Canada Gazette, Part I, Volume 157, Number 7: Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

February 18, 2023

Statutory 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.)

Executive summary

Issues

Renewing and improving Canada’s AML/ATF Regime

The money laundering and terrorist financing (ML/TF) risk environments are continuously evolving at both the domestic and international levels, with criminals devising new methods to evade detection and take advantage of emerging vulnerabilities. To remain relevant and effective, the Regime must continuously monitor and adapt to new risks and threats, which, if left unchecked, can undermine the integrity of the financial system and national security. It must ensure that its partners have the appropriate authorities, resources, tools, and expertise to carry out their roles to prevent, detect, and disrupt money laundering and terrorist financing. This can include new measures to amend the suite of AML/ATF requirements applicable to reporting entities, bring new sectors within the scope of AML/ATF regulation, and measures to improve FINTRAC’s operations. Measures to enhance Canada’s AML/ATF legislative framework must also balance appropriate regulatory burden on reporting entities, which includes applying a risk-based approach wherever possible to maximize Regime effectiveness while minimizing burden.

To support a more effective AML/ATF Regime, the Department of Finance is advancing a number of such regulatory initiatives that will implicate FINTRAC’s regulatory mandate and operations.

Until now, Canada’s financial intelligence unit, FINTRAC, has been funded through appropriations. Providing FINTRAC with a stable long-term funding solution will allow the agency to continue delivering a robust and risk-based compliance program that remains flexible in light of evolving regulatory requirements, while minimizing future resource pressures on taxpayers. This approach will align FINTRAC with the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC), which also recover the costs of supervision from the entities they regulate.

A cost recovery framework for FINTRAC’s compliance and related activities

Since its establishment in 2000, FINTRAC has relied solely on appropriations. Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) in the Budget Implementation Act, 2021, No. 1 (BIA1 2021) require FINTRAC to ascertain the total expenses incurred in the preceding fiscal year in connection with the administration of the PCMLTFA for compliance purposes and to assess those expenses against reporting entities. This approach aligns FINTRAC with the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC), which also recover the costs of supervision from the entities they regulate. The PCMLTFA received royal assent on June 29, 2021, but is not yet in force pending the introduction of enabling regulations to prescribe the entities that are subject to cost recovery, the assessment scheme and related provisions.

Obligations for the armoured car sector

Armoured car companies provide two main categories of services: cash logistics and cash management. Cash logistics includes the secure armoured transportation of cash; electronic funds transfer (EFT) services; secure storage and inventory management; automated teller machine (ATM) services; and cold storage for virtual currency. Cash management services include deposit processing and consolidation; foreign exchange dealing; vaulting; counting and sorting; as well as cash shipment consolidation. The armoured car sector has a cash-intensive clientele, some of whom are regulated by the PCMLTFA but others are not.

Although the activity of transportation is not currently supervised for AML/ATF purposes, the sector provides services largely akin to those regulated by the PCMLTFA. The transportation of currency and negotiable instruments poses a high inherent ML/TF risk due to the broad and complex services offered by businesses operating in the armoured car sector. The ability for funds to be collected, pooled into the account of the armoured car company, and wired out to customer accounts makes reconciliation and identification of the origin of funds challenging and allows for a degree of anonymity in transactions, constituting a key ML/TF vulnerability.

In response to these identified risks, legislative amendments in the BIA1 2021 designated businesses in the armoured car sector as reporting entities subject to the PCMLTFA and FINTRAC oversight. Since the compliance program, due diligence measures, record keeping and reporting obligations are prescribed by regulations, a subsequent amendment to the regulations is needed to impose these obligations on the armoured car sector. Implementing these requirements will improve the sector’s resilience to misuse for ML/TF, while better situating financial institutions to identify parties involved in suspicious transactions requested by armoured car companies on behalf of their clients. Ultimately, being able to determine the underlying client, parties to a transaction and origin of funds will better support the Government of Canada’s efforts to detect, disrupt and prosecute more money laundering cases.

Obligations for mortgage lending entities

Mortgages issued by “financial entities” designated under the PCMLTFA (e.g. banks and foreign banks, credit unions and cooperatives, trust and loan companies) have long been subject to AML/ATF requirements. However, recent years have seen a growth in mortgages issued by businesses not regulated under the PCMLTFA. Given the lack of regulation and the equivalent services and products, these unregulated mortgage lenders can be highly vulnerable to exploitation for ML/TF. Specifically, these entities are vulnerable to misuse for (1) receiving funds that are proceeds of crime, such as a down payment or repayment of the loan; and (2) lending potential proceeds of crime to clients. This increased risk of exploitation of Canada’s real estate market by criminals can also have some impact on housing affordability across the country. For example, criminals could purchase properties for values that are significantly higher than market value to launder greater amounts of illicit funds, which could bring up the average price of homes. Criminals could also purchase multiple properties and leave them vacant, limiting the supply of housing and impacting housing affordability.

Introducing regulatory amendments to capture entities of all sizes involved in the mortgage lending process (i.e. brokers responsible for mortgage origination, lenders responsible for underwriting the loan, and administrators responsible for servicing the loan) as reporting entities under the PCMLTFA and its regulations would help to mitigate the risks of these entities being misused for ML/TF. It would also bring the requirements applicable to entities involved in the mortgage lending process in line with existing AML/ATF requirements conducted by financial entities, federally regulated mortgage lenders and real estate brokers/sales representatives and developers, thus creating a level playing field and strengthening Canada’s Regime through better intelligence gathering, detection, deterrence and disruption of money laundering.

The proposal would also support Canada’s implementation of the FATF Standards, the international AML/ATF standards. The FATF Standards require that financial institutions, which the FATF defines as any natural or legal person who conducts as a business lending (including mortgage credit) for or on behalf of a customer, to apply customer due diligence measures, to keep all necessary records on transactions (for at least five years), to apply additional measures for specific customers and activities (i.e. identification of politically exposed persons), and to report suspicious transactions. These proposed Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the proposed Regulations) are part of implementing these international standards.

Strengthening correspondent banking relationships

Under the PCMLTFA, Canadian financial entities can enter into correspondent banking relationships to provide financial services (i.e. international electronic funds transfers, cash management, or cheque clearing) to foreign financial entities. Correspondent banking relationships support international trade, charitable giving, commerce and remittances flows, all of which promote financial inclusion. However, both the FATF and the Bank of International Settlements consider these relationships highly vulnerable to misuse for money laundering and terrorist financing. To mitigate these risks, the PCMLTFA and its regulations specify the requirements and due diligence measures that Canadian financial entities must satisfy prior to entering a correspondent banking relationship.

However, the current obligations of the PCMLTFA do not fully align with existing international standards and expectations, which can expose Canada’s correspondent banking framework to unmitigated risks. Given the nature and global reach of correspondent banking relationships, it is important for Canada to address this regulatory deficiency.

Increasing cross-border currency reporting penalties

A commonly observed money laundering technique is for criminals to move cash or monetary instruments linked to the proceeds of crime between jurisdictions in order to hide their illicit origin. Therefore, the cross-border movement of funds is recognized in Canada and internationally as a very high money laundering risk. Under the PCMLTFA, persons or entities must declare any currency or monetary instruments in their possession valued at $10,000 or more when crossing the Canadian border. Failure to declare can result in an administrative monetary penalty, detailed in the Cross-border Currency and Monetary Instruments Reporting Regulations. These penalties are $250, $2,500 or $5,000 depending on the degree of concealment of the funds and whether the offender had a previous violation. These penalties have not been updated since their inception in 2003.

In its 2016 evaluation of Canada’s AML/ATF Regime, the FATF noted that these penalties were neither proportionate nor dissuasive, and therefore did not effectively deter people from attempting to move undeclared funds into or out of Canada, as required under the FATF Standards. To remedy this finding and ensure compliance with the FATF Standards, the proposed amendments would increase the amount of the penalties to be more proportionate and dissuasive.

Streamlining requirements for sending AMPs documents to reporting entities

The Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (AMP Regulations) prescribe the manner in which FINTRAC must serve AMP-related documents to reporting entities, which includes methods such as in person, by registered mail, by fax and electronic means. The AMP Regulations require that a copy of the AMP document be sent by registered mail or delivered to a reporting entity’s head office or business.

As currently drafted, the AMP Regulations do not allow FINTRAC to serve a reporting entity solely by electronic means and require that when serving an AMP document electronically, FINTRAC also serve a paper copy by registered mail. As only one notification is needed, it is proposed that the AMP Regulations be amended to allow AMP documents to either be sent to reporting entities electronically, through registered mail, or physical delivery to a head office or business. This amendment would remove a redundant notification, while still allowing reporting entities to be effectively served with AMP documents.

Enhancing the MSB registration framework

Money services businesses (MSBs) are persons or entities that provide one or more of the following services: foreign exchange dealing, remitting or transmitting funds, issuing or redeeming money orders or similar negotiable instruments, dealing in virtual currencies, or crowdfunding platform services. The variety of services provided by MSBs, their large geographic reach, and integration with diverse financial markets can expose them to money laundering and terrorist financing risks.

To legally operate in Canada, MSBs must register with FINTRAC in accordance with the PCMLTFA, and subsequently renew their registration every two years. The MSB registration framework is important to help create an environment hostile to illicit financial activity and prevent illicit actors from controlling MSBs for criminal purposes.

Applications for MSB registration or renewal of registration must contain information prescribed under the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations (the “Registration Regulations”). However, FINTRAC has recently noted that the Registration Regulations lack obligations to submit certain information that is necessary for FINTRAC to effectively administer the MSB registration framework and help assess potential risks of MSB applicants. Currently, there is no obligation for MSBs to submit the contact information of their chief executive officer, president, directors or owners, which can make it difficult to contact these individuals for administrative reasons. Nor is there a requirement for MSBs to indicate how many of their agents, mandataries and branches operate in different countries, which provides valuable insight on the global reach of the MSB’s activities.

Technical amendments

Make amendments to the Registration Regulations to address inconsistencies and to provide clarity for reporting entities in meeting their compliance obligations. The amendments are all technical in nature and do not change the intended policy or application of the Registration Regulations.

Background

Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime

Money laundering is the process used to conceal or disguise the origin of criminal proceeds to make them appear as if they originated from legitimate sources, which benefits domestic and international criminals and organized crime groups. Terrorist financing is the collection and provision of funds from legitimate or illegitimate sources for terrorist activity. It supports and sustains the activities of domestic and international terrorists that can result in terrorist attacks in Canada or abroad, causing loss of life and destruction.

Taken together, money laundering and terrorist financing are serious threats to the safety and security of Canadians, as well as the integrity of Canada’s economy and financial system. Canada’s AML/ATF Regime helps to protect the integrity of Canada’s financial system by deterring individuals from using it to carry out money laundering, terrorist financing, or other criminal financial activities. It also contributes to the safety and security of Canadians by providing financial intelligence to support law enforcement and national security efforts to detect and disrupt criminal and terrorist activities.

The Regime operates based on three interdependent pillars:

• policy and coordination — assessing money laundering and terrorist financing risks, domestic and international policy development, and coordination;
• prevention and detection — promoting, supervising, and enforcing AML/ATF compliance and collecting, analyzing, and disseminating financial and other intelligence; and
• investigation and disruption — identifying, investigating, prosecuting, and sanctioning money laundering and terrorist financing offences.

