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Canada’s Anti-Money Laundering Regime Reaches the

clock January 26, 2011 01:29 by author Admin
Canada’s Anti-Money Laundering Regime Reaches the Decade Milestone  

FINTRAC’s 10th Anniversary and its growing expectations

 

In 1989, the G-7 established the Financial Action Task Force (FATF) to develop and promote policies to combat money laundering. From 1996 to 2004, and as part of its mandate, FATF issued 40 anti-money laundering and nine anti-terrorist financing recommendations that establish a set of basic standards for countries to detect, prevent, and suppress money laundering and the terrorist financing activity.

The FATF’s 1997 evaluation of Canada’s performance noted that, while Canada’s regime was in substantial compliance with most of the 40 recommendations, its reliance on a voluntary suspicious transaction reporting system had not proved effective. The FATF suggested that Canada implement a mandatory reporting system and establish a central financial intelligence unit to manage the information gathered. 

 

In 2000, the Proceeds of Crime (Money Laundering) Act (“the Act”) was passed, establishing a system of mandatory reporting of suspicious and other prescribed transactions, a cross-border currency reporting regime, and Canada’s financial intelligence unit in the form of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).


An Evolutionary Decade

It has now been 10 years since Canada passed the proceeds of crime legislation that created FINTRAC and established Canada's anti-money laundering/anti-terrorist financing regime. The past decade has seen changes in the legislation in an effort to step up to global standards in the fight against money laundering and terrorist activity financing.

 

The effectiveness of Canada’s Anti-Money Laundering/Terrorist Financing (AML/TF) framework depends on the collective efforts of all stakeholders, including those entities that must comply with the Act. Given the significant milestone, the Department of Finance has announced the commencement of its 10-year evaluation of Canada’s anti-money laundering and anti-terrorist financing regime.

 

The evaluation is anticipated to include feedback from the various key stakeholders. The purpose of the evaluation is to assess the success of Canada’s AML/TF efforts and the extent to which the regime has made progress towards achieving its objectives. The 10-year evaluation comes in advance of the next round of FATF mutual evaluations, which are expected to be undertaken within the next year or two. Further amendments to the legislative framework are also expected in the coming months.
 

Over the past decade, and in stark contrast with the Financial Crimes Enforcement Network (FinCEN), its US counterpart, FINTRAC has adopted a collaborative approach to enforcement aimed at educating entities that are subject to compliance. In recent months, though, FINTRAC’s approach has shifted from outreach and awareness building to more enforcement action. Since December 2008, when FINTRAC gained the power to issue such penalties and to publicize names, it has issued 15 administrative monetary penalties and publicly named seven of the recipients.

 

FINTRAC has slowly progressed from a development phase to a mature, experienced organization, steadily increasing its output of financial intelligence since it became operational. Financial intelligence has become an important part of investigative work that can shed light about how criminals are connected and where the assets may be hidden.

 

Required Reviews of Compliance Programs
In June 2008, changes to the Act mandated that every organization subject to it is required to conduct a review of its compliance program every 2 years. These reviews must be conducted by a knowledgeable party that is independent of the anti-money laundering program and can be internal or external to the organization.


With the earliest of the 2-year periods for these reviews now ended, we can reflect on these reviews and what has been learned.


Based upon reviews conducted by KPMG Forensic, larger entities face the challenge of attaining truly cohesive AML programs given the large number of individuals and systems required to manage their requirements. On the other hand, smaller entities face the challenge of building effective AML programs and implementing systems with smaller budgets while still being able to manage all requirements under the Act and cope with growing needs and businesses.


We found that our independent reviews helped identify issues that have hindered the effectiveness of AML programs in place and to start a conversation to enhance AML compliance programs.

 

What the Future Holds

Now that FINTRAC has reached the decade milestone and addressed key deficiencies noted in the FAFT’s latest mutual evaluation issued in February 2008, it expects advances of the same nature from reporting entities. FINTRAC expects those businesses that have been subject to the requirements for almost 10 years to have mature compliance programs as well. The effectiveness of these entities’ programs is ultimately measured by the extent to which they are able to provide valuable financial intelligence that can have a meaningful impact on investigations.


