- Consultation
auprès des Canadiens et des Canadiennes -
Présentation du Ad Hoc Group 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
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le site de Finances Canada le sont dans la (ou les) langue (s) dans
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Ad Hoc Group on Anti-Money Laundering and Anti-Terrorist Financing
Submission on the Department of Finance Consultation Paper
"Enhancing Canada’s Anti-Money Laundering and Anti-Terrorist
Financing Regime" (June 2005)
September 2005
Table of Contents
Introduction
Comments on Specific Proposals
Proposal 1.4 Suspicious Transactions
and Doubtful Client Information
Proposal 1.5 Politically Exposed
Persons
Proposal 1.7 Lower Risk Situations
Proposals 1.8 and 1.9
Non-Face-to-Face Situations
Proposal 1.8 Agents or Introducers
Proposal 1.9 Non-Face-to-Face
Customer Identification Measures
Proposal 1.10 Identification of Third
Parties and Beneficial Owners
Proposal 1.11 Ongoing Due Diligence
Proposal 1.12 EFT Customer Due
Diligence and Record-Keeping Requirements
Proposal 2.1 Reporting of Suspicious
Attempted Transactions
Proposal 3.2 Creating an
Administrative and Monetary Penalties Regime
Proposal 5.1 Creating a New AML / ATF
Advisory Committee
Proposal 6.5 Canada Revenue Agency -
Issued Business Numbers
Proposal 6.14 Compliance
Questionnaires
Proposal 6.23 Providing Feedback to
Foreign Financial Intelligence Units
Additional Issues for Consideration
Record Keeping
This document contains proposals of the Ad Hoc Group on Anti-Money
Laundering and Anti-Terrorist Financing[1]
(the "Ad Hoc Group") on
Proposals set out in the Department of Finance’s Consultation Paper
issued in June 2005 entitled "Enhancing Canada’s Anti-Money
Laundering and Anti-Terrorist Financing Regime" (the
"Consultation Paper"). We are members of the Canadian Bankers
Association (the "CBA") and our proposals are aligned with the
CBA’s submissions. This document identifies proposals on which we have
specific submissions as they relate to credit products.
The Ad Hoc Group is thankful for the opportunity to provide our
comments on the Consultation Paper and we look forward to meeting with you
regularly over the next few months. Our institutions are committed to
ensuring that our products are not used to facilitate money laundering and
terrorist financing activities. Recognizing that Canadian legislation must
be aligned with the Financial Action Task Force ("FATF") on
Money Laundering’s "The Forty Recommendations" (June 20, 2003)
(the "FATF Recommendations"), all submissions in this document
are consistent with the FATF Recommendations.
Risk-Based Approach and Credit Products. We advocate a risk-based
approach to customer identification verification in this age of rapid
advances in new technologies and business models. The requirements of the
Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
(the "Regulations") make no distinction between deposit accounts
and credit products, each of which may present different types of risk as
it relates to money laundering and terrorist financing. In enhancing the
Regulations consideration should be given to the specific features unique
to credit products. For example, the current Regulations contain record
keeping requirements that cannot be applied to credit products like the
requirements to keep signature cards and deposit slips. Neither exists for
credit products; they are for deposit accounts (please see Additional
Issues for Consideration stated on Page 10 of this document). A further
distinction should be made between consumer and corporate credit products,
with corporate credit products posing different risks and operating under
different business models. The amended Regulations should set out
provisions specific to each of consumer and corporate credit products that
are commensurate with the risks they present.
Expanded Options For Customer Identification. We are very pleased
with the government’s recognition of the need for changes and support
Proposals for expanded options for customer identification. The
Consultation Paper acknowledges the increasing use of non-face-to-face
channels, allowing consumers more flexibility in fulfilling their
financial needs. Credit product issuers have been accepting credit
applications via these non-traditional channels for several years and have
developed extremely robust non-documentary customer identification
procedures. Prudential risk management already requires us to perform
sufficient due diligence prior to establishing relationships with
borrowers.
Corporate credit products operate under a unique business model and
appropriate client identification options should be permitted. We
understand that we will work with the Department of Finance to establish
suitable due diligence procedures.
When non-documentary baseline customer identification procedures are
developed and incorporated into the Regulations, they should be regarded
as a true alternative for customer identification in both face-to-face and
non-face-to-face customer interactions. This will ensure a level playing
field, which will promote choice, convenience, and competition in the
market place for consumers.
Significant Lead Time Needed. We are committed to world class
anti-money laundering and anti-terrorist financing practices. In order to
address many of the new requirements that may result from this process,
reporting entities will need considerable time to implement changes to
systems, practices, and training programs.
