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Guideline 2: Suspicious Transactions
March 24, 2003
This replaces the previous version of Guideline
2: Suspicious Transactions issued in May 2002. The changes made to this version are indicated in
the right margin of the PDF version.
Table of Contents
- General
- Suspicious Transaction Reporting
- Identifying Suspicious Transactions
- Examples of Common Indicators
- Examples of Industry-Specific Indicators
- Comments?
- Contact FINTRAC
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1. General
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires reporting of suspicious
transactions by the following persons and entities and their employees:
- financial entities (such as banks, credit unions, caisses populaires, trust and loan companies and agents of the Crown that accept deposit liabilities);
- life insurance companies, brokers and agents;
- securities dealers, portfolio managers and investment counsellors;
- persons engaged in the business of foreign exchange dealing;
- money services businesses (including alternative remittance systems, such as
Hawala, Hundi, Chitti, etc.);
- Canada Post for money orders;
- accountants and accounting firms (when carrying out certain activities on behalf of their clients);
- real estate brokers or sales representatives (when carrying out certain activities on behalf of their clients); and
- casinos (including those authorized to do business in Canada, with a slot machine or roulette or card games, but excluding certain temporary charity
casinos).
If you are one of these persons or entities, this guideline can help you meet your obligation to report suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). A suspicious transaction is one for which there are reasonable grounds to suspect that the transaction is related to a money laundering offence or a terrorist activity financing offence.
This guideline, which has been prepared by FINTRAC, contains indicators of suspicious transactions that might be useful in helping you assess whether a transaction is suspicious and should be reported. It is not intended as a substitute for your own assessment, based on your knowledge and experience as well as the specific circumstances of the financial transaction.
This guideline uses plain language to explain common reporting situations under the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act as well as the related Regulations. It is provided as general information only. It is not legal advice and is not intended to replace the Act and Regulations. For more information about money laundering, terrorist activity financing or other reporting requirements under the Act and Regulations, see the
guidelines in this series:
- Guideline 1 : Backgrounder explains money laundering, terrorist financing, and their international nature. It also provides an outline of the legislative requirements as well as an overview of FINTRAC's mandate and responsibilities.
- Guideline 2 : Suspicious Transactions explains how to report a suspicious transaction. It also provides guidance on how to identify a suspicious transaction, including general and industry-specific indicators that may help when conducting or evaluating transactions.
- Guideline 3 : Submitting Suspicious Transaction Reports to FINTRAC explains when and how to submit suspicious transaction reports. There are two different versions of Guideline 3, by reporting method.
- Guideline 4 : Implementation of a Compliance Regime explains the requirement for reporting persons and entities to implement a regime to ensure compliance with their obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated Regulations.
- Guideline 5 : Submitting Terrorist Property Reports to FINTRAC explains when and how to submit terrorist property reports.
- Guideline 6 : Record Keeping and Client Identification explains the requirement for reporting persons and entities to identify their clients and keep records. There are eight different versions of Guideline 6, by sector.
- Guideline 7 : Submitting Large Cash Transaction Reports to FINTRAC explains when and how to submit large cash transaction reports. There are two different versions of Guideline 7, by reporting method.
- Guideline 8 : Submitting Electronic Funds Transfer Reports to FINTRAC explains when and how to submit EFT reports.
- Guideline 9 : Submitting Alternative to Large Cash Transaction Reports to FINTRAC explains when and how financial entities can choose the alternative to large cash transaction reports. This is only applicable to financial entities.
If you need more help after you read this or other guidelines, call
FINTRACs national toll-free enquiries line at 1-866-346-8722.
Throughout these guidelines, several references are provided to additional information that may be available on external Web sites. FINTRAC is not responsible for the accuracy or reliability of the information contained on those external Web sites.
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2. Suspicious Transaction Reporting
2.1 Who Must Report Suspicious Transactions?
If you are a reporting person or entity mentioned above, you must report suspicious transactions to FINTRAC.
If you are a money services business, a Crown agent, an accountant, a real estate broker or sales representative, or a casino, you are only subject to this when you engage in the following activities:
- If you are a money services business, you are subject to this when you remit or transmit funds by any means through any person, entity or electronic funds transfer network. You are also subject to this when you issue or redeem money orders, travellers cheques or other similar negotiable instruments, except when you redeem cheques payable to a named person or
entity.