These three pillars work together to support efforts to combat organized crime, terrorism, and other major crimes, such as tax evasion, corruption, cybercrime, drug trafficking, and fraud. The Regime balances the objectives of safeguarding the integrity of Canada’s financial system, ensuring the safety and security of Canadians, and respecting Canadian individual rights and freedoms, including privacy rights.

The Department of Finance leads this Regime, which includes 13 federal departments and agencies, in partnership with provincial and municipal law enforcement agencies, regulators and regulated businesses. Through the Regime, the government engages with a network of international organizations and key allies, including the FATF and associated regional bodies, the Egmont Group of Financial Intelligence Units, and Five Eyes partners (intelligence alliance between Canada and the United States, the United Kingdom, New Zealand and Australia), to address these complex and evolving threats.

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The PCMLTFA, first implemented in 2000, is a key statute in Canada’s AML/ATF Regime. Its objectives are to facilitate the deterrence, detection, investigation and prosecution of money launder and terrorist financing offences; counter organized crime by providing law enforcement with the information it needs while putting appropriate privacy safeguards in place; assist in fulfilling Canada’s international commitments to the global fight against transnational financial crime; and protect Canada’s financial system from misuse. To these ends, the PCMLTFA obliges businesses and professions regulated by the Act (“reporting entities”) to develop and implement compliance programs in order to identify clients, monitor business relations, keep records and report certain types of financial transactions. It further establishes FINTRAC as Canada’s main AML/ATF agency. A number of regulations support the PCMLTFA.

Financial Transactions and Reports Analysis Centre of Canada

FINTRAC, established in 2000, is Canada’s AML/ATF regulator and financial intelligence unit. Its dual mandate is to (1) ensure compliance with Part 1 (requirements to keep records, verify client identity, and report suspicious transactions, and requirements regarding registration) and Part 1.1 (requirement to follow ministerial directives) of the PCMLTFA and its associated regulations; and to (2) produce actionable financial intelligence that assists Canada’s police, law enforcement, national security and other international and domestic partner agencies in combatting money laundering and terrorist financing. As of the 2022–23 fiscal year, FINTRAC was forecasted to have an annual planned spending of $78.8 million and 468 full-time equivalent (FTE) employees. FINTRAC also produces strategic financial intelligence for federal policy and decision-makers, the security and intelligence community, reporting entities across the country, international partners and other stakeholders.

This proposal seeks to advance a suite of regulatory amendments to the PCMLTFA that will reform how FINTRAC’s operations are funded, bring additional business sectors within the scope of FINTRAC’s regulatory supervision for AML/ATF purposes, and make other changes to compliance requirements for certain sectors and penalties for non-compliance.

Objective

A cost recovery framework for FINTRAC’s compliance and related activities

The proposed cost recovery scheme will provide FINTRAC with a stable long-term funding solution that will allow the agency to continue delivering a robust and risk-based compliance program that remains flexible in light of evolving regulatory requirements while minimizing future resource pressures on taxpayers. The proposed model will implement a scheme that is predictable, simple to administer, accounts for inherent money laundering and terrorist financing risks and relative business volumes, minimizes the burden of assessments against the majority of smaller entities, and makes use of information accessible to FINTRAC. To promote accountability and transparency in the administration of cost recovery, FINTRAC will provide detailed guidance to industry. FINTRAC will also leverage its annual Departmental Plan that outlines a three-year forecast of the spending for its compliance function (for approval by the Minister of Finance), which will also be discussed at a dedicated annual meeting with stakeholders.

Obligations for the armoured car sector

The intent of the proposed amendments is to detect, disrupt and prosecute more money laundering cases through

• Mitigating the ML/TF risk posed by the armoured car sector’s activities. The introduction of obligations to develop a compliance program, verify identity, and implement record keeping and reporting obligations will better situate authorities to trace transactions involving armoured car companies to their point of origin, particularly when cash-intensive businesses or white-label ATMs are involved; and
• Enhancing the quality and scope of FINTRAC disclosures of financial intelligence to law enforcement and other appropriate authorities, which should better assist them in their investigations of transactions involving targets that would have been difficult to identify due to the involvement of the armoured car company.

The inclusion of entities that collect currency, money orders, traveller’s cheques or other similar negotiable instruments for transport in Canada’s AML/ATF framework will positively respond to recommendations made by the House of Commons Standing Committee on Finance as well as address findings of the Department’s risk assessment of the sector. Further, their inclusion will assist in addressing some of the risk and vulnerabilities presented by white-label ATMs, since armoured car companies will be required to verify client identification, keep records and report when providing cash loading or replenishment services to these ATMs.

Obligations for mortgage lending entities

The intent behind this proposal is to reduce ML/TF risks in the unregulated mortgage lending sector by implementing AML/ATF requirements to deter misuse of the sector for illicit activities. Compliance with federal AML/ATF obligations by these businesses will also improve intelligence gathering, detection and disruption of ML/TF activities in the real estate sector. This would help to address the increased risk of exploitation of Canada’s real estate market by criminals, which can negatively impact housing affordability across the country. Capturing the entities in this sector would also complement existing AML/ATF obligations for mortgage lenders that are currently regulated by the PCMLTFA.

The proposal would also respond to recommendations from the June 2022 Cullen Commission report, which reference the inclusion of mortgage brokers as reporting entities in the PCMLTFA and its associated regulations, and aim to regulate private mortgage lenders to address money laundering risks in the real estate sector.

Strengthening correspondent banking relationships

The intent behind this proposal is to respond to shortcomings identified in the FATF’s 2016 evaluation of Canada’s AML/ATF Regime, and the Department’s analysis of current measures and the gaps they present on a risk basis. The amendments will enhance the due diligence and risk mitigation practices of Canadian financial entities, and bring Canada’s correspondent banking rules in-line with international standards. Through consultations, it is understood that many large financial institutions in Canada already undertake this work, largely due to the obligations that exist as a result of their operations in the United States.

Increasing cross-border currency reporting penalties

The intent behind this proposal is to make the administrative penalties under the Cross-border Currency and Monetary Instruments Reporting Regulations more proportionate and dissuasive. This proposal will help strengthen the integrity of the cross-border currency reporting framework and help deter non-compliance. The proposed measures to enhance the penalty structure would also allow Canada to meet its international obligations under the FATF and respond directly to findings in the recent Cullen Commission report that penalties for violations of Canada’s cross-border cash smuggling regime were neither proportionate not dissuasive.

Streamlining requirements for sending AMPs documents to reporting entities

The intent behind this proposal is to streamline the delivery of AMP-related documents to notify reporting entities electronically without a redundant paper notification.

Enhancing MSB registration

The intent behind this proposal is to ensure that FINTRAC receives necessary information from MSB applicants, to allow FINTRAC to effectively administer the MSB registration framework and help deter and prevent illicit actors from owning or controlling MSBs.

Technical amendments

Technical amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations would help address inconsistencies and provide clarity for reporting entities in meeting their reporting obligations. The amendments are all technical in nature and do not change the intended policy or application of the regulations.

Description

Proposed regulatory amendments include:

A cost recovery framework for FINTRAC’s compliance and related activities

Enabling legislation, once in force, will require the Director of FINTRAC to determine, by December 31 of each year, the costs incurred in the preceding fiscal year with respect to the administration of the PCMLTFA (the “compliance” function), excluding costs incurred in connection to the production and dissemination of financial intelligence (the “intelligence” function). Once this amount is determined, FINTRAC would calculate the assessment amounts payable by reporting entities on the basis of the annual asset value in Canada of federally regulated banks, trust and loan companies, and life insurance companies, and the volume of threshold transaction reports (i.e. large cash transaction reports [LCTRs], large virtual currency transaction reports [LVCTRs], electronic funds transfer reports [EFTRs], and casino disbursement reports [CDRs]) submitted by all reporting entities. These assessment regulations would come into force for all reporting entities on April 1, 2024, allowing FINTRAC to commence recovering costs from the 2024–25 fiscal year, going forward.

Obligations for the armoured car sector

The proposed Regulations, once in force, will require entities that collect currency, money orders, traveller’s cheques or other similar negotiable instruments for transport to meet the following obligations:

• Development of a compliance program;
• Apply customer due diligence measures (e.g. identity verification and beneficial ownership requirements);
• Record keeping (e.g. storing client identification records);
• Transaction reporting (e.g. submit suspicious transaction and terrorist property reports as well as other reports, such as large cash [$10,000 or more] transaction reports to FINTRAC); and
• Follow ministerial directives and transaction restrictions when funds go to or come from certain countries.

Obligations for mortgage lending entities

The proposed Regulations, once in force, would require all entities involved in the mortgage lending process (i.e. brokers responsible for mortgage origination, lenders responsible for underwriting the loan or supplying the funds, and administrators responsible for servicing the loan) to meet the following obligations:

• Development of a compliance program;
• Apply customer due diligence measures (e.g. identity verification and beneficial ownership requirements);
• Record keeping (e.g. storing client identification records);
• Transaction reporting (e.g. submit suspicious transaction and terrorist property reports as well as other reports, such as large cash [$10,000 or more] transaction reports, to FINTRAC); and
• Follow ministerial directives and transaction restrictions when funds go to or come from certain countries.

As a consequential amendment to the addition of these new obligations, corresponding AMPs will be added to the AMP Regulations. The range of the penalty will depend on the harm done by the violation and the reporting entity’s history of compliance. The penalty for a minor violation would range from $1 to $1,000 per violation, a serious violation would be from $1 to $100,000 per violation, and a very serious violation would be from $1 to $100,000 per violation for an individual and from $1 to $500,000 per violation for an entity.

Strengthening correspondent banking relationships

The proposed amendments would require Canadian financial entities to

• Using publicly available information, take reasonable measures to assess the reputation of the foreign financial entity in regard to its ability to mitigate money laundering and terrorist financing risks, and the quality of supervision to which it is subject prior to entering into a correspondent banking relationship; and
• Conduct a risk assessment of their correspondent banking relationships and, based on the result of the risk assessment, conduct ongoing monitoring of their correspondent banking relationships to keep information about the foreign financial entity up to date and assess if its transactions and activities remain consistent with the correspondent banking relationship and risk profile.

As a consequential amendment to the addition of these new obligations, corresponding AMPs will be added to the AMP Regulations. Failure to comply with the obligation to conduct a risk assessment and ongoing monitoring of the correspondent banking relationship would constitute a serious violation, with penalties ranging from $1 to $100,000. Failure to comply with the other new obligations would constitute a minor violation, with penalties ranging from $1 to $1,000.

Increasing cross-border currency reporting penalties

The proposed amendments would increase the amount of the administrative penalties under the Cross-border Currency and Monetary Instruments Reporting Regulations. Only the amount of the penalties is proposed to be changed; the threshold for each penalty would remain the same. The proposed penalties were developed by doing an international scan of what was deemed appropriate by the FATF for a dissuasive penalty structure. The use of percentages is a unique approach and is meant to make the monetary penalty more proportionate to the violation rather than treating all violations as equal. The proposed penalties would be as follows:

• Equal to 5% of the undeclared funds, up to a maximum penalty of $2,500, for a first-time offender who makes a full disclosure of the facts upon discovery of the funds, and the funds were not concealed;
• Equal to 25% of the undeclared funds for an offender who concealed the funds other than by using a false compartment in a conveyance, or made a false declaration, or has a previous seizure (other than for reasons of concealment or making false declarations); and
• Equal to 50% of the undeclared funds for an offender who concealed the funds in a false compartment in a conveyance, or has a previous seizure for any form of concealment or making false declarations.