The US regulator, FinCEN, created in 1990, had a 10-year head start on FINTRAC, and its enforcement actions reflect not only its maturity, but also perhaps a different enforcement environment. Hefty penalties are levied and not just because an entity simply failed to have a compliance regime. Failure to have an appropriate anti-money laundering (AML) compliance regime that has been reasonably designed to detect instances of suspicious activity can cause entities in the US to face monetary sanctions and resulting reputational damage.


The signs are that FINTRAC wants to follow FinCEN’s example, and it is starting to clearly communicate its dissatisfaction with the quality of the AML compliance programs at reporting entities in Canada. FINTRAC expects that entities will by now have identified and addressed any gaps in their programs.


FINTRAC has also steadily increased its examination coverage rate, a reflection of its maturation with respect to compliance and the enforcement of the Act. Its enforcement mission will benefit from measures that were announced by the Minister of Finance in the 2010 Federal Budget. The Budget included an CA$8 million increase in FINTRAC’s operating budget aimed to improve its compliance function.


This budget increase is anticipated to give FINTRAC much needed resources toward compliance enforcement and a greater presence in all sectors. As a direct result, FINTRAC will be conducting enhanced compliance activities involving federally regulated financial institutions (FRFIs) which will be independent of reviews conducted by the Office of the Superintendent of Financial Institutions. FINTRAC clearly laid out its expectations and its intent to increase the examination coverage of the FRFIs sector with a focus on the quality of the reports.

 

It’s All About Financial Intelligence
Although FINTRAC has an important role in monitoring compliance, its ultimate purpose is to turn transaction reports into meaningful financial intelligence to help law enforcement in the fight against money laundering and terrorist activity financing. Over the course of the past decade, FINTRAC has significantly ramped up its case disclosures, assisting investigations of drug trafficking, smuggling, terrorist activity financing, fraud, and other predicate offences of money laundering. The financial transactions behind these crimes provide invaluable assistance in a diverse number of investigations.


The 2010 Budget also put forward measures that would amend regulations under the Criminal Code, making tax evasion a predicate offence for money laundering. This will enable FINTRAC to provide financial intelligence to police in cases where money laundering is suspected in relation to tax evasion. The measures proposed in the 2010 Budget are aimed at ensuring that Canada continues to keep up with the global efforts to fight money laundering and terrorist activity financing.


FINTRAC recognizes that its success is tied to the ability of reporting entities to deliver timely and good quality financial transaction reports. Compliance with the reporting obligations set out in the Act ultimately serves the production of financial intelligence. Good and timely information at the front end of this process can make all the difference.



list of watch list

clock January 17, 2011 09:01 by author Admin
■Automatic update of Office of Foreign Assets Control (OFAC) list ■Automatic update of any installed lists ■Easy upload of new USA PATRIOT Act Section 314(a) lists ■Automatic nightly scans of customer accounts and vendors against OFAC and enabled lists ■Real-time searching of OFAC and other enabled lists ■Create your own internal watch list for nightly scanning ■Easy International ACH Transaction (IAT) file uploads for immediate scanning ■Quickly acknowledge an alert as a non-match ■Easy-to-follow investigation workflow ■Email notification of new alerts ■Manage and prioritize your review workload using risk-rated alerts ■Advanced search capabilities using phonetics and similar name spelling ■Search history and investigation statistics available in audit logs and summary reports ■Organize and document your investigation using the Case Management component


