FINTRAC Policy Interpretations

Beneficial Ownership

Settlor of a trust

Question:

A request has been made for FINTRAC's position regarding information on directors or partners or on persons who own or control 25 per cent or more of a corporation or other entity. More specifically, under subsection 11.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), it was asked who is the true settlor and who is a settlor within the meaning of the PCMLTFA.

Answer:

In accordance with subsection 11.1(1) of the PCMLTFR, "every securities dealer that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity . . . shall, at the time the existence of the entity is confirmed, obtain the following information:
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(d) in all cases, information establishing the ownership, control and structure of the entity".

Although neither the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) nor its associated Regulations define "settlor" ("constituant" in French), this term must be understood as meaning a person or entity that lends or transfers, either directly or indirectly, property in the trust.

In this regard, you have asked whether a person who gives a $20 bill is considered as a settlor within the meaning of the PCMLTFA. The answer to your question is yes, a person or entity that contributes, upon opening a trust account, to a loan or that transfers property, either directly or indirectly, is considered as being a settlor of the trust, and the information of that person or entity, such as names and addresses, must be obtained. 

You have also provided the following definition, namely, that a contributor "means an economic contributor that has transferred funds in the trust", and you have asked whether this act constitutes the act of a settlor. According to our understanding of what a settlor is, it would appear that a contributor making the initial transfer of funds, directly or indirectly, upon opening a trust account corresponds to what FINTRAC considers as a settlor. Therefore, the contributor's information (name and address) must be obtained in accordance with paragraph 11.1(1)(b) of the PCMLTFR. 

Date answered: 2017-02-10

PI Number: PI-7664

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: Beneficial ownership requirements

Regulations: 11.1(1)

Reasonable measures to update beneficial ownership information

Question:

How “aggressive” does the reporting entity have to be in their attempts to determine whether the information is up-to-date or not?

Answer:

While neither the PCMLTFA nor the PCMLTFR specifies the measures to be taken, in our Guidelines we do indicate the following:

“According to your compliance regime's assessment of risk, in all situations, you have to keep beneficial ownership information up to date. Measures to keep beneficial ownership information up to date include those explained at the beginning of section 6 that are applicable at account opening.

The frequency with which beneficial ownership information is to be kept up to date will vary depending on your risk assessment of your client. As part of your ongoing monitoring obligations, you have to keep all beneficial ownership information up to date. For high-risk clients, you must update beneficial ownership information more frequently and perform more frequent monitoring, as well as adopt any other appropriate enhanced monitoring measures (see examples in section 5).

At the beginning of section 6, we say “In this context, reasonable measures to confirm the accuracy of beneficial ownership information would include asking the client to provide documentation. You can rely on the information provided by clients, but you should use discernment when determining if the documentation is appropriate. Documents and references that you obtain to confirm the information (such as the website where you found the information) have to be kept in your records.”

All this to say, reporting entities are required to do something, as part of their ongoing monitoring, to determine whether or not the information is up-to-date for low, medium and high-risk clients.

Date answered: 2016-03-02

PI Number: PI-6401

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Beneficial ownership requirements for accounts opened before 2008

Question:

Could you please confirm what the expectation is for confirming beneficial ownership with respect to an account that was opened before 2008, when the requirement first came into force?

Answer:

Under subsection 11.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every reporting entities required to confirm the existence of an entity in accordance with these Regulations must, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.

Reporting entities must also take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1) of the PCMLTFR (subsection 11.1(2) of the PCMLTFR), and keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information (subsection 11.1(3) of the PCMLTFR).

The Regulations which came into effect on February 1, 2014 are not retroactive. However, under subsection 1(2) of the PCMLTFR, a reporting entity has a business relationship with a client who holds one or more accounts with that entity. Therefore, all accounts held prior to that date are subject to the obligation related to business relationships, including ongoing monitoring. Under subsection 1(2), ongoing monitoring is undertaken to keep client identification and the information referred to in sections 11.1 and 52.1 up to date. If, under the requirements included in section 11.1, a reporting entity has gathered information which existed before February 1, 2014, that is the information that must be kept up to date. However, since the requirement that existed prior to February 1, 2014 referred to reasonable measures to obtain and record information on beneficial ownership, if no such information was obtained, it cannot be kept up to date. The reporting entity would not be required to make the necessary efforts to obtain information on beneficial ownership now for accounts that existed prior to February 1, 2014.

Date answered: 2015-08-24

PI Number: PI-6349

Activity Sector(s): Financial entities, Life insurance, Money services businesses, Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 1(2), 11.1

Total ownership of businesses up to 100%

Question:

Reporting entities are required to record the names and addresses of all individuals who directly or indirectly own or control 25% or more of the entity/shares of the corporation. Moreover, is the requirement to also record "total" ownership of corporations & entities up to 100% - record ownership of all percentages of ownership until 100% is accounted for (i.e. individuals/entities/organizations with ownership of less than 25%)?

Answer:

Pursuant to subsection 11.1(1) of the PCMLTFR, every financial entity or securities dealer that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, “every life insurance company, life insurance broker or agent or legal counsel or legal firm that is required to confirm the existence of an entity in accordance with these Regulations and every money services business that is required to confirm the existence of an entity in accordance with these Regulations when it enters into an ongoing electronic funds transfer, fund remittance or foreign exchange service agreement with that entity, or a service agreement for the issuance or redemption of money orders, traveller’s cheques or other similar negotiable instruments, shall, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.”

Subsection 11.1(2) of the PCMLTFR further states that reasonable measures must be taken to confirm the accuracy of the information obtained in subsection 11.1(1) and if the information cannot be obtained or confirmed subsection 11.1(4) of the PCMLTFR states the RE must take reasonable measure to ascertain the identity of the most senior managing officer of the entity and treat the entity as high risk.

As a result, while information regarding the ownership, control, and structure of an entity is required, we cannot ask a reporting entity to provide ownership information totaling 100% because this may not always be possible (e.g. in cases where a corporation has several hundred or thousand shareholders). Additionally, it is not specifically indicated in this paragraph that actual names of the owners are required. Therefore, a reporting entity may fulfil the requirement at paragraph 11.1(1)(d) by obtaining general information regarding the ownership of an entity, which may or may not include the names of the owners with a breakdown of percentages owned, and confirming the information obtained as per subsection 11.1(4). As per subsection 11.1(4) of the PCMLTFR, in the event this information cannot be obtained or confirmed, the reporting entity must take reasonable measures to ascertain the identity of the most senior managing officer and treat the organization or entity as high risk.

Date answered: 2015-08-18

PI Number: PI-6345

Activity Sector(s): Accountants, British Columbia notaries, Casinos, Dealers in precious metals and stones, Financial entities, Life insurance, Money services businesses, Real estate, Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 1(2), 11.1

11.1(6) and Group Plan Accounts

Question:

An investment dealer provides trading services for employees that have participated in employer-sponsored “employee share purchase plans”. The investment dealer holds accounts for issuer corporations who sponsor these employee share purchase plans. All issuers are traded on Canadian stock exchanges and all issuers operate in Canada. All transactions through these accounts are for the purposes of managing and operating employee share purchase plans and other similar types of plans.

Can you confirm our understanding of whether subsection 11.1(6) of the Regulations applies to these types of “group plans”?