Streamlining requirements for sending AMPs documents to reporting entities

The proposed amendments would allow FINTRAC to provide reporting entities AMP-related documents electronically through the secure system,without having to send a redundant paper copy by registered mail.

Enhancing MSB registration

The proposed amendments would amend Schedule 1 of the Registration Regulations to require MSB applicants to submit

• The telephone numbers and email addresses of the MSB’s chief executive officer, president, directors and every person who owns or controls, directly or indirectly, 20% or more of the MSB; and
• The number of the MSB’s agents, mandataries and branches in each country.

Technical amendments

Make amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations to address inconsistencies and to provide clarity for reporting entities in meeting their reporting obligations. The amendments are all technical in nature and do not change the intended policy or application of the regulations: for example, error corrections (such as a reference to a provision that does not exist), cross-references, English-French concordance.

Regulatory development

Consultation

A cost recovery framework for FINTRAC’s compliance and related activities

Following approval of a fee proposal by the Treasury Board Secretariat (TBS) Office of the Comptroller General, the Department of Finance and FINTRAC consulted with industry associations and their members on the scope of the proposed scheme and formula, industry engagement models, and the extent of FINTRAC’s overall budget that will be scoped into the scheme. The Department of Finance and FINTRAC also engaged reporting entity sectors through the Advisory Committee on Money Laundering and Terrorist Finance (ACMLTF), a public-private discussion forum to address emerging issues and provide general advice for Canada’s overall AML/ATF policy. A group of reporting entities, diverse in size and regional representation, including members of the Canadian Bankers Association and the Canadian Money Services Business Association, emphasized the need for a transparent assessment formula that uses appropriate proxies for business size and money laundering risks as the basis for calculating assessment amounts, while making reasonable efforts to distribute the recoverable costs across industry sectors. Another key theme was the need for a robust governance structure that engages reporting entities on the administration of the scheme, FINTRAC’s forward-looking plans, and key cost drivers. The proposed assessment formula aims to accommodate input from industry, striking a balance between using a diversity of factors to broaden the base of assessable entities across sectors, simplifying administration costs, and reducing the burden across the vast majority of small reporting entities.

Obligations for the armoured car sector

This regulatory policy was developed in consultation with key AML/ATF Regime partners, including the RCMP and FINTRAC, as well as other government bodies, including the Bank of Canada. The Department of Finance also undertook a comprehensive external consultation process that involved outreach to the Canadian public, through the release of a consultation paper in 2018, as a part of the review of the PCMLTFA, international partners, and members of the armoured car sector and other adjacent industries, including the banking and ATM service sectors. While no feedback was received from the armoured car sector during this process, the limited feedback received from the public was generally supportive. The consultation paper also informed the Department of Finance’s engagement with the House of Commons Standing Committee on Finance during its review of the PCMLTFA. As part of its findings, the Committee noted that the armoured car sector and white-label ATMs present vulnerabilities that the Department should address.

In addition, in 2019, while developing the policy, the Department of Finance consulted the United States, the only other country known to regulate this sector for AML/ATF purposes. This consultation was done to understand their regime, confirm analysis on areas of risk, and the basis upon which the U.S. oversight regime was developed. This engagement was used to assess any considerations that may or may not be applicable in the Canadian context.

Following royal assent of BIA1 2021, the Department of Finance held bilateral and group engagement sessions with several members of the armoured car sector as well as other businesses and associations that closely interact with the sector. This included meetings with nine armoured car companies operating in Canada, including two large multinational corporations representing the majority of the Canadian market share for this sector, and seven small companies operating in diverse regions across Canada (including Ontario, Quebec, Eastern Canada, Western Canada, and the Northwest Territories). The Department also met with various industry associations and armoured car sector–adjacent businesses, including the Canadian Bankers Association, ATM Industry Association, and Interac Canada, to better understand the potential impacts of the forthcoming regulations on these entities.

In general, several engagement sessions were held with each organization, focused initially on introducing these new entities to the AML/ATF Regime and the PCMLTFA and its regulatory framework, followed by more detailed sessions providing an overview of potential AML/ATF requirements that the sector would face. This approach permitted the Department of Finance to refine its regulatory policy for this sector over time to ensure that it was responsive to the risks posed by the sector in question as well as was responsive to the business practices of those impacted by the requirements, so as to appropriately balance the forthcoming regulatory burden with Regime effectiveness.

With the ultimate goal of better positioning authorities to trace transactions involving armoured car companies to the origin of the transaction, particularly when cash-intensive businesses or white-label ATMs are involved, the Department of Finance originally intended to mandate identity verification at each pick-up location and during every pick-up that the armoured car company was hired to conduct. This approach aligned with current practice when an individual processes a deposit with a bank. While the consultations with the sector largely served to confirm that the information to be recorded and reported is currently collected by companies in their day-to-day operations, some concerns were raised about how the information would be collected and verified. In particular, armoured car companies wanted to ensure that the means by which the information was collected could be used without sacrificing efficiency and employee safety. The armoured car companies also highlighted efficiency and security barriers to the systematic verification of funds in the bags they transport, as the current process is based on declaration. Similarly, financial institutions flagged concerns about how they would verify what is provided to them by armoured car companies.

Stakeholder feedback flagged significant process efficiency as well employee safety concerns regarding this approach. It was determined that the regulatory objective could also be met if identification requirements were instead adjusted to take place at the onset of a business relationship between the armoured car company and their client, with an ongoing requirement to ensure that the information remain up-to-date. In response to this feedback, the Department of Finance altered the client identification process to be undertaken as part of the formation of the business relationship to address the unique concerns of the companies and still achieve the underlying objective. Further, in terms of verification of funds transported, the Department of Finance assessed that transporter clientele is motivated to be honest about the value of funds being transported for insurance purposes. In recognition of this, and to balance the efficiency and security concerns the armoured car companies raised, the proposed Regulations would permit the client declaration of value transported funds to be sufficient rather than force the transporting company to undertake a manual verification. Ultimately, the funds will require verification by the financial institutions processing the deposit.

Consultations with the Canadian Bankers Association and its members have indicated they are concerned that they will face an additional burden by having to verify information presented to them by the armoured car company in order to assist the companies in meeting their obligations under the Act. However, in both regards, the Department of Finance is of the view that the record-keeping, client identification and reporting obligations are in place when processing a deposit. The obligation of the armoured car companies will result in financial institutions being better able to fulfill their regulatory obligations with more complete information. Further, there is no obligation in place requiring financial institutions to verify the information collected by the armoured car company.

The consultation process also provided a deeper understanding of the various types of transactions that armoured car companies may be involved in and their respective risk profiles. This helped shape additional exemptions from the new obligations, striking a balance between meeting regulatory objectives and not instituting requirements for transactions that are deemed low-risk (e.g. inter- and intra-bank transfers, intra-MSB or credit union, and transport services directed by a bank), thus reducing the burden on armoured car companies. Stakeholders did not raise additional concerns that have not been taken into consideration when the regulations where drafted.

Obligations for mortgage lending entities

The Department of Finance, in partnership with FINTRAC, has conducted consultations with industry and provincial regulators. Stakeholders that have been consulted include

• three industry associations;
• three mortgage brokerages (one large, one medium and one small);
• two large-sized mortgage finance companies;
• two small and medium-sized mortgage investment corporations;
• two publicly traded mortgage lenders;
• two mortgage administrators; and
• five provincial regulators (British Columbia, Alberta, Ontario, Quebec, New Brunswick).

The industry consultations began with a presentation by FINTRAC on Canada’s AML/ATF statutory framework and then a presentation by the Department of Finance on the proposal to incorporate mortgage lending services into Canada’s AML/ATF Regime. The presentation was followed by discussion questions to improve the Department of Finance’s knowledge of the industry and its current provincial and industry reporting requirements as well as its view on the ML/TF risks within its sector.

Stakeholder feedback generally ranged from neutral to positive. Some concerns were raised about burden, cost and duplication, largely by smaller lenders and brokers. Many entities already voluntarily apply AML/ATF measures, such as storing client identification information.

The following is a summary of the comments received during the consultation process:

Industry associations and large lending stakeholders

• Regulation could help address reputational risk of the sector being used for money laundering.
• Mortgage lending entities (mortgage finance companies [MFCs] and mortgage investment corporations [MICs]) already apply AML/ATF measures.
• MFCs are considered quasi-regulated because they underwrite insured mortgages that are sold to OSFI-regulated lenders or securitized through National Housing Act mortgage-backed securities.
• MICs apply customer due diligence on the funding side of their business due to provincial securities regulations.
• Low burden on large entities in the space, given sophistication of IT and familiarity of requirements.
• Concerns flagged about possible regulatory burden on small lenders but could be mitigated through support to industry associations as they work with smaller lenders to transition to becoming reporting entities.

Mortgage brokers

• Large mortgage brokerages/brokers already apply customer due diligence and source of funds measures due to requirements from lending partners.
• Large, sophisticated brokers are generally well attuned to potential ML/TF risks.
• Some brokers refer clients directly to unregulated private lenders generally due to a client’s weak financial profile or credit history, but the opaque nature of the private lending space can also make it attractive for money laundering.
• Concerns flagged about duplication, burden on smaller entities and increased cost to comply; this could be mitigated through clear FINTRAC guidance and working with the industry associations that will support the small entities as they transition to becoming reporting entities.

Provincial regulators

• They welcomed the proposal but highlighted the need to avoid unnecessary regulatory burden/duplication.
• Provincial regulatory requirements for entities involved in the mortgage lending process vary significantly across the country, with Ontario being the most comprehensive (includes brokers, lenders, and administrators).
• Other provinces, such as Alberta, have no oversight of mortgage lenders, and Quebec does not have a requirement for private lenders to work with brokers or any oversight of the private lending space.
• Commonality was that regulations focused on consumer protection. Customer due diligence and reporting were used from an anti-fraud/consumer protection perspective; however, they were not for the purposes of AML/ATF. Given this, provinces flagged education, particularly of small entities, on the AML/ATF Regime as a need.

Strengthening correspondent banking relationships

The Department of Finance consulted on this proposal in a 2018 consultation paper entitled Reviewing Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime. A further bilateral consultation was undertaken with two large Canadian financial institutions. In June 2022, the Department of Finance consulted industry stakeholders through the ACMLTF, which included financial institution representatives as well as the Canadian Bankers Association. The Department continued its consultation with the ACMLTF over summer 2022. These consultations identified that Canada’s largest financial institutions with global operations already conform to international standards and best practices upon which the proposed regulatory amendments are based. The consultations did not confirm whether there may be impacts on smaller banks that do not already conform to the higher international standards. Consultation feedback also helped identify how to best structure the regulations to promote clarity.

Increasing cross-border currency reporting penalties

There are no relevant private stakeholder groups to proactively consult on this proposal. However, the Department of Finance had extensive discussions with the Canada Border Services Agency (CBSA) and the Department of Justice during the development of this policy proposal. The overall change to the penalty structure was necessary following a review by the FATF signalling that what was in place did not meet international standards.

Streamlining requirements for sending AMPs documents to reporting entities

There are no relevant private stakeholder groups to proactively consult on this proposal.

Enhancing MSB registration

The Department has not proactively consulted implicated MSB stakeholders on this proposal given the relatively minor and targeted nature of the changes, and because the proposal fully aligns with existing regulatory obligations in the MSB Registration Regulations.