Money services businesses include alternative money remittance systems, such as Hawala, Hundi, Chitti, etc. Money services businesses also include financial entities when they remit or transmit funds, issue or redeem money orders, travellers cheques or other similar negotiable instruments for anyone who is not a client of theirs.
- If you are an agent of the Crown (i.e., a Department or agent of her Majesty in right of Canada or of a province), you are subject to this when you sell or redeem money orders, such as Canada Post for example, or when you accept deposit liabilities in the course of providing financial services to the public.
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2.2 What are Suspicious Transactions?
Suspicious transactions are financial transactions that there are reasonable grounds to suspect are related to the commission of a
money laundering offence. Since June 12, 2002, suspicious transactions also include financial transactions that there are reasonable grounds to suspect are related to the commission of a
terrorist activity financing offence.
Reasonable grounds to suspect is determined by what is reasonable in your circumstances, including normal business practices and systems within your industry. While the Act and Regulations do not specifically require you to implement or use an automated system for detecting suspicious transactions, you may decide that such a system would be beneficial to your business.
More information about a money laundering offence and terrorist activity financing offences is provided below.
Money Laundering Offence
Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property (e.g. money) knowing or believing that these were derived from the commission of a designated offence. In this context, a designated offence means most serious offences under the
Criminal Code or any other federal Act. It includes those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, etc. The few exceptions are for offences such as those related to tax evasion or breach of copyright, and some others that involve administrative and monetary penalty structure.
A money laundering offence may also extend to property or proceeds derived from illegal activities that took place outside Canada.
For information about money laundering methods, see Guideline
1: Backgrounder.
Terrorist Activity Financing Offence
Under Canadian law, terrorist activity financing offences make it a crime to knowingly collect or provide property, such as funds, either directly or indirectly, to carry out terrorist crimes. This includes inviting someone else to provide property for this purpose. It also includes the use or possession of property to facilitate or carry out terrorist activities.
There are other offences associated with terrorist activities that are not specifically related to financing, such as participating in or facilitating terrorist activities, or instructing and harbouring terrorists. Only suspicion that a transaction is related to a terrorist activity financing offence triggers a requirement to report the suspicious transaction to FINTRAC as related to terrorist activity financing.
For more information about terrorist financing and other anti-terrorism measures, including other reporting requirements related to terrorist property, see
Guideline
1: Backgrounder.
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2.3 Completed Transactions
The requirement for you to report a suspicious transaction applies only when the financial transaction has occurred. For example, if you process a deposit from a client, a financial transaction has occurred, even if the final sale does not go through. In this example, the refund of the deposit would also be a financial transaction. If you decide or the client decides not to complete the transaction, there is no obligation to report it as a suspicious transaction to FINTRAC.
You could choose to report an uncompleted transaction and your suspicion about it to law enforcement. You could also choose to provide this information voluntarily to FINTRAC. To find out how to provide information voluntarily to FINTRAC about suspicions of money laundering or of the financing of terrorist activities, refer to FINTRACs Web site at
http://www.fintrac.gc.ca/reporting--declaration/vol/1_e.asp.
Transactions Related to Terrorist Property
If you know, rather than suspect, that a transaction is related to property owned or controlled by or on behalf of a terrorist or a terrorist group, you should
not complete the transaction. This is because terrorist property must be frozen under the
United Nations Suppression of Terrorism Regulations as well as the
Criminal Code.
This could occur, for example, if your concern about the transaction is because you know that the property in question is owned or controlled by or on behalf of a listed person or listed entity (that is, someone believed to be involved in terrorist activity). For more information about listed persons or entities, freezing of property, and the associated reporting requirement to FINTRAC, read
Section 4.2 of
Guideline
1:
Backgrounder.
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2.4 How to make a Suspicious Transaction Report
Once you have detected a fact that leads you to have reasonable grounds to suspect that a transaction is related to the commission of a money laundering offence or to the commission of a terrorist activity financing offence, a suspicious transaction report must be sent to FINTRAC within 30 days.
Please refer to Guideline 3: Submitting Suspicious Transaction Reports to FINTRAC
for more information about reporting timelines and for information on how to make a report.
Making a suspicious transaction report to FINTRAC does not prevent you from reporting suspicions of money laundering or terrorist financing directly to law enforcement. FINTRAC encourages you to maintain established relationships with law enforcement.
