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Vol. 141, No. 26 June 30, 2007 Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties RegulationsStatutory authority Proceeds of Crime (Money Laundering) and Terrorist Financing Act Sponsoring department Department of Finance REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Description The National Initiative to Combat Money Laundering was launched in 1999 as part of the Government's ongoing effort to combat money laundering in Canada. Following the events of September 11, 2001, the mandate of the initiative was enlarged to include the fight against terrorist financing activities and, since then, it has been referred to as the Anti-Money Laundering and Anti-Terrorist Financing Regime (the Regime). One of the key elements of this Regime is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and its three sets of regulations, which were brought into force between 2001 and 2003. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTF Regulations) implement a portion of Part 1 of the Act by requiring the financial institutions and financial intermediaries that are subject to the Act (see footnote 1) to identify their customers, keep certain records, report large cash transactions and international electronic fund transfers of $10,000 or more to the Financial Transactions and Reports Analysis Centre of Canada (the Centre) and develop an internal compliance regime. The Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (PCMLTF Suspicious Transaction Reporting Regulations) implement the remainder of Part 1 of the Act by requiring financial institutions and financial intermediaries to report financial transactions where there are reasonable grounds to suspect that they are related to money laundering or terrorist financing activities. The Cross-Border Currency and Monetary Instruments Reporting Regulations implement Part 2 of the Act by requiring any person or entity to report to the Canada Border Services Agency importations and exportations of currency or monetary instruments of a value of CAN$10,000 or more. Since the coming into force of these regulations, the domestic and international context has changed. First, the international standards of the Financial Action Task Force (the Task Force), on which the Regime was based in 2000, were revised in 2003 to keep up with new money-laundering and terrorist financing trends and techniques. Canada is currently undergoing an evaluation by the Task Force on the extent to which these standards have been implemented. Chapter 2 of the 2004 Report of the Auditor General also outlined several recommendations to improve the Regime, such as the need to review the information the Centre can include in its disclosures to law enforcement agencies and security agencies in order to increase their usefulness. Similar findings were also outlined in the Treasury Board mandated program evaluation report prepared by EKOS Research Associates. Several of the federal partners to the regime, such as the Royal Canadian Mounted Police, the Canada Border Services Agency, the Canada Revenue Agency and the Centre have proposed amendments to help them better fulfill their mandate. A few financial institutions and intermediaries have also requested changes to the Regime to allow them to concentrate their efforts in areas where the risk of money laundering or terrorist financing is higher. In response to these developments, the Department of Finance issued a consultation paper in June 2005 outlining policy proposals to enhance the Regime. Some of the proposals identified gaps in the current regime and as a result proposed requirements for three new sectors: the legal profession, dealers in precious metals and stones and notaries in British Columbia. The requirements pertain to client identification, record-keeping and, with the exception of the legal profession, filing reports with the Centre. Furthermore, the consultation paper also proposed creating an administrative monetary penalties scheme. The purpose of this scheme is to facilitate compliance with the Act and its regulations. Various groups and organizations have made representations on the proposed changes to the Regime. Since then, the Department of Finance has been in consultations with stakeholders to tailor the requirements to existing business practices in an effort to minimize, to the extent possible, their compliance burden. In October 2006, the Minister of Finance tabled Bill C-25, which proposed among other things, amendments to the Act to provide an exemption for the legal profession from reporting to the Centre and to introduce an administrative monetary penalties scheme. This scheme would be used as a complementary compliance tool to the criminal sanctions in Part 5 of the Act, which will continue to be available to deal with the most severe cases of non-compliance. The administrative monetary penalties scheme is modeled on the administrative monetary penalty schemes of the Office of the Superintendent of Financial Institutions Act and the Financial Consumer Agency of Canada Act in order to create consistency with other statutes governing federally regulated financial institutions. Bill C-25 received Royal Assent in December 2006, but will require the implementation of new regulations to become fully effective. In order to implement part of the requirements set out in Bill C-25, comply with the new international standards and address the recommendations and comments made by the Auditor General, the EKOS report, the partners to the Regime and stakeholders, amendments to the PCMLTF Regulations are being proposed in order to extend new and existing client identification and record keeping requirements and, where applicable, reporting requirements to three new sectors. New regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (PCMLTF Administrative Monetary Penalties Regulations) are also being proposed to set out the modalities of the administrative monetary penalties scheme. 1. Amendments to the PCMLTF Regulations and the PCMLTF Suspicious Transaction Reporting Regulations The proposed amendments extend coverage of the Act to three new sectors with the goal of closing gaps in Canada's Anti-Money Laundering and Anti-terrorist Financing Regime. The three sectors are the legal profession, dealers in precious metals and stones, and notaries in British Columbia. These sectors have been identified as posing a risk as potential conduits for money laundering and terrorist activity financing. By including them as part of the Regime, they will be required to meet the client identification and record-keeping requirements under Part 1 of the Act. In addition, dealers in precious metals and stones and notaries in British Columbia will also be required to meet the reporting requirements under Part 1 of the Act. These new sectors will be subject to the existing as well as the recently introduced requirements under the Act. The recently introduced requirements include methods for identifying clients in a non face-to-face environment, undertaking risk assessments to identify and assess the risk of being used by clients for money laundering or terrorist activity financing, and ascertaining the identity of a client whenever there are reasonable grounds to suspect that a transaction or suspicious attempted transaction is linked to money laundering or terrorist financing activities. 2. PCMLTF Administrative Monetary Penalties Regulations The recent amendments to the Act created Part 4.1, which sets out a framework for an administrative monetary penalties scheme. The creation of this scheme is intended to assist the Centre in ensuring compliance with the Act and its regulations by providing the Centre with a broader spectrum of compliance tools. Currently, the Centre can only refer cases of non-compliance to law enforcement for investigation and possible criminal charges. While the Centre will continue to take a cooperative approach to compliance, it will now be able to levy penalties proportionate to the instances of non-compliance with respect to, for example, client identification or record-keeping requirements. The PCMLTF Administrative Monetary Penalties Regulations primarily set out the specific violations and the classification of those violations as minor, serious or very serious. These Regulations also serve to operationalize the requirements of the scheme, notably by setting out additional criteria that may be used in assessing a penalty amount and the method for determining interest rates to be applied for late payments. Alternatives As a member of the Task Force, Canada is expected to comply with the 49 revised recommendations of that organization, which is the international anti-money laundering and anti-terrorist financing standards-setting body. Implementing measures around these international standards serve to ensure the security and integrity of Canada's financial system and economy in addition to sending a signal to the international community on Canada's commitment to fight financial crimes. Like all members of the Task Force, Canada has adapted the recommendations to its constitutional and legal framework, including as they may relate to privacy rights. Moreover, to close gaps without diminishing competition in the financial sector or imposing excessive compliance costs, the proposed requirements are aligned to an assessment of domestic risks while also being responsive to existing business practices. Benefits and costs The proposed amendments will have implications for the new sectors. For instance, each entity within these sectors will be required to put in place policies and procedures to ensure that they fulfill their requirements under the Act. This includes policies and procedures to address client identification, record keeping and, where applicable, reporting requirements. In addition, employees will require training on the implementation of these policies and procedures. Entities will also be required to undertake a risk assessment to determine whether their business has vulnerabilities that could be used for money laundering or terrorist activity financing. The implementation and operation of the administrative monetary penalties scheme will be the responsibility of the Centre. There are no costs for the sectors covered by the Act with regards to the implementation and administration of this scheme. However, in the event that entities do not comply with the Act and its regulations, they may be subject to penalties under this scheme. The Centre takes a cooperative approach to compliance, and adequate lead-time will be allowed for educating all sectors on this new scheme. These costs are reasonable given the benefit of further deterring money laundering and terrorist financing activities, as they have been introduced with the intention of closing gaps in the current regime. The