No legal risks or privacy concerns have been identified over the additional information that MSBs would be required to provide upon registration. The current Registration Regulations require that the name, date of birth and location of birth be disclosed for each of the MSB’s chief executive officer, president, directors, and for persons who own 20% or more of the MSB. The new obligations would add the disclosure of the email address and telephone number of these individuals. This additional information is considered necessary for FINTRAC to effectively administer the MSB registration framework.

Technical amendments

There are no relevant private stakeholder groups to proactively consult on this proposal.

Modern treaty obligations and Indigenous engagement and consultation

An assessment of modern treaty implications did not identify any adverse impacts on potential or established Aboriginal or treaty rights, which are recognized and affirmed in section 35 of the Constitution Act, 1982.

Instrument choice

A cost recovery framework for FINTRAC’s compliance and related activities

The enabling legislative amendments for cost recovery require regulations to prescribe which reporting entities are subject to assessment and how recoverable amounts will be calculated and applied. A regulatory approach is consistent with the binding, non-discretionary nature of assessments, which must be paid by all eligible entities.

Obligations for the armoured car sector

To institute obligations for the armoured car sector, legislative amendments were put in place, but regulations are required to enact them and prescribe requirements.

The Department of Finance developed regulatory objectives based on the high inherent ML/TF risk of the armoured car sector due to its cash-intensive nature, and limited transparency and oversight. In consultation with Regime partners and in response to these identified risks, legislative amendments in BIA1 2021 designated businesses in the armoured car sector as reporting entities subject to the PCMLTFA and FINTRAC oversight. Regulations are needed to implement the PCMLTFA amendments and prescribe the compliance program and reporting obligations that these businesses must undertake.

In terms of the baseline scenario, not taking action to close known gaps in Canada’s ML/TF Regime could cause the Regime to become outdated, increasing the likelihood of criminal activity and compromising the integrity of Canada’s financial system. This has the potential to cause serious reputational harm to Canada’s financial sector and subject Canadian financial institutions to increased regulatory burden when dealing with foreign counterparts or when doing business overseas. Therefore, forgoing regulatory modernization would ultimately be more costly to Canadian businesses than necessary regulatory change.

In the initial stages of policy development, the Department of Finance consulted the United States to understand their regime, confirm analysis on areas of risk, and the basis upon which the U.S. oversight was developed. The United States is the only other country known to regulate this sector for AML/ATF purposes. This engagement was used to assess any considerations that may or may not be applicable in the Canadian context. The intended outcome of Canada and the United States is the same, with a slightly differing approach.

Obligations for mortgage lending entities

Regulatory action is necessary to address growing money laundering and terrorist financing risks in the unregulated mortgage sector (which includes entities involved in the mortgage lending process that are not federally regulated).

Regulating these entities under the PCMLTFA would be in line with existing AML/ATF requirements conducted by federally regulated mortgage lenders and real estate brokers/sales representatives and developers, further strengthening Canada’s Regime through better intelligence gathering, detection and disruption of money laundering activities in the real estate sector and mortgage lending.

Strengthening correspondent banking relationships

In order to achieve the desired regulatory outcome of strengthening correspondent banking relationships, amendments to the Regulations are required.

Various international organizations, such as the FATF and the Wolfsberg Group, publish best practices papers and guidance for correspondent banking relationships that align with the regulatory changes proposed herein in respect of correspondent banking. However, these documents are not binding upon Canadian financial entities and cannot act as a substitute for regulatory requirements. Further, statutory correspondent banking requirements may be stricter in other jurisdictions (for example the United States); however, these requirements only apply to Canadian financial entity activities in that country and do not apply to Canadian financial entities in respect of their activities outside of those jurisdictions.

Increasing cross-border currency reporting penalties

The amount of the cross-border currency reporting penalties are found exclusively in the Cross-border Currency and Monetary Instruments Reporting Regulations. In order to achieve the desired regulatory outcome of making the cross-border currency reporting penalties more proportionate and dissuasive, amendments to the Cross-border Currency and Monetary Instruments Reporting Regulations are required.

Streamlining requirements for sending AMPs documents to reporting entities

As AMPs only exist in response to violation of the PCMLTFA and its regulations, amendments can only be done through the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (AMP Regulations).

Enhancing MSB registration

The information that MSB applicants must submit to FINTRAC is prescribed either in the PCMLTFA or in the Registration Regulations. Given that the additional information collected under this proposal aligns with the existing requirements of the Registration Regulations, regulatory amendments to that regulation are the clearest and most straightforward method to achieve the desired policy objective.

Technical amendments

The inconsistencies are identified in the Regulations; therefore amendments must be made through the regulatory process to address the inconsistencies and/or errors.

Regulatory analysis

Benefits and costs

The impacts of the proposed amendments have been assessed in accordance with the Treasury Board Secretariat (TBS) Canadian Cost-Benefit Analysis Guide. Benefits and costs associated with the amendments are determined by comparing the baseline scenario against the regulatory scenario. The baseline scenario depicts what is likely to happen in the future if proposed amendments are not implemented. The regulatory scenario describes the changes that would occur due to the proposed amendments.

The total present value cost of making these regulatory changes is $21.0 million in 2021 dollars. Unless otherwise stated, all monetary values are expressed in 2021 dollars, discounted to 2023 using a discount rate of 7% over a 10-year period (2022–23 to 2040–41). The benefits of these changes are described qualitatively, since the net benefit of these amendments to the effectiveness of the regime in proceeds of crime not laundered is difficult to determine, as this activity is outside the formal and legal economy.

A cost-benefit analysis (CBA) report with more details on the calculation of costs is available upon request.

Baseline and regulatory scenarios

A cost recovery framework for FINTRAC’s compliance and related activities

Under the baseline scenario, FINTRAC would lack the regulations needed to operationalize the assessment scheme, which it is required to undertake by the 2021 amendments to the PCMLTFA.

Accordingly, FINTRAC could not recover costs from reporting entities, as there would be no basis for identifying assessable entities or for calculating amounts owed. The regulatory scenario would include a prescribed assessment formula, which would enable cost recovery from entities regulated by FINTRAC, such as banks, credit unions, life insurance companies, trust and loan companies or money services businesses. FINTRAC would rely on these assessments to support its compliance program and related internal services costs as required under the 2021 PCMLTFA amendments.

Obligations for the armoured car sector

In the baseline scenario, the armoured car sector would continue to be unsupervised for AML/ATF purposes and therefore incur no regulatory costs. The transportation of currency and negotiable instruments poses a high inherent ML/TF risk due to the broad and complex services offered by businesses operating in the armoured car sector. The regulatory scenario would impose AML/ATF obligations on the sector, which will require entities that collect currency, money orders, travellers’ cheques or other similar negotiable instruments for transport to meet the following obligations:

• Develop a compliance program;
• Apply customer due diligence measures (e.g. identity verification and beneficial ownership requirements);
• Keep records (e.g. storing client identification records);
• Report transactions (e.g. submit suspicious transaction and terrorist property reports as well as other reports, such as large cash transaction reports to FINTRAC); and
• Follow ministerial directives and transaction restrictions when funds go to or come from certain countries.

The costs to industry in the regulatory scenario stem from the requirements to develop a compliance program, verify customer identity and implementing record keeping and reporting obligations. These obligations would contribute to the mitigation of the risk that these services are used as a tool for ML/TF activities.

Obligations for mortgage lending entities

The baseline scenario would continue the current gap of the PCMLTFA and its regulations not applying to certain mortgage lending entities, which would allow the risks of money laundering and terrorist financing within the unregulated mortgage sector to continue and potentially grow. In addition to risks associated with ML/TF, this could also contribute to an overpriced housing market as a result of a limited supply of housing units used for purposes other than housing.

The regulatory scenario would introduce regulatory amendments to capture entities of all sizes involved in the mortgage lending process as reporting entities under the PCMLTFA and its regulations. This would help to mitigate the risks of these entities being misused for ML/TF. It would also bring the requirements applicable to entities involved in the mortgage lending process in line with existing AML/ATF requirements conducted by financial entities, federally regulated mortgage lenders and real estate brokers/sales representatives and developers, thus creating a level-playing field and strengthening Canada’s Regime through better intelligence gathering, detection, deterrence and disruption of money laundering.

Strengthening correspondent banking relationships

The baseline scenario would continue the current regulatory requirements for correspondent banking relationships. Some Canadian financial entities take measures beyond existing regulatory requirements in accordance with international guidance or best practices. However, in their capacity as regulators, OSFI and FINTRAC have identified instances where Canadian financial entities do not take sufficient measures commensurate with the level of risk of the correspondent banking relationship. In these instances, the regulators were unable to compel the Canadian entities to take corrective measures because no corresponding obligations existed in regulations for the regulators to enforce. Under the baseline scenario, these activities would continue with limited options for OSFI and FINTRAC to intervene.

Currently, prior to entering a correspondent banking relationship, the Canadian entity must perform a list of due diligence measures, such as ensuring the foreign entity is not a shell bank, obtaining the approval of senior management, and setting out the obligations of the foreign entity in writing. In addition, the Canadian financial entity must obtain and keep certain information records in respect of the foreign entity, such as the name, address, list of directors, most recent annual report, and a copy of its banking licence. It also includes requirements for Canadian financial entities to take reasonable measures to ensure that the foreign financial entity has in place AML/ATF policies and procedures, and to take reasonable measures to ascertain whether any civil or criminal penalties in respect of AML/ATF requirements have been imposed on the foreign entity. The baseline costs are the compliance and administrative costs that Canadian financial entities assume to meet the current regulatory requirements.

The regulatory scenario would add several new requirements for Canadian financial entities; namely to assess the risk of their correspondent banking relationships and conduct ongoing monitoring based on their level of risk, assess the reputation of the foreign financial entity and the quality of AML/ATF supervision to which it is subject, and to keep a record of the assessment. While this would require additional ongoing resources by the banking industry to implement, it would contribute significantly to lowering the risk of ML/TF activities occurring through this channel and allow FINTRAC to take appropriate enforcement actions as required.

Increasing cross-border currency reporting penalties

The baseline scenario would continue the current penalty framework, which has not been updated since its initial inception in 2003 and has been critiqued for being neither proportionate nor dissuasive. Penalties are administered for failing to comply with the reporting requirements under the Cross-border Currency and Monetary Instruments Reporting Regulations and are explicitly detailed in those Regulations. There are no costs associated with the current penalty framework as it only applies in instances of non-compliance. As the penalties do not increase either over time (to account for inflation), or in regard to the amount of undeclared funds, they lose their ability to act as a deterrent in the baseline scenario. Thus, this channel for money smuggling for ML/TF purposes would continue to grow in appeal.

The regulatory scenario would increase the Cross-border Currency and Monetary Instruments Reporting Regulations penalties. Similar to the baseline scenario, as penalties only result from non-compliance with the regulations, any resulting costs paid are not considered as costs of the regulation. As a result, there is no incremental impact on costs between the baseline and regulatory scenarios. The regulatory analysis does not account for the potential increased recourse costs associated with individuals appealing a penalty. There is an incremental increase in qualitative benefits as the regulatory scenario increases the penalties to be more proportionate and dissuasive, which will better mitigate risks of undeclared currency and monetary instruments entering or leaving Canada, and will contribute to the effectiveness of Canada’s AML/ATF Regime.

Streamlining requirements for sending notices of violation to reporting entities

The baseline scenario would continue the redundant requirement within the PCMLTFA’s Administrative Monetary Penalties Regulations for FINTRAC to provide a physical notification of an AMP in cases where the reporting entity was duly served by secure electronic messaging. Current practice would lead to the reporting entity receiving two copies of AMPs, the first being through secure electronic means, and the second being a physical copy.

