What is a suspicious transaction report?
This guidance on suspicious transactions is applicable to reporting entities (REs) and individuals employed by reporting entities that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.
It is recommended that this guidance be read in conjunction with all other suspicious transaction reporting (STR) guidance, including:
- Reporting suspicious transactions to FINTRAC; and
- Money laundering (ML) and terrorist financing (TF) indicators (ML/TF indicators)
**Note: All references to financial transactions should be read to include attempted or completed financial transactions.
This document serves to answer the following questions:
- What is an STR and why are they vital to FINTRAC and to Canada's anti-money laundering and anti-terrorist financing regime?
- How do you identify a suspicious transaction?
- What is reasonable grounds to suspect and when do you submit an STR to FINTRAC?
- How does FINTRAC assess an RE's compliance with its obligation to submit STRs?
- How can an RE assess its own compliance with its obligations to submit STRs?
1) What is an STR and why are they vital to FINTRAC and to Canada's anti-money laundering and anti-terrorist financing regime?
FINTRAC operates within the legislative authority of the PCMLTFA and associated Regulations. Its mandate is to detect, prevent and deter instances of ML/TF activities.
FINTRAC requires that certain individuals and entities implement specific measures as a part of their compliance program and submit various types of reports to FINTRAC. FINTRAC uses these reports to assess and analyze financial transactions to create a picture that serves to uncover financial relationships and networks that will:
- assist in criminal investigations and prosecutions of offences related to ML/TF, as well as threats to the security of Canada;
- detect trends and patterns related to ML/TF risks;
- uncover vulnerabilities to Canada's financial system; and
- enhance public awareness of ML/TF matters.
One of the most valuable types of reports in relation to the analysis and production of financial intelligence is the STR. You must submit an STR to FINTRAC where you have determined that you have reasonable grounds to suspect that a financial transaction is related to the commission or attempted commission of an ML/TF offence. This means that you have reasonable grounds to suspect that the financial transaction(s) is assisting a terrorist or terrorist group or both, or in the case of ML, is being used to convert the proceeds of crime into the appearance of a legitimate activity.
STRs must be detailed and of high quality, as they provide invaluable financial intelligence for FINTRAC's analysis such as individuals or entities' names, accounts, locations and relationships that may ultimately be disclosed to law enforcement, intelligence agencies, and/or other disclosure recipients. They also provide context and make connections that disclosure recipients may not otherwise have known about.
FINTRAC reviews and assesses every STR within days of its receipt. When warranted, such as in the case of STRs related to threats to the security of Canada, FINTRAC has disclosed financial intelligence to disclosure recipients within 24 hours by expediting the analysis and the assessment to determine if the prescribed thresholds to disclose are reached. As such, STRs are critical to FINTRAC's analytical function and to its ability to detect, prevent and deter ML/TF. Consequently, a failure to report an STR may have a direct impact on FINTRAC's capacity to carry out its mandate, including FINTRACs ability to aid in the protection of Canada's national security, therefore impeding the achievement of the objective of the PCMLTFA and associated Regulations.
For more information on ML or TF, see FINTRAC's Guideline 1: Backgrounder.
2) How do you identify a suspicious transaction?
Most often, it is a combination of facts, context and ML/TF indicators that will lead to the determination of whether you have reasonable grounds to suspect that a transaction is related to the commission or attempted commission of an ML/TF offence.
What is a fact?
A fact, in regards to completing an STR, is an actual event, action, occurrence or element that exists or is known to have happened or existed. It cannot be an opinion. For example, facts surrounding a financial transaction could include the date, time, location, amount or type of transaction or could include the account details, particular business lines, or the client's financial history. It could also include information about your client should the information be known to be true (e.g. that they are a convicted felon, or that they are the subject of a production order).
What is context?
Understanding the context of a financial transaction(s) that may be observed or acquired through:
- a general awareness of the events occurring in your client's business environment or community;
- your knowledge of the typical financial activities found within your business;
- regular know your client (KYC) activities (e.g. who they are, their occupation or business, how they generate their wealth, typical or expected transactional behaviour, etc.);
- the information obtained through the application of your risk-based approach; and
- the background and/or behaviour/actions of a client.
This type of information is essential in determining what is suspicious. Context in regards to completing an STR is clarifying a set of circumstances or providing an explanation of a situation or financial transaction that can be understood and assessed.
If the context surrounding a particular transaction is unusual or suspicious, it could lead you to assess your client's current and past financial transactions.
A financial transaction may not appear suspicious in and of itself. However, additional context about the associated individual or their actions may create suspicion.