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2.5 Additional Information Related to Reporting to FINTRAC
Confidentiality
As a reporting person or entity, you are not allowed to inform anyone, including the client, about the contents of a suspicious transaction report or even that you have made such a report, if your intent is to harm or impair a criminal investigation. This applies whether or not such an investigation has begun.
Because it is important not to tip your client off that you are making a suspicious transaction report, you should not be requesting information that you would not normally request during a transaction. The fields that are mandatory in the suspicious transaction report are for information without which you should not be able to complete a transaction. The rest of the fields are for you to provide information if it is available in your records or as a result of the transaction.
Since June 12, 2002, there are new client identification and record keeping requirements. More information about these is available in
Guideline 4: Implementation of a Compliance
Regime or Guideline 6: Record Keeping and Client Identification.
Immunity
No criminal or civil proceedings may be brought against you for making a report in good faith concerning a suspicious transaction. This also applies if you are not required to submit a report to FINTRAC, but decide to provide information voluntarily to FINTRAC because of your suspicions of money laundering or financing of terrorist activity.
Penalties
There are penalties if you fail to meet the suspicious transaction reporting obligations. Failure to report a suspicious transaction could lead to up to five years imprisonment, a fine of $2,000,000, or both. However, penalties for failure to report do not apply to employees who report suspicious transactions to their superior.
Closing Accounts
There is no requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
to close a clients account when you have reported or are preparing to report a suspicious transaction. This is entirely up to you and your business practices.
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3. Identifying Suspicious Transactions
3.1 How to Identify a Suspicious Transaction
Transactions may give rise to reasonable grounds to suspect that they are related to money laundering or terrorist activity financing regardless of the sum of money involved. There is no monetary threshold for making a report on a suspicious transaction. A suspicious transaction may involve several factors that may on their own seem insignificant, but together may raise suspicion that the transaction is related to the commission of a money laundering offence, a terrorist activity financing offence, or both.
As a general guide, a transaction may be connected to money laundering or terrorist activity financing when you think that it (or a group of transactions) raises questions or gives rise to discomfort, apprehension or mistrust.
The context in which the transaction occurs is a significant factor in assessing suspicion. This will vary from business to business, and from one client to another. As a reporting person or entity, or an employee of a reporting person or entity, you should evaluate transactions in terms of what seems appropriate and is within normal practices in your particular line of business, and based on your knowledge of your client. The fact that transactions do not appear to be in keeping with normal industry practices may be a relevant factor for determining whether there are reasonable grounds to suspect that the transactions are related to money laundering or terrorist activity financing.
An assessment of suspicion should be based on a reasonable evaluation of relevant factors, including the knowledge of the customers business, financial history, background and behaviour. Remember that
behaviour is suspicious, not people. Also, it could be the consideration of many factorsnot just one factorthat will lead you to a conclusion that there are reasonable grounds to suspect that a transaction is related to the commission of a money laundering offence, a terrorist activity financing offence, or both. All circumstances surrounding a transaction should be reviewed.
As the reporting person or entity with whom the transaction occurs, you have to assess whether there are reasonable grounds to suspect that a transaction is related to a money laundering offence or a terrorist activity financing offence. The following information concerning indicators is provided to help you with this.
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3.2 Indicators Relating to Terrorist Activity Financing
Indicators to help establish suspicion that a transaction may be related to the commission of a terrorist activity financing offence mostly resemble those relating to money laundering. In fact, the indicators in this guideline are combined for both money laundering and terrorist financing. These are all intended to complement each other and reinforce already existing due diligence practices in dealing with financial transactions.
There are some small differences between money laundering and terrorist financing indicators. For example, amounts relating to terrorist financing generally may be smaller. However, there is no distinction made in the indicators included in
Sections 4 and 5.
Lists of persons and entities believed to be associated with terrorists
As part of international efforts to combat terrorism, the Government of Canada has published lists to prevent and suppress the financing of terrorist activities. Property of those whose names are published on any of these anti-terrorism lists are to be frozen. This means that transactions related to that property are prohibited.
A consolidated list for use by anyone in Canada and by Canadians outside Canada is published and maintained by the Office of the Superintendent of Financial Institutions (OSFI). You can find this list on OSFIs Web site:
http://www.osfi-bsif.gc.ca/eng/publications/advisories/index_supervisory.asp?#list.
If you determine that you are in control or possession of property that is owned by or on behalf of anyone on this list, you must report its existence, as well as any transactions or proposed transactions related to the property, to the Royal Canadian Mounted Police and the Canadian Security Intelligence Service. Please refer to
Guideline 1: Backgrounder for more information about this.
Others outside Canada, such as the United States, the United Nations Security Council, among others, have also published lists. Some or all of the names on these foreign lists may also be added on the Canadian lists, if Canada has reasonable grounds to believe they are associated to terrorist activity.
How to use lists as indicators of possible terrorist activity financing
If you know that the transaction is related to property owned or controlled by or on behalf of anyone whose name is on the lists, the property should be frozen. This means that any transactions relating to that property are prohibited. Therefore, such a transaction that would trigger suspicion about a terrorist activity financing offence should not be completed.
Because of this, and because the requirement to report a suspicious transaction only exists if a transaction is completed, it is expected that the number of transactions that could give rise to a suspicious transaction report related to terrorist activity financing will be limited. For more information about proposed transactions related to terrorist property, read
Section 4.2 of
Guideline 1:
Backgrounder.
Distinguishing between money laundering and terrorist activity financing suspicion
It may be difficult for you to distinguish between suspicion of money laundering and suspicion of terrorist activity financing. In fact, it is possible that a transaction could be related to both. For example, funds to be used for terrorist activity could be proceeds of criminal activity as well as from legitimate sources.
It is the information about the transaction and about what led to your suspicion that is important in a suspicious transaction report. Provide as many details as possible in your report about what led to your suspicion, including anything that made you suspect that it might be related to terrorist financing, money laundering, or both. If you cannot make the distinction based on the information available, remember that it is the information about your suspicion that is important, not the distinction between money laundering and terrorist activity offences.
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3.3 Indicators of
Suspicious Transactions
The indicators that follow are provided to help assess whether or not transactions might give rise to reasonable grounds for suspicion. They are examples of common and industry-specific indicators that may be helpful when evaluating transactions. They include indicators based on certain characteristics that have been linked to money laundering or terrorist activities in the past.
These indicators were compiled in consultation with reporting entities, law enforcement agencies and international financial intelligence organizations. They are not intended to cover every possible situation and are not to be viewed in isolation. A single indicator is not necessarily indicative of reasonable grounds to suspect money laundering or terrorist financing activity. However, if a number of indicators are present during a transaction or series of transactions, then you might want to take a closer look at other factors prior to making the determination as to whether the transaction must be reported.
The indicators have to be assessed in the context in which the transaction occurs. Each indicator may contribute to a conclusion that there are reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence or a terrorist activity financing offence. However, it may also offer no indication of this in view of factors such as the clients occupation, business, financial history and past investment pattern. Taken together, the presence of one or more indicators as well as your knowledge of your clients business or financial affairs may help you identify suspicious transactions.
Some of the indicators provided could result in the transaction being aborted if the client requests a service that is prohibited by your business or by the anti-terrorism measures explained in Section 4.2 of Guideline 1: Backgrounder. Your policies, standards and procedures may already reflect these as inappropriate or questionable. As explained earlier, if a transaction is not completed, there is no requirement for you to make a suspicious transaction report to FINTRAC. However, the indicators detected during an aborted transaction should be considered, where possible, in subsequent dealings with the client if additional suspicious activity occurs.
In the case of a transaction aborted because you believe the property is owned or controlled by or on behalf of a terrorist or a terrorist group, this must be reported as explained in Section 3.2 above.
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4. Examples of Common Indicators
5. Examples of Industry-Specific
Indicators
6. Comments?
These guidelines will be reviewed on a periodic basis. If you have any comments or suggestions to help improve them, please send your comments to the mailing address provided below, or by email to
guidelines@fintrac.gc.ca
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7. Contact FINTRAC
For further information on FINTRAC and its activities, or about reporting
suspicious transactions, please go to FINTRACs
Web site or contact FINTRAC:
Financial Transactions and Reports Analysis Centre of Canada
234 Laurier Avenue West, 24th floor
Ottawa, Ontario
Canada K1P 1H7
Toll-free: 1-866-346-8722
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