The regulatory scenario would allow FINTRAC to notify by secure electronic messaging service documents pertaining to AMPs without having to send an additional copy by registered mail. This would also align with other standard federal practice.

There are no costs associated with the current framework as FINTRAC provides a notice of violation when it has reasonable grounds to believe that a reporting entity has violated a requirement of the Act and its regulations.

Further, this proposal supports the Government of Canada’s Digital Government Strategy by allowing the service of AMPs electronically through secure messaging services.

Enhancing MSB registration

The baseline scenario would continue the existing operational challenge of FINTRAC not receiving sufficient information to effectively administer and supervise MSB registration. Currently, FINTRAC is not provided contact details for the MSB’s beneficial owners, which can make it challenging or impossible to contact these individuals for administrative purposes should the need arise. In addition, MSBs do not provide FINTRAC with a breakdown of the number of agents, mandataries and branches by country. This makes it difficult for FINTRAC to assess the geographic reach and extent of services provided by the MSB, which provides useful insight regarding the risk profile of the MSB.

The regulatory scenario would require MSBs to submit to FINTRAC, as part of the registration process, the telephone numbers and email addresses of the MSB’s beneficial owners, and a breakdown of its number of agents, mandataries and branches by country. This would support FINTRAC’s ability to analyze and detect potential ML/TF activities.

Technical amendments

The baseline scenario would leave a handful of minor issues in the PCMLTFA and its associated Suspicious Transaction Reporting Regulations that were discovered by FINTRAC during its daily operations. These amendments would address inconsistencies in the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) and their associated Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations and help to provide clarification to reporting entities in meeting their regulatory obligations.

The regulatory scenario would clarify some minor sections of the PCMLTFR and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations. There are no new costs associated with the regulatory scenario.

Costs

As a result of these proposed amendments, reporting entities are expected to incur an estimated $20,178,665 (present value [PV]) in compliance costs and $826,705 (PV) in administrative costs for an estimated $21,005,370 (PV) in total costs over a 10-year period (or $2,990,629 annually). Approximately 8 572 reporting entities will be affected, all of them businesses.

A CBA report with more details on the calculation of costs is available upon request.

A cost recovery framework for FINTRAC’s compliance and related activities

To calculate assessment amounts, FINTRAC requires data on the threshold transaction reporting volumes of reporting entities, information it already holds. FINTRAC will also require information on the Canadian assets of individual federally regulated financial institutions (i.e. banks, trust and loan companies, life insurance companies), for determining the level of the base assessment that should be charged; this information is already held by the Office of the Superintendent of Financial Institutions. Consequently, it is anticipated that FINTRAC will not require any information from reporting entities themselves, thus eliminating any administrative costs due to information collection requirements on the private sector. Compliance costs in connection with payment of amounts owed are expected to be negligible as payments can be processed through standard business invoicing. The amount of the assessment fees themselves does not constitute a cost of the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations, as they are non-discretionary and attributable to the enabling legislative amendments, once in force, which will require FINTRAC to recover the costs of administering the PCMLTFA — excepting costs incurred in connection with the production and dissemination of financial intelligence.

Obligations for the armoured car sector

Costs from imposing AML/ATF obligations on the armoured car sector arise from the following requirements:

• Development of a compliance program (total present value [TPV]: $23,661);
• Applying customer due diligence measures (e.g. identity verification and beneficial ownership requirements) [TPV: $3,214];
• Record keeping (e.g. storing client identification records) [TPV: $498,207];
• Transaction reporting (e.g. submit suspicious transaction and terrorist property reports as well as other reports, such as large cash transaction reports to FINTRAC) [TPV: $83,093];
• Proving compliance if subject to audit by FINTRAC (TPV: $9,089).

Assumptions used to estimate these costs originate from the following sources:

• FINTRAC provided an approximate number of MSBs, the number of reports filed by REs in this classification each year and the percentage of MSBs that is audited each year.
• Number of stakeholders (large and small) is based on best available information gained throughout the consultation process. Transporters of currencies and negotiable instruments do not have an industry association and therefore, there is no confirmed membership count.
• Costs to comply with FINTRAC requirements for storing of relevant information is based on stakeholder consultations, adjusted with best available information.
• The time variable (hours) used in the cost equations was based on feedback from previous consultations with stakeholders and adjusted with best available information.

Obligations for mortgage lending entities

Costs from imposing AML/ATF obligations on currently unregulated mortgage lending entities arise from the following requirements:

• Development of a compliance program (TPV: $8,777,243)
• Apply customer due diligence measures (e.g. identity verification and beneficial ownership requirements) (TPV: $1,192,272);
• Transaction reporting (e.g. submit suspicious transaction and terrorist property reports as well as other reports, such as large cash transaction reports to FINTRAC) (TPV: $9,580,300);
• Proving compliance if subject to audit by FINTRAC (TPV: $686,708).

Assumptions used to estimate these costs originate from the following sources:

• FINTRAC provided the number of reports filed by reporting entities in the real estate sector each year and the percentage of entities in this sector that is audited each year.
• Number of stakeholders (large and small) is based on membership directory search of the regional Canadian Mortgage Brokers Associations, as well as best available information gained throughout the consultation process.
• Costs to comply with FINTRAC requirements for storing of relevant information is based on stakeholder consultations, adjusted with best available information.
• The time variable (hours) used in the cost equations was based on feedback from previous consultations with stakeholders and adjusted with best available information.

Strengthening correspondent banking relationships

Costs stem from having to assess the reputation of a foreign financial institution (TPV: $24,036), its supervision (TPV: $24,036) and ML/TF risks of the correspondent banking relationship and ongoing monitoring (TPV: $72,107). The time variable (hours) used in the cost equations was based on feedback from stakeholder consultations and adjusted with best available information.

Increasing cross-border currency reporting penalties

As per TBS/CBA policies, penalties incurred as a result of non-compliance are out of the scope of the cost-benefit analysis. The costs of the increased penalty amounts would fall on persons or entities not in compliance with the proposed Regulations.

The CBSA is responsible for administering the cross-border currency reporting penalties. It expects that the increased penalties will substantially increase the number of administrative appeals and litigation, which will have resource implications for its Recourse Program. The CBSA is reviewing its current program resources dedicated to this area to determine the required resource levels to respond to the increase in volumes.

Streamlining requirements for sending AMPs documents to reporting entities

This proposal will not lead to additional costs for any stakeholders.

Enhancing MSB registration

For enhanced MSB registration requirements, there would be minor costs associated with the amount of additional time MSBs would take to provide the required information when renewing their registration (TPV: $31,387). The time variable (hours) used in the cost equations was based on best available information.

Technical amendments

This proposal will not lead to additional costs for any stakeholders.

Benefits

The benefits of the proposed regulatory changes, while significant, are not monetized due to the lack of available or reliable data to accurately measure the changes to the reputation of Canada’s financial system and the reduction in risk that would result from the implementation of the proposed amendments. In addition, quantification of these benefits would require significant information on both the degree to which these activities are currently occurring, which by their nature are clandestine, and how much the proposed measures would be able to decrease money laundering and terrorist funding activities.

The proposed amendments would strengthen Canada’s AML/ATF Regime and improve its effectiveness by improving customer due diligence standards; closing regulatory gaps; enhancing compliance, monitoring and enforcement efforts; and aligning the Canadian Regime with international standards.

Money laundering and terrorist activity financing have criminal and economic effects and contribute to facilitating and perpetuating criminal activity. Money laundering and terrorist activity financing harm the integrity and stability of the financial sector and the broader economy, and threaten the quality of life of Canadians. Money laundering damages the financial institutions that are critical to economic growth (through internal corruption and reputational damage), causes economic distortions by impairing the legitimate private sector, reduces productivity by diverting resources and encouraging crime and corruption; distorts the economy’s international trade and capital flows (through reputational damage and market distortions) to the detriment of long-term economic development, and reduces tax revenue as it becomes more difficult for municipal, provincial and federal governments to collect revenue from related transactions, which frequently take place in the underground economy.

A strengthened AML/ATF Regime helps to combat money laundering and terrorist activity financing threats while protecting Canadians, the integrity of markets and the global financial system, and increases the investment attractiveness and competitiveness of Canada. The proposed amendments would support the security, stability, utility and efficiency of the financial sector framework by strengthening the Regime and combating financial crime. All Canadians would benefit from a stable, efficient, and competitive financial sector that services and drives economic growth.

Strong AML/ATF policies help deter and detect money laundering and terrorist activity financing offences. The proposed amendments would enhance the quality and scope of FINTRAC disclosures of financial intelligence to law enforcement and disclosure recipients, which would better assist them in detecting and prosecuting more money laundering cases.

The proposed amendments regarding mortgage lending entities and correspondent banking relationships would also improve Canada’s compliance with FATF international standards. Meeting these standards would improve the integrity of the global AML/ATF framework, positively impact Canada’s international reputation, and may lead to regulatory efficiencies with other countries’ AML/ATF regimes, making it easier for Canadian businesses to operate internationally. Furthermore, meeting these standards would help ensure Canada is not flagged as a jurisdiction of concern by the FATF for lack of action to address key AML/ATF deficiencies and ultimately prevent other countries from levying sanctions on Canada. Such reputational, economic and national security impacts cannot be quantified.

• Number of years: 10 (2023–2032)
• Base year for costing: 2021
• Present value base year: 2023
• Discount rate: 7%

Table 1: Monetized impacts
Note: Costs (in thousands). Annual values for years 1, 5 and 10 are undiscounted.

Impacted stakeholder	Description of cost	Year 1	Year 5	Year 10	Total (present value)	Annualized value
Industry	Imposing AML/ATF requirements on the armoured car sector — compliance cost (develop compliance policy, upfront IT changes) and administrative cost (record keeping, transaction reporting, compliance in case of an audit by FINTRAC)	$127	$81	$85	$617	$88
Industry	Imposing AML/ATF requirements on mortgage lending entities — compliance cost (develop compliance policy, upfront IT changes) and administrative cost (transaction reporting, compliance in case of an audit by FINTRAC)	$17,366	$470	$519	$20,236	$2,881
Industry	Strengthening correspondent banking relationships — administrative cost (assessing reputation of foreign financial institution, quality of AML/ATF supervision, AML/ATF risk in the relationship)	$17	$17	$17	$120	$17
Industry	Enhancing MSB registration	$3	$4	$6	$31	$4
All stakeholders	Total costs	$17,514	$572	$626	$21,005	$2,990

Qualitative impacts

A strong and effective AML/ATF Regime acts as a deterrent to crime and therefore improves the safety of Canadians and the integrity of Canada’s financial system. In turn, this increases confidence in Canada’s financial system, making it an attractive place to invest and do business.

• Investors seek investment opportunities in locations that have a relatively low crime environment and that are politically and economically stable, among other factors.
• A strong reputation with regard to an effective AML/ATF Regime helps Canadian financial institutions avoid burdensome regulatory hurdles and additional costs when dealing with their foreign counterparts or doing business overseas.

Sensitivity analysis

Obligations for the armoured car sector and mortgage lending entities

The analysis assumes that it will take 20 hours to complete a new internal policy to ensure compliance with the PCMLTFA and 32 hours to perform setup for transaction reporting. As these two activities are the largest cost contributors, the cost of these amendments is highly sensitive to the time required to complete these activities. For example, if both of these activities actually took 40 hours to complete, the annualized cost of the mortgage lending entities proposal would increase to $4,470,413, and the total cost would increase to $31,398,310. The annualized cost of the armoured car proposal would increase to $92,171, and the total cost would increase to $647,371.

