Canada – Know Your Customer (KYC) Rules

 

 

Money laundering activities in Canada are primarily a product of illegal narcotics, psychotropic substances, or chemical precursors. In the UN‘s 2009 and 2011 World Drug Reports, Canada is cited as the leading supplier of ecstasy in North America as well as a major producer and shipper of methamphetamine for markets around the world. The criminal proceeds laundered in Canada derive primarily from domestic activity which is controlled by drug trafficking organizations and organized crime.

Canada does not have a significant black market for illicit or smuggled goods. Cigarettes are the most commonly smuggled good in the country. There are indications that trade-based money laundering occurs in the jurisdiction. There is no certainty that this activity is tied to terrorist financing activity.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: YES

Canada – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Canadian Law:

    • Banks and credit unions
    • Life insurance companies, brokers, and agents
    • Securities dealers
    • Casinos
    • Real estate brokers/agents
    • Agents of the Crown
    • Money services businesses (MSB)
    • Accountants and accounting firms
    • Lawyers
    • Dealers in precious metals and stones
    • Notaries in Quebec and British Columbia

Canada – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 1,616 in 2011

Number of CTRs received and time frame: 3,049 in 2011

The following is a list of STR covered entities covered by Canadian Law:

    • Banks and credit unions
    • Life insurance companies, brokers, and agents
    • Securities dealers
    • Casinos
    • Real estate brokers/agents
    • Agents of the Crown
    • Foreign exchange & Money services businesses (MSB)
    • Accountants and accounting firms
    • Lawyers
    • Dealers in precious metals and stones
    • Notaries in Quebec and British Columbia

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: 35 through 2010
Convictions: 1

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Reported incidents involving money laundering have increased substantially in Canada over the last decade. The vast majority of money laundering cases in Canada, however, have failed to lead to convictions. Statistics Canada reported in 2011 that out of 29 cases involving money laundering in 2009 and 2010, only 34% resulted in a conviction. The same report indicated that many cases of money laundering go unsolved in Canada. Canadian law enforcement was able to identify a suspect in only 18% of reported money laundering cases in 2009.

Money laundering offenses have a higher threshold for prosecution and conviction than the offense of benefiting from the proceeds of crime. Criminals appear willing to forfeit assets and plead guilty to lesser charges to avoid prosecution under AML and proceeds of crime statutes.

The Financial Transactions Reports Analysis Centre of Canada (FINTRAC) is Canada‘s financial intelligence unit. FINTRAC plays a central role in Canada‘s fight against money laundering and terrorism. The time between FINTRAC‘s initial receipt of STRs and the conclusion of an investigation can be quite lengthy, a noted criticism (average number of days for a report dropped from 68 to 56 from 2010-2011).

Lawyers in several provinces have successfully challenged the applicability of the AML law based upon common law attorney-client privileges; therefore, lawyers are not completely covered by the AML provisions.

Deficiencies have been identified in Canada‘s anti-money laundering/counter-terrorist financing regime relating to its customer due diligence obligations. In 2011, the Canadian government proposed changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations in order to address those deficiencies and to improve Canada‘s compliance with international standards. The proposed changes would require reporting entities to better identify customers and understand their business, which will consequently enable them to identify transactions and activities that are at greater risk for money laundering or terrorist financing.

While the law provides sufficient powers to Canadian law enforcement to pursue money launderers, the budget for relevant law enforcement authorities has not increased; additional resources could increase the effectiveness of existing laws. Provincial and federal statistics should be tracked jointly. Appropriately tracking these cases could reveal a more robust rate of money laundering related convictions.

Canada should continue its work to strengthen its AML/CFT measures within the casino industry and reduce the length of time needed for FINTRAC to prepare reports used by law enforcement authorities. Canada also should continue to ensure its privacy laws do not excessively prohibit provision of information to domestic and foreign law enforcement that might lead to prosecutions and convictions.