Learn about anti-money laundering requirements in Canada and recent developments to the regulatory system
Canada has been continuously working to develop an efficient Anti-Money Laundering (AML) system. Being one of the founding countries of the Financial Action Task Force (FATF), Canada follows the recommendations provided by the organization. However, the results of the FATF’s 2016 evaluation have shown that the country has several deficiencies. As a result, the government amended regulations to strengthen AML/CFT requirements. In October 2021, the FATF re-evaluated the country, pointing to visible changes and improvements in tackling money laundering.
From 2016 to 2021, Canada reversed most of its deficient indexes. This means that the regulatory environment in Canada is fast developing, and entities working in this jurisdiction need to keep up.
Failure to comply with Canadian regulations can lead to all sorts of penalties. Just recently, Wealth One Bank of Canada was fined C$650,000 ($480,000) over compliance.
We at Sumsub have prepared an article explaining how companies working in Canada can stay compliant with changing regulations.
Entities obligated to follow Canadian AML law and report to FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada) include:
Notably, certain non-Canadian businesses must also comply with the country’s new AML requirements. These are so-called foreign Money Service Businesses—that is, foreign companies that have a place of business in Canada. This can be an offshore crypto platform that advertises to and onboards Canadian users.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is the main AML regulator in Canada. It was established in 2000 as per the Proceeds of Crime Act. Its goal is to detect, investigate, and confront any money laundering activity. Entities must, therefore, submit reports related toAML to FINTRAC, which analyzes them and cooperates with other law enforcement institutions (e.g., police) to resolve the cases.
To maximize the efficiency of its investigations, the Canadian government has created two additional organizations: The Financial Crime Coordination Centre and The Canadian Financial Crime Agency.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) is the main AML regulation in Canada. The law was implemented in 2000 and amended several times since then, with the latest changes proposed this year. In general, the main goal of PCMLTFA is to establish an efficient set of requirements for:
To stay compliant with Canadian AML law, companies have to implement a clear set of procedures. This includes at least the following:
When it comes to identity verification, Canada provides companies with several options to ensure the authenticity of clients.
The first option is the government-issued photo identification method, wherecompanies must record the following information:
Using the credit file method, companies have to obtain a client’s credit file either directly from the Canadian credit bureau or a service provider. The information that companies have to collect includes:
When using the dual-process method, companies access information from two different agencies (e.g., bureau and bank).
Suggested read: All You Need to Know About Remote Verification in Canada
Fines for AML record-keeping violations in Canada range from just one Canadian dollar to C$500,000 (approximately US$375,000) per violation. The exact amount depends on the degree of the breach. For instance, a one-time failure to report a large transaction can cost businesses up to C$1,000 (around $800/€680), while repeat violations of record-keeping obligations can result in fines of up to C$500,000.
In 2021, businesses had to adapt to Canada’s new regulatory requirements, which included several crucial changes.
The first change was the implementation of new reporting and record-keeping obligations for crypto transactions. All businesses now must keep a “large virtual currency transaction record” and file reports to FINTRAC if they receive C$10,000 (around $7,500) and more in cryptocurrency within 24 hours. The new amendments also require businesses to record information about crypto transactions over C$10,000. This should include:
This information must be sent to FINTRAC through the web reporting system within five working days after the transfer.
The latest regulations have also simplified transaction reporting. While previous obligations required filing a separate report for each transaction over C$10,000, the new requirements permit businesses to create a single report for all transfers made by a customer within 24 hours. This is called the 24-hour rule, and it works for both electronic and crypto transfers.
Another visible change is the widened scope of the Travel Rule, which now extends to crypto and electronic fiat transfers made by financial institutions, domestic and foreign Money Service Businesses, and casinos. Therefore, businesses must collect names, account numbers, and addresses of senders and recipients in crypto or electronic fiat transfers over C$1,000 (around $750). Also, financial platforms are required to share Travel Rule data on transacting parties.
There are also changes to beneficial ownership obligations. Now, when entering into a partnership with another legal entity, businesses must verify the identities of any beneficiaries as part of their KYB procedure. Importantly, businesses must update this information on an ongoing basis. Companies therefore must collect and verify two types of data: 1) information about the partner company and 2) the identities of the beneficial owners. This includes:
Businesses can verify beneficial ownership through corporate documents or external data sources. The latter could include the securities and shareholders registers, articles of incorporation, and more.
It’s clear that Canada is developing a more comprehensive AML system, and this will likely be the trend in coming years. Companies have to be able to adapt in this fast-paced environment. Moreover, companies should also be aware of the increasing number of criminals trying to abuse gaps in the system. That’s why it’s essential for businesses to take measures in a timely manner. One of them is implementing an efficient AML solution,consisting of several technologies, such as Transaction Monitoring and Know Your Customer checks. If implemented correctly, the right AML solution can minimize the risks of criminal activity, ensure compliance with regulations, and uphold a company’s reputation.