Distributional analysis

A cost recovery framework for FINTRAC’s compliance and related activities

While the requirement to recover costs is a requirement that flows from legislation, and thus excluded from the CBA, the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations do determine how these costs will be distributed among financial institutions and thus the impact is included in the distributional analysis. The introduction of a cost-recovery scheme for FINTRAC will disproportionately impact certain reporting entities based on the criteria they satisfy under the proposed assessment formula. These include reporting entities liable for a base assessment, including all federally regulated banks, trust and loan companies, and life insurance companies, brokers, and agents, who will pay higher assessment amounts in accordance with their Canadian asset values. Similarly, banks who account for a larger share of the threshold transaction reporting to FINTRAC will pay proportionately higher amounts under this criterion. Finally, all other reporting entities who submit the prescribed volume of threshold reports within a fiscal year will pay an assessment amount based on this factor, with entities accounting for larger shares of this reporting being assessed proportionately greater amounts.

Obligations for the armoured car sector

Initial costs may be greater for small stakeholders if their current operational activities are entirely exempt from AML/ATF obligations. For those businesses, it may take greater initial efforts to establish a system to ensure compliance with the new requirements. The Department of Finance recognizes that businesses, irrespective of size, will require time to implement these changes and will therefore provide eight months of transition time (i.e. delay in coming into force) for businesses to comply with the new requirements.

Obligations for mortgage lending entities

Small mortgage lending entities may be disproportionately impacted due to having fewer resources to ensure compliance with the new requirements. The Department of Finance is unable to provide alternative compliance options for small businesses because the proposed amendments to AML/ATF obligations for mortgage lending entities are being made to comply with FATF Standards, which, while not legally binding, Canada is obligated to follow. Furthermore, the proposed Regulations and Canada’s obligations to meet the FATF international standards are non-discretionary in nature, with clear implementation guidelines. The Department of Finance recognizes that businesses, irrespective of size, will require time to implement these changes and will therefore provide eight months of transition time (i.e. delay in coming into force) for businesses to comply with the new requirements.

Strengthening correspondent banking relationships

The largest six domestic banks will be disproportionately impacted because they maintain extensive correspondent banking relationships globally. Foreign subsidiary banks will also be impacted because they tend to maintain a correspondent banking relationship with their foreign parent bank.

Canadian financial institutions have already divested most of their holdings in non-priority regions, such as the Caribbean, in sales to other international or domestic institutions. Should the recommended requirements for risk assessment and ongoing monitoring of correspondent banking relationship be implemented, it is not expected that they will aggravate or accelerate the termination of these relationships beyond what has currently taken place. While it does remain a possibility, there will still remain options for moving money globally.

It is proposed that the coming into force of these amendments would be delayed by eight months to provide transition time for financial institutions to comply with the new requirements.

Increasing cross-border currency reporting penalties

Travelers who are not aware of the Cross-border Currency and Monetary Instruments Reporting Regulations reporting requirements may be disproportionately impacted by this proposal, as they may inadvertently fail to comply and be subject to a penalty. This is mitigated by the ability of border officers to use their discretion to decide whether or not to levy a penalty, and by the notification of these requirements on customs cards as well as the public notice and guidance online.

Enhancing MSB registration

Among the affected MSBs, those with numerous directors, beneficial owners and/or many foreign agents and mandataries will be disproportionately impacted, as they will have to provide the new contact information regarding their directors and beneficial owners, as well as provide their number of agents, mandataries and branches.

There would be a 12-month transition period before the coming into force of this proposal to give sufficient time for FINTRAC to operationalize the changes.

Small business lens

Small business lens summary

It is estimated that 8 440 small businesses would be impacted by this proposal, 6 149 by the new obligations for mortgage lending entities, 15 by the new obligations for the armoured car sector and 2 276 by the enhanced registration requirements for MSBs. The total incremental costs imposed on small businesses are estimated at $20,354,811 (PV), or $2,898,067 annualized average, which is equivalent to $343 annualized per small business impacted.

The Department of Finance is unable to provide alternative compliance options for small businesses because the proposed amendments are intended to close potential openings for the illicit movement of funds. Furthermore, the mortgage lending entities and correspondent banking proposals are non-discretionary in nature due to Canada’s obligations to meet the FATF’s international standards, with clear implementation guidelines. The Department of Finance recognizes that businesses, irrespective of size, will require time to implement these changes and will therefore provide 8 months of transition time (6 months in the case of obligations for the armoured car sector, 12 months for MSB registration changes) [i.e. delay in coming into force] for businesses to comply with the new requirements. While this does not constitute a special consideration for small businesses alone, it should be noted that impacts on businesses have been considered when establishing compliance requirements.

• Number of small businesses impacted: 8 440
• Number of years: 10 (2023–2032)
• Base year for costing: 2021
• Present value base year: 2023
• Discount rate: 7%

Table 2: Compliance costs

Activity	Annualized value	Present value
Development of compliance policies	$1,238,423	$8,698,166
Storage costs — armoured car companies	$39,407	$276,782
Updating client intake forms (IT)	$168,223	$1,181,530
Transaction reporting (IT setup)	$1,345,787	$9,452,244
Total compliance costs	$2,791,841	$19,608,722

Table 3: Administrative costs

Activity	Annualized value	Present value
Transaction reporting — mortgage lending entities	$3,112	$21,856
Cost to undergo examination by FINTRAC — mortgage lending entities	$95,595	$671,421
Transaction reporting — armoured car companies	$2,226	$15,634
Costs to undergo examination by FINTRAC — armoured cars	$924	$6,492
Costs to provide additional information when renewing registration with FINTRAC — MSBs	$4,369	$30,686
Total administrative costs	$106,226	$746,089

Table 4: Total compliance and administrative costs

Totals	Annualized value	Present value
Total cost (all impacted small businesses)	$2,898,067	$20,354,811
Cost per impacted small business	$343	$2,412

One-for-one rule

The Department intends to split this proposal into three separate regulations:

• Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations (FINTRAC cost recovery framework).
• Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations. Proposals under this SOR are estimated to impose an administrative burden of $728,831 on businesses. These Regulations implement non-discretionary obligations and are exempt from the requirement to offset administrative burden under the one-for-one rule.
• Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Proposals under this SOR are estimated to impose an administrative burden of $97,873 on businesses.

All costing assumptions are explained in the “Costs” section of the CBA chapter.

Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations

A cost recovery framework for FINTRAC’s compliance and related activities

The one-for-one rule does not apply as there is no incremental change in the administrative burden on business.

Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing (total administrative costs: $97,873; annualized administrative costs: $13,935)

Obligations for the armoured car sector

The one-for-one rule applies since there is an incremental increase in the administrative burden on business of $9,466 in annualized administrative costs or $526 per business (measured in 2012 Can$ discounted to 2012 as required by the Red Tape Reduction Regulations), and the proposal is considered a burden “in/out” under the rule.

Administrative burden costs are defined as “anything that is necessary to demonstrate compliance with a regulation, including the collecting, processing, reporting and retaining of information and the completing of forms.” In developing the policy proposal, the Department of Finance worked with stakeholders to understand their current processes with the aim of limiting regulatory burdens on the industry. For example, when identifying information recorded/reported, the requirements differ very little from what they already collect as part of their insurance business practices and day-to-day operations (e.g. name, identification, pick-up and drop-off location). These requirements now become more formalized and standardized and should limit increases in administrative burden once the amendments enter into force. Further, the exemptions that have been identified are believed to capture all the low-risk activities while still constituting a notable portion of business to ensure obligations are focused on the subset of activities that are seen as highest risk.

The proposed amendments would impose an incremental administrative burden arising out of the new requirement to report certain types of transactions to FINTRAC, as well as to comply with FINTRAC requirements if chosen for a compliance examination. To the extent companies that undertake another activity in addition to the transportation of funds, such as foreign exchange, they would already have legal and regulatory obligations. The net estimated increase of the administrative burden is therefore greater for smaller, currently unregulated stakeholders. However, this burden will be directly proportional to the size of their business and the corresponding level of business activity on which obligations will be imposed.

Increasing cross-border currency reporting penalties

This proposal would not affect the administrative burden or administrative costs. The costs of the increased penalty amounts would fall on persons or entities not in compliance with the proposed Regulations.

Streamlining requirements for sending AMPs documents to reporting entities

This proposal would not affect the administrative burden or administrative costs. AMP-related documents are only sent to persons or entities not in compliance with the PCMLTFA.

Enhancing MSB registration

The one-for-one rule applies since there is an incremental increase in the administrative burden on business of $4,469 in annualized administrative costs or $1.92 per business (measured in 2012 Can$ discounted to 2012 as required by the Red Tape Reduction Regulations), and the proposal is considered a burden “in/out” under the rule.

This proposal is expected to slightly increase the administrative burden and administrative costs for MSBs as a result of the increased time they will require to collect and record the additional information proposed by this amendment and to submit it to FINTRAC. MSBs are already required to provide FINTRAC with prescribed information when they first apply for registration, and every subsequent two years when they must renew their registration. The additional information proposed by this amendment would be submitted as part of the existing registration and renewal process, meaning MSBs will not face any increased compliance costs to implement new processes.

Technical amendments

This proposal would not affect the administrative burden or administrative costs. Its purpose is to address inconsistencies in the Regulations.

Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

These Regulations implement non-discretionary obligations and are exempt from the requirement to offset administrative burden under the one-for-one rule.

Obligations for mortgage lending entities

It is anticipated that the proposal will result in an increase in administrative costs, which would vary depending on the size of the business and the degree of sophistication of its current reporting systems.

This proposal is non-discretionary, as it is required to bring Canada into full compliance with the FATF Standards, which Canada is required to endorse and implement as a member of the FATF. The specific FATF Standards that this proposal would meet are Recommendations 10, 11, 12, and 20. Recommendation 10 requires financial institutions, which the FATF defines as any natural or legal person who conducts as a business lending (including mortgage credit) for or on behalf of a customer, to apply customer due diligence measures, such as client identification and verification as well as identification of beneficial ownership. Recommendation 11 requires financial institutions to keep all necessary records on transactions (for at least five years) to enable them to comply swiftly with information requests from competent authorities. Recommendation 12 requires financial institutions to apply additional measures for specific customers and activities (i.e. identification of politically exposed persons) and to take reasonable measures to establish the source of wealth and source of funds. Recommendation 20 requires that if a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit.

In addition to setting the international AML/ATF standards, the FATF also monitors countries’ progress in implementing the standards and will publicly list countries that do not implement the standards and have strategic deficiencies in their AML/ATF regime (i.e. the FATF grey list). If Canada does not implement these standards, it could be at risk of being grey-listed, which could have negative economic consequences and cause reputational damage. This proposal is therefore non-discretionary, as it is required for Canada to comply with international obligations.

Strengthening correspondent banking relationships

This proposal implements non-discretionary obligations and is exempt from the requirement to offset administrative burden under the one-for-one rule.

Similar to the proposal for obligations on mortgage lenders, this proposal is non-discretionary, as it is required to bring Canada into full compliance with the FATF Standards, which Canada is required to endorse and implement as a member of the FATF. The specific FATF Standard that this proposal would meet is Recommendation 13, which requires financial institutions engaged in correspondent banking to gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision.