It is our understanding that section 11.1 of the Regulations contains additional requirements which are imposed on certain registrants at the time confirmation of the existence of a particular entity (e.g. a corporation or a trust) occurs (e.g. at account opening). These additional requirements, generally speaking, relate to information on directors, partners or on other persons who own or control 25 percent of such an entity.

Answer:

Subsection 11.1(6) of the PCMLTFR indicates that certain group plan accounts are not subject to section 11.1 if the group plan account is “held within a dividend reinvestment plan or a distribution investment plan, including a plan that permits purchases of additional shares or units by the member with contributions other than the dividends or distributions paid by the sponsor of the plan, if the sponsor of the plan is an entity whose shares or units are traded on a Canadian stock exchange, and that operates in a country that is a member of the Financial Action Task Force”.

You have indicated that the securities dealer provides trading services for employees that have participated in employer-sponsored ‘employee share purchase plans. You have also indicated that accounts are held for issuer corporations who sponsor these employee share purchase plans, and that “all issuers are traded on Canadian and U.S. stock exchanges”.

The term “account” is not defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) or its associated Regulations. While the opening of an account for the purpose of holding client assets is clearly understood to be an account opening, FINTRAC has taken the position that, in other cases, it is generally for a reporting entity to determine whether or not an account has been opened. This same logic can thus be applied to “group plan accounts”, as this term is also not defined by the PCMLTFA or its associated Regulations.

Therefore, it would appear that securities dealers that open group plan accounts are not required to gather beneficial ownership information for those accounts, as required by section 11.1, so long as the group plan accounts meets the exact specifications identified in subsection 11.1(6) of the PCMLTFR.

Date answered: 2015-07-23

PI Number: PI-6332

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6E

Regulations: 11.1, 11.1(6)

Exemptions and beneficial owners

Question:

Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, financial entities are subject to certain record-keeping and client identification obligations when someone opens an account.

Obtaining information about the beneficial owners of an entity is one of these obligations.

According to the PCMLTFR, a financial entity is required to ascertain the existence of an entity under the Regulations when it opens an account on behalf of this entity, and must obtain the information allowing it to determine the entity's ownership, control and structure in order to establish who the beneficial owners are.

Under paragraph 62(2)(m) of the Regulations, financial entities are exempt from confirming the existence of a public body when opening an account because the provision related to confirming existence (section 54) is not applicable to a public body.

This interpretation is confirmed in subsection 4.2 of FINTRAC's Guideline 6G: Record Keeping and Client Verification (referred to below as “Guideline 6G”), which states the obligations related to information to obtain about beneficial owners who are listed in Part 6 of Guideline 6G are part of the exceptions to client verification and are not applicable to a public body.

We are thus of the opinion that the legislator's intention is to grant exemptions to financial entities (mainly in the confirmation of the existence of and obtaining information on beneficial owners) when they open accounts for public bodies and very large corporations.

However, Guideline 6G indicates that there is some doubt about the applicability of the exemption related to obtaining information on beneficial owners because the verification of the identity of clients for corporations and other entities (paragraph 4.13) is not an exemption listed in paragraph 4.2.

Given this ambiguity, we would like FINTRAC to confirm that financial entities are not required to gather information (names and addresses) of beneficial owners or to establish the entity's ownership, control and structure to ascertain the beneficial owners of public bodies and very large corporations when opening an account for them.

If you indicate to us that financial entities are required to meet the above obligations for public bodies and very large corporations when accounts are opened for them, we would like FINTRAC to indicate who the beneficial owners are in the case of a municipality since it is impossible to determine a percentage of control for city council members.

Answer:

Under paragraph 62(2)(m) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), the record-keeping obligations when opening an account do not apply to “instances where the entity in respect of which a record is otherwise required to be kept is a public body, or a corporation that has minimum net assets of $75 million on its last audited balance sheet and whose shares are traded on a Canadian stock exchange or a stock exchange designated under subsection 262(1) of the Income Tax Act, and operates in a country that is a member of the Financial Action Task Force.”

Guideline 6G, FINTRAC Record Keeping and Client Identification, Section 4.2 – General Exceptions refers to the obligation to verify a client's identity under the heading “Accounts or transactions for a public body or very large corporation,” which states that “If you open an account, including a credit card account, or conduct a transaction for a public body or a very large corporation, the requirements described in subsections 4.5 to 4.10 or section 6, do not apply.”

Since Part 6 refers to beneficial owners and control documents, financial entities are not required to collect prescribed information on beneficial owners or to establish ownership, control and structure of an entity for public bodies and very large corporations when they open an account for them.

Date answered: 2015-06-09

PI Number: PI-6315

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1, 62(2)(m)

Beneficial Ownership - Children and Grandchildren as Trustees

Question:

Scenario:

  • A partnership is owned by 4 partners, each owning 25% equality of the units.
  • One of the partners is owned 100% by a shareholder which is Company A.
  • This Company A is owned by 3 different shareholders equally divided (33.333%): Company B, Company C and Company D.
  • Company B is owned 100% by a Trust D and there are several beneficial owners such as children, grandchildren and etc.

Per section 11.1 (1) (c) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), are the children, grandchildren considered indirect beneficial owners owning more than 25% of the Partnership?

Answer:

Pursuant to subsection 11.1(1) of the PCMLTFR, every life insurance company, broker, or agent that is required to confirm the existence of an entity in accordance with these Regulations, shall, at the time the existence of the entity is confirmed, obtain the following information:

a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
d) in all cases, information establishing the ownership, control and structure of the entity.

Furthermore, in accordance with subsections 11.1(2) and 11.1(3) of the PCMLTFR, respectively, a reporting entity must take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1), and keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information. Section 6 of Guideline 6A: Record Keeping and Client Identification for Life Insurance Companies, Brokers and Agents states that “beneficial ownership refers to the identity of the individuals who ultimately control the corporation or entity, and cannot be another corporation or another entity. You must search through as many levels of information as necessary in order to determine beneficial ownership.”

For situations as described, where the client is an entity owned partially by a corporation, further research must be conducted until the individual(s) owning 25% or more can be found. As a result, the client identification requirements provided at section 11.1 of the PCMLTFR are applicable to the children and grandchildren, as they are owners of the Trust.

Date answered: 2015-01-16

PI Number: PI-6277

Activity Sector(s): Life insurance

Obligation(s): Beneficial Ownership

Guidance: 4, 6A

Regulations: 11.1

Clarification of PCMLTFR 11.1 - Beneficial ownership

Question:

Does a financial institution holding funds in an estate account formed upon the death of a client have any obligation under AML rules, policies or procedures to collect the personal ID’s of the beneficiaries before transferring these funds following instructions received from the executor to an estate account at a bank?

Answer:

Subsection 11.1 (1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) requires that “every financial entity or securities dealer that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, every life insurance company, life insurance broker or agent or legal counsel or legal firm that is required to confirm the existence of an entity in accordance with these Regulations and every money services business that is required to confirm the existence of an entity in accordance with these Regulations when it enters into an ongoing electronic funds transfer, fund remittance or foreign exchange service agreement with that entity, or a service agreement for the issuance or redemption of money orders, traveller’s cheques or other similar negotiable instruments, shall, at the time the existence of the entity is confirmed, obtain the following information:

(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;

(2) Every person or entity that is subject to subsection (1) shall take reasonable measures to confirm the accuracy of the information obtained under that subsection.

