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FINTRAC Compliance and Money Service Businesses: Could your business be at risk? - Megan D. Wallace

 

August 11, 2011

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has the authority to regulate a business that falls into the broad category of money services businesses.

According to FINTRAC, a money services business (MSB) is an individual or entity that engages in any of the following activities:  foreign exchange dealing, remitting or transmitting funds by any means or through any individual, entity or electronic funds transfer network, or issuing or redeeming money orders, traveller's cheques or other negotiable instruments.

While most businesses are perhaps aware that activities such as foreign exchange dealing are subject to regulation, many may be unaware that they could be subject to regulation by FINTRAC if they are engaging in the remitting of transmitting of funds for their clients.  Both the concepts of remitting or transmitting funds and their application to the activities of a business are defined extremely broadly.  The purpose of the PCMLTA is the deterrence and detection of money laundering and terrorist financing activities and it is therefore drafted and applied so as to include as many businesses and transactions as possible.

The concern for business people who may be engaged in operating a money services business is two-fold.  Firstly, you need to determine if your business is required to be registered with FINTRAC under the PCMLTFA.  Secondly, once registered you need to determine the nature of your obligations and implement a strategy to meet those obligations.

MSBs must meet very specific requirements as to record keeping, client verification, reporting of suspicious transactions and the training of employees   - all of which can be subject to review by FINTRAC.  Additionally, MSBs are required to have a compliance policy which documents how the above requirements are being addressed, including how the employees of the business are educated about those requirements.

The penalties for non-compliance with the PCMLTFA can be quite serious – both financially and via the potential for criminal charges.  Failure to register with FINTRAC if required to do so can lead to criminal charges with a possible penalty of five years in prison, a $500,000 fine or both.   Criminal charges can also result when a registered MSB fails to comply with the provisions of the PCMLTFA.

Additionally, FINTRAC has the power to levy administrative monetary penalties for violations of the PCMLTFA   – and the regulations currently contain over 180 different violations.  These administrative monetary penalties can be up to an amount of $500,000.00 per violation.

Sound scary?  It doesn’t have to be – compliance with the PCMLTFA and FINTRAC’s requirements is perfectly manageable by putting the appropriate procedures and policies in place in your business.  The first step is figuring out whether you are required to be registered – a good rule of thumb is if you are asking yourself whether you are required to register you should seek advice to be sure.  If you are required to be registered, drafting a compliance policy is a good way to begin to determine, understand and comply with your obligations under the PCMLTFA.

[This is intended as a summary of some of the requirements of the PCMLTFA.  For more specific information and legal advice on this topic, including registration and compliance requirements, or for assistance drafting a compliance policy please contact Megan Wallace at 613-566-2857.]