OSFI Issues Draft Revised Guideline B-8

clock January 10, 2011 22:12 by author Admin
OSFI Issues Draft Revised Guideline B-8 – Deterring and Detecting Money Laundering and Terrorist Financing Jacqueline Shinfield As anticipated, on November 7, 2008, the Office of the Superintendent of Financial Institutions of Canada (OSFI) released a DRAFT revised Guideline B-8, which deals with OSFI’s expectations in respect of federally regulated financial institutions (FRFIs) policies and procedures and risk controls for deterring and detecting money laundering and terrorist financing. This Guideline has been expected by the financial industry for some time, given that the previous Guideline B-8 was issued before the recent amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PC Act) and many of its provisions have been incorporated in the PC Act and its regulations. The Guideline is still in draft form. OSFI will be accepting comments regarding the Guideline until Wednesday, December 10, 2008 through industry associations. Of significant note is that OSFI is of the view that the Guideline does not create any new regulatory requirements, but rather is intended to underpin current regulatory requirements. Accordingly, OSFI has advised that FRFIs should consider the provisions of the Guideline as mandatory. FRFIs should review their existing policies and procedures to ensure that they meet the expectations of this Guideline. Given the short comment period and the intention of OSFI to implement this Guideline in December 2008, it is unlikely that there will be significant changes. Highlights of the Guideline as are follows: 1. FRFIs. The Guideline applies to federally regulated financial institutions, which is defined at the end of the Guideline to include “banks, authorized foreign banks in respect of their business in Canada (foreign bank branches or FBBs), companies to which the Trust and Loan Companies Act applies, and life insurance companies or foreign life insurance company branches to which the Insurance Companies Act applies; and includes an FRFI’s branches and subsidiaries world wide, if applicable”. 2. The Role of the CAMLO. The Guideline sets out detailed information on OSFI’s expectations of the person who assumes the role of the Chief Anti-Money Laundering Officer (CAMLO). The CAMLO is expected to be positioned centrally at an appropriate senior corporate level and should have clear and documented responsibility and accountability for the AML/ATF program content and design. The CAMLO should have unfettered access to all pertinent information, records and personnel throughout the FRFI and should have working knowledge of AML/ATF regulatory requirements. Appropriate professional qualifications, including strong leadership skills, are seen as essential. The Guideline also sets out specific duties for which the CAMLO should be responsible. The CAMLO is expected to be responsible for both the regulatory compliance component and the broader risk management component of the FRFI’s AML/ATF program. 3. Assessment of Internal Risk. The Guideline sets out risk categories that an FRFI should utilize in its risk assessment, but provides that such categories should not be regarded as “checklists” or finite sets of requirements. In the various risk categories set out in the Guideline, the following points are noteworthy of what OSFI considers may indicate higher risk customers: Client Risk clients who began a relationship or opened an account with the FRFI prior to the coming into force of the PC Act and who have not been subsequently identified and had their identities ascertained; Business Relationship Risk accountants, lawyers or other professionals holding comingled fund accounts where beneficial ownership of funds is difficult to verify; Product/Service Risk trade finance services where the FRFI cannot assess whether the value of goods or services is reasonable; credit accounts where large credit balances can be maintained; and Delivery Channel Risk Internet, telephone and mail, when used to deliver client applications and other electronic banking services. 4. Control Policies and Procedures. OSFI has indicated that it is essential that the AML/ATF procedures of an FRFI clearly state what actions are to be taken by whom, where and when. 5. Client Due Diligence. The Guideline provides that, as a general principle, a business relationship should only be entered into or maintained with a client if the FRFI is satisfied that the information gathered demonstrates that the FRFI knows the client; in other words, the client has disclosed their true identity and a legitimate purpose for entering into or maintaining the business relationship with the FRFI. 6. Client Identification. OSFI indicates in the Guideline that where a client presents a higher risk, the FRFI should consider supplementing the identification requirements set out in the PC Act with additional evidence of identity. 7. Source of Accumulated Funds or Wealth. The Guideline provides that FRFIs should satisfy themselves with respect to the amount of a client’s accumulated funds or wealth to ensure that it appears consistent with and reasonable in light of information provided by the customer. 8. Mortgage Loans. The Guideline requires an FRFI to assess the risk that property secured by a mortgage loan might be used for illegal cultivation or manufacture of illicit substances. If there is such a risk, additional due diligence measures are prescribed. 9. PEFPs and Commercial Databases. OSFI provides guidance in the Guideline in respect of consulting a commercial database for screening for PEFPs, including consideration of the limitations of commercial databases. 10. New Technologies. The Guideline addresses new technologies that may not be caught under the PC Act. In this respect, the Guideline indicates that it expects FRFIs to have policies and procedures in place to ensure that new and developing technologies are included in the risk assessment. By doing so, an FRFI can ensure that appropriate AML/ATF measures and controls are in place. Examples that OSFI cites of new and developing technologies include: stored value cards where clients are permitted to download funds into a deposit or credit account; mobile telephone technology; and various e-money services that have similar characteristics. 11. Screening of Financial Institutions’ Directors and Officers. OSFI’s recent Guideline E-17, finalized in February 2008 and effective as of January 31, 2009, outlines OSFI’s expectations in respect of assessing suitability and integrity of an FRFI’s directors and senior management. Although that Guideline does not specifically require AML/ATF checks against directors and officers, FRFI’s policy in respect of such assessments will now be reviewed as part of an FRFI’s AML/ATF assessment. 12. Sanctions/Name Searching. OSFI has indicated that it will issue a new Guideline in 2009 dealing with the obligations imposed on FRFIs relating to designated name searching, listing and reporting, and economic and anti-proliferation sanctions. 13. Other matters addressed in the Guideline. OSFI provides detailed analysis and guidance in the following additional areas: correspondent banking; processing electronic funds transfers; trade finance issues; aggregation of cash transactions; suspicious and attempted suspicious transactions; self-assessment and controls; and effectiveness testing. If you have any questions in respect of the Guideline, please contact Jacqueline Shinfield at 416-863-3290 or Dawn Jetten at 416-863-2956 or any other member of our Financial Services Group. Related Articles There are no related articles.