Your suspicion of ML/TF will most likely materialize out of an assessment of multiple elements that, when viewed together, will either inform or negate suspicion of ML/TF. For example, suspicion may materialize through:
- An individual:
- asks several questions about their reporting obligations (fact)
- wants to know how they can avoid their transaction being reported to FINTRAC (context)
- structures their amounts to avoid client identification or reporting thresholds (context)
- keeps changing their explanation for conducting a transaction or knows few details about its purpose (context)
- An individual making a deposit to a personal account, where that individual:
- has a low salary (context) and has deposited an irregularly large amount of money (fact)
- keeps changing their explanation for the deposit or cannot / will not provide an explanation (context)
- exhibits nervous behaviour (context)
- Transactions to a business account with the following additional elements:
- deposits to the account are made by numerous parties that are not signing authorities or employees (fact)
- the account activity involves wire transfers in and out of the country (fact), which does not fit the expected pattern of that business (context)
- multiple deposits are made to the account by third parties (fact)
What is an ML/TF indicator?
ML/TF indicators are potential red flags that could initiate suspicion or indicate that something may be unusual without a reasonable explanation. Red flags typically stem from one or more factual characteristics, behaviours, patterns or other contextual factors that identify irregularities related to financial transactions. These often present inconsistencies with what is expected or considered normal based on what you know about your client.
FINTRAC has published ML/TF indicators for each sector that were developed through a three-year review of ML/TF cases, a review of high quality STRs, published literature by international organizations such as the Financial Action Task Force (FATF) and the Egmont Group, and consultation with reporting entity sectors. These ML/TF indicators do not cover every possible situation but were developed to provide you with a general understanding of what is or could be unusual or suspicious. On its own, a single indicator may not appear suspicious. However, observing an indicator(s) could lead you to conduct an assessment of the transaction(s) to determine whether there are further facts, contextual elements or additional ML/TF indicators that might require the submission of an STR.
Criminal organizations often combine various methods in novel ways in order to avoid the detection of ML/TF. ML/TF indicators can prompt your suspicion but it is the assessment of facts, context and ML/TF indicators that can help you determine if you have reasonable grounds to suspect that the transaction is related to the commission or attempted commission of an ML/TF offence. These ML/TF indicators may also be used to explain or articulate the reasons for your reasonable grounds to suspect in an STR.
3) What is reasonable grounds to suspect and when do you submit an STR to FINTRAC?
Reasonable grounds to suspect is a step above simple suspicion and is a conclusion you reach based on an assessment of facts, context, and ML/TF indicators associated with the financial transaction. Your suspicion must be reasonable, meaning, for example, that it cannot be biased or prejudiced.
It is through an assessment of information that you are able to demonstrate and articulate your suspicion of ML/TF in such a way that another individual reviewing the same material with similar knowledge, experience, or training would likely reach the same conclusion.
Reaching reasonable grounds to suspect means that you consider all the facts, context and ML/TF indicators related to a financial transaction and, after having reviewed this information, you conclude that there are reasonable grounds to suspect that this particular financial transaction is related to ML/TF. It is possible that you have one piece of information that was so compelling that it led you to start an assessment or submit an STR to FINTRAC.
Once you determine that there are reasonable grounds to suspect that a transaction is related to the commission of attempted commission of an ML/TF offence, you must submit an STR to FINTRAC.
Understanding the differences between the thresholds can help to clarify what reasonable grounds to suspect means for your organization and how it can be operationalized within your compliance program. See diagram 1: Threshold of suspicion, for a visual overview of the following thresholds.
Diagram 1: Threshold of suspicion
Simple suspicion is a lower threshold than reasonable grounds to suspect and is synonymous with a “gut feeling” or “hunch”. In other words, simple suspicion means that you have a feeling that something is unusual or suspicious, but do not have any facts, context or ML/TF indicators to support that feeling or determine if there are reasonable grounds to suspect the occurrence of an ML/TF offence. Simple suspicion could prompt you to assess related financial transactions to see if there are additional facts, context or ML/TF indicators that would support/confirm your suspicion.
Reasonable grounds to suspect is the required threshold for submitting an STR to FINTRAC and is a step above simple suspicion, meaning that there is a possibility of an ML/TF offence. This means that you do not have to prove the facts that led to your suspicion. However, you do have the obligation to assess the facts, context and ML/TF indicators that led to your determination of reasonable grounds to suspect the occurrence of an ML/TF offence and include it in the narrative portion, Part G, of the STR. Multiple factors will most likely be present that will contribute to your assessment and conclusion to submit an STR. The decision as to whether an ML/TF offence has actually occurred is ultimately determined by the judicial system.
Reasonable grounds to believe is a higher threshold than reasonable grounds to suspect and is more than what is required to submit an STR. Reasonable grounds to believe means that there is a probability, supported by verified facts, that an ML/TF offence has occurred. In other words, there is enough evidence to support a reasonable and trained person to believe, not just suspect, that ML/TF has occurred. For example, law enforcement must reach reasonable grounds to believe that criminal activity has occurred before they can obtain judicial authorizations, including a production order. If you have reasonable grounds to believe that an ML/TF offence has occurred you should submit an STR as you have surpassed your reasonable grounds to suspect threshold for submitting an STR.
4) How does FINTRAC assess an RE's compliance in their determination of reasonable grounds to suspect?
FINTRAC conducts various activities to ensure that STRs are properly completed and submitted, including an evaluation of their quality, timing and volume. If you are reporting multiple suspicious financial transactions involving the same client(s) or account(s), you would periodically re-assess their level of risk and apply the appropriate measures determined by your risk-based approach. This assessment could include a review of transactional records to ensure that you are keeping a copy of the STR as required by the PCMLTFA and associated Regulations.
FINTRAC can use various assessment methods to ensure that you are detecting and submitting complete STRs in a timely manner. During an assessment, FINTRAC expects that you will be able to:
- confirm that you have an ongoing monitoring process that enables you to detect, assess and, when applicable, report suspicious transactions;
- explain how your process for detecting and assessing suspicious transactions is reasonable, effective, and consistent with your risk assessment across all business lines;
- demonstrate how you identify relevant transactions; and
- show your record keeping and decision-making processes.
There may be times where you initially assessed transactions as suspicious, but as a result of your re-assessment, later negated the suspicions and determined the transactions reasonable. As a best practice, you may want to document the rationale and keep a record as to why the suspicion was negated. Keeping a record of these decisions is not required but may be helpful to you in the context of a FINTRAC assessment.
You can rely on ML/TF indicators, open source, media reporting or FINTRAC's operational briefs and alerts to help you identify suspicious financial transactions and determine reasonable grounds to suspect.
It is important to remember that your STR program is linked to the overall effectiveness of your compliance program. A timely and well-prepared STR could be crucial to Canada's anti-money laundering and anti-terrorist financing regime. To ensure that you have submitted an STR in a timely manner, FINTRAC will look at the date that you detected a fact that led you to reach reasonable grounds to suspect that an ML/TF offence had been committed (or attempted). FINTRAC will also look at your overall STR program to evaluate its effectiveness in terms of identifying, assessing and submitting STRs as per your policies and procedures.
You may decide to expedite the submission of STRs in certain situations involving time-sensitive information and threats to national security, such as suspected terrorist financing.
5) How can an RE assess its own compliance with its obligations to submit STRs?
Part of your regulatory obligations is the requirement to assess the effectiveness of your compliance program as a part of your two-year review. In support of this, below are some examples you may wish to consider for your own assessment:
- You may decide to assess STRs with similar scenarios to ensure that you are applying consistency. For example, if you found certain ML/TF indicators through your assessment that support your suspicions of ML/TF, you should be aware when the same ML/TF indicators appear elsewhere to ensure that you are not missing potential STRs that should be or should have been submitted to FINTRAC. This approach can help you build consistency within your organization.
- If you submitted an STR to FINTRAC in respect of a financial transaction(s) conducted by a client, you should continue to submit STRs as long as the suspicions of ML/TF continue. That being said, you should periodically re-assess the information to evaluate your grounds for suspicion. How often you perform this assessment can be documented as part of your policies and procedures. For instructions on submitting multiple STRs on the same client, refer to Reporting suspicious transactions to FINTRAC.
- You can work within your industry to identify how others are reaching the reasonable grounds to suspect threshold and to establish common baselines for what could be considered unusual or suspicious. Please consult FINTRAC's operational briefs and alerts for more information on ML/TF that has been observed within certain sectors or relating to specific criminality (e.g. human trafficking, fentanyl, etc.).
- Reasonable grounds to suspect means that you can explain the reasons for your suspicion in such a way that another individual with similar knowledge, experience and training would, based on the same information, likely reach the same conclusion. Applying this logic can direct your assessment of financial transactions that may fit some of the ML/TF indicators identified by FINTRAC. This will also help you determine if there are financial transactions that should be considered for further assessment and potential reporting to FINTRAC.
- To assess your timing for submitting an STR, you may wish to conduct a sample review to ensure that your STRs were sent in a timely manner. You can also assess the relevant aspects of your STRs (facts, context and ML/TF indicators) and determine when they became known to ensure that you are reporting them from the date you reached the reasonable grounds to suspect threshold.
- To assess the quality of your STRs, it is important that you consider the consistency and integrity of your KYC information and provide all relevant information that led to the determination of the reasonable grounds to suspect threshold.
- STRs have significantly fewer mandatory fields than other FINTRAC reports. This is intended to encourage reporting even in situations where you may not have information because the client did not provide any or where asking for details might ‘tip off' the individual to your suspicions. Double-checking the quality of your STRs before submitting them is important because FINTRAC cannot automatically reject reports that have missing information, unlike other report types. However, FINTRAC expects that if you can access the information in your institution, it must be reported.
- Date Modified: