Anti-Money Laundering

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”) came into effect on June 23, 2008.  The legislation brought about several changes that affect reporting, recordkeeping, client identification, and implementing a compliance regime. Regarding the compliance regime for accountants, one of the major changes is the new requirement for a risk-based approach to processes and documentation requirements. 

Cross-border Transfers of Currency

There are two parts to the Act: one part of the Act deals with the transfer of currency or monetary instruments across borders and it applies to EVERYONE. When someone sends cash or monetary instruments over $10,000 across the Canadian border, the person or entity must complete a Currency and Monetary Instrument Reporting form for CCRA who then sends a copy to FINTRAC.

Financial Intermediaries

The other part of the Act deals with record keeping and reporting of suspicious transactions and prescribed financial transactions. This section does not apply to CPAs engaged in the performance of audits, reviews, or compilations carried out in accordance with the recommendations set out in the CPA Handbook. It does apply if the CPA has been engaged to act as a financial intermediary which would include the performance of any of the following activities:

1. Receiving or paying funds. For example, are you making GST payments or receiving GST refunds on behalf of your clients?
2. Purchasing or selling securities, real property or business assets or entities.  For instance, if you are involved in wealth management activities, do you give instructions regarding your client's investments? 
3. Transferring funds or securities by any means. For example, do you have the authority to transfer funds to the payroll account on behalf of your client, in regular circumstances, or even just when your client is on holidays?  

Financial Transactions and Reports Analysis Centre of Canada

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit. Its mandate is to facilitate the detection, prevention and deterrence of money laundering and the financing of terrorist activities, while ensuring the protection of personal information under its control.

FINTRAC has provided guidance for accountants and accounting firms that engage in the activities numbered 1 to 3 listed above. The guidance can be accessed here and discusses reporting requirements with regards to suspicious and/or large cash transactions as well as record keeping, ascertaining the identify of individuals and entities, use of personal information, and establishing a compliance regime.

Compliance Regime

If members are acting as financial intermediaries, then they must implement a compliance regime covering the recording and reporting of suspicious transactions and prescribed financial transactions, as well as reporting cross-border transfers of currency or monetary instruments at or above a specified threshold (more on these transactions below). This regime also includes, as far as practicable, the following:

• Obtaining a commitment from senior management (partners in the case of CA firms).
• Appointing a compliance officer.
• Developing compliance policies and procedures.
• Monitoring the effectiveness of the compliance system.
• Providing ongoing training for employees and agents.

Members should be aware that FINTRAC has the power to enter the premises of a financial intermediary at any reasonable time, without a search warrant, to determine whether they are complying with their obligations to report and record transactions.

Suspicious and Prescribed Transactions

Where members are acting as financial intermediaries, members must report to FINTRAC any transactions where there are reasonable grounds to suspect the transactions are related to the commission of a money laundering offence or a terrorist activity financing offence. Members must use their professional judgement, as there is no ready definition of what constitutes a suspicious transaction. However, they can look to Guidelines from FINTRAC for guidance in assessing whether a transaction is suspicious and should be reported.

When acting as financial intermediaries, members must keep a large cash transaction record, unless the cash is received from a financial entity or a public body. In addition, members must:

• Ascertain the identity of the person involved in the transaction.
• Take reasonable measures to determine whether the individual who gives the cash is acting on behalf of a third party.
• Obtain and retain a third party disclosure statement signed by the client if they are acting on behalf of a third party, or if there are reasonable grounds to conclude this is the case.
• Starting January 31, 2003, members acting as financial intermediaries must reporting the following transactions:
• Large cash transactions involving amounts of $10,000 or more.
• Sending or receiving of international electronic funds transfers of $10,000 or more.
• Foreign exchange transactions at a rate that exceeds the posted rate, and the payment by an individual of transaction fees that exceed the posted fees.

Implications for Audit, Review, and Compilation Engagements

Members providing audit, review, and compilation engagement services do not have any statutory responsibility to report under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.  However, should you encounter circumstances that suggest money-laundering activities, you should be aware of the increased risk of misstatement in the financial statements and other forms of fraud. Most of all, you need to consider the effect on your reputation and other possible legal consequence. If in doubt, seek legal advice.

Be sure to review CAS 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements if you encounter such unusual circumstances during an audit. If you are performing a review, consider whether there are now doubts as to the plausibility of the financial information and consider performing additional procedures as suggested for an audit. If you are performing a compilation and the circumstances lead you believe that the financial statements are false or misleading, you should request additional or revised information. If that is not forthcoming, consider not releasing the statements and resigning from the engagement.

Members' Responsibilities

Members are reminded that the requirements for implementing a compliance regime and the reporting of suspicious transactions and prescribed financial transactions are required only if you are providing services deemed to be that of a financial intermediary. Failure to comply with the Act can result in serious penalties: five years imprisonment and/or a fine of $2 million.

Members are urged to review carefully the range of services they provided to their clients. If you are acting as financial intermediaries, then you should consider developing a communications strategy to disclose, in writing, your reporting obligations and other requirements under the Act. This is something you need to discuss with your clients because the statutory requirement for financial intermediaries to report suspicious transactions overrides our Code of Professional Conduct with respect to client confidentiality..

June 2016 Update to the Act and Transition Period

In June 2016, the federal cabinet approved amendments made to the Act by FINTRAC. The amendments and associated regulations changed the methods reporting entities can apply to ascertain the identity of clients. After June 17, 2017, reporting entities must use the new methods to identify individuals and confirm existence of entities.

Accountants and accounting firms are subject to record keeping obligations when they engage in or give instructions in respect of any of the following activities on behalf of an individual or entity (other than their employer):

• Receiving or paying funds;
• Purchasing or selling securities, real property, or business assets, or entities; or
• Transferring funds or securities by any means.