OSFI Issues Draft Revised Guideline B-8

clock January 10, 2011 22:12 by author Admin

OSFI Issues Draft Revised Guideline B-8 – Deterring and Detecting Money Laundering and Terrorist Financing

Jacqueline Shinfield

As anticipated, on November 7, 2008, the Office of the Superintendent of Financial Institutions of Canada (OSFI) released a DRAFT revised Guideline B-8, which deals with OSFI’s expectations in respect of federally regulated financial institutions (FRFIs) policies and procedures and risk controls for deterring and detecting money laundering and terrorist financing. This Guideline has been expected by the financial industry for some time, given that the previous Guideline B-8 was issued before the recent amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PC Act) and many of its provisions have been incorporated in the PC Act and its regulations.

The Guideline is still in draft form. OSFI will be accepting comments regarding the Guideline until Wednesday, December 10, 2008 through industry associations.

Of significant note is that OSFI is of the view that the Guideline does not create any new regulatory requirements, but rather is intended to underpin current regulatory requirements. Accordingly, OSFI has advised that FRFIs should consider the provisions of the Guideline as mandatory.

FRFIs should review their existing policies and procedures to ensure that they meet the expectations of this Guideline. Given the short comment period and the intention of OSFI to implement this Guideline in December 2008, it is unlikely that there will be significant changes.

Highlights of the Guideline as are follows:

1. FRFIs. The Guideline applies to federally regulated financial institutions, which is defined at the end of the Guideline to include “banks, authorized foreign banks in respect of their business in Canada (foreign bank branches or FBBs), companies to which the Trust and Loan Companies Act applies, and life insurance companies or foreign life insurance company branches to which the Insurance Companies Act applies; and includes an FRFI’s branches and subsidiaries world wide, if applicable”.

2. The Role of the CAMLO. The Guideline sets out detailed information on OSFI’s expectations of the person who assumes the role of the Chief Anti-Money Laundering Officer (CAMLO).

The CAMLO is expected to be positioned centrally at an appropriate senior corporate level and should have clear and documented responsibility and accountability for the AML/ATF program content and design.

The CAMLO should have unfettered access to all pertinent information, records and personnel throughout the FRFI and should have working knowledge of AML/ATF regulatory requirements. Appropriate professional qualifications, including strong leadership skills, are seen as essential.

The Guideline also sets out specific duties for which the CAMLO should be responsible.

The CAMLO is expected to be responsible for both the regulatory compliance component and the broader risk management component of the FRFI’s AML/ATF program.

3. Assessment of Internal Risk. The Guideline sets out risk categories that an FRFI should utilize in its risk assessment, but provides that such categories should not be regarded as “checklists” or finite sets of requirements.

In the various risk categories set out in the Guideline, the following points are noteworthy of what OSFI considers may indicate higher risk customers:

Client Risk

  • clients who began a relationship or opened an account with the FRFI prior to the coming into force of the PC Act and who have not been subsequently identified and had their identities ascertained;

  • Business Relationship Risk

  • accountants, lawyers or other professionals holding comingled fund accounts where beneficial ownership of funds is difficult to verify;

Product/Service Risk

  • trade finance services where the FRFI cannot assess whether the value of goods or services is reasonable;

  • credit accounts where large credit balances can be maintained; and

Delivery Channel Risk

  • Internet, telephone and mail, when used to deliver client applications and other electronic banking services.

4. Control Policies and Procedures. OSFI has indicated that it is essential that the AML/ATF procedures of an FRFI clearly state what actions are to be taken by whom, where and when.

5. Client Due Diligence. The Guideline provides that, as a general principle, a business relationship should only be entered into or maintained with a client if the FRFI is satisfied that the information gathered demonstrates that the FRFI knows the client; in other words, the client has disclosed their true identity and a legitimate purpose for entering into or maintaining the business relationship with the FRFI.

6. Client Identification. OSFI indicates in the Guideline that where a client presents a higher risk, the FRFI should consider supplementing the identification requirements set out in the PC Act with additional evidence of identity.

7. Source of Accumulated Funds or Wealth. The Guideline provides that FRFIs should satisfy themselves with respect to the amount of a client’s accumulated funds or wealth to ensure that it appears consistent with and reasonable in light of information provided by the customer.

8. Mortgage Loans. The Guideline requires an FRFI to assess the risk that property secured by a mortgage loan might be used for illegal cultivation or manufacture of illicit substances. If there is such a risk, additional due diligence measures are prescribed.

9. PEFPs and Commercial Databases. OSFI provides guidance in the Guideline in respect of consulting a commercial database for screening for PEFPs, including consideration of the limitations of commercial databases.

10. New Technologies. The Guideline addresses new technologies that may not be caught under the PC Act. In this respect, the Guideline indicates that it expects FRFIs to have policies and procedures in place to ensure that new and developing technologies are included in the risk assessment. By doing so, an FRFI can ensure that appropriate AML/ATF measures and controls are in place. Examples that OSFI cites of new and developing technologies include: stored value cards where clients are permitted to download funds into a deposit or credit account; mobile telephone technology; and various e-money services that have similar characteristics.

11. Screening of Financial Institutions’ Directors and Officers. OSFI’s recent Guideline E-17, finalized in February 2008 and effective as of January 31, 2009, outlines OSFI’s expectations in respect of assessing suitability and integrity of an FRFI’s directors and senior management. Although that Guideline does not specifically require AML/ATF checks against directors and officers, FRFI’s policy in respect of such assessments will now be reviewed as part of an FRFI’s AML/ATF assessment.

12. Sanctions/Name Searching. OSFI has indicated that it will issue a new Guideline in 2009 dealing with the obligations imposed on FRFIs relating to designated name searching, listing and reporting, and economic and anti-proliferation sanctions.

13. Other matters addressed in the Guideline. OSFI provides detailed analysis and guidance in the following additional areas:

  • correspondent banking;

  • processing electronic funds transfers;

  • trade finance issues;

  • aggregation of cash transactions;

  • suspicious and attempted suspicious transactions;

  • self-assessment and controls; and

  • effectiveness testing.

If you have any questions in respect of the Guideline, please contact Jacqueline Shinfield at 416-863-3290 or Dawn Jetten at 416-863-2956 or any other member of our Financial Services Group.



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Merdad Aboudizadeh is the architect and creator of office exchange software

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