Regulatory cooperation and alignment

Obligations for the armoured car sector

The Department of Finance consulted the United States, the only other known jurisdiction to regulate this sector, to understand its regime, confirm analysis on areas of risk, and the basis upon which the U.S. oversight was developed. This engagement was used to assess any considerations that may or may not be applicable in the Canadian context. The intended outcome of Canada and the United States is the same with a slightly differing approach. While the obligations around customer due diligence, record keeping and reporting are consistent with the obligations in the United States, the circumstances in which the obligations are triggered are slightly different. In the United States, at the time of consultation, when the armoured car company moves currency between a customer and a bank, but does not get involved in the transaction in any other manner (e.g. bundling, foreign exchange), the obligations of record keeping, customer due diligence and threshold/suspicious transaction reporting fall to the bank, whereas in Canada, it will fall on the armoured car company. This difference is reflective of some of the unique aspects of the Canadian regime, but is not anticipated to generate undue burden.

Obligations for mortgage lending entities

The Department of Finance consulted the United States to understand its regime for regulating mortgage lending entities. This engagement was used to assess any considerations for regulations of these entities in Canada. Both regimes share the common goal of addressing ML/TF risks posed by mortgage lending entities. While there may be differences in the business model of mortgage lending entities between the two countries, the purpose and the proposed obligations do not differ significantly.

Strengthening correspondent banking relationships

The Department of Finance aligned the proposed amendments with international standards and best practices with the aim to ensure consistency for financial institutions operating in a global environment.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for the following proposals: a cost recovery framework for FINTRAC’s compliance and related activities, obligations for the armoured car sector, strengthening correspondent banking relationships, streamlining requirements for sending notices of violation to reporting entities, enhancing MSB registration, and technical amendments.

Obligations for mortgage lending entities

It is anticipated that lower-income individuals and newcomers to Canada may be indirectly impacted by the proposal, as these groups tend to receive mortgage loans from lenders that are not federally regulated (e.g. private lenders), as these lenders tend to have higher-risk appetites. This indirect impact was also raised by a few mortgage brokers during the consultation. However, the proposed Regulations are directed at the reporting entities, not consumers. Reporting entities would include small and large corporate entities (i.e. mortgage brokerages, lenders, and administrators) and private lenders, who tend to be very wealthy individuals. The proposed Regulations would complement existing AML/ATF requirements placed on regulated lenders, which ensures a level playing field by requiring all mortgage lenders to require the same information and conduct the same due diligence.

Increasing cross-border currency reporting penalties

This proposal predominantly affects cross-border travellers to/from Canada (both Canadians and foreigners) who choose to travel with $10,000 or more in cash or monetary instruments in their possession, and who fail to declare this fact as required under the PCMLTFA.

Travelers from certain jurisdictions are more likely to be impacted by this proposal, based on the volume of declaration forms completed. According to data from previous years, the top 10 countries listed on incoming cross-border currency declaration forms are (from highest to lowest) Germany, the United States, United Kingdom, Mexico, Switzerland, Hong Kong, France, Singapore, Costa Rica and India. The top 10 countries listed on outgoing cross-border currency declaration forms are (from highest to lowest) Hong Kong, the United States, Switzerland, Bermuda, Mexico, New Zealand, France, Japan and the United Arab Emirates.

This proposal may disproportionally affect travellers who are not aware of the requirement to report, including some who do not speak English or French. This can be mitigated by the fact that the CBSA has the discretion to not impose a penalty.

Implementation, compliance and enforcement

The Department of Finance consulted with FINTRAC on all proposed regulatory amendments to ensure effective implementation.

A cost recovery framework for FINTRAC’s compliance and related activities

The proposed regulatory amendments would come into force on April 1, 2024, following their publication in the Canada Gazette, Part II. This timeline will allow reporting entities that expect to meet the criteria for an assessment time to appropriately plan and budget for any fees owed. This coming into force timeline will also allow FINTRAC sufficient time to prepare its reporting and billing systems so that it can accurately identify total costs borne in connection with administration of the PCMLTFA, and is ready to invoice and recover cost, starting for the 2024–25 fiscal year. Enabling legislative amendments (section 170 of the Budget Implementation Act, 2021, No. 1) would come into force at the same time via order of the Governor in Council.

FINTRAC will administer the assessments scheme, calculating and collecting amounts owed. FINTRAC will publish guidance to set out how the structure of the assessment amounts and how amounts will be calculated to promote transparency to reporting entities and ensure their awareness of their obligations. As per subsection 51.4(2) of the enabling legislation, every assessment and interim assessment constitute a debt due to His Majesty in right of Canada, are immediately payable and may be recovered as a debt in any court of competent jurisdiction. The legislation further specifies that any assessment on a reporting entity is final, conclusive, and binding.

Obligations for the armoured car sector and obligations for mortgage lending entities

The proposed regulatory amendments would come into force six months (armoured cars) and eight months (mortgage lenders) after their publication in the Canada Gazette, Part II. This would ensure that relevant stakeholders have enough time to adjust to the new requirements and update their systems and processes in compliance with their obligations. Stakeholders would be aware of the upcoming amendments, and would have sufficient time to implement the new requirements before the coming into force of the amendments. FINTRAC will be impacted, since the amendments will require the agency to regulate additional reporting entities.

If non-compliance is identified, FINTRAC can impose administrative monetary penalties or take other enforcement actions against the reporting entities.

Upon coming into force of the amendments, FINTRAC will undertake outreach activities, publish specific guidance that sets out how reporting entities should meet their obligations, and work with industry representatives to establish typologies that can help reporting entities gain a better understanding of potential scenarios and appropriate courses of action.

Strengthening correspondent banking relationships

The proposed regulatory amendments would come into force eight months after their publication in the Canada Gazette, Part II. This will ensure that relevant stakeholders have enough time to adjust to the new requirements and update their systems and processes in compliance with their obligations. FINTRAC will enforce compliance with the new obligations. As part of its supervisory activities, FINTRAC provides guidance to reporting entities to promote compliance. FINTRAC can also issue penalties for non-compliance, which in the case of correspondent banking provisions can range from $1 to $1,000 for minor violations, or from $1 to $100,000 for serious violations. FINTRAC’s administrative monetary penalties policy is available on its website.

Increasing cross-border currency reporting penalties

The proposed regulatory amendments would come into force upon registration. The Department of Finance consulted with the CBSA, which is responsible for enforcing these provisions, to prepare for effective implementation. This change will have an impact on various program areas of the CBSA, with a larger impact expected to affect CBSA’s Recourse Program. The Recourse Program is responsible for conducting administrative appeals of enforcement activities and penalties issued under CBSA program legislation (e.g. the Customs Act, Part 2 of the PCMLTFA, other statutes), and managing the subsequent litigation before the Federal Court. Over the past six years, the CBSA has issued approximately 8 669 cross-border currency reporting penalties. The average appeal rate is 8%, and approximately 88% of all issued penalties are maintained, with the rest being overturned, amended to a lower level, or otherwise administratively closed. The CBSA expects that the increased penalties will substantially increase the number of administrative appeals and litigation, which will have resource implications for the program. The CBSA is reviewing its current program resources dedicated to this area to determine the required resource levels to respond to the increase in volumes.

The Canada Border Services Agency (CBSA) will enforce compliance with the increased penalties. To promote compliance, information on the cross-border currency reporting program is available on the CBSA website.

Streamlining requirements for sending AMPs documents to reporting entities and technical amendments

The proposed regulatory amendments would come into force upon registration.

Enhance MSB registration

The proposed regulatory amendments would come into force 12 months after their publication in the Canada Gazette, Part II. To prepare for implementation, FINTRAC will update its guidance and registration forms on its website to ensure that they include the new information. This will help MSBs comply with the new obligations.

Contact

Director General
Financial Crimes and Security Division
Financial Sector Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Email: fcs-scf@fin.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council proposes to make the annexed Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act under subsections 73(1)^{footnote a} and 73.1(1)^{footnote b} of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ^{footnote c}.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Julien Brazeau, Associate Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5 (email: fcs-scf@fin.gc.ca).

Ottawa, February 9, 2023

Wendy Nixon
Assistant Clerk of the Privy Council

Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations

1 The portion of paragraph 13(a) of the English version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations^{footnote 1} before subparagraph (i) is replaced by the following:

• (a) the following information concerning any person or entity that is involved in the transaction, attempted transaction, importation or exportation or any person or entity acting on their behalf:

2 Item 13 of Part B of Schedule 1 to the Regulations is replaced by the following:

• 13 Name of every person or entity that is source of funds or virtual currency involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

3 Paragraph 14(e) of Part B of Schedule 1 to the Regulations is replaced by the following:

• (e) name of every person or entity involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

4 Part C of Schedule 1 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

5 Item 11 of Part D of Schedule 2 to the Regulations is replaced by the following:

• 11* Name of every person or entity that is source of funds or virtual currency involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

6 Paragraph 12(e) of Part D of Schedule 2 to the Regulations is replaced by the following:

• (e) name of every person or entity involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

7 Part E of Schedule 2 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

8 The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations ^{footnote 2} are amended by adding the following after section 35:

35.1 (1) A money services business or foreign money services business is not required to report the transaction and information under paragraphs 30(1)(a) and (f) and 33(1)(a) and (f) or to keep the records referred to in sections 31, 32, 34 and 35 if the cash or virtual currency is

• (a) received only for the purpose of transport to or from a person or entity referred to in section 5 of the Act and at the request of such a person or entity; and
• (b) of an amount that is not declared to the money services business or foreign money services business and that they cannot readily determine.

(2) A money services business or foreign money services business is not required to report the transaction and information under paragraphs 30(1)(a) and (f) and 33(1)(a) and (f) or to keep the records referred to in sections 34 and 35 if the cash or virtual currency is received only for the purpose of transport between

• (a) the Bank of Canada and a person or entity in Canada; or
• (b) two places of business of the same person or entity referred to in section 5 of the Act, other than transportation that is carried out at the request of another person or entity.

9 Section 36 of the Regulations is amended by adding the following after paragraph (f):

• (f.1) subject to paragraphs (f.2) and (f.3), if, at the request of a person or entity, they transport $1,000 or more in cash or virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2), or $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity, a record of
  • (i) the date and location of collection and delivery,
  • (ii) the type and amount of cash, virtual currency or negotiable instruments transported,
  • (iii) the name and address of the person or entity that made the request, the nature of their principal business or their occupation and, in the case of a person, their date of birth,
  • (iv) the name and address, if known, of each beneficiary,
  • (v) the number of every account that is affected by the transport, the type of account and the name of each account holder,
  • (vi) every reference number that is connected to the transport and has a function equivalent to that of an account number, and
  • (vii) the method of remittance;
• (f.2) subject to paragraph (f.3), if, at the request of a person or entity, they transport cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity, in an amount that has not been declared and that they cannot readily determine, a record of
  • (i) the date and location of collection and delivery,
  • (ii) the type, if known, of cash, virtual currency or negotiable instruments transported,
  • (iii) the name, address and telephone number of the person or entity that made the request, the nature of their principal business or their occupation and, in the case of a person, their date of birth,
  • (iv) the name and address, if known, of each beneficiary,
  • (v) the number of every account that is affected by the transport, the type of account and the name of each account holder,
  • (vi) every reference number that is connected to the transport and has a function equivalent to that of an account number,
  • (vii) the reason why the amount was not declared, and
  • (viii) the method of remittance;
• (f.3) if, at the request of an entity referred to in paragraph 5(a) or (b) of the Act, they transport cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity, a record of
  • (i) the date and location of collection and delivery,
  • (ii) the type and amount, if known, of cash, virtual currency or negotiable instruments transported, and
  • (iii) the name, address and telephone number of the entity that made the request;

10 Paragraph 74(2)(f) of the Regulations is replaced by the following:

• (f) if the casino receives an amount of $3,000 or more from a person or entity, a receipt of funds record in respect of that amount, unless that amount is received from a financial entity or public body or from a person who is acting on behalf of a client that is a financial entity or public body.

