setting out the intended use of the account, politically exposed foreign person records regarding an account, or a credit card account, these records have to be kept for five years from the day of closing of the account to which they relate.
  • In the case of records to confirm the existence of an entity (including a corporation), beneficial ownership records, politically exposed foreign person records regarding transactions and records about a corresponding banking relationship, they have to be kept for five years from the day the last business transaction was conducted.
  • In the case of a copy of a suspicious transaction report, the record has to be kept for a period of at least five years following the date the report was made.
  • In the case of all other records, the records must be kept for a period of at least five years following the date they were created.

In some cases, reporting entities that acquire another entity will rely on the information collected by the acquired entity, and will consequently retain those records as if they had created them.

Date answered: 2014-07-02

PI Number: PI-6171

Obligation(s): Record Keeping

Guidance:

Regulations: 69(1)

Recording of Identification and foreign currency exchange

Question:

Can an MSB request and record personal information when it exchanges under $3000.00?

Answer:

Pursuant to paragraph 59(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) an MSB must ascertain the identity of every person who conducts a foreign currency exchange transaction of $3000 or more. Furthermore, in accordance with subsection 30(f) of the PCMLTFR, the MSB must keep a record of this foreign currency exchange transaction.

When a reporting entity has to ascertain the identity of a person in connection with a transaction that they have carried out and in respect of which they are required to keep a record under these Regulations or under section 12.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations, the reporting entity has to include on, in, or with that record the name of that person and certain information related to the method in which the identity was ascertained. For example, if a driver’s license was used to ascertain the person’s identity, then the RE must record that it was the license that was used, as well as the reference number of the license and the place it was issued.

Response
It should be noted that the legal requirement to ascertain identity is triggered where the foreign exchange transaction is of $3000 or more. As such, if the foreign exchange transaction is under $3000 the PCMLTFA and its associated Regulations do not require the MSB to ascertain identity, or keep certain records related to the ascertaining of identity. A record of the foreign exchange transaction must still be kept.

That said, while the PCMLTFA and its associated Regulations may not require that the MSB ascertain identity for foreign exchange transactions of under $3000, the MSB may have its own policies and procedures in place to require that certain personal information be obtained and recorded. FINTRAC cannot comment on the day-to-day business decisions of the reporting entities that may go above and beyond the requirements of the PCMLTFA and its associated Regulations.

Date answered: 2014-06-05

PI Number: PI-6157

Activity Sector(s): Money services businesses

Obligation(s): Record Keeping

Guidance:

Regulations: 12.1, 30(f), 59(1)(c)

Definition of ''Account''

Question:

Can you clarify the definition of “account” and how it pertains to a financial institution in The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR)?

Answer:

Pursuant to section 5 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) companies to which the Trust and Loan Companies Act applies and trust companies regulated by a provincial Act are subject to Part 1 of the PCMLTFA, which would include the obligations associated with account opening.

The term “account” is not defined in the PCMLTFA or its associated Regulations. While the opening of an account for the purpose of holding a client’s assets is clearly understood to be an account opening, FINTRAC has taken the position that, in other cases, it is generally for a reporting entity to determine whether or not an account has been opened. Generally, financial institutions, including trust companies, have their policies and procedures, and know when an “account opening” has taken place.

In the given situation, you have taken the position that certain trust businesses may not have accounts that hold their clients’ assets, as such they do not open accounts, or have the associated obligations. Rather, in the examples provided, the trust company may act as trustee for corporations and governments in a number of different capacities including acting as issuer trustee, indenture trustee, and custodian for securitizations, acting as trustee, paying agent and registrar for debt securities, acting as escrow agent, acting as bare trustee, acting as security and collateral agent, acting as insurance trustee, and acting as trustee for pooled and mutual funds. It is important to note that to be considered an account, there does not need to be a deposit component. As indicated above, in cases other than deposit taking accounts, FINTRAC will generally respect the entity’s determination of whether or not it has opened an account in any given case.

Date answered: 2014-06-05

PI Number: PI-6156

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Act: 5

Obligations of real estate developers

Question:

I have read your online information but find that I still have questions and/or would like to have confirmation of my understanding.

  1. New homes sales people are obliged to gather a range of information on purchasers of a home and keep it on file for 5 years. This applies to all transactions, suspicious or not, correct?
     
  2. Does the Agreement of Purchase and Sale (sales contract) have to reflect the information intended to comply with FINTRAC? More specifically, must the Agreement describe the type and number of the identification document presented by the purchaser to verify identity? It is my understanding that this particular information does not need to appear in the contract document itself--could you please confirm or correct this?
     
  3. What constitutes a "record of purchaser information" for the purposes of FINTRAC? E.g. Is there a specific form for the new homes sales people to fill out, do they need to create their own form or can they simply compile and keep the information as "notes", photocopies, etc. in their own system (paper or electronic file folders).
     
  4. What are the obligations of a salesperson related to a purchaser's business or occupation? Do they simply ask and jot down the answer for their file? Or is there an onus on them to somehow verify this occupation? If yes, how so?
     
  5. If a purchaser provides $10,000 or more in cash within a 24-hour period, the new homes sales person is obliged to report this to FINTRAC, but can continue with the transaction, and without notifying the purchaser of the report. Correct? Does it follow then, that several, or a series of, cash payments of less than $10,000 each over a longer period do not trigger the need to report to FINTRAC?

Answer:

Pursuant to section 39.5 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) 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.

Individuals and entities subject to the PCMLTFA and its associated Regulations have obligations pertaining to the ascertaining of identity, record-keeping, compliance and reporting, some of which you have questions about.

  1. Yes, this is correct. Regardless of whether the home is new or previously owned, or the transaction is suspicious or not, a real estate developer must keep various records, as outlined in section 39.7 of the PCMLTFR. This includes:
  • Large cash transaction records;
  • Receipt of funds records;
  • Client information records;
  • Suspicious transaction report records.
  1. Your understanding is correct. FINTRAC does not prescribe which document(s) reporting entities are to use for record-keeping purposes. Where a real estate developer is required to keep a record, it is for them to determine how to keep the record or records. For purposes of the PCMLTFR, every record that is required to be kept under these Regulations shall be retained in such a way that it can be provided to FINTRAC within 30 days after a request is made to examine it under section 62 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (s. 70 PCMLTFR).
     
  2. As indicated in response to Question 2, FINTRAC does not prescribe the document(s) reporting entities must use for record-keeping purposes.

There is not a “record of purchaser information” per se, but real estate developers are required to keep client information records. This is a record that contains the client’s name and address and:

  • if the client is a person, their date of birth and the nature of their principal business or their occupation, as applicable;
  • if the client is an entity, the nature of their principal business.

Where and how this client information record is kept is left to the real estate developer to determine.

  1. As indicated in response to Question 3, the real estate developer must keep a client information record that contains information on the principal business or occupation of their client. There is no associated obligation to verify this information.

That said, if the client information record is in respect of a corporation, the real estate developer must keep 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 real estate developer.

Furthermore, when a real estate developer has to keep a record under section 39.7 of the PCMLTFR, they must ascertain the identity of every person who conducts the transaction; and,

(b) in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
(c) in accordance with section 66, confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted .

Section 65 of the PCMLTFR specifies that the existence of a corporation shall be confirmed and its name and address and the names of its directors shall be ascertained within 30 days after the transaction, by referring to its certificate of corporate status, a record that it is required to file annually under the applicable provincial securities legislation or any other record that ascertains its existence as a corporation. The record may be in paper form or in an electronic version that is obtained from a source that is accessible to the public. Subsection 65(3) goes on to clarify that where the information has been ascertained by referring to an electronic version of a record, the person or entity required to ascertain the information shall keep a record that sets out the corporation’s registration number, the type of record referred to and the source of the electronic version of the record. While subsection 65(4) explains that where the information has been ascertained by referring to a paper copy of a record, the person or entity required to ascertain the information shall retain the record or a copy of it.