As such, where the entity in respect of which an account is opened is a trust, the reporting entity must obtain the names and addresses of all trustees and all known beneficiaries and settlors of the trust, as well as the ownership, control and structure of the trust, and must also take reasonable measures to confirm the accuracy of the information obtained (paragraph 11.1(1)(d) of the PCMLTFR).

However, confirming the accuracy of the information obtained does not require that the reporting entity ascertain the identity of the beneficiaries, trustees and settlors of the trust. The reporting entity only has to take reasonable measures to confirm that the names and addresses obtained for the trustees, beneficiaries and settlors of the trust are accurate.

Date answered: 2014-10-17

PI Number: PI-6250

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 4, 6E

Regulations: 11.1

Reasonable measures

Question:

Is it considered “reasonable measures” to have a signing officer from the business sign an attestation to confirm the accuracy of the beneficial ownership information provided?

Answer:

Subsection 11.1 (1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Every financial entity […] that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, […] shall, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.”

Subsection 11.1 (2) of the PCMLTFR states that “Every person or entity that is subject to subsection (1) shall take reasonable measures to confirm the accuracy of the information obtained under that subsection.”

Subsection 11.1 (4) of the PCMLTFR states that “If the person or entity is not able to obtain the information referred to in subsection (1) or to confirm that information in accordance with subsection (2), the person or entity shall

(a) take reasonable measures to ascertain the identity of the most senior managing officer of the entity; and
(b) treat that entity as high risk for the purpose of subsection 9.6(3) of the Act and apply the prescribed special measures in accordance with section 71.1 of these Regulations.”

Reasonable measures to confirm the accuracy of beneficial ownership information include asking the client to provide documentation. While reporting entities can rely on the information provided by clients, they should use judgment in order to determine whether the documentation is appropriate. Only official documents, such as a share certificate, can be used to confirm the beneficial ownership information obtained. A signed attestation would only be acceptable if no official document existed and depending on the information contained in the document.

Documents and references obtained to confirm the information have to be kept in records.

Date answered: 2014-07-18

PI Number: PI-6186

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1

Beneficiaries and settlors of a trust account

Question:

In the context of a trust, credit unions do not open trust accounts for the trust as an entity. Rather, they open the account for the trustee(s), which, in certain cases, can be an entity such as a partnership or corporation. a. Do the beneficial ownership requirements for trusts set out in Guideline 6G, section 6, apply to trust accounts opened by credit unions in the above context?

We note two the two issues below, if beneficial ownership information is required as described in the Guideline:

i. Many trust accounts opened by credit unions are not supported by trust deeds. Such accounts are arguably at “low risk” of money laundering and/or terrorist financing, but under the Guideline would be required to be treated as “high risk.”

ii. The requirement to obtain information about “all known beneficiaries and settlors of a trust” would be problematic for pooled trust accounts, which, by their nature, have multiple settlors and beneficiaries that are constantly changing. Also, lawyers and other professionals who are required by law to hold client funds in pooled trust accounts may take issue with disclosing client details.

Answer:

Subsection 11.1 (1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Every financial entity […] that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, […] shall, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.”

Where the credit union has opened an account for an entity that is a corporation or an entity other than a corporation, then they must obtain the beneficial ownership information outlined above (ss. 11.1(a) and 11.1(c) of the PCMLTFR). The credit union is also required to confirm the accuracy of this information and keep a record that sets out the information and the measures taken to confirm its accuracy.

Where the credit union opens an account for an entity that is a trust, the credit union is required to obtain the names and addresses of all trustees and all known beneficiaries and settlors of the trust (ss. 11.1(b) of the PCMLTFR). The credit union is also required to confirm the accuracy of this information and keep a record that sets out the information and the measures taken to confirm its accuracy.

In any case, if beneficial ownership information cannot be obtained, and/or confirmed, then the credit union must take reasonable measures to ascertain the identity of the most senior managing officer of the entity and treat the entity as high risk. This high risk designation requires that the credit union apply the special measures prescribed in the Regulations.

Where an account is opened by a parent/guardian for a beneficiary that is a minor, and there is no entity for which the existence needs to be confirmed, the beneficial ownership requirements of subsection 11.1(1) of the PCMLTFR do not apply.

The Regulations account for situations where there is an account opened and information on “all known beneficiaries and settlors of a trust” cannot be obtained or confirmed, by requiring that this be considered high risk.

Date answered: 2014-07-18

PI Number: PI-6183

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

beneficial ownership requirements

Question:

If beneficial ownership requirements apply to trust accounts opened by credit unions, it would be helpful if FINTRAC could provide the relevant statutory authority for the requirement.

Answer:

Subsection 11.1 (1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that “Every financial entity […] that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, […] shall, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.”

Date answered: 2014-07-18

PI Number: PI-6182

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

“Family Trust” and “Mineral Trust” accounts

Question:

Some credit unions have several “Family Trust” and “Mineral Trust” accounts, where there is a formal, lawyer-drawn trust agreement. Are these types of “trusts” included in FINTRAC’s requirements? And if so, if a beneficiary named in the trust agreement happens to be deceased, is there a requirement to determine the beneficiaries of that estate?

Answer:

If the credit union opens the “Family Trust” or “Mineral Trust” account in respect of an entity, the existence of that entity must be confirmed. At the same time, the credit union has to obtain, take reasonable measures to confirm, and keep records of the information about the entity's beneficial ownership.

If the credit union opens the “Family Trust” or “Mineral Trust” account in respect of a person, then the requirements of subsection 11.1(1) of the PCMLTFR do not apply. Where an account is opened for an entity that is a trust, the credit union must obtain the names and addresses of all trustees and all known beneficiaries and settlors of the trust. As part of its ongoing monitoring obligations, a credit union is required to keep information referred to in section 11.1 up to date in accordance with the credit union’s risk assessment.

Date answered: 2014-07-18

PI Number: PI-6181

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1

Reasonable measures to confirm the accuracy of the information obtained pursuant to subsection 11.1(1) of the Regulations

Question:

Does a form specifying the information to be entered under section 11.1, together with certification by a person authorized to act on behalf of the corporation (or entity other than a corporation) constitute a reasonable measure to confirm that the entity keeps "a record that sets out the information obtained and the measures taken to confirm the accuracy of that information" within the meaning of subsection 11.1(3) of the Regulations?

Answer:

Subsection 11.1(1) stipulates that every reporting entity required to confirm the existence of an entity when it opens an account in respect of that entity, must obtain, at the time of the confirmation, the following information with regard to the entity:

a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity;
d) in all cases, information establishing the ownership, control and structure of the entity.

In addition, under subsections 11.1(2) and 11.1(3) of the Regulations, the reporting entity shall take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1) and shall keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information.

The beneficial owners of the entity are the individuals who ultimately control the corporation or the entity other than a corporation and cannot be another corporation or another entity other than a corporation. The reporting entity must search through as many levels of information as necessary in order to determine beneficial ownership. However, there may be cases where there is no individual who owns or controls 25% or more of an entity. The reporting entity must still keep a record of the measures taken and the information obtained in order to reach that conclusion.