11 (1) Subsection 95(1) of the Regulations is amended by adding the following after paragraph (c):

• (c.1) requests that they transport an amount of $1,000 or more in cash or virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or an amount of $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity;

(2) Paragraph 95(3)(a) of the Regulations is replaced by the following:

• (a) that requests that they transport an amount of $1,000 or more in cash or virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or an amount of $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity;
• (a.1) in respect of which they are required to keep an information record under paragraph 36.1(a);

(3) Paragraph 95(4)(a) of the Regulations is replaced by the following:

• (a) that requests that they transport an amount of $1,000 or more in cash or virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or an amount of $3,000 or more in money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity;
• (a.1) in respect of which they are required to keep an information record under paragraph 36.1(a);

12 Subsection 105(7) of the Regulations is amended by adding the following after paragraph (h):

• (h.01) in the case referred to in paragraph 95(1)(c.1), before the first transport of cash, virtual currency or negotiable instruments is carried out;

13 Paragraph 109(4)(h.1) of the Regulations is replaced by the following:

• (h.01) in the case referred to in paragraph 95(3)(a), before the first transport of cash, virtual currency or negotiable instruments is carried out;
• (h.1) in the case referred to in paragraph 95(3)(a.1), at the time the information record is created;

14 Paragraph 111(1)(b) of the Regulations is replaced by the following:

• (b) within the applicable time referred to in one of paragraphs 109(4)(a) to (i), they are satisfied that the corporation exists and that every person who deals with them on behalf of the corporation is authorized by it to do so; and

15 Paragraph 112(3)(h.1) of the Regulations is replaced by the following:

• (h.01) in the case referred to in paragraph 95(4)(a), before the first transport of cash, virtual currency or negotiable instruments is carried out;
• (h.1) in the case referred to in paragraph 95(4)(a.1), at the time the information record is created;

16 (1) Subsection 120(1) of the Regulations is amended by adding the following after paragraph (b):

• (b.1) a person who requests that the money services business transport an amount of $100,000 or more in cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity;
• (b.2) a person who requests that the money services business transport cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity, in an amount that is not declared and that the money services business cannot readily determine;

(2) Subsection 120(2) of the Regulations is amended by adding the following after paragraph (b):

• (b.1) a person who requests that the foreign money services business transport an amount of $100,000 or more in cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity;
• (b.2) a person who requests that the foreign money services business transport cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or other similar negotiable instruments, except for cheques payable to a named person or entity, in an amount that is not declared and that the foreign money services business cannot readily determine;

17 The portion of subsection 122(1) of the Regulations before paragraph (a) is replaced by the following:

122 (1) A financial entity, life insurance company, life insurance broker or agent, money services business, foreign money services business or casino that determines under subparagraph 116(1)(b)(i) or (iii), paragraph 117(a) or 120(1)(a) to (b.2) or (2)(a) to (b.2) or subsection 120.2(3) that a person is a politically exposed foreign person or a family member — referred to in subsection 2(1) — of, or a person who is closely associated with, such a person shall

18 Section 134 of the Regulations is amended by adding the following after subsection (3):

(4) Despite subsection (2), a person or entity that receives the cash or virtual currency from a person or entity referred to in subparagraph 5(h)(ii.1) or (h.1)(ii.1) of the Act and determines that the person or entity is acting on behalf of a third party shall, when they receive the cash or virtual currency, obtain the information referred to in subsection (2) from that person or entity and shall keep a record of that information.

19 The Regulations are amended by adding the following after section 151:

Transportation of Cash, Virtual Currency or Negotiable Instruments

151.1 (1) Paragraphs 4.1(d) and (e) and section 37 do not apply in respect of an agreement that applies only to the transportation of

• (a) cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or negotiable instruments between
  • (i) the Bank of Canada and a person or entity in Canada,
  • (ii) two financial entities, or
  • (iii) two places of business of the same person or entity referred to in section 5 of the Act, other than transportation that is carried out at the request of another person or entity; or
• (b) coins of the currency of Canada for the purposes of delivery in accordance with subsection 7(1) of the Royal Canadian Mint Act.

(2) Paragraphs 36(f.1) to (f.3), 95(1)(c.1), (3)(a) and (4)(a) and 120(1)(b.1) do not apply in respect of the transportation of

• (a) cash, virtual currency within the meaning of paragraph (b) of the definition of that term in subsection 1(2) or money orders, traveller’s cheques or negotiable instruments between
  • (i) the Bank of Canada and a person or entity in Canada,
  • (ii) two financial entities, or
  • (iii) two places of business of the same person or entity referred to in section 5 of the Act, other than transportation that is carried out at the request of another person or entity; or
• (b) coins of the currency of Canada for the purposes of delivery in accordance with subsection 7(1) of the Royal Canadian Mint Act.

20 Item 9 of Part B of Schedule 1 to the Regulations is replaced by the following:

• 9 Name of every person or entity that is source of cash involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

21 Paragraph 10(d) of Part B of Schedule 1 to the Regulations is replaced by the following:

• (d) name of every person or entity that is involved in remittance and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

22 Part C of Schedule 1 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

23 Item 10 of Part A of Schedule 2 to the Regulations is replaced by the following:

• 10 Name of every person or entity that is source of funds involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

24 Paragraph 11(d) of Part A of Schedule 2 to the Regulations is replaced by the following:

• (d) name of every person or entity involved in remittance and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

25 Part B of Schedule 2 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

26 Item 10 of Part A of Schedule 3 to the Regulations is replaced by the following:

• 10 If obtained in ordinary course of business, name of every person or entity that is source of funds involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

27 Paragraph 11(d) of Part A of Schedule 3 to the Regulations is replaced by the following:

• (d) name of every person or entity involved in remittance and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

28 Part B of Schedule 3 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

29 Item 9 of Part B of Schedule 4 to the Regulations is replaced by the following:

• 9 If obtained in the ordinary course of business, name of every person or entity that is source of virtual currency involved and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

30 Paragraph 10(d) of Part B of Schedule 4 to the Regulations is replaced by the following:

• (d) name of every person or entity involved in remittance and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

31 Part C of Schedule 4 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

32 Item 7 of Part B of Schedule 6 to the Regulations is replaced by the following:

• 7* Name of every person or entity involved in disbursement and their account number or policy number and name of the person or entity with which the account or policy is held or, if no account number or policy number, identifying number and name of the person or entity that issued it

33 Part C of Schedule 6 to the Regulations is amended by adding the following after item 1:

• 1.1* Name of person or entity with which the account is held or of person or entity that issued the reference number

Cross-border Currency and Monetary Instruments Reporting Regulations

34 (1) The portion of section 18 of the Cross-border Currency and Monetary Instruments Reporting Regulations ^{footnote 3} before subparagraph (a)(i) is replaced by the following:

18 For the purposes of subsection 18(2) of the Act, the prescribed amount of the penalty is equal to

• (a) 5% of the value of the seized currency or monetary instruments, up to a maximum of $2,500, in the case of a person or entity who

(2) The portion of paragraph 18(b) of the Regulations before subparagraph (i) is replaced by the following:

• (b) 25% of the value of the seized currency or monetary instruments, in the case of a person or entity who

(3) Subparagraphs 18(b)(i) and (ii) of the French version of the Regulations are replaced by the following:

• (i) a dissimulé les espèces ou effets, autrement qu’en se servant de faux compartiments dans un moyen de transport, ou a fait de fausses déclarations relativement aux espèces ou effets,
• (ii) a fait l’objet d’une saisie antérieure en vertu de la Loi pour une raison autre que celle d’avoir dissimulé des espèces ou effets ou d’avoir fait de fausses déclarations relativement à des espèces ou effets;

(4) The portion of paragraph 18(c) of the Regulations before subparagraph (i) is replaced by the following:

• (c) 50% of the value of the seized currency or monetary instruments, in the case of a person or entity who

(5) Subparagraphs 18(c)(i) and (ii) of the French version of the Regulations are replaced by the following:

• (i) a dissimulé les espèces ou effets en se servant de faux compartiments dans un moyen de transport,
• (ii) a fait l’objet d’une saisie antérieure en vertu de la Loi pour avoir dissimulé des espèces ou effets ou pour avoir fait de fausses déclarations relativement à des espèces ou effets.

Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations

35 Paragraph 7(a) of Part B of Schedule 1 to the Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations ^{footnote 4} is replaced by the following:

(a) name, telephone number, email address, date of birth and country and political subdivision or territory of birth and of residence of its chief executive officer, its president, each of its directors and every person who owns or controls, directly or indirectly, 20% or more of its shares

36 Paragraph 8(a) of Part B of Schedule 1 to the Regulations is replaced by the following:

(a) name, telephone number, email address, date of birth and country and political subdivision or territory of birth and of residence of its chief executive officer, its president, each of its directors and every person who owns or controls, directly or indirectly, 20% or more of the entity

37 Item 13 of Part B of Schedule 1 to the French version of the Regulations is replaced by the following:

13 Mention indiquant si un service visé à l’article 8 de la partie A est fourni, ou une activité visée à cet article est exercée, dans une maison d’habitation

38 Item 3 of Part C of Schedule 1 to the Regulations is replaced by the following:

3 Every service referred to in item 8 of Part A that is provided, or activity referred to in that item that is carried out, by agent or mandatary or branch

39 Part C of Schedule 1 to the Regulations is amended by adding the following after item 4:

5 For each country in which agents, mandataries or branches provide services, or carry out activities, referred to in item 8 of Part A, the number of such agents, mandataries and branches

Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations

40 Subsection 7(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations ^{footnote 5} is repealed.

41 Part 2 of the schedule to the Regulations is amended by adding the following after item 174:

Item	Column 1 Provision of Act	Column 2 Provision of Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations	Column 3 Classification of Violation
174.1	6	134(4)	Minor

Transitional Provision

42 Section 18 of the Cross-border Currency and Monetary Instruments Reporting Regulations, as it read immediately before the coming into force of section 34 of these Regulations, continues to apply in respect of currency or monetary instruments seized before the coming into force of that section 34.

Coming into Force

43 (1) Subject to subsections (2) to (4), these Regulations come into force on the day on which they are registered.

(2) Sections 8 to 19 and 41 come into force on the day on which section 159 of the Budget Implementation Act, 2021, No. 1, chapter 23 of the Statutes of Canada, 2021, comes into force, but if these Regulations are registered after that day, sections 8 to 19 and 41 come into force on the day on which these Regulations are registered.

(3) Sections 2 to 7 and 20 to 34 come into force on the day that, in the sixth month after the month in which these Regulations are published in the Canada Gazette, Part II, has the same calendar number as the day on which they are published or, if that sixth month has no day with that number, the last day of that sixth month.

(4) Sections 35 to 39 come into force on the first anniversary of the day on which these Regulations are published in the Canada Gazette, Part II.

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