Section 66 of the PCMLTFR requires that the existence of an entity, other than a corporation, shall be confirmed as of within 30 days after the transaction, by referring to a partnership agreement, articles of association or other similar record that ascertains its existence. The record may be in paper form or in an electronic version that is obtained from a source that is accessible to the public. Subsection 66(3) goes on to clarify that where the existence of the entity has been confirmed by referring to an electronic version of a record, the person or entity required to confirm that information shall keep a record that sets out the registration number of the entity whose existence is being confirmed, the type of record referred to and the source of the electronic version of the record. While subsection 66(4) explains that where the existence of the entity has been confirmed by referring to a paper copy of a record, the person or entity required to confirm that information shall retain the record or a copy of it.

  1. Subject to subsection 52(1) of the PCMLTFR, every real estate developer subject to Part 1 of the Act, receives an amount in cash of $10,000 or more in the course of a single transaction shall report the transaction to the Centre. A single transaction is defined as two or more cash transactions of less than $10,000 each that are made within 24 consecutive hours and that total $10,000 or more.

If a real estate developer receives $10,000 or more in cash at one time, or by means of two or more cash transactions of less than $10,000, within 24 consecutive hours, they must report this to FINTRAC.

Date answered: 2014-04-11

PI Number: PI-6136

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 39.5, 39.7, 52(1), 65, 66, 70

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)

FX transactions with EFT component

Question:

We had some Iranian Rials in Iran and we have sold it to company A in UAE and they have sent US dollar to our Bank In Europe. Normally A is INSTRUCTOR, his bank is SENDER our European Bank is Receiver and we are Beneficiary. In EFTI template from F2R, receiver is Money XYZ and won’t allow us to change to our European bank.

For transferring Rials to Iran no physical transfer will be done. It is a settlement account. As explained for Rials we have only debit /credit our account and when Iran agent owes us, he sell Rials to Company A in Dubai and asks them to send us equivalent US dollar.

So it seems such transaction is not reportable. Am I right? Would like to have your comment. In General we want to know if any wire from Canadian client from their outside Canada account comes to our European account and payment will be done from outside Canada is reportable or not.

Answer:

Paragraph 28(1)(c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) indicates, every money services business shall 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. 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.

Based on all of the above, Money XYZ does not appear to be conducting an electronic funds transfer transaction. Money XYZ is not transmitting instructions to transfer funds across the Canadian border. Money XYZ is, in fact, conducting a foreign exchange transaction for which they are being paid via EFT. They are not the entity asked by a client to send or receive the EFT, but merely a beneficiary thereof.

That said, as a foreign exchange transaction, Money XYZ would be required to keep a transaction ticket, as outlined in subsection 30(f) of the PCMLTFR and identify subject to subsection 63(1) and in accordance with subsection 64(1).

 

Date answered: 2014-01-14

PI Number: PI-5681

Activity Sector(s): Money services businesses

Obligation(s): Record Keeping

Guidance: 8

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

Negotiable instruments - cheque and bank draft

Question:

A member issues a cheque to a business who is a non-member. The business owner comes to certify the cheque, but instead of certifying the cheque, we replace the cheque issued by the member with an official cheque/bank draft for the same amount and payable to the same payee as the original cheque.

The interpretation I’m seeking is whether this transaction requires record keeping and ascertaining identification of the individual conducting the transaction?

Answer:

Paragraph 14(k) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that a financial entity must keep a record where it “receives an amount of $3,000 or more from a person or from an entity other than a financial entity in consideration of the issuance of traveller’s cheques, money orders or similar negotiable instruments,” and include in that record, “the amount received, the date it was received, the name and address of the person who in fact gave the amount and whether the amount received was in cash, cheques, traveller’s cheques, money orders or other similar negotiable instruments.”

I note the term "negotiable instruments" is not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) nor the PCMLTFR and should therefore be given its common/ordinary meaning. Black's Law Dictionary defines negotiable instruments as, "a written or signed unconditional promise or order to pay a specified sum of money on demand or at a definite time payable to order or bearer." This would include a bank draft and/ or a cheque (certified or not).

The Cross-border Currency and Monetary Instruments Reporting Regulations (CCMIRR) provides further guidance through its definition of monetary instruments. According to subsection 1(1) of these regulations, monetary instruments mean the following instruments in bearer form or in such other form as title to them passes on delivery, namely,

(a) securities, including stocks, bonds, debentures and treasury bills; and
(b) negotiable instruments, including bank drafts, cheques, promissory notes, travellers' cheques and money orders, other than warehouse receipts or bills of lading.

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

Based on the foregoing, it is clear that a cheque and/ or bank draft is a negotiable instrument and as a result, the obligations outlined in paragraph 14(k) of the PCMLTFR would apply in the above-mentioned scenario, provided the $3,000 threshold is reached.

Date answered: 2013-11-20

PI Number: PI-5648

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14(k), 1(1) CCMIRR

Record keeping obligations for incomplete transactions

Question:

Here are two questions with respect to a real estate broker’s record keeping obligations when a transaction is not fully completed:

  1. Are real estate brokers obligated to keep receipt of funds records as soon as funds are received, even in the event the purchase and/ or sale is not concluded? 
  2. Are real estate brokers obligated to keep a client information record for an incomplete transaction when there is a receipt of funds or when there is no receipt of funds?

Answer:

  1. Paragraph 39(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Subject to subsections (3), (4), (5), (6), 52(2) and 62(2), every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep the following records […] a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body”.

This record keeping requirement applies if the real estate broker or sales representative receives any amount in the course of a single transaction while acting as an agent in respect of the purchase or sale of real estate. This requirement applies as soon as the funds are received by the real estate broker or sales representative, whether or not the purchase or sale of real estate is concluded.

Unlike the large cash transaction record, the amount received for a receipt of funds record can be in any form; it does not have to be in cash. The real estate broker or sales representative does not have to keep a receipt of funds record for a transaction for which they have to keep a large cash transaction record (as per subsection 39(3) of the PCMLTFR). In other words, if the receipt of funds amounted to $10,000 of cash or more, the large cash transaction record would replace the receipt of funds record.

  1. Paragraph 39(1)(b) of the PCMLTFR states that “Subject to subsections (3), (4), (5), (6), 52(2) and 62(2), every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep the following records […] a client information record in respect of every purchase or sale of real estate”.

The real estate broker or sales representative has to keep a client information record for every purchase or sale of real estate. There is no requirement to keep a client information record if there is no purchase or sale of real estate.

 

Date answered: 2013-10-07

PI Number: PI-5632

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 39(1)(a), 39(1)(b)

Keeping records of the client’s occupation

Question:

I would like to have more information on this subject:

The legislative requirement to keep a record of the client’s occupation.

Answer:

A real estate broker or sales representative is required to keep record, among others, of the occupation of their client, if the client is an individual.

Reference to the client’s occupation should mirror standardized labour market language used to describe work performed by Canadians. This way, the occupation, as part of the familiar Canadian labour market, should convey a precise and detailed idea of the work performed.

While “retired” is not an occupation per se, this status is acceptable to refer to a client’s work situation if, indeed, the client has retired.

In the case where the client’s occupation is a doctor or a teacher, either of these occupations would be acceptable to reference because they generate a precise and detailed idea about the type of work being performed by the client.

Date answered: 2013-09-13

PI Number: PI-5616

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 39(1), 64(1)

Client Identification Record (CIR) and the Receipt of Funds Record (ROFR)

Question:

Who is responsible for submitting the Client Identification Record (CIR) and the Receipt of Funds Record (ROFR) when a client is referred to one real estate brokerage by another? The “referring” brokerage never represented the client and had no further dealings with the client once he or she was referred to the other brokerage.

Answer:

Section 37 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) stipulates that every real estate broker or sales representative who acts as an agent in respect of the purchase or sale of real estate is subject to Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Section 39 of the PCMLTFA further specifies that, every real estate broker or sales representative shall, when engaging in an activity described in section 37, keep a receipt of funds record in respect of every amount that they receive in the course of a single transaction (unless the amount is received from a financial entity or a public body) and a client information record in respect of every purchase or sale of real estate.

Under section 2 of the PCMLTFA, a “client” is defined as a person or entity that engages in a financial transaction or activity with a person or an entity referred to in section 5.

The above provisions make it clear that the record keeping obligations found in section 39 of the PCMLTFA must be fulfilled by the entity that is genuinely engaging in a financial transaction with the client. In the scenario you have provided, these obligations must be performed by the real estate broker who acts as an agent for the client in respect of the purchase or sale of real estate, not the broker who simply made the referral.

