Proceeds of Crime (Money Laundering) Regulations - Consultation Paper: 1
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Preface

On May 31, 1999, Secretary of State (International Financial Institutions) Jim Peterson, on behalf of Finance Minister Paul Martin, tabled Bill C-81: An Act to Facilitate Combatting the Laundering of Proceeds of Crime and to Establish the Financial Transactions and Reports Analysis Centre of Canada. Parliament prorogued on September 18, 1999, and Bill C-81 was reintroduced on December 15, 1999, as Bill C-22.

When Bill C-22 comes into force, it will replace the existing Proceeds of Crime (money laundering) Act (PCMLA). However, the existing Proceeds of Crime (Money Laundering) Regulations (PCML Regulations) will remain in effect, until amended regulations are promulgated.

This consultation paper sets forth proposals for regulations to implement the new reporting requirements under Bill C-22 and proposals for amending the existing PCML Regulations with respect to the coverage of entities, client identification and record keeping requirements.

Bill C-22 also proposes the establishment of the Financial Transactions and Reports Analysis Centre of Canada (Centre). The Centre will be an independent government body, which will receive and analyze reported information about financial transactions and cross-border currency movements. Proposals defining the transactions that must be reported to the Centre are included in the paper.

More detailed proposals for regulations concerning the information to be contained in transaction reports, and the manner in which the reports will be transmitted to the Centre will be developed during the coming months when the Centre's operations are better defined and after further consultation with stakeholders.

Copies of this consultation paper are available electronically in both official languages on the Finance Canada Web site at http://www.fin.gc.ca. Written comments regarding any element of this paper are invited and should be submitted to the address below by February 15, 2000. All written comments received will be made available on request to interested parties.

Financial Sector Division
Department of Finance Canada
140 O'Connor Street
20^th Floor East Tower
Ottawa, Ontario
K1A 0G5
Fax: (613) 943-8436

Once Bill C-22 comes into force, proposed regulations will be published in the Canada Gazette for 90 days, providing an additional opportunity to submit comments on the substance of any regulatory proposal.

Key Principles

Bill C-22 was developed after extensive consultations with the provinces and territories and stakeholders throughout Canada. The Government is committed to further consultations to develop regulations under the proposed legislation, and to ensuring that the regulations are consistent with the key principles underlying the Bill. These principles are to: 

• Provide vital tools for law enforcement

The new reporting requirements will enable the Centre to provide key identifying information to the appropriate law enforcement agencies to assist them in detecting money laundering and the laying of charges. Successful prosecutions that benefit from reported information could lead ultimately to court-ordered forfeiture of the proceeds of criminal activities.

• Strike a balance between privacy rights and law enforcement needs

While providing the tools needed to combat organized crime and money laundering, the new system will ensure a strict control on the collection, use and disclosure of personal financial information.

• Minimize compliance costs for financial intermediaries

In developing the proposed legislation and its regulations, the Government is endeavouring to put in place a workable regime that will have the full co-operation of stakeholders, without imposing an undue regulatory burden on financial intermediaries.

• Contribute to international efforts to combat money laundering

Because money laundering is an international problem, regulations under the proposed legislation will be framed with a view to enhancing Canada's contribution to international efforts to deter and detect money laundering.

Amendments to the Proceeds of Crime
(Money Laundering) Regulations

This section outlines proposals for amending the existing PCML Regulations as well as proposals for new regulations under the Bill to prescribe new entities and defining the transactions required to be reported to the Centre. The existing PCML Regulations, dealing with client identification and record keeping requirements, will remain in force until amended regulations are promulgated.

Part 1 - Reporting, Client Identification
and Record Keeping Requirements

Part 1 of Bill C-22 establishes measures to detect and deter money laundering and to facilitate the investigation and prosecution of money laundering offences. It continues the obligations of persons and entities under the existing legislation to identify their clients and to keep records. Part 1 also provides for the application to additional businesses and introduces requirements for the reporting of suspicious and prescribed transactions to the Centre.

Proposed regulations relating to persons and entities subject to Part 1, reporting, identification of customers and record keeping are as follows.

A)    Application of Bill C-22 and Regulations

(i)     Entities Covered

• banks;
• co-operative credit societies, credit unions, and caisse populaires;
• life insurance companies;
• trust and loan companies;
• persons engaged in the business of dealing in securities, including portfolio management and investment counselling;
• persons engaged in the business of foreign exchange dealing;
• persons engaged in a business, profession or activity described in regulations [see (ii) below];
• casinos, including those owned or controlled by the Crown; and
• departments and agents of the Crown that are engaged in the business of accepting deposit liabilities or that sell money orders to the public [see (iii) below].

