Reviewing Canada s Anti-Money Laundering and Anti-Terrorist Financing Regime Summary, Analysis and Discussion Points. Matt McGuire

Transcription

1 Reviewing Canada s Anti-Money Laundering and Anti-Terrorist Financing Regime Summary, Analysis and Discussion Points Matt McGuire

2 The Review 2 1. Reviewing Canada s Anti-Money Laundering and Anti-Terrorist Financing Regime ; Feb 7, Authored by the Department of Finance 3. A foundational document for the mandatory 5-year Parliamentary review of the PCMLTFA 4. Involved Consultations with Government Folks and Friendlies 5. Some nearly factual background, some general issues for feedback, and some specific proposals for consultation (but none which are specifically payments or prepaid card related) 6. Submissions requested by April 30, 2018 as private as they can be (and they can t be) < >

3 The Agenda 3 1. A history of developments AML themes 3. Review background 4. Developments and discussion points a. New reporting entities b. Changes to reporting c. Changes to identification and record-keeping d. Proposed regime development points 4. What s missing 5. Submissions next steps < >

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6 Budget Hints 6 STRENGTHENING CANADA S ANTI-MONEY LAUNDERING AND ANTI-TERRORIST FINANCING REGIME Legislative and regulatory provisions of Canada s anti-money laundering and anti-terrorist financing framework are regularly reviewed to ensure they meet the objectives of detecting and deterring money laundering and terrorist financing activities, while balancing rights under the Canadian Charter of Rights and Freedoms and privacy concerns. The Government proposes to introduce legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to: Expand the list of disclosure recipients that can receive financial intelligence related to threats to the security of Canada to include the Department of National Defence and the Canadian Armed Forces. Support more effective intelligence on beneficial owners of legal entities. Make various technical and other changes to: strengthen the framework, support compliance, improve the ability of reporting entities to operationalize the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and ensure the legislation functions as intended. [Read: Overhaul of Penalties Program] < >

7 2018 AML Themes 7 1. Rules keep changing 2. Scope and expectations are creeping 3. Transparency is the new normal 4. Payments landscape is changing 5. Sanctions Shift - wars are being fought with balance sheets rather than bayonets 6. Taxes 4. A Focus on Outcomes < >

8 1. More AML measures result in less money laundering (the 1% solution). 2. Drivers for change: FinTech, ID tech, RegTech, professional money launderers [Australian $1 million dollar man], complex corporate structures, Law Society status. 3. Policy and Coordination, Prevention and Detection, Disruption Background Brought to you by the Department of Finance 4. Last Parliamentary Review: Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? Not Really. 5. Canada s money laundering risks: corruption and bribery; counterfeiting and piracy; fraud; illicit drug trafficking; illicit tobacco smuggling and trafficking; and, third party money laundering. 6. Vulnerable sectors are those with a high volume, velocity and frequency of transactions. 7. Project Protect, period. 8. The FATF Review highlighted issues in enforcement, legal professional vulnerabilities, high risk businesses and professions not covered by our legislation, and beneficial ownership issues.

9 1. The Legal profession, again, kindof a) Lawyers launder money, a lot. 9 b) Other countries have figured this out. c) Law Societies are consulting the Department of Finance on their own standards, not the other way around. New Reporting Entities Proposed 2. White Label ATM Machines a) Potential for abuse is clear. b) Actual abuse is unclear (depending on whether you ask law enforcement or the ATMIA). c) Interac standards were developed in conjunction with RCMP and FINTRAC. d) Quebec is already there. 3. Pari-Mutuel Betting and Horse Racing a) Sure. 4. Real Estate Sector [insert happy animated emoticon here] a) Would include mortgage insurers, land registries, and title insurance companies. b) This is where the information lives, and where incentives are better aligned. 5. Non-Federally Regulated Mortgage Lenders a) Larger entities already experience a trickle down effect. b) Would also include: real estate investment trusts, mortgage investment corps, mutual fund trusts, syndicated

10 10 5. Company Service Providers [another happy emoticon] a) Onshore/offshore Company or partnership formation. b) Registered business address. c) Acting or arranging for director/nominee shareholder. d) Managing financial affairs/annual filings. e) Could include accountants/lawyers. New Reporting Entities Proposed, continued 6. Finance, Lease and Factoring Companies 7. Armoured Cars a) Transportation of cash and other valuable materials (the definition will be critical here) b) Key concern: funds are collected and pooled into accounts controlled by the armoured car company and further distributed, obscuring the true origin of funds 8. High Value Goods Dealers a) Luxury goods, such as automobiles, boats, yachts, art and antiquities, and jewellery auction houses

11 11 1. Inclusion of new reporting entities 2. Uniform Reporting Schedule a) 5, 15 or 30 days? Changes to Reporting Proposed 3. EFT Reporting - Pass-through wires a) Canada is not the country of origin or destination, as in correspondent banking, letters of credit, etc. 4. Criminal Prohibition on Structuring Transactions to Avoid Reporting a) Not just at the customer level, but at the product/service design level ($999 remittances) b) US equivalent standards 5. Removal of Alternative to Large Cash Reporting 6. Cross Border Currency Reporting a) Expanded definition of monetary instrument which could include: diamonds, gold or other precious metals, prepaid payment products, and others.

12 12 Changes to ID/Record-Keeping Proposed 1. Politically Exposed Persons a) Expanded and clarified definition (First Nations Chiefs, Reeves, etc.) b) Expanded sectors (beyond financial entities, securities dealers, money services businesses, and life insurance companies) c) Determinations for Beneficial Owners 2. Standardize Record Keeping and Client Identification Thresholds a) $3,000 or $1,000 for both foreign exchange and remittances? 3. EFT Travel Rule Precision It s the originator that matters, not the FI sending it to you 3. ID methods towards a principles based approach 4. Ongoing monitoring for correspondent banking relationships

13 13 1. MSB De-risking Acknowledgement a) reporting entities are expected to manage (but not necessarily eliminate) their exposure by taking a risk-based approach with their clients on a case-by-case basis. b) Arises from mistaken belief that financial institutions must known your customer s customer. c) Current trend drives transactions underground which complicates AML efforts. d) But no suggested solutions offered. Regime Developments Proposed 2. More guilty until proven innocent with MSBs registration suspension 3. Bulk cash a) Prohibitions for everyone! b) Business registry (more derisking) 4. Geographic targeting orders (this document was almost as exciting as the Consumers Distributing Catalogue at this point, but similar in that I likely won t get another rock tumbler either) 5. Reduction in Privacy Reviews for FINTRAC from 2 to 4 years 6. Money for Trade Fraud Intelligence

14 14 1. New FINTRAC Disclosure Partners Where Will Your Reports End Up? a) Competition Bureau b) Revenue Quebec 2. FINTRAC as a whistleblowing hotline Regime Developments Proposed, continued 3. Administrative Monetary Penalties a) How a penalty problem grew from a farm b) A formula to fix a formula c) To publish or not to publish how sensitive are you? d) Can you trust a spy to keep a secret? 4. Consultation and Guidance a) Systematic rather than judgment based b) OSFI and FINTRAC coordination 5. Public/Private Information Sharing 6. Criminal Code you don t have to know how it got dirty

15 It s About the Notes You Don t Play Discussion about what s been working or not 2. Anticipated costs and benefits associated with proposed measures 3. Enforcement tool enhancement (other than definitions), including civil remedies 4. Simplified due diligence 5. Sanctions enforcement < >

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