Date answered: 2013-08-29

PI Number: PI-5608

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 37

Act: 2, 39

Cardholder record keeping requirements

Question:

Assume a financial entity is opening a credit card account for a corporation that is not a securities dealer. Prior to issuing any card on the account, the financial entity: (i) performs proper client identification of the corporation (e.g. confirming existence, name, address as well as its directors’ names); and (ii) obtains proper records with respect to the corporation (e.g. official corporate records that contain provisions relating to the power to bind the corporation in respect of the account, beneficial ownership, etc.). Going forward, the financial entity also keeps a record of every credit card application received from the corporation and every credit card statement issued in respect of the corporation.

Assume also that the corporation is issued a number of credit cards on the account which may only be used in accordance with the corporation’s approved usage policy. Some of the cards are embossed with the name of a specific employee while others are simply for use by a particular department (e.g. for use by the marketing department for catering and dining). Further, all credit card statements are issued to the corporation and the corporation remains solely responsible for payment of all charges in respect of each credit card issued under the account (even those cards which are embossed with the name of a specific employee).

My question is in respect of the cardholder record keeping requirements. Specifically, is it acceptable that the financial entity has access to cardholder records (e.g. name, address, telephone number and date of birth, as available) and can draw upon this information on demand? Or is the financial entity required to “scrub” the cardholder names against applicable Canadian “blocked persons list” (keeping in mind always that it is not the individual cardholder who has applied for the account, rather such cardholder is simply using the card in their capacity as an employee of the corporation).

My understanding is that the corporation is “the client” of the financial entity and thus only the corporate information (e.g. name of corporation, directors, and beneficial owners) is scrubbed against the blocked persons list. In other words, it is not necessary to maintain the cardholder information in the same processing platform as the corporate information (keeping in mind always that the specified information for each cardholder can nevertheless be obtained on demand). Can you please confirm whether my understanding is correct?

Answer:

Section 54.1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states, “Subject to subsections 62(1) and (2) and section 63, every financial entity shall:

(b) where the financial entity opens a credit card account in the name of a corporation, confirm the existence of and ascertain the name and address of the corporation and the names of its directors in accordance with section 65”.

Therefore, your understanding that the corporation is the client of the financial entity is accurate. According to section 54.1(b), the financial entity is required to identify the corporation, but not the corporation’s employees who are designated cardholders.

Furthermore, section 14.1 of the PCMLTFR states, “Subject to subsection 62(2) every financial entity shall, in respect of every credit card account that is opens, keep a credit card account record that includes

(b) where the account is opened in the name 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 the account;
(c) the name, address and telephone number of every holder of a credit card for the account;
(d) the date of birth of every holder of a credit card for the account, if that information is known after reasonable measures have been taken by the financial entity to obtain it…”

The financial entity is required to keep certain records pertaining to cardholder information, listed above, and can draw upon this information on demand. However, unlike the corporation itself, the cardholders, or employees, do not have to be identified under 54.1(b) of the PCMLTFR. Since the cardholders do not need to be identified, only corporate information (e.g. name of corporation, directors, beneficial owners) will be able to be scrubbed against the OSFI Terrorist Listings.

 

Date answered: 2013-07-25

PI Number: PI-5580

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14.1, 54.1

Mere posting

Question:

The Real Estate entity is seeking a specific application of the PCMLFTA. They believe that the determination of subjecting real estate brokers or salespeople to the PCMLTFA should NOT depend on the following:

  • what listing form they use
  • how the form is amended
  • whether they are providing mere postings

The PCMLTFR states that every real estate broker or salesperson is subject to the PCMLTFA when they act as an agent in respect of the purchase or sale of real estate. Therefore, the inquiring Real Estate entity believes, according to the regulations, real estate brokers or agents must comply with the regime for every real estate transaction they are involved in; including all MLS® listings regardless of whether those MLS® listings are mere postings.

Answer:

Paragraph 1(2) of the PCMLTFR defines a real estate broker or sales representative as “a person or entity that is registered or licensed under provincial legislation in respect of the sale or purchase of real estate.” Section 37 of the PCMLTFR further states that “every real estate broker or sales representative is subject to Part 1 of the Act when they act as an agent in respect of the purchase or sale of real estate.” This means that when a person or entity, who is registered or licensed under provincial legislation in respect of the sale or purchase of real estate, acts as an agent in respect of the purchase or sale of real estate they are subject to Part 1 of the PCMLTFA.

FINTRAC's position relies on the agreement laid out in writing between the mere poster and the seller of the property, as this agreement is a good indicator of the relationship between the seller or the buyer and the real estate broker or sales representative.

However, real estate brokers or salespeople are best placed to determine if they are acting as agents for the purchase or sale of property. Should the agent provide services not listed in the agreement, services that render them subject to the PCMLTFA and its associated regulations, they must comply with the requirements of the PCMLTFA and its associated regulations. An agreement is a private contract between the seller or the buyer and the real estate broker or sales representative that, as with any provision in any private agreement, cannot interfere with or overrule a public law.

Paragraph 59.2(3) of the PCMLTFR:

Where the parties in a real estate transaction are each represented by a different real estate broker or sales representative, each broker or sales representative has to identify the individual or confirm the existence of the party that they represent.

If some parties in a real estate transaction are represented by a real estate broker or sales representative while other parties are not, each real estate broker or sales representative who represents a party to the transaction has to take reasonable measures to identify or confirm the existence of the parties that are not represented.

In this situation, if the real estate broker or sales representative is unable to identify or confirm the existence of the parties that are not represented, they will have to keep a record of the measures they took and the reason they were unable to identify or confirm the existence of the other parties.

There are no clarifications of the concept of “reasonable measures” in these provisions and the term is not defined in the Act or Regulations. However, our guideline 6B: Record Keeping and Client Identification for Real Estate, available on our Web site, provides some guidance as to FINTRAC’s policy regarding this term.

Date answered: 2013-05-02

PI Number: PI-5539

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Regulations: 1(2), 37, 59.2(3)

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)

"Cash-on-delivery account for bonds" – Intended use of the account

Question:

Is "cash-on-delivery account for bonds" in line with the intended use of the account?

Answer:

The goal of the requirement to keep records on the intended use of each account is to provide reporting entities with an overview of the client's intentions at the time the account is opened, and to allow for the identification of any discrepancies or inconsistencies in account use vis-a-vis the declared intentions, with a view to identifying areas deemed at high risk for money laundering or the financing of terrorist activities, and to take necessary mitigating action.

Neither the Act nor the Regulations specify what is considered as acceptable or inacceptable in terms of intended account use. Although our own guidelines do include some examples of intended use, they do not provide instructions regarding the required level of detail for intended account use record-keeping. More importantly, they do not specify what would be considered as "insufficient" record-keeping with respect to intended account use. In comparison, as concerns record-keeping relating to the business or occupation, our guidelines clearly indicate that reporting entities must "be as descriptive as possible regarding the business or occupation." The guidelines also provide concrete examples of what is considered insufficient.

The answer to your question, "Is 'cash-on-delivery account for bonds' in line with the intended use of the account?", is yes. This is a legitimate intended use of an account with a securities dealer, and meets the requirements of subparagraph 23(1)(a.1) of the Regulations.

Date answered: 2013-02-19

PI Number: PI-5500

Activity Sector(s): Securities dealers

Obligation(s): Record Keeping

Regulations: 23(1)(a.1)

Acquisition of a portfolio

Question:

ABC Corporation wanted to obtain clarification in writing concerning their record keeping requirements in regards to the purchase of a pool from a Life Insurance Company since the majority of mortgage that are being purchased originated prior to 2002 and at present do not meet the current record keeping requirements.

Answer:

In accordance with section 54 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every financial entity shall ascertain the identity of a person, corporation, or entity other than a corporation, at the time an account is opened. In the case of the acquisition of a portfolio, the acquiring entity must consider whether or not the accounts are opened, so as to determine the associated identification obligations.

FINTRAC has determined that there is no account opening in a situation where an entity transfers over client accounts where:

  • the clients were previously identified and records kept in accordance with the PCMLTFA and its associated Regulations or at the time the account was opened there may not have existed the legislative requirements to ascertain the identity (prior to June 12, 2002);
  • only immaterial changes were made to the account, namely, change of account number, logo, branding, new card and ancillary services; and
  • transactional history follows.

The acquiring entity is responsible for ensuring that the acquired client accounts were previously identified in accordance with section 64 of the PCMLTFR and records kept in accordance with section 14 of the PCMLTFR.

However, should the acquiring entity add any account(s) to the profile of an acquired client, the acquiring entity shall ascertain the ID of the client at the time the new account is added. The exceptions outlined in the regulations (paragraph 62(1)(c) and section 63 of the PCMLTFR) pertaining to ascertaining the identity would not apply.

That said, in accordance with subparagraph 71(1)(c)(i), every reporting entity is required to carry out a risk assessment of their clients and business relationships. As such, the acquiring entity is required to conduct a risk assessment of the newly acquired account holders. Should the risk assessment lead to a high risk designation, then the acquiring entity would be required to carry out special measures for identifying clients, keeping records, and monitoring financial transactions in respect of the activities that pose a high risk, in accordance with subsection 9.6(3) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and further detailed in section 71.1 of the PCMLTFR.

Finally, as a best practice, reporting entities are encouraged to review and update the account information, as appropriate, when acquiring these accounts in the process of a merger or acquisition. Ultimately, the newly acquired account holders become the responsibility of the acquiring entity, and it is for that entity to not only ensure compliance with the PCMLTFA and its associated Regulations, but to review the risk that these newly acquired clients may pose to the entity, and/or the Canadian financial system.

Date answered: 2012-12-19

PI Number: PI-5478

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14, 54, 62(1)(c), 63, 64, 71(1)(c)(i), 71.1

Act: 9.6(3)

Similar negotiable instruments - AML ID. Requirements

Question:

We have been given a further definition of “similar negotiable instruments” to include Manager’s Trust Cheques or other types of official credit union cheques.

Can you please confirm the following:

  1. If a member wants the credit union to issue a manager’s trust cheque in the amount of $3,000 or greater from funds the member will pay (including debits regarding the member’s deposit), has the record keeping requirement for “similar negotiable instruments” been triggered? (this would include a record of the date, amount received, and name and address of the person who gave the amount and also whether the amount received was in cash, cheques, traveller’s cheques or “similar neg. instruments” and the person’s identity or confirmation on record if this has already been done).
  2. If a manager’s trust cheque is issued from credit union funds only, there is no need to create a record, since the funds are not those of a member. However, if a manager’s trust cheque is issued on funds that have passed through a member’s account, then a record for a negotiable instrument of $3,000 is required. Can one assume this would include if a member deposited sale proceeds from a house sale and those funds were commingled with mortgage proceeds from the credit union to fund a manager’s trust cheque on the purchase of a home? (a credit union may already have all of the information required for this record in its systems and should be okay as long as it can link all of the information so that an actual record does not have to be created). The record info would include date, amount received (from the member’s account), name and address of the member and record that ID has been ascertained or verified.

Answer:

As per section 14(k) of the PCMLTFR, a financial entity must keep a record where it “receives an amount of $3,000 or more from a person or from an entity other than a financial entity in consideration of the issuance of traveller’s cheques, money orders or similar negotiable instruments” and include in that record “the amount received, the date it was received, the name and address of the person who in fact gave the amount and whether the amount received was in cash, cheques, traveller’s cheques, money orders or other similar negotiable instruments.”

Based on the information provided in bullet 1 above, there is no record keeping obligation when an individual uses funds from his or her account at the financial entity in consideration of the issuance of the traveller’s cheques, money orders or similar negotiable instruments.

Furthermore, should funds that have passed through a member’s account be mixed with credit union funds for the issuance of a manager’s trust cheque (as in bullet #2), the record-keeping obligations would not be triggered because these are funds drawn from a client’s account and funds received from a financial entity. However, should the client enter the credit union with the funds and have these mixed with the credit union’s funds for the issuance of a manager’s trust cheque for the purchase of a home, then the record-keeping obligations would be triggered as the funds brought in were not drawn from the client’s account but brought to the institution by the client.

Date answered: 2012-12-06

PI Number: PI-5473

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 14(k)

Receipt of Funds- s.39(1)(b)

Question:

The funds do not go directly to the seller; they go directly to the seller’s listing agent’s brokerage. So, the buyer’s agent and brokerage has not received the funds but seller’s agent and brokerage has.

But what about the seller’s brokerage?

The brokerage or agent has received funds directly from a buyer but is not in a client relationship with the buyer; the other agent and brokerage is in the client relationship with the buyer.

Question that remains is whether agent of seller would need to complete a ROF record or not. If yes, then it follows they would also need an ID record to go with the ROF record.

This is then problematic as this brokerage would be trying to ID another brokerage’s client.

Answer:

In accordance with subsection 39(1) and subject to subsections (3), (4), (5), (6), 52(2) and 62(2), every real estate broker or sales representative shall, when engaging in an activity described in section 39, keep the following records:

(a) A receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of 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 real estate broker or sales representative

In response to the scenario outlined, namely that “the funds do not go directly to the seller; they go directly to the seller’s listing agent’s brokerage. So, the buyer’s agent and brokerage do not receive the funds at all but the seller’s agent and brokerage has,” I refer you to subsection 39(4) which indicates that “where two or more of the parties to a real estate transaction are represented by a real estate broker or sales representative and one of those brokers or sales representatives receives funds in respect of the transaction from a party to the transaction whom they do not represent but who is represented by another of those real estate brokers or sales representatives, the broker or sales representative that represents the party from whom the funds are received is the one that is responsible for keeping the receipt of funds record referred to in paragraph (1)(a) and, if applicable, for keeping the copy referred to in paragraph (1)(c).”

As such, the real estate agent or broker with the relationship with the client sending the funds is responsible for the receipt of funds record and associated obligations. This alleviates the need for a real estate agent or brokerage to keep the record or carry out the related obligations for a sender of funds with whom they have no relationship.

Date answered: 2012-11-13

PI Number: PI-5466

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance: 6B

Regulations: 39(1), 39(4)

Online account opening and Record-Keeping

Question:

Occasionally people apply for accounts (online or in branch) and they provide information but cancel before any account (deposit or loan) is actually opened by us.

Would you confirm that the FINTRAC rules around record-keeping do not apply until/unless an account is actually opened?

The new account application in question was conducted online. The individual had not signed anything before cancelling the application.

For my future reference, would you clarify the record keeping requirements that would apply in this case as well as in the case of someone signing an agreement but cancelling before making any kind of deposit.

Just to clarify, the account is considered opened regardless of whether or not the client has signed an account opening agreement?

Answer:

In response to the question, if an account is opened, the record-keeping requirements for financial entities under subsection 14(a) of the PCMLTFR will apply. If an account is deemed to be opened for a client, then regardless of a transaction taking place on that account, the record-keeping requirements apply.

Where an account opening did not take place, the record-keeping obligations do not apply.

It is for each financial entity to know when an account is deemed to be opened. Financial entities have their processes in place and should know what an “account opening” is. If they have not completed their documented process to open an account, then it is our understanding that the account would not be considered to be opened.

Date answered: 2012-09-25

PI Number: PI-5454

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14(a)

Name change - Professionals' Financial

Question:

I would like to validate FINTRAC's position regarding our current name change procedure. When someone requests that the name in their account be changed (e.g., a married woman who now wants the account to be in her maiden name), we require supporting documentation (e.g., a divorce ruling or a birth certificate), as well as a piece of valid ID bearing the new name.

Taking into account article 393 of the Civil Code of Quebec, which states that both spouses must retain their respective names and exercise their respective civil rights under those names, do you consider that our procedure goes too far by requiring supporting documentation in the case of married women who want to go back to using their maiden name?

Answer:

Paragraph 71.1(a) of the Regulations stipulates that the person or entity referred to in subsection 9.6(1) of the Act must take “reasonable measures to keep client identification information and the information referred to in section 11.1 up to date.”

The updating of client identification is not required under the Act, except in the case of high-risk clients. Furthermore, in the case of clients who present a high risk, although the Act requires that the entity keep identification information up to date, it does not require the entity to re-authenticate these clients.

This having been said, the nature of the client identification information depends on the nature of the documents that are normally kept. These generally include the client's name, address, phone number, date of birth and occupation or principal company.