(ii)     Persons Engaged in a Business, Profession or Activity

The existing PCMLA and PCML Regulations apply to every person who is engaged in a business, profession or activity in the course of which cash is received for payment or transfer to a third party. Paragraph 5(i) of the Bill provides for the extension of the application to persons engaged in a business, a profession or an activity described in regulations made under paragraph 73(1)(a) of the Bill.

In order to enhance the deterrence and detection of money laundering and to align the application of the legislation with international standards developed by the Financial Action Task Force on Money Laundering (FATF), it is proposed that the application of Part 1 be extended to the following additional persons under the regulations:

• Cheque cashers, i.e., persons engaged in the business of converting cheques into cash;
• Money order vendors, i.e., persons engaged in the business of selling money orders or traveller's cheques to the public; and
• Money transmitters, i.e., persons engaged in the business of electronic money transmission, including wire transfers.

Paragraph 5(j) of the Bill provides for regulations limiting the application of Part 1 to a portion of the activities of certain businesses or professions.

No proposals are put forward at this time.

(iii)    Application to Crown Entities

Paragraph 5(l) of the Bill applies Part 1 to Crown entities engaged in the business of accepting deposit liabilities or which sell money orders to the public. The paragraph provides for the application of Part 1 to all or any portion of these entities' business.

It is proposed that paragraph 5(l) be used to prescribe all business activities of Crown owned or controlled deposit-taking institutions, such that these entities are subject to the same requirements as other deposit-taking institutions (e.g., Alberta Treasury Branches and Province of Ontario Saving Offices). However, it is also proposed that only the portion relating to money orders of the business of Crown owned vendors of money orders be prescribed. For example, Canada Post Corporation would be subject to Part 1 only for that portion of its business relating to money orders.

B) Reporting Transactions to the Centre

(i)      Reporting Transactions if Reasonable Grounds Exist to Suspect a Money Laundering Offence

In addition to the reporting requirements under section 9 of the Bill [see (ii) below], section 7 requires every person or entity subject to Part 1 to report to the Centre every financial transaction where there are reasonable grounds to suspect that the transaction is related to money laundering. The Bill does not provide for the establishment of regulations regarding criteria for determining what are reasonable grounds to suspect money laundering. Rather, it is anticipated that the Centre will develop guidelines to assist reporting entities to identify characteristics and circumstances that might lead to a determination of reasonable suspicion. The guidelines will be developed in consultation with the reporting entities.

The information to be contained in these reports and the means by which the reports are to be transmitted to the Centre will also be prescribed by regulation. The Centre will work with reporting entities on the design of the reporting system, with a view to ensuring an efficient and cost-effective process.

(ii)     Reporting Prescribed Transactions

Subsection 9(1) requires persons or entities to provide reports to the Centre of certain transactions that are prescribed by regulation. The proposed approach uses simple objective standards to define classes of transactions that must be reported to the Centre. The goal is to ensure that the transactions set out in the regulations are easily identifiable and relevant to each class of financial intermediaries that are required to report to the Centre.

The information to be contained in these reports and the means by which the reports are to be transmitted to the Centre will also be prescribed by regulation. The Centre will work with reporting entities on the design of the reporting system, with a view to ensuring an efficient and cost-effective process.

Proposed Prescribed Transactions

It is proposed that the following transactions, grouped by class of financial intermediaries, would require a transaction report to be prepared and forwarded to the Financial Transactions and Reports Analysis Centre of Canada.

All Persons or Entities

(i) Two or more transactions entered into on the same day and resulting in a total amount of cash received by a person or entity of $10,000 or more, where the person or entity knows that the transactions are conducted by, or on behalf of, the same client, except for cash received:

(a) as payment for, or on account of, professional fees or services; or

(b) to be paid as bail.

(ii) Transactions involving five or more $1,000 dollar bills.

Business, Profession or Activity where cash is received for payment or transfer to a third party

(i) The receipt of $10,000 or more in cash, except for cash received:

(a) as payment for, or on account of, professional fees or services; or

(b) to be paid as bail.

Casinos

(i) Any transaction that involves cash in an amount of $10,000 or more;

(ii) Any transaction where an employee or manager of a casino knows that a customer has purchased $5,000 or more in chips with cash and, after engaging in minimal betting the customer cashes the chips for a casino cheque; or

(iii) Any transaction of $1,000 or more where a customer receives payment in casino cheques made out to third parties or without a specified payee.

Currency Exchanges

(i) Any cash transaction of $10,000 or more;

(ii) Any wire transfer of $10,000 or more; or

(iii) Payment by a client of more than the posted exchange rate or transaction fees to facilitate a transaction.

Institutions Taking Deposits

(i) Cash transactions of $10,000 or more; or

(ii) Wire transfer of $25,000 or more.

