Order Fixing January 1, 2024 as the Day on Which Sections 164, 165 and 170 of the Budget Implementation Act, 2021, No. 1 Come into Force: SI/2023-59

Canada Gazette, Part II, Volume 157, Number 21

Registration
SI/2023-59 October 11, 2023

BUDGET IMPLEMENTATION ACT, 2021, NO. 1

Order Fixing January 1, 2024 as the Day on Which Sections 164, 165 and 170 of the Budget Implementation Act, 2021, No. 1 Come into Force

P.C. 2023-907 September 25, 2023

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, under subsection 176(2) of the Budget Implementation Act, 2021, No. 1, chapter 23 of the Statutes of Canada, 2021, fixes January 1, 2024 as the day on which sections 164, 165 and 170 of that Act come into force.

EXPLANATORY NOTE

(This note is not part of the orders.)

Proposal

The first Order, pursuant to subsection 176(1) of the Budget Implementation Act, 2021, No. 1 (BIA 2021, No. 1), chapter 23 of the Statutes of Canada, 2021, fixes July 1, 2024, as the day on which section 159 of BIA 2021, No. 1 comes into force.

The second Order, pursuant to subsection 176(2) of BIA 2021, No. 1, fixes January 1, 2024, as the day on which sections 164, 165 and 170 of BIA 2021, No. 1 come into force.

Objective

The objective of the first Order is to combat the potential misuse of the armoured car sector for money laundering and terrorist financing (ML/TF). The Order will ensure that those who transport currency or money orders, travellers’ cheques or other similar negotiable instruments (except for cheques payable to a named person or entity) become reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). It will enable the determination of the underlying client, parties to a transaction and origin of funds and mitigate high inherent ML/TF risks identified with funds handled by armoured car companies, including the challenges in reconciling and identifying the origin of funds. It will also support the Government of Canada’s efforts to detect, disrupt and prosecute more money laundering cases.

The objective of the second Order is to allow the Financial Transactions and Reporting Centre of Canada (FINTRAC), currently funded through appropriations, to enforce a cost-recovery scheme for their compliance activities from reporting entities. This provides FINTRAC with a stable long-term funding solution that allows the agency to continue delivering a robust and risk-based compliance program and remain flexible in light of evolving regulatory requirements while minimizing future resource pressures on taxpayers.

Background

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 Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) Regime (the 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:

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 thirteen 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 to address these complex and evolving threats, including the Financial Action Task Force (FATF) and associated regional bodies, the Egmont Group of Financial Intelligence Units, and Five Eyes Partners (intelligence alliance between Canada and the United States, United Kingdom, New Zealand and Australia).

Proceeds of Crime (Money Laundering) and Terrorism Financing Act

The PCMLTFA, first implemented in 2000, is a key statute in Canada’s AML/ATF framework. 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.

Inclusion of armoured cars

Armoured car companies provide two main categories of services: cash logistics and cash management. These can include secure storage/transportation of cash; electronic funds transfer (EFT) services; automated teller machine (ATM) services; foreign exchange dealing; cash shipment and more.

Two previous reviews of the Regime highlighted the money laundering and terrorist financing risks that armoured car companies pose in the Canadian Regime. The first of these was the 2018 Parliamentary Review of the PCMLTFA by the House of Commons Standing Committee on Finance. The Committee’s report, titled Confronting Money Laundering and Terrorist Financing: Moving Canada Forward, noted that the activities of armoured car companies can obscure the origin of their clients’ funds and that other jurisdictions, including the United States, regulate this sector for AML/ATF purposes. The Committee also heard testimony from the Foundation for Defense of Democracies that armoured cars are one of the main ways in which drug cartels have gotten money from Mexico to the United States and that Canada should include armoured cars in its AML/ATF regime. For these reasons, the Committee recommended that armoured car companies in Canada be subject to the Regime.

The second review was the Updated Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada (National Inherent Risks Assessment [NIRA]), published in 2023. The NIRA pulled experts from across Canada’s AML/ATF regime, including law enforcement, intelligence agencies, policy experts, to assess the money laundering and terrorist financing threats and inherent vulnerabilities of sectors and products. Experts agreed that armoured car companies pose a high level of inherent risk of being used for money laundering or terrorist financing activities.

The armoured car sector was identified as a sector highly vulnerable to ML/TF. They serve a mix of low (e.g. financial institutions) and high risk (e.g. cash intensive businesses) clientele, only some of whom are regulated by the PCMLTFA. The ability for the funds collected by this sector to be pooled in their accounts, and subsequently wired to customer accounts, makes reconciliation and identification of the origin of funds challenging and allows for a degree of anonymity in transactions. The integration of this sector into Canada’s AML/ATF regime can mitigate a key ML/TF vulnerability.

