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![](/web/20061130025345im_/http://www.fin.gc.ca/images/clear.gif) |
- Consultation
auprès des Canadiens et des Canadiennes -
Présentation du Canadian Institute of Chartered Accountants en
réponse à la consultation du ministère des Finances Canada sur
l'amélioration du régime canadien de lutte contre le blanchiment des
capitaux et le financement des activités terroristes :
Dans le cadre des consultations, les personnes intéressées peuvent
faire des observations sur ce site dans les deux langues officielles ou
dans la langue officielle de leur choix. Les observations affichées sur
le site de Finances Canada le sont dans la (ou les) langue (s) dans
laquelle (lesquelles) elles ont été reçues.
Appendix to The Canadian Institute of Chartered Accountants (CICA) comment letter on June 2005 Consultation Paper
Enhancing Canada’s Anti-Money Laundering and
Anti-Terrorist Financing Regime
Overall Comments
1. Making significant changes to the current regime
Although the Proceeds of Crime (Money Laundering)
Act initially came into force five years ago, amendments to the
legislation and many of the regulations supporting the legislation were
not enacted until some time later. As well, many of the guidelines
supporting the regulations were not published until 2003. Accordingly, the
current regime is very new, particularly for accountants. For example,
FINTRAC has only recently begun to identify what accountants are covered
by the legislation and the extent of their compliance with it. Given the
early stages, there is limited data available with respect to whether the
current regime is working as planned, whether the regime is responding to
developments in money laundering and terrorist financing, and whether
there are areas in the regime that need to be addressed to respond to the
current environment. In the absence of appropriate data about how the
current regime is working in practice, it may be premature to make
significant changes to it.
We have concerns about the ability of reporting
entities, including accountants and accounting firms, and other
participants including FINTRAC, to cope with significant changes to the
regime when they are only now beginning to come to grips with it. In
addition, the Consultation Paper does not indicate the expected
implementation timetable for the changes being proposed. Therefore, it is
not clear whether there will be adequate time for reporting entities to
adapt their systems and procedures, or for bodies such as the CICA to
develop guidance for their members in advance of the proposals coming into
force.
2. Assessing the implications of proposals
We are concerned about the approach to developing the
proposals. The main objective of many of the proposals is to achieve
compliance with the Financial Action Task Force (FATF) Recommendations.
Although it is important to measure Canada’s Anti-Money
Laundering/Anti-Terrorist Financing (AML/ATF) regime against international
frameworks, we maintain that the implementation of the FATF
Recommendations should be considered in relation to the Canadian
environment. As discussed in overall comment 1 above, the current regime
is still new. Presumably, that is why there is no assessment in the
Consultation Paper indicating how the proposals address concerns with the
current regime, the relative importance of individual proposals or the
impact of each proposal on reporting entities.
In addition, it would be useful to understand how the
proposals compare with the requirements in other jurisdictions, such as
the US and the UK, that are facing greater issues with respect to money
laundering and terrorist financing than is Canada, in order to assess
whether the proposals are reasonable in relation to these other
jurisdictions.
The proposals refer, in many cases, to the fact that
more specific details on their scope and application will be developed
through regulations and/or guidelines. It is difficult to assess the
implications of proposals in these circumstances, particularly with
respect to whether the proposals are operational (for example, the nature
of systems and procedures reporting entities will require, and the
guidance that the CICA will need to develop for chartered accountants).
Given the general nature of some of the proposals, we have assumed that
they will have broad scope and application which, in fact, may not be the
case.
The overall result of the proposals appears to benefit
law enforcement and intelligence agencies. It appears that many of the
proposals will significantly increase the burden on reporting entities,
but none of the proposals appear designed to reduce the burden. We
recommend that consideration be given to identifying areas where the
compliance burden might be reduced in accordance with one of the
objectives in the Consultation Paper "to minimize the compliance
burden on reporting entities."
3. Changing the current regime from a risk-based
approach
With respect to accountants and accounting firms in
particular, we note a significant change in approach. Under the current
regime, accountants and accounting firms have reporting and client
identification responsibilities geared to high risk transactions ─
large cash transactions and suspicious transactions. We are satisfied that
these responsibilities are reasonable when accountants and accounting
firms serve as financial intermediaries.
We are concerned, however, that the proposals would
require accountants and accounting firms to perform client identification
and record-keeping procedures irrespective of the nature of the
transactions being undertaken with clients. The proposals would change the
regime from a risk-based approach focused on financial transactions to a
shotgun approach focused on subjective judgments based on circumstantial
evidence and client behaviour. The need for this change is not explained
in the Consultation Paper and, when layered on top of other expanded
requirements for client identification and record-keeping, would likely
result in an exponential increase in the compliance burden on accountants
and accounting firms. The effect of the proposals is for accountants and
accounting firms, the majority of whom are small firms or sole
practitioners, to be facing requirements that are much the same as large
reporting entities, such as financial institutions, who are more directly
affected by money laundering. We are not convinced that this change is
justified.
We also wonder about the possible economic impact of
the proposed change in approach. For example, accountants who currently
provide financial intermediary services to clients for perfectly bona fide
reasons may decide to withdraw such services because they are not
economical given the additional compliance requirements that go along with
providing them. Therefore, we suggest that a more measured approach should
be taken with respect to changing the compliance requirements for
accountants and accounting firms.
Specific Points on Proposals
Affecting Accountants and Accounting Firms
Proposal 1.1
Accountants and Accounting Firms
The Government proposes to amend the PCMLTF Regulations
to expand the client identification and record-keeping requirements
applicable to accountants or accounting firms beyond large cash
transactions. The requirement would also apply to any of the following
activities on behalf of a client:
- receiving or paying funds;
- purchasing or selling securities, real properties or business assets
or entities; or
- transferring funds or securities by any means.
Points on Proposal 1.1
1. Our understanding of the current legislation is that accountants and
accounting firms are required to identify clients and keep records only
when they are acting as financial intermediaries and the client
undertakes a large cash transaction. The first sentence of the proposal
seems to suggest that the current legislation would be amended so that
accountants and accounting firms serving as financial intermediaries
would have additional client identification and record-keeping
responsibilities beyond large cash transactions. However, the second
sentence of the proposal contains the phrase "would also apply
to" and then lists the financial intermediary situations already
covered by the current legislation. It is not clear whether the second
sentence is simply a clarification of the first sentence or whether the
proposal applies to all accountants and accounting firms whether or not
they are serving as financial intermediaries. Our assumption is that the
proposal is intended to apply in the narrow case of financial
intermediaries. If this is not the case, we would have significant
concerns about the possible implications of this proposal.
2. FINTRAC has only recently begun to identify which accountants and
accounting firms are covered by the legislation and the extent of their
compliance with it. In addition, accountants and accounting firms have
had very little time to become familiar with their client identification
and record-keeping responsibilities under the current regime. We assume,
therefore, that there is minimal available data regarding how the
current regime is working in practice. In the absence of available data
we seriously question this proposal for the following reasons:
- There is no evidence that the current regime is not working. If it
isn’t broken, why fix it?
- Without an understanding of any significant problems with the
current regime, there is no assurance that the proposal will actually
improve the regime.
- Affected parties, such as FINTRAC and accountants and accounting
firms, are still struggling with the current regime. It is
questionable whether they will be able to cope with the significant
changes being proposed (see overall comment 1).
3. Without more specific details on its scope and application, it is
difficult to assess whether the proposal is operational; for example,
the nature of systems and procedures accountants and accounting firms
will require, and the guidance that the CICA will need to develop for
chartered accountants (see overall comment 2).
4. Whereas, under the current regime, accountants and accounting firms
are only required to perform client identification and record-keeping
procedures when a client engages in suspicious transactions or large
cash transactions, this proposal would require accountants and
accounting firms to perform client identification and record-keeping
procedures for all clients, irrespective of the nature or size of
the client transactions. In other words, the compliance regime would
move from a risk-based approach focused on key transactions (suspicious
transactions and large cash transactions) to a shotgun approach covering
all client transactions. We see this as a significant increase in the
scope of client identification and record-keeping requirements for
accountants and accounting firms. Given that the requirements for client
identification and record-keeping (including proposals 1.5 and 2.1) are
themselves apparently being significantly strengthened (see point 6
below), this proposal would likely result in an exponential increase in
the compliance burden on accountants and accounting firms. We are not
convinced that this change is justified (see overall comment 3).
5. It is essential to assess the potential economic impact of the
proposed change in approach. For example, accountants (the majority of
whom are small firms or sole practitioners) who currently provide
financial intermediary services to clients for perfectly bona fide
reasons may decide to withdraw such services because they are not
economical given the additional compliance requirements that go along
with providing them (see overall comment 3).
6. This proposal deals with expanded client identification requirements.
Such requirements seem to be explicitly addressed in proposals
1.3, 1.4, 1.5, 1.10, 1.11 and 2.1. It also deals with expanded
record-keeping requirements that are explicitly addressed in proposals
1.4, 1.8 and 1.10 but only implicitly addressed in proposals 1.11
and 2.1. A clear linkage among the proposals would facilitate assessment
of the full implications to accountants and accounting firms. The
combination of all of the requirements appears to us to be a significant
additional compliance burden for accountants and accounting firms (see
overall comment 3).
7. The relevance of this proposal to British Columbia notaries (see page
4 of the Consultation Paper) needs to be explained, especially since the
proposal is titled "accountants and accounting firms."
Proposal 1.5
The Government proposes to amend the PCMLTFA and
regulations to require that for transactions above a certain threshold,
when there are reasonable grounds to suspect that a new or existing
customer is a foreign or domestic PEP, as defined under the regulations,
reporting entities would have additional responsibilities. These entities
would need to:
- have appropriate risk management systems in place to determine
whether a customer is a politically exposed person;
- take reasonable measures to establish the source of funds;
- conduct enhanced ongoing monitoring of the business relationship;
and
- obtain senior management approval to enact the transaction, open the
account or continue the business relationship.
Points on Proposal 1.5
1. The wording of this proposal is not clear. One interpretation of it is
that the entity would only be required to meet the additional
responsibilities (for example, have appropriate risk management systems
in place to determine whether a customer is a PEP) when there is a
transaction above a certain threshold. This does not make sense. A more
logical flow for the proposal would appear to be along the following
lines:
- Entities need to have appropriate risk management systems in place
to determine whether a potential or existing customer is a PEP.
- After a customer is identified as a PEP, entities need to obtain
senior management approval to open the account, enact transactions or
continue the business relationship and need to conduct enhanced
ongoing monitoring of the business relationship.
- With respect to PEP transactions above a certain threshold, entities
would need to take reasonable measures to establish the source of
funds.
2. Although, in principle, we agree that there should be additional
responsibilities when a new or existing customer is a foreign or
domestic PEP, the proposal is extremely vague and therefore difficult to
assess. For example, the proposal does not specify what the threshold
under this proposal will be. In addition, several of the terms used in
the proposal are not defined (points 3 and 4 below). Therefore, it is
difficult to assess how burdensome the requirements will be.
3. It is not clear what "take reasonable measures to
establish the source of funds" (bullet 2 of this proposal) might
encompass. The proposal should refer to the fact that more specific
guidance will be developed through regulations and/or guidelines. It is
not possible to assess the full implications of such a proposal without
more specific guidance (for example, the nature of systems and
procedures accountants and accounting firms will require, and the
guidance that CICA will need to develop for chartered accountants) (see
overall comment 2).
4. It is not clear what "conduct enhanced ongoing monitoring of the
business relationship" (bullet 3 of this proposal) might encompass.
It is not possible to assess the full implications of such a proposal
without more specific guidance; for example, the nature of systems and
procedures accountants and accounting firms will require, and the
guidance that CICA will need to develop for chartered accountants (see
overall comment 2).
Proposal 2.1
The Government proposes to amend the PCMLTFA and its
regulations to explicitly include the reporting of suspicious attempted
transactions.
- All reporting entities that are currently obligated to report
suspicious transactions under Part 1 of Act would be required to
report suspicious attempted transactions.
- Guidance would be provided to reporting entities to assist them in
determining when to report.
- The current form and manner of suspicious transaction reporting
would remain unchanged except for the addition of information
indicating that the transaction was not completed.
- At a minimum, reasonable efforts should be made to obtain the name
and address of the individual undertaking the transaction and the
amount of the transaction.
- The same record-keeping requirements in place for suspicious
transactions would also apply to attempted suspicious transactions.
By requiring the mandatory reporting of such
transactions, FINTRAC will be better able to comprehensively integrate
this information into its analysis and improve the quality of its
disclosures.
Points on Proposal 2.1
1. FINTRAC has only recently begun to identify which accountants and
accounting firms are covered by the legislation and the extent of their
compliance with it. In the absence of appropriate data about the
incidence of reporting suspicious transactions by accountants and
accounting firms, and other related data on how the current regime is
working in practice, it may be premature to make such a significant
change to it (see overall comment 1).
2. This proposal raises serious concerns about the ability of accountants
(many of whom are sole practitioners) to cope with significant changes
to the suspicious transaction reporting requirements when they are only
now coming to grips with it (see overall comment 1).
3. Our limited research indicates that accountants in the US and the UK
are not required to report suspicious attempted transactions. Therefore,
we question why Canada would consider it necessary to implement the
proposal for Canadian accountants without further information about
concerns with the current suspicious transaction reporting regime, and
how the proposals will address these concerns. Furthermore, we maintain
that one of the reasons these jurisdictions have not implemented this
FATF Recommendation is because it will not improve the quality of
information provided to FINTRAC (see overall comment 2).
4. This proposal refers to the fact that more specific guidance will be
developed through regulations and/or guidelines. It is not possible to
assess the full implications of such a proposal in these circumstances,
without more specific guidance. In particular, the application of this
proposal may be relatively straight forward to implement for certain
entities, such as financial institutions, because they are acting
directly with a client. However, the concept of "attempted"
transactions is more problematic for accountants and accounting firms
that are acting on behalf of a third party. For example, many
accountants act in an advisory role that will often make it difficult to
identify whether there is, in fact, a "transaction" and when
it is being "attempted." The current regime, which deals with
actual completed financial transactions, provides greater clarity
concerning these issues. Under Proposal 2.1, the current risk-based
transaction approach would shift to an approach founded on subjective
judgments based on circumstantial evidence and client behaviour. We
doubt that reporting based on subjective speculation will result in
improvements in the current regime (see overall comments 2 and 3).
5. The need for this proposed change is not explained in the Consultation
Paper and, when layered on top of other expanded requirements for client
identification and record-keeping (see proposals 1.1 and 1.5) would
likely result in an exponential increase in the compliance burden on
accountants and accounting firms. We are not convinced that this is
justified (see overall comment 3).
6. It is essential to assess the potential economic impact of the
proposed change in approach. For example, accountants (the majority of
whom are small firms or sole practitioners) who currently provide
financial intermediary services to clients for perfectly bona fide
reasons may decide to withdraw such services because they are not
economical given the additional compliance requirements that go along
with providing them (see overall comment 3).
7. This proposal states (see bullet 5) that "The same record-keeping
requirements in place for suspicious transactions would also apply to
attempted suspicious transactions." The intent of this proposal is
not clear given that, under the current regime, neither the legislation
nor the regulations require that records be kept for suspicious
transactions.
Specific Points on Other Proposals
Proposal 1.3
1. The relevance of this proposal to British Columbia notaries (see
page 4 of the Consultation Paper) needs to be explained, especially
since the proposal specifically refers to "accountants,
accounting firms and real estate brokers or sales
representatives."
2. The second bullet of the proposal makes reference to proposal 1.9.
Our understanding is that proposal 1.9 is not meant to apply to
accountants and accounting firms.
Proposal 1.4
1. This proposal would require accountants and accounting firms to
identify and verify the client’s information, record the source of
that information and record the method of identification, all without
"tipping off the client" about the suspicious transaction.
Without more specific details on its scope and application, it is
difficult to assess whether the proposal is operational; for example,
the nature of systems and procedures accountants and accounting firms
will require, and the guidance that the CICA will need to develop for
chartered accountants (see overall comment 2).
Proposal 1.10
1. We support the overall intent of this proposal to improve the
collection of information about third parties and beneficial owners.
However, the proposal requires that the reporting entity obtain,
verify and keep records of all third parties or beneficial
owners. We maintain that these requirements are extremely onerous and,
in fact, go beyond FATF Recommendation 5(b). In addition, when
considered in relation to the proposed AMP regime in proposal 3.2,
this proposal could give rise to a significant increase in compliance
violations.
2. It appears that this proposal, when combined with proposal 1.1, will
contribute to a significant increase in the compliance burden for
accountants and accounting firms (see overall comments 1 and 2).
Proposal 1.11
1. It is not clear what "monitor their business
relationships" (in bullet 1 of this proposal) might encompass or
how it compares with "enhanced ongoing monitoring" as
discussed in proposal 1.5. This proposal should refer to the fact that
more specific guidance will be developed through regulations and/or
guidelines. It is not possible to assess the full implications of such
a proposal without more specific guidance; for example, the nature of
systems and procedures accountants and accounting firms will require,
and the guidance that the CICA will need to develop for chartered
accountants (see overall comment 2).
Proposal 3.2
1. This proposal refers to the creation of an AMP regime, including the
issuance of a Notice to reporting entities that do not comply. It is
not clear whether the name of the violator and any details of the
violations would be posted on FINTRAC’s website only after the
reporting entity had exercised the right of appeal and recourse to a
defence of due diligence.
2. We maintain that the proposal to "name and shame"
violators on the FINTRAC website runs counter to the cooperative
efforts FINTRAC has made up to now to work closely with reporting
entities as they implement the current regime. Obviously, reporting
entities will be much more reluctant to cooperate with FINTRAC, if
they know that any violations will be made public. We also question
whether putting the names of violators on FINTRAC’s website is
really necessary for relatively minor violations.
Proposal 5.1
1. This proposal refers to the creation of an AML/ATF advisory
committee. We support the creation of this committee as it will serve
to foster an environment of cooperation and coordination that will
benefit the regime as a whole. However, consideration should be given
to reducing the size of the proposed committee to 15 members, rather
than 20-25 to ensure that the committee operates efficiently and
effectively. This could be achieved by having only one representative
from each stakeholder group (such members could be changed on a
rotational basis according to different constituents within each
stakeholder group).
2. The CICA would be pleased to serve as a member of the advisory
committee representing the "accountants and accounting
firms" stakeholder group.
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