administrative monetary penalties scheme will play a broader role in ensuring the high quality and timeliness of the data the Centre receives from reporting entities, elements that are of the utmost importance in investigations undertaken by law enforcement and investigative agencies. These measures, which will bring Canada's regime in line with international standards, serve to maintain the credibility and soundness of our financial system in addition to sending a signal to the international community that Canada is an active participant in the fight against money laundering and terrorist financing. Consultation The Department of Finance released a consultation paper on June 30, 2005, entitled Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime. This document presented a series of proposed changes to the Act and its regulations. Stakeholders and partners to the Regime were invited to submit their comments on the paper, and more than 50 stakeholders provided written submissions. These submissions came from various groups, including individuals, financial sector business associations, financial institutions, professional associations, law enforcement agencies and provincial ministries and agencies. Since the publication of the consultation paper, the Department of Finance has consulted extensively with stakeholders to discuss their written comments and find ways to adapt the proposed amendments to their current business practices and the risks of money laundering or terrorist financing activities within their sectors. Overall, stakeholders responded positively to the proposal to introduce an administrative monetary penalties scheme so long as an appropriate appeals process is put in place. This process is provided for in Part 4.1 of the Act. Some concerns were also expressed regarding the publication of the name of the offender, the violation, and the amount of the penalty. Further context provided with respect to the use of this measure clarified that the scheme is designed to be progressive, in that this measure will only be used in situations where an entity continues to be in non-compliance despite repeated attempts by the Centre to remedy the situation. Following the publication of the proposed Regulations in the Canada Gazette, Part I, the Department of Finance will continue to consult with stakeholders in order to address any further concerns. Compliance and enforcement The Centre is responsible for ensuring compliance with Part I of the Act and its related regulations. The Centre sends compliance questionnaires to persons or entities that are subject to the Act to better assess the compliance risks and conducts on-site examinations. It also has the capacity to enter into information-sharing agreements with industry regulators to reduce the number of compliance examinations to which entities are subjected. The proposed Regulations would impose compliance obligations on three new sectors. In recognition of these new responsibilities, Budget 2006 allocated additional funding to assist the Centre in implementing the new requirements. Reporting entities that do not comply with the Act and its regulations are currently subject to criminal penalties and, depending on the offence, convictions that could result in up to five years imprisonment, a fine of up to $500,000, or both. However, the administrative monetary penalties scheme will allow for penalties that are in proportion to the violation, leading to improved compliance with the Act. Violations under this scheme are classified into one of three categories: minor, serious and very serious. The PCMLTF Administrative Monetary Penalties Regulations further specify maximum penalty amounts for each category of violation as it relates to persons or entities. The maximum penalty amount that can be imposed under the administrative monetary penalty scheme for violations classified as very serious is, in the case of an entity, $500,000 and, in the case of a person, $100,000. The progressive approach to compliance and enforcement, as set out in the administrative monetary penalties scheme, will result in a more effective regime by ensuring high data quality and timeliness of reporting.
Diane Lafleur
Notice is hereby given that the Governor in Council, pursuant to subsection 73.1(1) (see footnote a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (see footnote b), proposes to make the annexed Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations. Interested persons may make representations concerning the proposed Regulations within 60 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Chief, Financial Crimes Section - Domestic, Financial Sector Division, Department of Finance, L'Esplanade Laurier, 20th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5 (tel.: 613-992-0553; fax: 613-943-8436; e-mail: fcs-scf@fin.gc.ca). Ottawa, June 14, 2007