FINTRAC does not specify the form of the document which the reporting entity must retain to keep the information obtained pursuant to subsection 11.1(1). It is the responsibility of the reporting entity to determine the form of this document and to ensure that the document contains the required information. Guideline 6: Record Keeping and Client Identification, includes a non-exhaustive list of documents which clients could provide to confirm the information on beneficial owners. However, as indicated in Guideline 6: Record Keeping and Client Identification, reasonable measures to confirm the accuracy of beneficial ownership information would include asking the client to provide the reporting entity with documentation. The entity can rely on the information provided by clients, but should use discernment when determining if the documentation is appropriate. In most situations, only official documents, such as a share certificate, may be used to confirm the beneficial ownership information obtained.

The documents or references which the reporting entity obtains to confirm the accuracy of the information must be kept in its files.

Date answered: 2014-06-06

PI Number: PI-6158

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 11.1

Beneficial Owners

Question:

In a situation where there are those who own and others who control an entity, who are the beneficial owners for the purpose of subsection 11.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR).

Answer:

Pursuant to subsection 11.1(1) of the PCMLTFR, every reporting entity that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, shall, at the time the existence of the entity is confirmed, obtain the following information:

(a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.

In a situation where there are both those who own and those who control an entity, the reporting entity must consider both. To have determined that there are owners of an entity does not negate the need to also determine that there are others who may control the entity, and vice versa. That said it is only for persons who own or control 25% or more of the entity that names and addresses have to be obtained.

In response to the specific examples provided, namely in a situation where there are shareholders with voting and non-voting shares, both must be considered. To be a shareholder makes one an owner of the company, at which point the percentage of ownership must be determined. If a person is determined not to own 25% or more of the entity, the reporting entity must still determine whether or not the person controls 25% or more of that entity. Those persons holding just non-voting shares are deemed only to own the entity, but they do not have control of the entity. The reporting entity must then determine the percentage of ownership for the purpose of subsection 11.1(1) of the PCMLTFR.

With respect to the situation where there is a partnership, and a board of directors, the reporting entity must again consider both ownership and control. If it is determined that the partners both own 25% or more of the entity, then they must be recorded as beneficial owners. However, the reporting entity must also note that the board of directors has control of the entity and take reasonable measures to confirm the accuracy of the information pertaining to both ownership and control of the entity (ss. 11.1(2) PCMLTFR).

Date answered: 2014-05-30

PI Number: PI-6154

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

Beneficial Ownership - trust

Question:

  1. If the settlor of the trust is an entity, must the bank look behind the entity to determine the person pulling its strings? Is it the same in respect of trustees?
  2. What if the beneficiaries are not natural persons? Do corporate beneficiaries have to be looked-through?

Answer:

In the case of trusts, pursuant to subsection 11.1(1) of PCMLTFR, every financial entity that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, shall, at the time the existence of the entity is confirmed, obtain the names and addresses of all trustees and all known beneficiaries and settlors of the trust, and information establishing the ownership, control and structure of the entity.

Unlike the owning or controlling information required to be gathered in the case of corporations and in the case of entities other than corporations or trusts, that specifies that the reporting entity must determine the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares or of the entity, the trust requirement does not specify the requirement down to the person.

As such, the financial entity must obtain the names and addresses of all trustees and all known beneficiaries and settlors of the trust, which could be entity names and addresses.

However, as per subsection 11.1(4) of the PCMLTFR, if the person or entity is not able to obtain the information referred to in subsection (1) or to confirm that information in accordance with subsection (2), the person or entity shall

a) take reasonable measures to ascertain the identity of the most senior managing officer of the entity; and
b) treat that entity as high risk for the purpose of subsection 9.6(3) of the Act and apply the prescribed special measures in accordance with section 71.1 of these Regulations.

Although they specify banks, it might be worth noting that if the financial entity is a trust company, then, in accordance with section 55 of the PCMLTFR, the trust company must:

  • in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation that is the settlor of an institutional trust in respect of which the company is required to keep records in accordance with section 15;
  • in accordance with section 66, confirm the existence of every entity, other than a corporation, that is the settlor of an institutional trust in respect of which the company is required to keep records in accordance with section 15; and
  • where an entity is authorized to act as a co-trustee of any trust:

i. confirm the existence of the entity and ascertain its name and address in accordance with section 65 or confirm the existence of the entity in accordance with section 66, as the case may be, and
ii. in accordance with subsection 64(1), ascertain the identity of all persons — up to three — who are authorized to give instructions with respect to the entity’s activities as co-trustee.

Then the trust company must ascertain the identity of each person who is authorized to act as co-trustee of any trust.

Date answered: 2014-05-21

PI Number: PI-6148

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1), 55

Beneficial Ownership - reasonable measures to confirm the accuracy of the information they obtain under subsection 11.1(1) of PCMLTFR.

Question:

If we open an association account (non-incorporated), for which there are no beneficial owners (of 25% or more) or controlling directors (of 25% or more), how do we record this information? And what type of official document or public record can we use to confirm this information?

Answer:

Pursuant to subsection 11.1(1) of the PCMLTFR, a financial entity that is required to confirm the existence of an entity in accordance with these Regulations when it opens an account in respect of that entity, shall, at the time the existence of the entity is confirmed, obtain the following information:

a) in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation;
(b) in the case of a trust, the names and addresses of all trustees and all known beneficiaries and settlors of the trust;
(c) in the case of an entity other than a corporation or trust, the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the entity; and
(d) in all cases, information establishing the ownership, control and structure of the entity.

Furthermore, in accordance with subsections 11.1(2) and 11.1(3) of the PCMLTFR, respectively, the financial entity must take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1), and keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information.

Beneficial ownership refers to the identity of the individuals who ultimately control the corporation or entity, and cannot be another corporation or another entity. The financial entity must search through as many levels of information as necessary in order to determine beneficial ownership. However, there may be cases where there is no individual who owns or controls 25% or more of an entity. In this case, the financial entity must still keep a record of the measures they took and the information they obtained in order to reach that conclusion.

As indicated in Guideline 6G: Record Keeping and Client Identification for Financial Entities, reasonable measures to confirm the accuracy of beneficial ownership information would include asking the client to provide documentation. Reporting entities can rely on the information provided by clients, but are advised to use discernment when determining if the documentation is appropriate. Appropriate documentation to confirm the beneficial ownership information obtained includes official documents such as a share certificate. A signed resolution may be used in situations where no official documents exist, but would depend on the information contained in the document.

Date answered: 2014-05-15

PI Number: PI-6146

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1

Confirming Beneficial Ownership

Question:

I need clarifications on the new requirement to confirm beneficial ownership through documentation. The articles of incorporation and annual returns do not contain information about the ownership structure of the corporation, and because it is a single shareholder company, it does not have shareholder agreements. Would an officer’s certificate which contains information about share ownership be deemed as reasonable measures to confirm the accuracy of beneficial ownership?

Answer:

Pursuant to paragraph 11.1(1)(a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every money services business that is required to confirm the existence of an entity in accordance with these Regulations when it enters into an ongoing electronic funds transfer, fund remittance or foreign exchange service agreement with that entity, or a service agreement for the issuance or redemption of money orders, traveller’s cheques or other similar negotiable instruments, shall obtain, in the case of a corporation, the names of all directors of the corporation and the names and addresses of all persons who own or control, directly or indirectly, 25 per cent or more of the shares of the corporation. Subsection 11.1(2) of the PCMLTFR further requires the reporting entity to take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1) of the PCMLTFR. Additionally, the reporting entity must keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information (ss. 11.1(3) PCMLTFR).

Only official documents may be relied on to confirm beneficial ownership information. This includes documents such as a share certificate. Documents such as an officer's certification may only be acceptable to confirm the beneficial ownership information obtained if no other official document exists. The reporting entity must keep a record of the measures taken to confirm the accuracy of the information obtained under subsection 11.1(1).

In the event a reporting entity is unable to obtain beneficial ownership information or confirm its accuracy, subsection 11.1(4) of the PCMLTFR requires the reporting entity to:

  • take reasonable measures to ascertain the identity of the most senior managing officer of the corporation, trust or other entity; and
  • treat that corporation, trust or other entity as high-risk in your risk assessment document of your compliance regime and undertake more frequent monitoring, updating of client identification information, and any other appropriate enhanced measures.

Date answered: 2014-03-18

PI Number: PI-6121

Activity Sector(s): Money services businesses

Obligation(s): Beneficial Ownership

Guidance: 6C

Regulations: 11.1

Beneficial Ownership

Question:

Regarding beneficial ownership (Guideline 6E, Section 6)

  • For beneficial ownership, some smaller privately held corporations or entities don’t maintain a share register. As such, will FINTRAC be satisfied with an attestation signed by a director of the company outlining who the beneficial owners are and their ownership share? In this case, would FINTRAC view the client as high risk, even if the security dealer does not view them as high risk given other factors known of the client?
  • Or would it be FINTRAC’s view that we must retain both the documentation (noted in the non-exhaustive list) in addition to the attestation in order for the attestation to be acceptable and not considered high risk?
  • Should different weighting/consideration be given if the attestation is signed by a lawyer or chartered accountant?

Regarding client identification (Guideline 4, Section 6.3 and Guideline 6, Section 4.9)

The guidance states, “…Measures to keep client identification (name, address, telephone number and occupation/principal business) up to date include asking the client to provide information to confirm or update their identification information. In the case of an individual client, this can also include confirming or updating the information by using the same options that are available to ascertain identity of individuals who are not physically present…”

  • If asking a client to confirm identification information satisfies the above requirement, in what instance would FINTRAC expect a security dealer to keep client identification up to date using the options available for ascertain identity of individuals who are not physically present?

Answer:

  • Pursuant to subsection 11.1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), a reporting entity must take reasonable measures to confirm the accuracy of the information obtained under subsection 11.1(1). This can be done by verifying official documents such as articles of incorporation, share certificates, annual returns, or shareholder agreements. An attestation signed by a director of the company, outlining who the beneficial owners are and their ownership share is only acceptable if no official documentation exists. The reporting entity must keep a record of this measure taken to confirm the accuracy of that information (ss. 11.1(3) of the PCMLTFR).
  • It is for the reporting entity to determine the level of risk associated with their client based on the information to which the reporting entity has access, and gathers in compliance with the PCMLTFA, its associated Regulations, and the reporting entity’s own policies and procedures.
     
  • Alternatively, if the client is unable to obtain this information or confirm its accuracy, it may proceed with the following:
    • obtain the name of the most senior managing officer of the corporation, trust or other entity;
    • take reasonable measures to ascertain the identity of the most senior managing officer of the corporation, trust or other entity; and
    • treat that corporation, trust or other entity as high-risk in your risk assessment document of your compliance regime and undertake more frequent monitoring, updating of client identification information, and any other appropriate enhanced measures.
       
  • To keep information up to date a reporting entity can ask the client or use the non-face-to-face methods for ascertaining identity. The option to update the information based on the non-face-to-face methods of identification exists so that reporting entities can proceed with updating the information in instances where there isn’t an opportunity to interact in-person with the client.

Date answered: 2014-03-17

PI Number: PI-6120

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6E

Regulations: 11.1

Dealing with a client that is an entity other than a corporation

Question:

Situation:

  • A securities dealer open accounts for both ABC Ltd (“ABC”) & ABC Fund (the “FUND”)
  • ABC is a Cayman Island company formed to pool investment capital from both US taxable investors and the “Funds”
  • The investment activities of ABC & the Fund are directed by ABC (“ABC CM”), a Delaware LLC that is a registered Commodity Pool Operator with the Commodity Futures Trading Commission (“CFTC”) and the National Futures Assoc. (“NFA”) in the U.S.
  • Both ABC and the Fund are registered mutual funds with the Cayman Islands Monetary Authority (“CIMA”) and as commodity pools with the NFA and CFTC.

Question 1:
a) Can the securities dealer confirm the existence and registration of ABC on CIMA’s and NFA’s website?
b) Can the securities dealer confirm ABC’s address and directors from the offering memorandum of the Fund?
c) If not, what specific documents from the Cayman Island and/or US Securities regulators should the securities dealer obtain in order to satisfy FINTRAC’s requirements?

Question 2:
a) Are the investors of ABC, the Fund or ABC CM (the advisor) the beneficial owners?
b) If not, who are the beneficial owners of the funds?
c) Does the securities dealer need to ascertain the “Fund” and determine the “Beneficial Ownership”

Answer:

When dealing with a client that is an entity other than a corporation, section 23 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) states that every securities dealer shall keep the following records:

(a) in respect of every account that the securities dealer opens, a signature card, an account operating agreement or an account application that
(i) bears the signature of the person who is authorized to give instructions in respect of the account;
(a.1) in respect of every account that the securities dealer opens, a record that sets out the intended use of the account;
(b) where the securities dealer opens an account in respect of a corporation, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of that account;
(c) where the securities dealer opens an account in the name of a person or of an entity other than a corporation, a record of the name and address of the client and
(i) if the client is a person, their date of birth and the nature of their principal business or their occupation, as applicable, and
(ii) if the client is an entity other than a corporation, the nature of their principal business;

According to subsection 57(4) of the PCMLTFR, every securities dealer shall, in accordance with section 66, confirm the existence of every entity, other than a corporation, for which it opens an account. As specified by section 66 of the PCMLTFR, the existence of an entity, other than a corporation, shall be confirmed by referring to a partnership agreement, articles of association or other similar record that ascertains its existence. The record may be in paper form or an electronic version that is obtained from a source that is accessible to the public. Section 66 allows for some flexibility in regards to what type of record can be used to verify the existence of an entity, which may include the minutes of a meeting or a written statement signed by each member of the Board of Directors, attesting that the entity exists.

Question 1:
a) Section 66 of the PCMLTFR allows a securities dealer to confirm the existence of an entity by referring to a partnership agreement, articles of association or other similar record that ascertains its existence. Where the existence of the entity has been confirmed by referring to an electronic version of a record, subsection 66(3) of the PCMLTFR requires that the securities dealer keep a record that sets out the registration number of the entity, the type of record referred to and the source of the electronic version of the record. When a search for an entity is conducted for ABC on CIMA’s website, it identifies the type of entity that ABC is, provides its license number and the date it became “recognized”. The NFA’s website provides ABC CM’s NFA identification number and its status. CIMA cannot be utilized to confirm ABC’s existence as it is not a record but merely a public listing that provides basic information on the entity. For the same reason, NFA’s website cannot be used to confirm the existence of ABC, because it is not a record and additionally because it does not provide information pertaining to ABC but instead, provides information pertaining to ABC CM, an entity that simply directs the investments of ABC.

b) When opening an account in respect of an entity other than a corporation, the securities dealer needs to confirm the existence of the entity (subsection 57(4) of the PCMLTFR) and keep a record of the name and address of the client and the nature of their principal business (paragraph 23(1)(c) of the PCMLTFR). The securities dealer is not required to determine the names of the entity’s directors. As section 66 of the PCMLTFR indicates, the existence of an entity can be confirmed by referring to a partnership agreement, articles of association or other similar record that ascertains its existence. Arguably, any such record would likely also contain the entity’s basic information, such as its address. The Offering Memorandum of the Fund is indeed a record but it is a record pertaining to the Fund and not to ABC. As such, it is recommended that the securities dealer determine ABC’s address by making reference to a record originating from ABC, and not an affiliate.

c) As previously discussed, a security dealer can confirm the existence of an entity, other than a corporation, by referring to either the partnership agreement, articles of association or other similar record that ascertains its existence. The document being used to confirm the entity’s existence must be a record, and not simply information about the entity listed on a public site. Other examples of a record include the minutes of a meeting or a written statement signed by each member of the Board of Directors of ABC, attesting to the entity’s existence.

Question 2:
a) and b) It is the securities dealer who must determine the entity’s beneficial ownership. Subsection 11.1(1) of the PCMLTFR indicates that, at the time the existence of the entity is confirmed, the securities dealer also has to take reasonable measures to obtain information about the entity's beneficial ownership. If obtained, the securities dealer has to keep a record of the name, address and occupation of all individuals who directly or indirectly own or control 25% or more of the entity. Reasonable measures could include asking the individual authorized to act for the entity about the beneficial ownership of the entity. It could also include consulting a credible source of publicly or commercially available information. A beneficial owner must be an individual and cannot be an entity. In a scenario where each owner owns or controls less than 25%, the securities dealer is encouraged to record that they verified beneficial ownership.

That said, the Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations will be coming into force February 1, 2014. Under these Regulations, a securities dealer must confirm and obtain the names and addresses of all persons who own or control, directly or indirectly, 25% or more of the entity, and must also take reasonable measures to confirm the accuracy of beneficial ownership information, which includes asking the client to provide documentation. Reporting entities are encouraged to use discernment when determining if the documentation provided by their clients is appropriate. A publicly available source, such as a website, can also be used to confirm the accuracy of beneficial ownership. The entity must keep a record that sets out the information obtained and the measures taken to confirm the accuracy of that information.

In the case of entities other than corporations, a non-exhaustive list of documents that could be provided by clients to confirm beneficial ownership information includes:

  • Articles of constitution
  • Partnership agreements
  • Records of decisions

If beneficial ownership information cannot be obtained or its accuracy cannot be confirmed, a reporting entity must :

  • take reasonable measures to ascertain the identity of the most senior managing officer of the entity; and
  • treat that entity as high-risk in the risk assessment document of its compliance regime and undertake more frequent monitoring, updating of client identification information, and any other appropriate enhanced measures

The senior managing officer of an entity may include but is not limited to its director, chief executive officer, chief operating officer, president, secretary, treasurer, controller, chief financial officer, chief accountant, chief auditor or chief actuary, as well as any individual who performs any of those functions. It also includes any other officer who reports directly to the entity’s board of directors, chief executive officer or chief operating officer. In the case of a sole proprietor or a partnership, the senior managing officer can be the owner or the partner.

The reporting entity must keep a record of this information.

c) According to subsection 57(1) of the PCMLTFR, every securities dealer shall ascertain, in accordance with subsection 64(1), the identity of every person who is authorized to give instructions in respect of an account for which a record must be kept by the securities dealer under subsection 23(1). As previously mentioned, a securities dealer must confirm the existence of an entity, other than a corporation, for which it opens an account (ss. 57(4) PCMLTFR) and at the same time, must determine the entity’s beneficial ownership as explained under Question 2(a) and (b).

Date answered: 2014-01-17

PI Number: PI-5683

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6E

Regulations: 11.1(1), 23, 23(1), 57(1), 57(4), 64(1), 66, 66(3)

Clarification of section 59.2 of the PCMLTFR

Question:

I am looking for clarification with respect to section 59.2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). I want to know if paragraphs 59.2(1)(a) and 59.2(1)(b) are to be considered separately.

Answer:

In short, these paragraphs are not to be considered separately. The requirement is for real estate brokers or sales representatives to identify the person conducting the transaction, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors, and confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted. It is possible that there is no corporation or entity on whose behalf the transaction is conducted, but if there is one or both, then paragraphs 59.2(1)(b) and 59.2(1)(c) are applicable, in addition to ascertaining the identity of every person who conducts the transaction.

Date answered: 2014-01-13

PI Number: PI-5678

Activity Sector(s): Real estate

Obligation(s): Beneficial Ownership

Guidance: 6B

Regulations: 59.2

Beneficial Ownership – Not-for-profit organizations

Question:

Can you help me understand why the charitable organization information is included under the beneficial owners section?

Answer:

The financial entity has the obligation to confirm the existence of an entity that is a corporation, another entity, or a not-for-profit organization. This is the reason why charitable organization information is included under the beneficial owners section.

Subsection 11.1(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) indicates that if a financial entity has to confirm the existence of a corporation or other entity at the opening of an account, at that same time, the financial entity also has to take reasonable measures to obtain information about the entity’s beneficial ownership.

If obtained, the financial entity has to keep a record of the following:

  • If the entity is a corporation:
  • the name and occupation of all directors of the corporation; and
  • the name, address and occupation of all individuals who directly or indirectly own or control 25% or more of the shares of the corporation.
  • If the entity is other than a corporation:
  • the name, address and occupation of all individuals who directly or indirectly own or control 25% of more of the entity.

If the entity is “a-not-for-profit organization”, the PCMLTFR further clarifies the obligations of not-for profit organizations, including registered charities, with respect to obtaining information about the entity’s beneficial ownership as follows:

If the financial entity has to confirm the existence of an entity that is a not-for-profit organization (confirming the existence as per 11.1(1) of the PCMLTFR), the financial entity also has to do the following:

  • Determine whether or not that entity is a registered charity for income tax purposes and keep a record to that effect;
  • If the entity is not registered charity, determine whether or not it solicits charitable financial donations from the public and keep a record to that effect.

This requirement is not based on reasonable measures. If the entity is a not-for-profit organization, the financial entity must make the determination described above and keep the related record.

This means, in the case of a not-for-profit organization, the financial entity has 1) to take reasonable measures to obtain information about the entity's beneficial ownership and 2) to determine if the not-for-profit organization is a registered charity or solicits charitable financial donations from the public.

Please note, if the requester is seeking information as to why confirming the existence of an entity that is a corporation, another entity, or a not-for organization, is required under the PCMLTFR, they may be referred to the Department of Finance.

Date answered: 2013-08-01

PI Number: PI-5590

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

Reasonable measures for beneficial ownership and record keeping requirements

Question:

Beneficial Ownership:

One case I noted during an AML review is that no beneficial ownership record is retained for one customer (a church) of the financial entity ("FE"). The FE explained that it's because there are no beneficial owners (i.e. individuals control directly or indirectly 25% or more of the church's interests). However, the current customer file does not contain any documentation evidencing that the FE (or its employee) has taken "reasonable measures" to obtain beneficial ownership information. That is to say, we didn't notice any document showing that the FE has asked its customer the question or has done its own research to determine if there are beneficial owners.

Your advice is that this is considered as an area of deficiency as there is no written record to indicate the FE has taken reasonable measures. This is in line with what we've observed on some FINTRAC examination letters which identified similar occurrences as deficiencies.

The FE presented a document indicating the composition of the board that controls the church to prove to us that there are no beneficial owners, as the board consists of 9 members and each member has an equal controlling interest. This document is obtained from the CRA website. Do you think if this is considered as a "reasonable measure"?

Record-keeping requirements for a signature card holder:

I also asked about what records should be retained for authorized signatories (i.e. individuals signing the signature card of an entity). Your advice is that the following information should be retained on file: name, address, date of birth and occupation; and the references of regulations are section 54(1) and section 14. My understanding is that although the authorized signatories are not the FE's customers (the entity is the customer), a client record should be retained as the FE is required to identify the authorized signatories (up to 3).

Answer:

Beneficial Ownership

Subsection 11.1(1) of the PCMLTFR indicates that if the financial entity has to confirm the existence of a corporation or other entity at the opening of an account, at that same time, the financial entity also has to take reasonable measures to obtain information about the entity's beneficial ownership.

If obtained, the financial entity has to keep a record of the following:

  • If the entity is a corporation:
    • the name and occupation of all directors of the corporation; and
    • the name, address and occupation of all individuals who directly or indirectly own or control 25% or more of the shares of the corporation.
  • If the entity is other than a corporation:
    • the name, address and occupation of all individuals who directly or indirectly own or control 25% or more of the entity.

In the case of a not-for-profit organization:

If the financial entity has to confirm the existence of an entity that is a not-for-profit organization (confirming the existence as per subsection 11.1(1) of the PCMLTFR), the financial entity also has to do the following:

  • Determine whether or not that entity is a registered charity for income tax purposes and keep a record to that effect;
  • If that entity is not a registered charity, determine whether or not it solicits charitable financial donations from the public and keep a record to that effect.

This requirement is not based on reasonable measures. If the entity is a not-for-profit organization, the financial entity must make the determination described above and keep the related record.

That means, in the case of a not-for-profit organization, the financial entity has 1) to take reasonable measures to obtain information about the entity's beneficial ownership and 2) to determine if the not-for-profit organization is a registered charity or solicits charitable financial donations from the public.

In a scenario where each owner owns or controls less than 25%, the financial entity would record that they verified the result of the beneficial ownership.

Record-keeping requirements for a signature card holder

The financial entity has to identify any individual who signs a signature card for an account that they open (other than a credit card account) before any transaction (other than the initial deposit) is carried out. In cases where a business account has more than three individuals authorized for it, the financial entity has to identify at least three of those individuals.

If the financial entity opens an account for an entity, there are identification requirements in addition to the one regarding signature cards.

I refer you to section 14 of the PCMLTFR for more information with respect to which record must be kept, since it is a question of fact, I am not able to provide you more information on this matter.

 

Date answered: 2013-02-04

PI Number: PI-5493

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership, Record Keeping

Guidance: 6G

Regulations: 11.1(1), 14

Account holder and beneficial ownership

Question:

A credit union (CU) central is inquiring as to why beneficial ownership is required for an account opened on behalf of an association by sponsoring members. According to the CU, with respect to section 82 of the financial institutions act (BC) two members or more act on behalf of the unincorporated associations to open accounts and make deposits. The CU states that it is the members that are the account holders and not the associations. We believe that despite the above argument, beneficial ownership determination has to be made. Is there any other argument or consideration, as this is going to the legal counsel of the CU? Could it be possible third party determination?

Answer:

The answer depends on whether the account holder is the entity (i.e. the association) or the members, and that is a question of fact. If the CU opened the account and indicated the members are the account holders, then the CU would identify the members, make a third party determination and indicate the entity's information as the third party (i.e. the unincorporated association here). In this case, no beneficial ownership needs to be determined.

However, although it is up to the CU to determine how they open and manage their accounts - a word of caution that this may not be the most prudent way of going... the account should be opened for the entity (but again up to the CU to determine the risks).

If the account holder is the entity, confirm the existence of the entity - signatures cards signed by the members, etc.., then 3rd party determination made, however, no third party in this case (unless there is a person or persons or another entity that gives the instructions in regards to that account). And the CU will have to determine the beneficial ownership i.e. who controls the entity under section 11.1 of our regulations. In other words, beneficial ownership at account opening is a requirement when a financial entity is required to confirm the existence of an entity when it opens an account in respect of that entity. If the financial entity opens the account but the entity is not the "account holder", then there are no beneficial ownership requirement under section 11.1.

Date answered: 2010-04-28

PI Number: PI-5353

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 11

MSB enters into an "ongoing" service agreement for issuance or redemption of Money Orders, traveller's cheques

Question:

For issuance or redemption of Money Orders, traveller's cheques for example, the obligation is only triggered when the MSB enters into an service agreement. Does “ongoing” apply?

Answer:

The way the text is written (both in English and in French) we can’t say that the "ongoing" applies to agreements for the issuance or redemption of Money Orders etc. However, it does have to be a "service agreement" which implies it is an agreement that covers more than just one transaction.

The conclusion is that, in practice, there is no difference between an "ongoing' service agreement and a "service agreement". It was just a drafting oversight.

Date answered: 2010-01-22

PI Number: PI-5301

Activity Sector(s): Money services businesses

Obligation(s): Beneficial Ownership

Guidance: 6C

Regulations: 11.1, 32, 59(2), 59(3)

Entity other than a corporation - Beneficial owners - Condo coops

Question:

We review accounts opened for condo coops, which are entities other than corporations. Often the condo owners (coop) will name administrators that will make decisions for the condo owners.

Who are the actual beneficial owners in the case above? Are the condo owners the beneficial owners or the administrators or both?

Answer:

In the case of a condo or a coop, all the individuals (or entities) who own a unit or more of the building are owners. It would be a question of fact to determine the % of ownership or control.

For example if you have 6 equal owners in a condo building - then roughly they only own 16.7% each - as they do not hit the 25% mark found in our regulations at subsection 11.1(1), then there would be no obligation in relation to the beneficial ownership. As for condos - the beneficial ownership of 25% applies only in the case where there are 4 or less owners.

Administrators of a building or the board of directors could also be part of this equation if they (individually or as a whole) own/control a unit or multiple units (i.e. are also owners of a condo). Again, it is a question of fact.

Date answered: 2010-01-21

PI Number: PI-5298

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

Beneficial Owner - non profitable organizations

Question:

We review accounts of entities that solicit funds. Subsection 11.1(5) is the section that refers to non profit organizations. It is our understanding that some accounts are opened for associations that are not legal NPOs per say but that raise funds.

By "not-for-profit organization (NPO)", do we mean "strictly or only" NPOs that are "legally" structured as actual NPOs or do we "also" mean any entity that raises funds whether or not they are actual NPOs?

Answer:

In regards to NPOs, subsection 11.1(5) outlines two possibilities:

(a) a registered charity with CRA under the Income Tax Act; or
(b) an organization other than a registered charity under (a) that solicits charitable financial donations from the public.

A non-profit organization is an association, club, or society that is operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit.

We do not refer in our regulations to a "legally structured" non profit organization, but rather we refer to either 1) a registered one with CRA (however, CRA does require that the NPO be a legal entity or 2) a non registered charity that solicits donations.

Registered Charity: A registered charity (under the Canadian Income Tax Act) is exempt from paying income tax and can issue official donation receipts for gifts it receives.

Not-for-Profit Organizations: All Canadian provinces and territories have regulatory bodies which govern the legal establishment of non profit community groups - however, I looked at the Quebec site for NPOs and a NPO is not necessarily a corporation. There is no obligation for a non profit entity (other than a corporation) to register with them...

Our regulations: Our legislation does not indicate that an NPS must be a legal body; it only refers to as "an organization that solicits charitable donations".

However, in order to operate as a non profit organization, there are certain legal requirements for each province; therefore, the reporting entity should ensure that the organization that claims the status of an NPO is in fact an NPO. This check can be done simply by asking the question directly.

Date answered: 2010-01-21

PI Number: PI-5297

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 11.1(5)

Non-profit Organization

Question:

Is a non-profit organization a public body? When confirming the existence of a non-profit corporation, can a reporting entity request the personal information of all the directors in the organizations?

Answer:

No, a non-profit organization is not a public body – unless it falls within our definition of what a public body which is: a provincial or federal department or Crown agency; or an incorporated municipal body (including an incorporated city, town, village, metropolitan authority, district, country, etc.); or a hospital authority i.e. an organization that operates a public hospital and that is designated to be a hospital authority for GST/HST purposes.

Therefore, in the case of a non-profit organization the reporting entity will have to ascertain the existence of the non-profit organization i.e. the client id requirement applies. If the reporting entity is a financial entity or securities dealer when opening an account, life insurances, or MSBs, then the reporting entity also has the obligation, under 11.1 of the PCMLTFR, about the beneficial ownership information. In the case of a not-for-profit organization the RE must obtain and take reasonable measures to confirm, and keep a record whether the entity is a charity or an organization that solicits charitable financial donations from the public.

Date answered: 2009-08-25

PI Number: PI-4663

Obligation(s): Beneficial Ownership

Guidance: 6

Regulations: 1(2), 11.1, 62(2)(m)

Act: 62(2)

Beneficial Ownership

Question:

If there is no board of directors and just a treasurer, secretary, etc. who control the entity, who do you list on the beneficial ownership (entity other than a corporation)?

Answer:

You would list the directors as per subsection 11.1(1), i.e. all persons who own or control 25% or more of the entity (so either the owners of that entity that own 25% or more, or the directors that control 25% or more e.g. if one treasurer and one secretary - then they would have to be listed as controlling 25% or more). It would be again a question of fact to determine who "controls" or "makes decisions" in regards to the company - for example it could be only the president that controls the company at 100%, or the 100% could be divided among the number of board members who participate in the decision making.

Date answered: 2009-06-15

PI Number: PI-4601

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

Beneficial Ownership

Question:

If an account does not have owners but have a board of directors or others that control the entity, who do you list on the Beneficial Owners? Let’s say there are 5 boards of directors – each would have 20% interest – not 25% who do you list? What do you document?

Answer:

In the case of a corporation (federal or provincially incorporated) - shares are emitted and therefore the beneficial owners would be the list of shareholders that own or control 25% or more of the shares of that corporation.

If we are talking here about a non-profit organization with a board of directors "controlling" the entity (and therefore no shareholders) - you would have to list the directors that control 25% or more of the entity. In this case, the directors do not control 25% or more of the entity. However, the 5 board members must "control", so it would be a question of fact to determine if all the members are involved in controlling this entity.

Date answered: 2009-06-15

PI Number: PI-4600

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1

Existence of a Corporation under ongoing service agreement

Question:

It seems that the compliance officer is under the impression that you ascertain the existence of a corporation only when there is an ongoing service agreement in place? For all other client information record, the MSB only IDs the individual, and does a third party determination (corporation) - however does not ascertain the existence of the corporation nor the beneficial ownership ?

Answer:

Yes, under 59(2) you confirm the existence of the corporation when you are required to keep a client information record and under section 32, you are required to keep a client information record when you enter into an ongoing service agreement.

Therefore, if the MSB does not enter into an ongoing service agreement with the entity, you are right, the MSB only has to identify the individual, with a third party determination.

Date answered: 2008-10-30

PI Number: PI-4392

Activity Sector(s): Money services businesses

Obligation(s): Ascertaining Identification, Beneficial Ownership, Record Keeping

Guidance: 6C

Regulations: 11.1, 32, 59(2), 65

Beneficial Ownership in the case 'in trust' accounts

Question:

When beneficial ownership is referred to in the Guidelines, it seems to be with respect to entities (corporations, trusts etc.). We have informal "In Trust For' accounts that we offer to clients. For these "ITF" accounts a parent, grandparent or some other guardian opens an account in trust for a minor child. The accountholder controls the account and has authority over the account. However, because the account is intended for the minor once they reach the age of majority I think they would be considered a beneficial owner.

Would the beneficial ownership record keeping rules apply in this scenario and if so, what records would we need to keep for AML purposes?

Answer:

Under the PCMLTF regulations, determining beneficial ownership applies only in the case of entities when opening an account; there is no need to determine the beneficial ownership of an account held for an individual. There is however a requirement to determine whether an account you open is going to be used by or on behalf of a third party. In that case, the requirement is to keep a record of the third party's name, address, date of birth and occupation.

Date answered: 2008-07-22

PI Number: PI-4288

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 9(1), 9(2)(a), 9(2)(c), 11.1

Permissible address

Question:

Beneficial owner(s)' address must be his/her home address, or is business address permissible?

Answer:

Both would be permissible

Date answered: 2008-07-04

PI Number: PI-4253

Activity Sector(s): Securities dealers

Obligation(s): Beneficial Ownership

Guidance: 6E

Regulations: 11.1

Third Party vs Beneficial Ownership

Question:

Can someone please clarify third party vs beneficial ownership? I thought Power of Attorney, Power of Sale were third parties - but have been told that it's beneficial ownership.

Answer:

For the Real Estate sector - there is no obligation to determine the beneficial ownership.

For POA - 3rd party determination.

As for the Power of sale (when the mortgage company forecloses on a property for non-payment) - no need to do a 3rd party determination, as the mortgage company owns the property (so the broker's client is the mortgage company).

Date answered: 2008-07-03

PI Number: PI-4252

Activity Sector(s): Real estate

Obligation(s): Beneficial Ownership, Third Party Determination

Guidance: 6B

Regulations: 10(1), 11.1

Recording Beneficial Ownership

Question:

When recording beneficial ownership for entities, if an organization is a club for instance with 10 members each of whom would have equal interest in the assets of the club, none of those persons would have to be recorded as a beneficial owner since no single one owns or controls 25% or more of the shares of the club – they each own or control 10%. Is that correct?

Can you confirm for me that for beneficial ownership purposes, it does not matter who the designated signing officers are. If one of the signing officers happens to own or control 25% or more of the assets of the entity, they would have to be recorded.

Answer:

In the scenario provided, the CU would record that they verified the result of the beneficial ownership - however, since the owners have 10% each (so below the 25% or more of the shares of the corporation as per section 11.1 (1)), there are no beneficial ownership (e.g. who owns and controls the corporation) to record.

Date answered: 2008-06-26

PI Number: PI-4245

Activity Sector(s): Financial entities

Obligation(s): Beneficial Ownership

Guidance: 6G

Regulations: 11.1(1)

Date Modified: