Compliance highlights: 2015–16

Results in the fight against money laundering and terrorist activity financing

September 2016

As Canada’s financial intelligence unit, FINTRAC houses both supervisory and intelligence functions, which allows it to effectively assess and enforce the compliance of regulated businesses and produce financial intelligence for its police, law enforcement and national security partners.

The Centre was created and operates under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and administers its associated regulations. This legal framework also establishes obligations for approximately 31,000 Canadian businesses, including the development of a compliance regime in order to identify clients, keep records and report certain types of financial transactions.

These obligations provide important measures for countering patterns and behaviours observed in criminals and terrorists in order to deter them from operating within the legitimate channels of Canada’s economy. For example, the obligation for clients to identify themselves when doing a transaction or opening an account is a measure of deterrence as it eliminates the anonymity of the customer. Furthermore, this identity can be traced later, if necessary, for evidentiary purposes.

Compliance for intelligence

FINTRAC administers a comprehensive, risk-based compliance program to ensure that reporting entities fulfill their obligations. Centred on a ‘compliance for intelligence’ concept, the program focuses its efforts on those areas that most effectively facilitate the production of financial intelligence. This concept recognizes that the overall effectiveness of Canada's anti-money laundering and anti-terrorism financing regime is dependent upon businesses submitting high-quality and timely financial transaction reports.

View the text equivalent Infograph

The graphic depicts the flow of financial intelligence from left to right from: reporting entities; FINTRAC's compliance program; FINTRAC's financial intelligence program; and law enforcement and national securities agencies and the flow of feedback and guidance from right to left: law enforcement and national securities agencies; FINTRAC's financial intelligence program; FINTRAC's compliance program; and reporting entities.

Risk-based approach

Integrated within the ‘compliance for intelligence’ concept is FINTRAC's risk-based approach to compliance, which sees more of the Centre’s resources directed at higher-risk reporting entities. This approach is dynamic in that the risks identified in one year may change in the next as new products are introduced or as new vulnerabilities emerge within the financial system.

Enabling compliance

FINTRAC ensures that reporting entities receive effective guidance and feedback through a broad range of activities adapted to each reporting sector, including participating in conferences and delivering outreach presentations; publishing sector-specific guidance; responding to enquiries and requests for policy interpretations; and working closely, on an ongoing basis, with the largest reporting entities.

Throughout 2015–16, FINTRAC continued to focus on suspicious transaction reporting, given its importance in the analytical process and the financial intelligence it generates for police, law enforcement and national security agencies. In the course of 30 presentations across the country, the Centre provided businesses with practical guidance in relation to detecting and reporting suspicions of money laundering and terrorist activity financing. FINTRAC also informed reporting entities about its modernized methodology for assessing compliance with suspicious transaction reporting obligations, as well as its expectations during examinations.

As a result of these efforts, and an increased commitment from reporting entities, suspicious transaction reporting increased by 24 percent in 2015–16 and by 63 percent over the past five years. The comprehensiveness of the reports submitted has also improved year over year, as observed by FINTRAC and the recipients of its disclosures.

FINTRAC’s outreach by the numbers

Over the past year, the Centre also addressed 5,468 enquiries from businesses in every sector covering a broad range of issues, including reporting obligations, access to reporting systems and the registration of money services businesses.

FINTRAC responds to requests from reporting entities and other stakeholders for clarification, including the analysis of complex business models, through policy interpretations that are based on the specific situations and facts provided by the requester. In 2015–16, the Centre issued 302 policy interpretations. In order to enhance the understanding of reporting entities of their obligations under the PCMLTFA, FINTRAC has published more than 1,350 policy interpretations.

In recent years, the Centre has also worked closely with reporting entities and industry associations to provide new guidance related to the risk-based approach to combatting money laundering and terrorist activity financing. This consultation resulted in Guidance on the Risk-Based Approach to Combatting Money Laundering and Terrorist Financing, which was published on FINTRAC’s website in May 2015. Following this, the Centre issued several sector specific workbooks aimed at helping smaller businesses in the implementation of their risk-based approach. Workbooks will be completed for all sectors by the end of 2016–17.

Major reporters

Created in 2014, FINTRAC’s Major Reporters Team (MRT) delivers a tailored and responsive approach to compliance to Canada’s largest reporting entities in the federally-regulated financial sector, which is the source of over 85 percent of the reporting that the Centre receives. FINTRAC works closely with the Office of the Superintendent of Financial Institutions and together are developing a joint approach to the supervision and regulation of this sector in order to leverage and maximize the expertise in each agency. The MRT also engages major reporters on issues of mutual interest, including providing timely policy guidance to assist them in meeting their legislative and regulatory obligations while minimizing the compliance burden. In addition to engaging major reporters on a proactive and ongoing basis, FINTRAC hosted two forums on compliance and financial intelligence related issues in 2015–16 to help inform their risk assessments.

Real estate

Over the past few years, FINTRAC has also dedicated significant effort to improving understanding of the PCMLTFA obligations within the real estate sector. In addition to providing guidance to the industry through guidelines, policy interpretations, responses to enquiries and outreach events, the Centre has assisted the Canadian Real Estate Association with its Risk Assessment Form; provided feedback on the Association’s anti-money laundering manual and on-line training; and consulted the Association on customer due diligence guidelines, risk-based approach guidance and the development of a new workbook specifically for the real estate sector. As well, in 2015–16, FINTRAC hosted dedicated webinars for the wider real estate sector in order to inform entities of their vulnerabilities to money laundering and terrorism financing.

FINTRAC increased its examinations in the real estate sector by more than 33 percent across the country over the past year. In British Columbia, in particular, the Centre nearly quadrupled its examinations of the real estate sector over the past year, with the biggest impact in the Vancouver area.

Money services businesses

FINTRAC also administers the Money Services Business Registry, in which registration is mandatory for money services businesses. As of March 2016, 833 money services businesses were registered with the Centre. An individual or entity that has been convicted of certain offences or has a Director, CEO, President or a person that owns or controls more than 20 percent who has been convicted of certain offences is not eligible to register a money services business with FINTRAC. Should such a determination be made, the registration is either denied or revoked. A second reason why a money services business registration can be revoked or denied is the failure to respond to a clarification request issued by FINTRAC within the prescribed 30 day period. FINTRAC has denied or revoked 79 registrations since the creation of the registry in 2008.

Enforcing compliance

FINTRAC uses a range of compliance activities to ensure that businesses are fulfilling their PCMLTFA obligations, including observation letters, reporting entity validations, the monitoring of reports, compliance meetings, compliance assessment reports, examinations, follow-up examinations, administrative monetary penalties and non-compliance disclosures to police.

Compliance examinations

Compliance examinations remain the Centre’s primary instrument for assessing and enforcing compliance. In 2015–16, FINTRAC conducted 739 compliance examinations across Canada. Over the past three years, the Centre has undertaken 2,458 examinations broken down by activity sector as follows:

Examinations by sector since 2013–14
Examinations by sector since 2013–14
View the text equivalent Examinations by sector since 2013–14
Accountants 22
British Columbia notaries 40
Casinos 14
Dealers in precious metals and stones 320
Financial entities 495
Life insurance 236
Money services businesses 455
Real estate 529
Securities 347

Non-compliance actions

When a reporting entity does not take appropriate measures to address significant non-compliance, FINTRAC may pursue additional actions, including follow-up examinations and administrative monetary penalties. In addition, the Centre can publish specific details of an administrative monetary penalty once all proceedings in respect of the case have concluded – that is, all avenues of review and appeal have been exhausted. In employing these tools, FINTRAC always undertakes a comprehensive and thorough examination of the level and nature of the violations committed, as well as the entity’s history of compliance.

In 2015–16, FINTRAC issued 22 Notices of Violations. The Centre also imposed its largest penalty to date, totalling $1,154,670, upon a federally-regulated financial institution. This was the first time that FINTRAC has penalized a bank since it was given the authority to issue administrative monetary penalties in December 2008. Over the past seven years, the Centre has issued 95 penalties and has publicly named 40 reporting entities.

FINTRAC’s use of administrative monetary penalties and of public naming has brought about significant behavioural changes in businesses of all sizes and in various sectors. The results of follow-up examinations conducted on previously penalized reporting entities have shown that, in most instances, these entities made demonstrable improvements in their level of compliance.

Under the PCMLTFA, the Centre may also disclose cases of non-compliance to police when there is extensive non-compliance or little expectation of immediate or future compliance. In 2015–16, FINTRAC disclosed four such cases.

Global leadership

FINTRAC is a global leader in anti-money laundering and anti-terrorism financing supervision. In 2015–16, FINTRAC served as Vice-Chair of Egmont’s Technical Assistance and Training Working Group and provided training to a number of foreign financial intelligence units, including delivering an Egmont Supervisory Course to participants and observers from Jamaica, Trinidad and Tobago, and Turks and Caicos Islands.

FINTRAC is also a member of the International Supervisors Forum, which was established in late 2013 to provide a venue for sharing information and best practices between international regulators. This collaboration is aimed at improving global cooperation in the fight against money laundering and terrorist financing and other financial crimes, as well as strengthening domestic and international compliance and supervisory regimes.

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