FINTRAC is not in a position to comment on ABC's internal guidelines as concerns the case of an individual who wants to change the name in his/her account.

Date answered: 2012-09-12

PI Number: PI-5449

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 71.1(a)

Act: 9.6(1)

Estate accounts

Question:

I have a question regarding how FINTRAC expects a firm to keep records when a client passes away. For most securities dealers, the account will change from an individual account to an “estate account” whereby the executors of the estate will provide instructions as to how the account should be dealt with (including if the assets should be withdrawn from the account immediately). What information does a security dealer have to collect upon the client’s death? Do they need to collect signature, IDs, etc. from the executors or will they be considered “third parties” and therefore the dealers would just need their name, address, occupation, etc. or do they have to collect anything at all?

Answer:

It is a question of facts to be able to determine what requirements will need to be fulfilled in such a case. But here are some comments:

We need to know if the estate account is opened on behalf of an individual or on behalf of an entity. In both case, it is a new account.

If the account holder is the "Estate of", then it should be treated as an entity. When determining the beneficial ownership, the executor or the executors that control (or take care of) 25% or more of the estate (i.e. assets and liquidating, etc.) would be listed as per section 11.1 of the PCMLTFR.

However, should the account holder be the executor, then it would not be considered as opened on behalf of an entity, rather as an individual opening an account. The executor is the person opening the account, and the one authorized to give instructions in respect to that account.

The regulations do say that each time you create a client info record you have to do a third party determination.

Having said this, however, the result of the third party determination in the case of an executor, will be that the transaction is not made by or on behalf of a third party, as there is no other person than the executor that can give out instructions in regards to an estate (a deceased person cannot be a 3rd party).

Date answered: 2012-07-19

PI Number: PI-5431

Activity Sector(s): Securities dealers

Obligation(s): Record Keeping

Regulations: 11.1

Signature Card

Question:

I understand that pursuant to paragraph 54(1)(b) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), that every financial entity must ascertain the identity of every person who signs a signature card (referred to in this note as “Identifying”), except in the case of a business account the signature card of which is signed by more than three persons authorized to act with respect to the account, if the financial entity has ascertained the identify of at least three of those persons. It is my further understanding that the PCMLTFR defines a signature card as any record that is signed by a person who is authorized to give instructions in respect of an account.

I would like to distinguish between two classes of individuals: those within a corporation that are given corporate authority through resolutions to deal with the corporation’s banking (“Corporately Designated Bankers”), and the subset of Corporately Designated Bankers that sign a signature card to open an account for the corporation (“Signers”).

Based on that background and distinction, could you please confirm the following:

(a) Only Signers are authorized to act in respect of an account;
(b) Only Signers, up to a maximum of 3, must be identified;
(c) A financial entity need not identify all Corporately Designated Bankers of a corporation to open an account, unless there are 3 or less Corporately Designated Bankers, and all 3 sign the signature card;
(d) For clarity, if there are 3 Corporately Designated Bankers, and only one of them signs a signature card, only one Designated banker must be identified.

Answer:

Paragraph 54(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “subject to sections 62 and 63, every financial entity shall”, “in accordance with subsection 64(1), ascertain the identity of every person who signs a signature card in respect of an account, other than a credit card account, that the financial entity opens, except in the case of a business account the signature card of which is signed by more than three persons authorized to act with respect to the account, if the financial entity has ascertained the identity of at least three of those persons”.

That means in the case where a business account has more than three individuals authorized for it, the financial entity has to identify at least three of those individuals. So, the requirement is at a minimum 3 individuals. That said, under 62(1)(a) of the PCMLTFR, the financial entity does not have to identify an individual at the opening of a business account for which the financial entity has already identified three persons who are authorized to give instructions in respect of the account.

In fact, paragraph 62(1)(a) of the PCMLTFR states that:

“Paragraphs 54(1)(a) and (b), 54.1(a), 54.2(a) and 55(a) and (e), subsections 57(1) and 57.1(1) and paragraphs 60(a) and (b) do not apply in respect of

(a) the opening of a business account in respect of which the financial entity, the securities dealer or the casino, as the case may be, has already ascertained the identity of at least three persons who are authorized to give instructions in respect of the account”.

Also, subsection 1(2) of the PCMLTFR defines signature card, in respect of an account, as “any record that is signed by a person who is authorized to give instructions in respect of the account”. Therefore, those who signs signature cards are those authorized to give instructions in respect of that specific account.

The financial entity doesn’t need to ascertain the identity of Corporate Designated Bankers unless if they make up any of the three persons authorized to give instructions in respect of an account, i.e. sign a signature card or if they are a person who conducts a triggering activity as per paragraph 54(1)(b) of the PCMLTFR, which states:

(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

(i) a transaction whereby the financial entity issues or redeems money orders, traveller’s cheques or other similar negotiable instruments in an amount of $3,000 or more,
(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, or
(iii) a foreign currency exchange transaction of $3,000 or more”.

Date answered: 2012-07-16

PI Number: PI-5428

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 1(2), 54(1)(a), 54(1)(b), 62(1)(a), 64(1)

Life insurance company determination

Question:

We are currently set up as a reporting entity under 123 Ltd. a managing general agency for which I’m the reporting officer. As an MGA we process applications of financial advisors to the life insurance companies. We are a conduit between the life companies and the advisors for the flow of information. All cheques that come through our office are payable to the life companies.

For ABC Financial (Ottawa) Inc. I’m also the compliance officer and by function would also be the reporting officer if required to be set up as a separate entity.

The only reason that I’m looking at this is the fact that ABC Financial is life licensed in order for us to write annuity business with life companies. This business is processed through 123 Ltd. as this our Managing General Agency and ABC is contracted with 123 Ltd. in order to do business with the life companies. ABC only accepts cheques from clients payable to the life companies as this is the only way the life companies accept the business. It is only because of this life license that we are required to be set up with FINTRAC.

ABC does not operate a trust account as its business dealings with the banks and trust companies for the GIC business is again by way of a client cheque payable to the bank or trust company.

We do have AML policies and procedures in place as well as a risk assessment and are required to be a member of the RDBA which is our self regulatory organization which requires us to pass an annual test for all agents as it relates to AML.

DEF Financial Ltd. is the franchise arm of the operation and again all business is processed through 123 Ltd. as the MGA. All AML requirements are in place except the registration as here again I would like the ability to have one registration since all business flows through 123 Ltd.

Answer:

The life insurance company except with respect to reporting suspicious transactions and terrorist property, which is applicable to both.

Life insurance broker or agent is defined under our legislation as a person or entity that is registered or licensed under provincial legislation to carry on the business of arranging contracts of life insurance. A life insurance company means a life company or foreign life company to which the Insurance Companies Act applies or a life insurance company regulated by a provincial Act.

Based on the information you have provided, it appears that ABC Financial and DEF Financial Ltd. are life licensed authorised to sell life insurance.

Since it appears that ABC Financial and DEF Financial Ltd. fall within one of these definitions, they are covered under the PCMLTFA and both have the following obligations, regardless of the type of product they offer. When applicable (since you indicated that ABC accepts cheques from clients payable to the life companies), you must report any large cash transaction of $10,000 or more you receive, and have record keeping obligations in regards to that transaction. You must also report any suspicious transactions, as well as terrorist property reports. You also have a number of other record keeping obligations, ascertaining identity in certain situations, PEFP determination, third party determination, and finally you must also implement a compliance regime.

I would like to let you know that there are general exceptions that apply to client identification requirements only in the following situations: the purchase of a policy that is an exempt policy (i.e., a policy issued for insurance protection and not for significant investment purposes as defined in subsection 306(1) of the Income Tax Regulations); the purchase of a group life insurance policy that does not provide a cash surrender value or a savings component; the purchase of an immediate or deferred annuity paid for entirely with funds directly transferred from a registered pension plan or the proceeds of a group life insurance policy; the purchase of a registered annuity policy or a registered retirement income fund; a registered plan, including a locked-in retirement plan, a registered retirement savings plan, a group registered retirement savings plan, a registered education savings plan and any other registered plan; where the account holder or settlor is a federally or provincially regulated pension fund; or a transaction that is part of a reverse mortgage or structured settlement;

I would refer you to our website to consult the legislation, as well as the guidelines that use plain language to explain the most common situations under the PCMLTFA and Associated Regulations, and more specifically Guideline 6A: Record Keeping and Client Identification for Life Insurance Companies, Brokers and Agents.