While legislative amendments in BIA 2021, No. 1 designated businesses in the armoured car sector as reporting entities under the PCMLTFA, the obligation to establish a compliance program, due diligence measures, record keeping and reporting obligations are prescribed by regulations. As a result, amendments to regulations are needed to implement these obligations. Ultimately, being able to determine the underlying client, parties to a transaction and origin of funds supports the Government of Canada’s efforts to identify, investigate and prosecute money laundering.

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, reporting of suspicious transactions and registration) and Part 1.1 (requirement to follow ministerial directives) of the PCMLTFA and associated regulations; and (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 terrorism financing. As of the 2022–2023 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.

Implications

The first Order will consider all armoured car companies operating in Canada as reporting entities under PCMLTFA as of July 1, 2024. In doing so it will strengthen Canada’s AML/ATF regime by addressing a gap identified in the 2018 Parliamentary Review of the PCMLTFA and mitigating the high inherent ML/TF risk of the sector by requiring the sector to have a compliance program, apply due diligence measures, and fulfill record keeping and reporting obligations. The corresponding regulatory amendments in the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations outline the requirements for armoured car companies. FINTRAC has been allocated resources in advance of armoured car companies becoming reporting entities so that they are prepared for when this legislative amendment and its associated regulations come into force. FINTRAC received dedicated funding of $4.6 million in Budget 2021 for their supervision of the armoured car sector, and received $89.9 million in Budget 2022 to help with their supervision of reporting entities generally. FINTRAC has confirmed they are ready to implement by July 2024.

The second Order empowers FINTRAC to advance amounts from the Consolidated Revenue Fund for the defrayment of its costs of operation, ascertain prescribed expenses to be collected from prescribed individuals, and assess and levy binding assessments from prescribed persons or entities for their compliance activities, and it makes a small technical amendment to the definition of “assessments,” respectively. This legislation will support a more effective AML/ATF regime by ensuring stable funding for FINTRAC. The associated regulatory amendments in Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations outline the specific requirements under the legislative amendments (i.e. how FINTRAC’s operations are funded, bring additional business sectors within the scope FINTRAC’s regulatory supervision for AML/ATF purposes, and make other changes to compliance requirements for certain sectors and penalties for non-compliance). 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. FINTRAC’s financial intelligence activities would continue to be funded through appropriations.

FINTRAC has guidance material online on how reporting entities should meet their obligations and upon coming into force of the amendments, FINTRAC will undertake outreach activities and respond to any specific questions and/or policy interpretations on a case-by-case basis. FINTRAC will also work with industry representatives to establish typologies which can help reporting entities gain a better understanding of potential scenarios and appropriate courses of action. FINTRAC will be ready for their cost-recovery regime to be in force for fiscal year 2024–2025. This will impact prescribed entities identified in the formula outlined in the regulations by requiring them to pay an assessment fee to FINTRAC. These prescribed entities are every bank to which the Bank Act applies and every authorized foreign bank as defined in section 2 of the Bank Act; every life company or foreign life company to which the Insurance Companies Act applies; every company to which the Trust and Loan Companies Act applies; and every person or entity, if not already captured in the definition who submits 500 or more required reports. FINTRAC will continue to work with industry through ongoing discussions and to answer any questions related to the scheme.

Consultation

On the first Order, the Department of Finance first engaged on expanding Canada’s AML/ATF framework to include the armoured car sector in 2018, in a public discussion paper for the Parliamentary Review of the PCMLTFA (which generated no feedback from the sector). Subsequently, the Standing Committee on Finance recommended that the armoured car sector be subject to AML/ATF obligations. While efforts were made to engage the sector prior to the Budget announcement, consultations started in earnest after the announcement in Budget 2021, and subsequent enabling provisions were introduced in BIA 2021, No. 1 the Department of Finance reached out to armoured car companies directly to notify them of the intention to incorporate this sector into the PCMLTFA and its associated regulations. The Department of Finance used these engagements to outline PCMLTFA obligations and provide an opportunity for enterprises in this sector to comment on anticipated regulatory measures. Overall, interest from industry increased once BIA 2021, No. 1 received royal assent.

On the second Order, the Department of Finance and FINTRAC engaged with reporting entities, including banks, life insurance companies, trust and loan companies and other reporting entities after Budget 2021 was announced, through various existing forums and through direct engagement between officials and industry.

In relation to the associated regulations, the Department of Finance received comments through the Online Regulatory Consultative System, and directly from certain reporting entities. The Department received 27 submissions on the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 3 submissions on the Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations, and 3 submissions on the 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.

Stakeholders expressed support for strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing framework. Some stakeholders expressed concerns with respect to the application of new obligations for mortgage lending entities, implementation of the cost-recovery formula, the coming into force dates, administrative burden. In response, the Department of Finance, simplified the coming into force dates for reporting entities by streamlined the coming into force date for the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the 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, so that these amendments to the PCMLTFA and its associated regulations fall on July 1, 2024, as opposed to various dates throughout 2024, simplifying the burden for all reporting entities.

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