Life Insurance Companies

(i) Purchase of a life insurance policy with $10,000 or more in cash;

(ii) Payment of an insurance claim to a third party without any known connection to the insured; or

(iii) Payment of an insurance product with a cheque issued by a third party without any known connection to the insured.

Money Service Businesses
(cheque cashers, money order vendors, money transmitters)

(i) Cash transactions of $10,000 or more;

(ii) Wire transfers of $10,000 or more; or

(iii) Payment by a client of more than the posted rate or transaction fee to facilitate a transaction.

Persons Dealing in Securities

(i) The purchase of securities with $10,000 or more in cash.

(iii)    Reporting Limitation

Subsections 9(2) and (3) of the Bill provide for the creation of a reporting exemption scheme through regulations. The intent of these provisions is to reduce the reporting of routine transactions where it is determined that the information is not needed by the Centre.

No specific exemptions are proposed at this time. Further consultations are planned with interested parties.

C)    Client Identification Requirements

Paragraph 73(1)(f) of the Bill allows for regulations specifying measures that persons or entities are to take to determine the identity of their clients who engage in transactions
to which Part 1 applies. Section 11 of the existing PCML Regulations sets out how the various entities are required to verify the identification of clients and section 12 sets out certain exemptions to these requirements.

It is proposed that the existing regulations dealing with client identification be retained. As with the other entities covered by the legislation and the regulations, each of the proposed new entities will be subject to similar client identification requirements.

It is also proposed that the regulations that require entities to verify the identity of corporate clients for whom they must keep records be amended by requiring:

D)    Record Keeping Requirements

Section 6 of the Bill requires every person and entity affected by the Bill to keep and retain records in accordance with the regulations. Section 4 of the existing PCML Regulations requires every entity to keep a record for all transactions where more than $10,000 cash is received. As well, sections 5 to 8.1 of the existing PCML Regulations provide sector-specific record keeping requirements such as signature cards, client application forms and account statements.

It is proposed that the existing record keeping requirements be retained. The following additional requirements are proposed:

(i)     Corporate Account Opening Record

It is proposed that the regulations be amended to require entities to keep the following records concerning accounts that are opened in the name of a corporation.

• A copy of the corporation's certificate of incorporation;
• Unless the information is contained in the certificate of incorporation, a document containing the address of the corporation, the names of its directors and any provision regulating the power to bind the corporation; and
• A statement signed by a director of the corporation indicating whether the account is opened on behalf of another party, and, if so indicating:
• the name, address and the nature of the principal business or occupation of that other party, if that other party is an individual;
• the name, address and principal activity of that other party, if that other party is a corporation; or
• the name of the entity and the name and address of one of that other party's administrators, in any other case.

(ii)     Individual Account Opening Record

It is proposed that the regulations be amended to require entities to keep the following record, in respect of accounts that are opened in the name of an individual.

(iii)     Large Cash Transaction Record

It is proposed that the existing regulations with regard to cash transactions of $10,000 or more be amended such that entities will be required to obtain and keep as part of the record.

• A statement signed by the individual conducting the transaction indicating that such a transaction is not carried out on behalf of another party or, if it is, providing:
• the name, address and nature of the principal business or occupation of that other party, if that other party is an individual;
• the name, address and principal activity of that other party, if that other party is a corporation; or
• the name of the entity and the name and address of one of that other party's administrators, in any other case.
• The denomination of any bills that were received; and
• A statement signed by the individual conducting the transaction attesting to the source of funds.

(iv)    Record Keeping Requirements for the New Entities

The existing PCML Regulations include specific record keeping requirements for each of the entities that are currently subject to the regulations (see sections 5 to 8.1 of the existing PCML Regulations). It is proposed that each of the new entities -- cheque cashers, money order vendors, and money transmitters -- be required to retain a record for every transaction where they receive $1,000 or more. It is also proposed that the record contain the following information:

• The date, the amount received and what that amount consisted of (e.g., cash, cheques, traveller's cheques or money orders);
• Where the instrument is a cheque, the name and address of the bank on which the cheque is drawn;
• Where the instrument is a money order, the name and address of the person to whom the money order was sold;
• The name and address of the person or entity from whom the amount was received; and
• In the case of non-account holders, where a transaction is carried out on behalf of a third party, a statement with respect to third party beneficiaries, as described in sections (i), (ii), and (iii) above.

(v)    Record Retention

Paragraph 73(1)(e) of the Bill provides for regulations specifying the period for which -- and the methods by which -- records required to be kept under section 6 of the Bill are to be retained. Section 9 of the existing PCML Regulations provides for some records to be kept in the form of a machine-readable copy and section 10 of the existing PCML Regulations requires records to be kept for at least five years.

It is proposed that the retention period of five years in the existing PCML Regulations be maintained. It is also proposed that regulations specify that the records must be readily accessible (e.g., retrievable within 10 working days).

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