Date answered: 2012-06-20

PI Number: PI-5417

Activity Sector(s): Life insurance

Obligation(s): Record Keeping

Regulations: 1(2), 16, 17, 18, 19, 20, 20.1, 20.2, 56, 56.1, 56.2, 62(2)(a)

Act: 5(c)

Section 14(c.1) of the Regulations

Question:

The ABC Financial is developing an application to enable its members to open what they are calling a "sub-account" online. After receiving an access code and PIN at the ABC Financial, the member uses these codes to access a Website and selects Open a sub-account, providing the following information:

  • Type of account requested: Savings account, chequing account, TFSA, etc;
  • Selection of desired terms: eg, SavingsPlus or Variable TFSA.

The member can also name the account, so it can be identified on his or her monthly bank statement. The member confirms everything on line and agrees to the creation of a sub-account in his or her portfolio.

If, for example, the member's portfolio is 123456-C-0 (checking account) and he or she now wants a savings account, the savings account would be designated as 123456-K-0.

Must the ABC Financial document the intended use of the account when the sub-account is opened, even through it considers it to be "attached" to the main portfolio?

Answer:

Paragraph 14(c.1) of the Regulations indicates that, subject to subsection 62(2), every financial entity shall keep a record that sets out the intended use of the account in respect of every account that it opens, other than a credit card account.

No definition of "account" or "sub-account" exists in the Act or the Regulations. It is suggested that the term "sub-account", used by the ABC Financial, should be assimilated into the term "account" and treated in the same way.

Since the type of account must be selected every time a sub-account is opened, it is logical to think that the intended use of the account may be different from that of the "main" account or other sub-accounts, even if they are all part of a single folio (for example 123456).

Consequently, since the ABC Financial is opening an account (the sub-account), it must keep a record indicating the intended use of the account. It must, pursuant to paragraph 14(c.1), set out the intended use of the account for every "sub-account" that it opens at the request of a member.

The ABC Financial should be advised that it can make use of the exemption provided in paragraph 62(1)(c) respecting ascertaining the identity of the member.

Date answered: 2012-04-26

PI Number: PI-5403

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14 (c,1), 62(1)(c)

Civic Address (vs. postal address)

Question:

Is the address a postal installation or a physical address?

Answer:

Rural Route addresses denoting group postal boxes with individual compartments as well as PO Box addresses are postal installations- e.g. RR 1, SITE 4, COMP 10. This would NOT qualify as a physical address as this indicates a postal installation box/compartment, not an actual physical house or land address.

However, rural routing addresses that contain the street number of the residence qualify as physical addresses where the person lives- e.g. 123 Main Street, RR 6 (this includes a house number on a particular rural route- route 6. This would be a rural route with mail delivery to a little mailbox at the end of a driveway- where somebody lives.)

Therefore, the address must serve to represent the physical address where the person lives.

Date answered: 2012-04-26

PI Number: PI-5402

Obligation(s): Record Keeping

Occupation question for bank account holder

Question:

I'm a little confused in the requirement for the occupation of a bank account holder, as for a personal account I understand, the occupation that is required is that of the individual's personal occupation, but when it comes to business accounts, or organization accounts...are you looking for the role of the corporation or group (such as president, director...etc) to be entered as the occupation or that person's personal occupation?

Someone can be the secretary/treasurer of a corporation or organization, but works as a loans officer for a financial institution... or she could even be retired from the work force, so which one are we required to enter under the occupation for that individual. And if she is retired, I can't find a code that is provided from the government for this, nor does it have any codes for president, director, etc. so do we need to create one?

Answer:

The legislative requirement to record keep the occupation for a bank account holder as per subsection 14 represents the individual's personal occupation (as in lawyer, accountant, engineer, bus driver, financial advisor, loans officer, etc.). It does not represent the individual's role as a member of the board within an organization (i.e. president, secretary etc..).

We have indicated in the past that retired can be indicated as the individual's occupation. After all, that is the present occupation of that person and secondly, it does give a good indication for financial institutions in regards to what their income should look like.

Date answered: 2010-03-11

PI Number: PI-5335

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Regulations: 14

Deed of Sales and binding requirement

Question:

A copy of a Deed of Sale which includes a paragraph relating to a Resolution of the Board of Directors of a Corporation. The Notary acknowledges that is it true and was signed in his/her presence. The seller of the property was identified. Could this document be used as a Binding Resolution?

Answer:

No the document/deed of sale attached does not meet the legislative record keeping requirements that fall on the real estate agent in regards to: Confirming the existence of the corporation and Binding resolution.

The deed of sale refers to a resolution - this resolution is the binding document that should be part of the record kept by the real estate agent. Furthermore the real estate agent should also have either a CIDREQ copy or any other acceptable documents attesting to the existence of the company that is purchased.

Date answered: 2010-02-10

PI Number: PI-5314

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 39(1)(c)

Services to the public or Members vs non-members

Question:

What is considered a Central within the definition of the PC(ML)TFA ? Clarification of the definition is required.

Answer:

The Credit Union Centrals are subject to Part I of our Act when they offer financial services to:

  1. A person or
  2. An entity that is not a financial entity member

The Centrals are covered (i.e. have legislative requirements under our act) when they offer services to individuals and entities other than a financial entity and a member (both conditions must be met).

Unless the Credit Union Centrals deal with individuals or corporations then most of their financial services offered will not be covered. Centrals usually deal almost exclusively with CU or banks that are members.

In Quebec however, the requirements are completely different in that all financial services offered by financial services cooperatives are covered (whether given to CP members or general public).

Date answered: 2010-02-09

PI Number: PI-5310

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 11.2

Remitting and transmitting $1,000 or more

Question:

Are MSBs and casinos subject to record keeping requirements found in Subsections 30(e) and 43(f) respectively of the Regulations for EFTs or any sum of money that flows into Canada?

Answer:

Remitting and transmitting 1000$ or more

The regulations provide that MSBs and Casinos must keep records where an amount of $1000 or more is remitted or transmitted. They must also identify the person who conducts the transaction.

The information to be recorded includes information about the client, the transaction and the person to whom the amount is remitted or transmitted.

This requirement applies to electronic funds transfers and any sum of money that is remitted or transmitted following instructions from a client. The word remitted refers to a physical transfer of funds (such as individual X transports funds to a destination to give to person Y), and transmitted implies an electronic transfer of funds.

Based on this clarification, we reiterate that the requirement applies to the sending of domestic or international wire transfers. Wire transfers received by the MSB or casino are not subject to these record keeping/client identification requirements.

Date answered: 2009-11-19

PI Number: PI-4730

Activity Sector(s): Casinos, Money services businesses

Obligation(s): Record Keeping

Regulations: 30(e), 43(f)

Clarification for ID obligation in service agreements

Question:

In the context of an ongoing service agreement, when we say address, does this mean a residential address or can the individual provide the business address from which they will be booking transactions for example? Regardless, either way, is it required that this address actually be provided by the employee or can it be obtained from a third party or public source? If it is unimportant whether its business or personal would this mean for section 32 and for when a MSB has an ongoing service agreement sections 30(c), 30(d), 30(e)(ii), 30(f), it is CORRECT for the MSB to record the person's business address or P.O. Box address, in lieu of a residential address? In addition, what about sections 59(2) and section 11.1 - does the directors and beneficiaries addresses' need to be their personal address?

Answer:

When ascertaining the identity of an individual under subsection 59(1) - absolutely that it must be the residential address of the person that must be collected.

However, if it is only for record keeping purposes (such as in the case of the ongoing service agreement) where you are not ascertaining the identity, merely record keeping information on who signed the agreement or which employees are authorized to conduct transactions, then you may use either the personal address of the signatories and employees or their business address.

This interpretation would be in line with a similar one that was given a number of years ago in regards to corporate credit cards - whereas it was indicated that for all individuals who benefit from this corporate credit card (i.e. that are listed as users), the address for record keeping purposes, could be either their personal address or their "business" address.