Set out below are our comments on the specific Proposals in the
Consultation Paper. We provide our comments in the same order as the
Proposals are addressed in the Consultation Paper for convenient
reference. This should not be taken as prioritization of the issues from
our perspective.
We support this recommendation. However, we submit that the Regulations
should clearly state that the method of ascertaining identity of the
customer under this condition need not replicate the method used at
account opening, and may differ from the customer identification measures
provisioned in the Regulations for account opening. The guidelines should
clarify that non-documentary verification procedures may be utilized under
this condition to avoid ‘tipping off’ the customer. See our submission
on Proposal 1.9.
The definition of Politically Exposed Persons ("PEPs") as
drafted is too broad. A list of PEPs should be provided to reporting
entities by government, similar to the current lists provided by the
Office of the Superintendent of Financial Institutions ("OSFI").
This would eliminate discrepancies between entities caused by
interpretation and procedural variances that would occur if entities were
expected to create and maintain PEP lists individually.
A risk management approach should be taken, as appropriate, for
individual reporting entities and their products in establishing the
threshold at which transactions will require enhanced monitoring and
senior management approval in order to avoid unnecessary, non-value added
work for reporting entities.
A distinction between corporate and consumer cards is necessary to
remove the burden on banks to have to monitor PEPs who are customers under
a corporate credit program. As such, an exemption should be made for
corporate credit programs established for government organizations
(federal, provincial, municipal, crown corporations and agencies).
We recommend one additional exemption be made for corporate credit
programs established for government organizations (federal, provincial,
municipal, crown corporations and agencies) as well as public sector
companies.
Proposals 1.8 and 1.9 Non-Face-to-Face Situations
A non-documentary method is more responsive than a documentary method
to emerging technologies both in terms of new money laundering and
terrorist financing methods and trends as well as leveraging technological
innovations and information for timely and effective counter measures.
This is consistent with the government’s stated goal of having an
anti-money laundering and anti-terrorist financing regime that is
effective and responsive to change, without placing an undue burden on
reporting entities.
The FATF Recommendations do not focus on the use of government issued
documents exclusively for client identification. The previous FATF
Recommendations required entities to identify customers "on the basis
of an official or other reliable identifying document" (1996).
However, FATF expanded this principle in its Recommendation 5(a) made in
2003 to, "The customer due diligence measures to be taken are as
follows…identifying the customer and verifying that customer’s
identity using reliable, independent source documents, data or
information". [Emphasis added.]
Consistent with our previous submissions to government, once baseline
client identification measures that use reliable third party data for
verification are defined, the "know-your-client" objectives for
credit products will be achieved regardless of channel of distribution.
The use of agents or introducers to ascertain the identity of a
customer should be an alternative available for reporting entities and
should not preclude reporting entities from verifying identity by a
non-documentary method that is accepted as equally effective. Further,
consumers may not be comfortable providing government issued documents
such as a passport or driver's licence for identification in a non-bank
environment like a retail outlet or an airport.
We strongly support the Proposal for consultation with reporting
entities to establish appropriate non-documentary client identification
requirements. We look forward to establishing baseline customer due
diligence for credit products.
There are significant issues with the application of this Proposal to
credit products.
Including a third party determination question on applications for
credit products will not achieve the objective of detecting and deterring
money laundering. Those intending to commit crimes will not answer the
question honestly. Monitoring account activity during the life cycle of
the product is more likely to reveal suspicious activity.
With respect to beneficial owners, there is no public or government
registry that allows for the independent verification of non-public
companies.
For non-profit organizations, there is no source information to assess
whether they are soliciting.
FATF Recommendation 5 and its interpretive note on due diligence
identifies persons who control access to an account as the primary source
of money laundering risk. We support a similar approach in Canada with
respect to credit products.
With this in mind, we offer the following by way of example:
Consumer and Small Business Credit Cards: We consider the primary
cardholder(s) as the customer since the primary cardholder(s) opens and
controls access to the account. The primary cardholder(s), only, should be
subject to customer identification requirements. For small business credit
cards, the business owner or principal(s) as the primary cardholder(s)
would be subject to customer identification, only. There should be no
requirement to obtain any additional information about the company.
Corporate Credit Programs: We consider the company (government, public,
private) to be the customer because the company controls who can have a
card issued under the company’s program. The company would be subject to
customer identification. We verify the identity of the person(s) who
controls access to the account and expect the company to verify the
identity of the persons to whom it allows cards.
The scope of the "reasonable measures to verify" third party
and beneficial owner information needs to be clarified to be consistent
with a risk-based approach. For credit products, only the person(s) who
controls access to the credit product should be the one(s) subject to
identity verification.