MARY O'NEILL PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ADMINISTRATIVE MONETARY PENALTIES REGULATIONS INTERPRETATION 1. In these Regulations, "Act" means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. 2. The short-form descriptions that are set out in column 2 of Part 1 of the schedule, and column 3 of Parts 2 and 3 of the schedule, form no part of these Regulations and are inserted for convenience of reference only. VIOLATIONS 3. The contravention of any of the following provisions is a violation that may be proceeded with under sections 73.11 to 73.5 of the Act: (a) a provision of the Act set out in Column 1 of Part 1 of the schedule; (b) a provision of the Act and a provision of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations set out in Columns 1 and 2 of Part 2 of the schedule; and (c) a provision of the Act and a provision of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations set out in Columns 1 and 2 of Part 3 of the schedule. CLASSIFICATION 4. (1) Each violation is classified as a minor, serious or very serious violation, as set out in column 3 of Part 1 of the schedule and column 4 of Parts 2 and 3 of the schedule. (2) A series of minor violations identified on a notice of violation shall be considered to be a serious violation for the purpose of section 73.21 of the Act if the total of the penalties for the violations set out in the notice is equal to or greater than $10,000. PENALTIES 5. Subject to subsection 73.1(2) of the Act, the range of penalties in respect of a violation is (a) $1 to $1,000 in the case of a minor violation; (b) $1 to $100,000 in the case of a serious violation; and (c) $1 to $500,000 in the case of a very serious violation. ADDITIONAL CRITERIA 6. For the purposes of section 73.11 of the Act, the history of compliance by the person or entity with the Act, other than Part 2 of the Act, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations, are prescribed as criteria that are to be taken into account in determining the amount of a penalty. SERVICE OF DOCUMENTS 7. (1) Service of any document under Part 4.1 of the Act may be made (a) in the case of a person, by (i) personally serving the document on the person, (ii) leaving the document with someone who appears to be an adult member of the same household at the last known address or usual place of residence of the person, or (iii) sending the document by registered mail, courier, fax or other electronic means to the person's last known address or usual place of residence; and (b) in the case of an entity, by (i) leaving the document at the entity's head office or place of business, with an officer or other person who appears to be in control or management of the head office or place of business, (ii) sending the document by registered mail, courier or fax to the head office or place of business of the entity, or (iii) sending the document by electronic means other than by fax to any person referred to in subparagraph (i). (2) If a document is sent by fax or other electronic means, a copy of it shall also be sent by registered mail to the person's last known address or usual place of residence, or, in the case of an entity, to the entity's head office or place of business. 8. In the absence of proof to the contrary, a document other than a document that is personally served is deemed to be served (a) in the case of a document that is left with an adult referred to in subparagraph 7(1)(a)(ii), on the day the document is left with the adult; (b) in the case of a document that is sent by registered mail or courier, on the tenth day after the date indicated in the receipt issued by the postal or courier service; and (c) in the case of a document sent by fax or other electronic means, on the day of transmission. INTEREST RATE DETERMINATION 9. (1) For the purposes of section 73.28 of the Act, the prescribed rate of interest at any time in a particular quarter is the total of: (a) the rate that is the simple arithmetic mean, expressed as a percentage per year and rounded to the next higher whole percentage where the mean is not a whole percentage, of all amounts each of which is the average equivalent yield, expressed as a percentage per year, of Government of Canada Treasury Bills that mature approximately three months after their date of issue and that are sold at auctions of Government of Canada Treasury Bills during the first month of the quarter preceding the particular quarter; and (b) four per cent. (2) The interest referred to in subsection (1) is calculated and compounded monthly. (3) For the purposes of subsection (1) "quarter" means a period of three consecutive months ending on March 31, June 30, September 30 or December 31. COMING INTO FORCE 10. These Regulations come into force on the day on which section 40 of An Act to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Income Tax Act and to make a consequential amendment to another Act, being chapter 12 of the Statutes of Canada (2006), comes into force.
SCHEDULE PART 1
PROCEEDS OF CRIME (MONEY LAUNDERING)
PART 2 PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT AND PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING REGULATIONS
PART 3 PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT AND PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING SUSPICIOUS TRANSACTION REPORTING REGULATIONS
[26-1-o] The financial institutions and financial intermediaries that are subject to the Act include banks, cooperative credit societies, savings and credit unions, caisses populaires, life insurance companies, life insurance brokers or agents, trust and loans companies, securities dealers, money services businesses (including foreign exchange dealers), casinos, real estate brokers or sales representatives, accountants and accounting firms and certain departments and agents of Her Majesty in right of Canada or a province. S.C. 2006, c.12, s. 40 S.C. 2000, c. 17; S.C. 2001, c. 41, s. 48 |
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