However, a P.O. Box is not an address - in other words, the MSB can record the business or residential address, but not a P.O. Box which is not a "physical" address, and is not an acceptable information.

59(2): does not require the address of the directors;
11.1: business or personal address, as it is not part of ascertaining the identity of an individual.

Date answered: 2009-07-02

PI Number: PI-4619

Activity Sector(s): Money services businesses

Obligation(s): Record Keeping

Guidance:

Regulations: 30(c), 30(d), 30(e)(ii), 30(f), 59(1), 59(2)

Act: 11.1

Clarification of MO TC and Other Negotiable instruments

Question:

If you receive $3,000 or more for the issuance of (one totaling $3,000 or two or more of any of these totaling $3,000 or only $3,000 in Travellers Cheques; $3,000 in Money Orders, $3,000 in Other Negotiable items or any combination ($1,000 in MO, $1,000 in TC and then $1,000 in bank draft) traveller's cheques, money orders or other similar negotiable instruments, keep a record of the date, the amount received and the name and address of the individual who gave you the amount. These records also must indicate whether the amount was received in cash, cheques, traveller's cheques, money orders or other similar negotiable instruments.

Receipt of $3000 for travellers’ cheques, money orders or other negotiable instruments: Is this relating to one or more items or 1 items for $3,000 or more?

  • Amount
  • Date received
  • Name and address of individual who gave amount
  • Whether amount received was in cash, cheques, traveller’s cheques, money orders or other
  • Redemption of one money order of $3000 or more, or two or more money orders that add up to $3000 or more:
  • Total amount
  • Date of redemption
  • Name and address of individual requesting redemption
  • Name of issuer(s)

In 14(k), to me, it means $3000 for one of those instruments and not for example $1,000 in MO - $1,000 in TC and then $1,000 in bank
draft .. do you agree?

Answer:

It is the dollar value that should be considered i.e. $3000 or more, regardless of how many products are issued or received.

Consequently, it means $3000 or more of any of those instruments (MO, TC and bank draft).

Date answered: 2009-06-15

PI Number: PI-4602

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 14(k)

Record of funds obligation

Question:

It was decided that if the cheques are made out to the RED's lawyer, then the RED does not have any obligations under our act.

However, with respect to RE agents, the same approach is not taken in my opinion and I just want to make sure that I have understood this correctly.

My understanding is that when a cheque is given to a Real Estate agent/broker, they must keep the receipt of funds record - regardless of who the cheque is made out to. Maybe you can provide some background rationale on this.

Answer:

If the real estate agent receives a cheque made out to the real estate agent, either directly, to his/her brokerage, or in trust, then the real estate agent must keep a receipt of funds record.

If the real estate agent receives a cheque made out to anyone else, lawyers, other agents/brokerages, financial institutions, and acts just as courier, then no receipt of funds record is required.

Date answered: 2009-05-11

PI Number: PI-4435

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 39

Upgrades and records of funds in real estate sector

Question:

Is a real estate developer required to keep a receipt of funds record (ROFR) for upgrade costs?

Answer:

If the upgrades are part of the initial contract of purchase then they are included in the transaction and are subject to a receipt of funds record obligation if payment is made to the real estate developer.

If the upgrades are not part of the purchase agreement, or part of the initial contract (such as an addendum to the contract), then they are not covered in regards to the receipt of funds obligation. For example the upgrades were paid separately from the price of the new residence and were not included in the original purchase contract; the real estate developer would not have to keep a receipt of funds record when he receives the payment for the upgrades.

Date answered: 2009-05-06

PI Number: PI-4581

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2), 39.7

Obligations on sale of bonds

Question:

  1. An accountant has been retained by a real estate developer (the “Developer”) in Victoria BC to act as a fund administrator.
     
  2. An accountant is an accounting firm and must comply with the PCMLTFA.
     
  3. The Developer is planning to construct a strata-titled hotel and residential building. The Developer is aware that it will fall under the PCMLTFA for real estate developers and has put an AML policy in place.
     
  4. In addition to pre-selling condo units, the Developer is raising capital for the project by selling bonds to sophisticated investors. The Developer is not a registered securities dealer.
     
  5. The proceeds from the bonds will be paid in trust to the Developer’s lawyer (the “Lawyer”), until a minimum amount has been raised, at which time the funds will be paid to the accountant to “administer” the funds. The accountant will register a mortgage on title as security for the bond investors, and when certain conditions have been met, the accountant will release funds to the Developer to use for specified purposes (replacing existing debt and funding development costs).
     
  6. The funds raised through the bond offering are for a loan and not for the purchase of real estate, although certain bond investors may also enter into a separate purchase and sale agreement for a condominium unit pre-sale. The Developer has agreed to follow the same record keeping procedures (client identification, payment of funds records, reporting etc.) for the funds received under the bond offerings as for the condominium unit presales.
     
  7. As the administrator, the accountant will be receiving funds only from the Lawyer, who will be receiving the funds directly from the bond investors. The Lawyer will not carry out its own client identification procedures, but is planning to rely on the client identification done by the developer. Both the lawyer and accountant will be provided with copies of the client identification and receipt of funds records from the Developer, and are prepared to carry out any necessary reporting to FINTRAC based on reviews of those copies.
     
  8. The accountant would like clarification as to its PCLMTFA obligations under this scenario.

Our specific questions are:

  1. Does the accountant have any obligations to identify the source of funds (client identification) other than the Lawyer for the payments made from the Lawyer’s trust account to the accountant’s trust account?
     
  2. If the accountant has a client identification obligation beyond the transfer of funds from the Lawyer (that is, if the accoutant has an obligation to properly identify the individual bond investors), can the accountant enter into an agreement with the Developer to act as a mandatary for this role, since the Developer will already be taking these records?

Answer:

First, the sale of bonds in relation to the pre-sale of a multi-unit condo project is not a sale of property (or a new condo unit). Therefore, for the sales of bonds (in this scenario) there are no receipt of funds obligations for the Developer.

As for questions about the accountant:

  1. Does the accountant have any obligations to identify the source of funds (client identification) other than the Lawyer for the payments made from the Lawyer’s trust account to account's trust account? No
     
  2. If the accountant has a client identification obligation beyond the transfer of funds from the Lawyer (that is, if the accountant has an obligation to properly identify the individual bond investors), can the accountant enter into an agreement with the Developer to act as a mandatary for this role, since the Developer will already be taking these records? No

I just wanted to point out however that as an accounting firm may engage in triggering activities such as receiving or paying funds on behalf of any person or entity (i.e. in this case the Developer as his client) and therefore may have obligations attached to these activities. In this case however, we understand that the funds are paid directly to the lawyer in trust.

Date answered: 2009-04-29

PI Number: PI-4573

Activity Sector(s): Accountants, Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 34, 59.1

Clarification on bankruptcy and triggering activities

Question:

I understand that if they only do bankruptcy then it's not accounting services to the public and have no requirements. Now if they do other activities and therefore are covered under FINTRAC's PCMLTFA and then they also do bankruptcy they would not have the ID, record keeping & reporting requirements related to bankruptcy but would have requirements related to the other activities - correct? This is assuming that it is one legal entity.

If they have separate legal entities for bankruptcy and then another one for their accounting services then their accounting services entity would be subject to FINTRAC's PCMLTFA.

Just want to be clear that if they are court appointed receiverships they do not have to keep receipt of funds, ID clients etc. as it would not be applicable? In those situations they have no real "clients"...could you please clarify?

Answer:

We agree with your comments - you are right. We just want to add a precision, after further discussions on that issue - In the case of services rendered by the accountant/accountant firm as trustee in bankruptcy, the services rendered would in most cases not fall into the triggering activities as worded in our legislation, that is, receiving or paying funds "on behalf of any person or entity".

Let me explain - if you are appointed by the court, or if you act as a trustee in bankruptcy, you do not act on behalf of any person or entity, because you do not represent the bankrupt, nor the creditors. The trustee in bankruptcy handles the bankruptcy on his own, and does not receive any instructions from either the bankrupt, the court nor the creditors.

Therefore, the chances that any services rendered by the accountant/accountant firm/trustee in bankruptcy would fall in the prescribed triggering activities would be very slim.