Ongoing customer due diligence requirements for existing primary
customers should be conducted based on materiality and risk. Specifically,
requirements to update core customer information should be limited to
times that are appropriate such as: (a) where a transaction of
significance takes place; (b) customer documentation standards change
substantially; (c) there is a material change in the way the account is
operated; or (d) the institution becomes aware that it lacks sufficient
information about an existing customer.[2]
Proposal 1.12 EFT Customer Due Diligence and Record-Keeping
Requirements
This Proposal should not be interpreted to cover conventional credit
product features such as balance transfers and convenience cheques.
Additionally, the Canadian Payment Association does not capture the
requisite information for these conventional credit products.
We recognize the value in reporting attempted suspicious transactions;
however, this should remain at the discretion of reporting entities.
Clarity related to these requirements is needed, and the guidance to be
provided should also include typologies to guide the credit industry on
what constitutes a suspicious attempted transaction.
Amendments to existing Financial Transaction Reporting and Analysis
Centre ("FINTRAC") reports and mandatory fields would be
necessary to allow for the reporting of suspicious attempted transactions
given the potential that information surrounding the transaction would be
more limited than in instances of completed financial transactions.
We see the benefit of publishing the details of violations anonymously.
The objective of deterrence will be sufficiently achieved, as well as
industry learning, without naming a reporting entity. Any Administrative
and Monetary Penalty ("AMP") regime introduced should include
appropriate appeal processes and mechanisms for escalation should there be
differing interpretations between the government and industry prior to any
publication.
We look forward to a further opportunity to provide submissions on the
details of the AMP regime as they are developed.
We strongly support this Proposal. We also submit that key to the
success and effectiveness of this Advisory Committee is broad
representation from the financial services providers that exist in the
marketplace. In particular, we submit that representation on this
Committee must include reporting entities which utilize non-traditional
distribution channels.
Currently Canada Revenue Agency ("CRA") issued business
numbers are not collected in the client identification process and would
require significant systems changes to capture such information. A
substantial amount of identifying information is already collected on
these customers and this information is provided to FINTRAC when a report
is filed. There is no additional value to customer identification
processes in obtaining a CRA-issued business number when there is no
independent source that can be used for verification and accordingly,
there should be no requirement to collect it.
While in principle we support this Proposal, our primary concern is the
potential for supervisory overlap between OSFI and FINTRAC. We would
expect that continued co-ordination between these two agencies would
ensure that duplication would be minimized.
This Proposal should be extended to providing information to domestic
reporting entities.
Applying s. 14 of the Regulations to credit products is problematic.
Several documents are required to be kept under s. 14 that are not created
for credit products. Credit products should be exempted from these
requirements or the regulations should be amended to identify the required
documents for credit products. A specific submission is made for each
document below.
- Signature Cards: A signature card must be collected and retained in
respect of each account holder under s. 14(a) of the Regulations. A
comparable document to a deposit account’s signature card for a
credit card is a credit application form. However, credit products are
offered through non-traditional channels in which obtaining a physical
signature is not possible, for example, by telephone and Internet.
- Deposit Slips: A deposit slip in respect of every deposit made to an
account must be retained under s. 14(e) of the Regulations. Deposits
cannot be made to credit products. Payments on credit products are not
deposits.
- Credit and Debit Memos: Every credit and debit memo received or
created in the normal course of business must be retained under s.
14(g) of the Regulations. Credit and debit memos are not created for
credit products.
- Cheques: Every cleared cheque that is drawn on and a copy of every
cleared cheque that is deposited to an account must be retained under
s. 14(h) of the Regulations. This requirement cannot be applied to
credit products. Cheques cannot be "deposited" to credit
products. For credit cards, balance transfer and convenience cheques
can be issued as a way to access the credit facility, but they are
distinct from the types of cheques that are drawn on deposit accounts.
- Client Credit Files: Every client credit file that is created in the
normal course of business must be kept under s. 14(i) of the
Regulations. By definition under s. 1 of the Regulations, a client
credit file includes, among other things, the address of the place of
work. Employment address should not be mandatory. We know our clients
sufficiently through other customer details in external and internal
databases and so more flexibility should be permitted.
- Transaction Tickets: A transaction ticket in respect of every
foreign exchange currency transaction must be retained under s. 14(j)
of the Regulations. Foreign exchange currency transactions are not
made with credit products. A credit card can be used to make purchases
in foreign countries, but this is distinct from exchanging money.
Transaction tickets do not apply to credit products.
1. Amex Bank of Canada; Canadian Tire Bank; Capital One Bank
(Canada Branch); Citi Cards Canada Inc.; MBNA Canada Bank; and Sears
Canada Bank. [Return]
2. See FATF "Methodology for Assessing Compliance with the FATF
40 Recommendations and the FATF 8 Special Recommendations" (February
27, 2004) at Recommendation 5.17. [Return]
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