Date answered: 2009-03-23

PI Number: PI-4550

Activity Sector(s): Accountants

Obligation(s): Record Keeping

Guidance:

Regulations: 1(2)

School accounts

Question:

As an education-affiliated credit union, we open operating accounts for individual schools within the various boards in our region. These accounts are used to collect and disburse funds related to clubs, graduations, school trips and other fees. I expect that from time to time fundraising dollars (eg chocolate bar sales etc) are also deposited.

We have confirmed that for the major boards of education in our area, the Board itself is registered as a charity on the CRA website but the individual schools are not. Given this, is it still necessary for staff to ask the charitable status question on each school account and to search the CRA list of charities and print off the result?

Answer:

Yes they will have to ask re: charitable status question each time, and search the CRA list every time as well (if they are registered with CRA of course).

There is an obligation when opening a new account with a not-for-profit organization to determine and keep record of whether the entity (in this case the specific school) is a charity registered with CRA or an organization that solicits charitable donations from the public (subsection 11.1(3)). The school, although part of the Board, is a separate entity and it is the school that is opening the account, not the Board.

Date answered: 2009-01-23

PI Number: PI-4503

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 11.1(5)

Legal Addresses - First Nations

Question:

A Credit Union has asked what type of address they need to obtain for First Nations clients when they are living on the Reserve. There are only PO Box addresses. I advised that they need to obtain the Legal Land Description. The issue is that the Land is registered under the Bands name and not the clients. Hence, would the clients need to obtain that from the Band Council?

Answer:

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: 2009-01-23

PI Number: PI-4502

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 64(1)

FINTRAC new regs for real estate developers

Question:

This question concerns ‘Who is a real estate developer’ and in particular to which outlines as follows:

‘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’.

I have underlined the word ‘new’ in each of the 3 cases because this requires further clarification. How does FINTRAC define or classify ‘new’? For example, if CLC builds & develops an office tower building in 2008 and fills the tenants’ occupancy only by 2011, and then sells the building in 2011 is it no longer new? This prefix new requires clarification. Please let me know what is intended here by FINTRAC.

Answer:

Very quickly -- new means:

  • over 90% renovated
  • brand new build
  • built but had never used for its intended purposes (ie a home built, used for a model home and then sold to the Jones, when sold to Jones, it is NEW)

I believe that the building ceases to be new once part of it is used for its intended purpose - so in this case the office tower building was built but not sold, instead, it is leased and administered by the owner (or an administrator), and then sold only in 2011. Therefore, the building itself, because it was used for its intended purpose from 2008 to 2011 (which is to be leased to tenants and businesses), then it is no longer considered new under our regulations. Presumably when the no-longer-new building is sold, wouldn't a real estate broker likely be used? Therefore the sale would be covered, just not under the RED provisions. If it is a sale by owner, it's true that there would be no obligations in respect of the sale.

Date answered: 2008-12-04

PI Number: PI-4467

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 39.5, 39.6, 39.7

Notary Procedure

Question:

Must a notary keep a receipt of funds record when he or she receives a payment from a client through a bank?

Answer:

Yes. This applies if the payment is made by cheque, bank draft, wire transfer or any other method, and deposited into a Canadian Chartered Bank.

Date answered: 2008-11-17

PI Number: PI-4401

Activity Sector(s): British Columbia notaries

Obligation(s): Record Keeping

Guidance:

Regulations: 33.2

Act: 6

Existence of a Corporation under ongoing service agreement

Question:

It seems that the compliance officer is under the impression that you ascertain the existence of a corporation only when there is an ongoing service agreement in place? For all other client information record, the MSB only IDs the individual, and does a third party determination (corporation) - however does not ascertain the existence of the corporation nor the beneficial ownership ?

Answer:

Yes, under 59(2) you confirm the existence of the corporation when you are required to keep a client information record and under section 32, you are required to keep a client information record when you enter into an ongoing service agreement.

Therefore, if the MSB does not enter into an ongoing service agreement with the entity, you are right, the MSB only has to identify the individual, with a third party determination.

Date answered: 2008-10-30

PI Number: PI-4392

Activity Sector(s): Money services businesses

Obligation(s): Verifying identity, Beneficial Ownership, Record Keeping

Regulations: 11.1, 32, 59(2), 65

Binding Resolutions

Question:

In cases where the corporation/entity has one shareholder/director as confirmed via CIDREQ/On-Corp or any other valid corporate record.

In such cases, is it still necessary to obtain a copy of the binding resolution or can the record confirming that the corporation/entity has only one shareholder/director act as a proxy (replacement) for the binding resolution?

Answer:

The question to ask is does the director have the power to bind or not? You have to know/verify if the person in front of you has the power to bind. And I don't believe that this information shows on CIDREQ/or On-Corp. So yes, it is still necessary to obtain a copy of the binding resolution.

Date answered: 2008-09-08

PI Number: PI-4332

Obligation(s): Record Keeping

Guidance:

Regulations: 14(b), 14.1(b), 15(c), 20, 23(b), 30(b), 33.2(b), 33.4(b), 36(b), 39(c), 39.7(c), 43(b), 49(b)

How to ID an embassy in a real estate transaction

Question:

Question from a real estate broker regarding identifying an embassy. The broker is representing an embassy in a real estate transaction, she has identified the individual conducting the transaction (acting on behalf of the embassy) however her question is how does she identify the embassy? How is an embassy set up? Is it part of the government?

Answer:

For embassies, the document that comes closest to the definition of "a partnership agreement, articles of association or any other similar record that confirms the entity's existence" is this document produced by Foreign Affairs. It is frequently updated and available to the public, indicates that each diplomatic mission contained therein is recognized by the Canadian government, and lists the address and officers of the mission.

I would suggest that the real estate sales representative conserve a copy of this document (or at least the section that refers to the relevant diplomatic mission). Another option would be for the real estate sales representative  to ask the embassy/high commission for a document that confirms its legal status, and revert to the DFAIT document if the real estate sales representative  is unable to provide one.

Date answered: 2008-08-21

PI Number: PI-4317

Activity Sector(s): Real estate

Obligation(s): Record Keeping

Guidance:

Regulations: 59.2(1)(a), 59.2(1)(b)

Exemptions to Client ID for direct deposits for dividend distribution

Question:

Would direct deposits for purpose of dividend distribution be able to take advantage of the exclusion for direct deposits or pre-authorized debits?

While such transactions are mostly undertaken by trust companies on behalf of large corporations a trust company could use this method to distribute dividends for small entities and privately held companies and I have been asked if the exclusion would hold up in such circumstances.

Answer:

The exemption found in section 66.1(3)(c) of the regs applies to the travel rule and the originator information. This exemption however, does not exempt the reporting entities of their obligation under section 14(m) to keep a record in the case of an EFT (international, SWIFT MT 103, and within Canada that are SWIFT MT 103), of $1000.00 or more.

In other words subsection 66.1(3) provides an exemption (travel rule), however, it does not exempt the trust company of their obligations of record keeping under 14 (m).

Date answered: 2008-07-14

PI Number: PI-4260

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 14(m), 66.1(3)(c)

Regarding recording the Issuer of Money Orders- section 14(l)

Question:

Section 14(l): where, in a single transaction, it redeems one money order of $3,000 or more, or two or more money orders of that, taken together, add up to a total of $3,000 or more, a record of the total amount of the money order or orders, the date on which the money order or orders were redeemed, the name and address of the person who made the request for the money order or orders to be redeemed and the name of the issuer of each money order. Who is the issuer?

Answer:

“The name of the issuer” refers to the name of the entity that issued the Money Order that the RE is now redeeming. It is important to note, however, that if the entity is redeeming the money order, then it has to have been issued by that entity. To take in a money order issued by another entity and return the cash equivalent to the client is cashing the money order. For financial entities, there are no associated record-keeping obligations when cashing money orders. When the money order is redeemed, the Credit Union that is redeeming the Money Order must keep a record the total amount of the money order or orders, the date on which the money order or orders were redeemed, the name and address of the individual (person at the teller) who is redeeming the Money Order, as well as the name of the issuer that issued the Money Order, which would be the Credit Union itself when redeeming.

Date answered: 2008-07-14

PI Number: PI-4257

Activity Sector(s): Financial entities

Obligation(s): Record Keeping

Guidance:

Regulations: 14(l)

Date Modified: