Please use this webpage along with the Regulatory Compliance page, as the latter has sections devoted to critical areas, such as AML, FATCA, and Privacy. If you haven’t already signed up for a CCUA account, create one here for seamless and continued access to our content.

If you have any questions or any other regulatory compliance matters, please contact Gavin Karaiskos.

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FINTRAC Reporting Forms Update

FINTRAC recently made further changes to their guidance documents to assist businesses, including credit unions, adapt to new reporting forms under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). These updates are vital for ensuring compliance and will be fully implemented by June 2024.

Access to Updated Documents:

• The updates, made in response to feedback from credit unions and other initial testers, are available on the Drafts documents page of FINTRAC's website.
• These documents are marked as "updated" for easy identification and are subject to further changes. Any modifications, including additional validation rules set for release in February, will be communicated to us.

Reporting Submission Options:

1. API Report Submission:

• Designed for high-volume reporting entities, facilitating secure, direct system-to-system report transfers.
• Currently available for electronic funds transfers and casino disbursement reports.
• Entities not yet using this service but who would like to should contact FINTRAC for access (F2R@fintrac-canafe.gc.ca).

2. FINTRAC Web Reporting System (FWR):

• Supports the submission of all report types except Terrorist Property Reports.
• The new Suspicious Transaction Report (STR) form will be introduced in late February, with the Electronic Funds Transfer Report (EFTR) and Casino Disbursement Report (CDR) forms following in June 2024.

Additional Information: A detailed schedule for implementing these changes is provided on FINTRAC's website.

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Financial Crime

Fall Economic Statement Implementation Act

The government recently introduced the Fall Economic Statement Implementation Act, 2023, which amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTA) and its regulations, and the Criminal Code, and has several implications for credit unions in Canada, including the following key points:

Amendments to the PCMLTFA:

• Expanded Definitions and Responsibilities: The amendments introduce new terms like “sanctions evasion offence” and redefine roles, such as expanding the Minister of Public Safety and Emergency Preparedness’s involvement in specific sections. This broadening of definitions and roles implies that credit unions must now be aware of and comply with a broader range of regulatory responsibilities, especially regarding sanction laws and expanded money laundering activities. Many of these points were previously addressed in the 2023 “Consultation on Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime” (CCUA’s sector response can be viewed here).
  • The definition of Minister now refers to the Minister of Finance for all sections aside from sections 24.1 to 39 and 39.13 to 39.39, which refers to the Minister of Public Safety and Emergency Preparedness.
  • New terms are introduced to the Act, including:
    • ‘Sanctions evasion offence’: An offence arising from the contravention of a restriction or prohibition established by an order or a regulation made under the United Nations Act, the Special Economic Measures Act or the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)
    • ‘Acquirer’: An acquirer is an entity that connects a private automated banking machine to a payment card network, as defined in section 3 of the Payment Card Networks Act, to facilitate transactions.
    • ‘Private automated banking machine’: Any automated banking machine that is not owned or operated by a bank as defined in section 2 of the Bank Act, by an association regulated by the Cooperative Credit Associations Act or by a cooperative credit society, a savings and credit union or a caisse populaire regulated by a provincial Act. Credit unions must adhere to new reporting and regulatory requirements if they provide acquirer services for such machines.
  • The amendments allow FINTRAC to apply its expertise and specialised knowledge to create intelligence reports. Where necessary, FINTRAC can share its insights with law enforcement partners, aiding in legal enforcement and increasing Canada’s regime for seizing and forfeiture of assets related to sanctions.
  • Acquirers, intermediary companies that offer cash withdrawal services for white-label ATMs, will fall under the PCMLTFA.
• Enhanced Reporting and Compliance Obligations: The amendments expand reporting obligations related to transactions potentially linked to money laundering, terrorist financing, or sanctions evasion. Credit unions must enhance their transaction monitoring systems and ensure compliance with these expanded reporting requirements.
  • Fraud and money laundering risks are addressed in the real estate sector by extending requirements under the PCMLTFA to title insurers. Real estate agents will be required to identify unrepresented and third parties in real estate transactions.
• Immunity Provisions: The Act provides immunity to entities, including credit unions, from criminal or civil proceedings if they report suspicious activities in good faith. This encourages proactive reporting of suspicious activities without the fear of legal repercussions.
• Customs and Import/Export Reporting: The new regulations extend to reporting goods related to money laundering or sanctions evasion. Credit unions involved in international transactions or financing may have to adhere to these new reporting standards.
• Search and Seizure Powers: Expanded powers in search and seizure, particularly concerning digital assets and virtual currencies, may impact credit unions if they deal with digital financial products or services.
• Administrative Monetary Penalties: Introducing an administrative monetary penalties scheme for non-compliance with the Act means credit unions could face financial penalties for failing to adhere to the new regulations.
• Enhanced Information Sharing and International Cooperation: The Act facilitates more significant information sharing for investigating or prosecuting money laundering or sanctions evasion offences. FINTRAC will be allowed to list names of foreign entities that present money laundering or terrorist financing risks. Credit unions may need to be prepared for increased scrutiny and cooperation with law enforcement and international bodies.
• Increased Scope for Investigation and Enforcement: The amendments extend the scope of investigation and enforcement, which could mean a more rigorous regulatory environment for credit unions.

Amendments to the Criminal Code:

• Amending the Money Laundering Offence: This addresses challenges in prosecuting third-party money launderers. By modifying the existing laws, the government seeks to close loopholes that third-party money launderers might exploit, thereby making it easier to hold these individuals accountable.
• Adapting Production Orders for Financial Data: In response to the rapidly evolving nature of financial crime, the government plans to update production orders for financial data to ensure that the order is more effective in dealing with accounts associated with digital assets, such as cryptocurrencies, which are increasingly being used in financial crimes.
• Modernising Provisions for Search, Seizure, and Restraint: The proposed changes include modernising the legal provisions related to the search, seizure, and restraint of the proceeds of crime. This modernisation is expected to enhance law enforcement’s ability to effectively deal with the proceeds of crime, ensuring that they can be swiftly and efficiently seized and dealt with under the law.
• Enhancing the Authority of the CBSA: The Canada Border Services Agency’s (CBSA) enhanced authority will enable it to better detect, deter, and disrupt trade-based financial crime. This is a crucial enhancement given the prevalence and complexity of trade-based money laundering and the international nature of financial crime.
• Creating a Trade Transparency Unit: Establishing a Trade Transparency Unit within the CBSA will provide a dedicated focus on trade-based financial crime. This unit is expected to play a significant role in uncovering and combating illegal activities that utilise trade to move illicit funds or goods across borders.

Effective Dates:

• Certain sections are effective immediately, while others will come into force on specified dates post-royal assent.
• All amendments to the Criminal Code will be effective 90 days after the enabling Act receives royal assent.

Implications for Credit Unions:

The changes proposed to Canada’s Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) regime will have several implications for credit unions:

• Enhanced Compliance Requirements: Compliance programs should be strengthened to meet the revised standards of the AML/ATF regime. Policies, procedures, and software systems should be updated to track and report transactions, especially those related to digital assets.
• Increased Scrutiny of Transactions: With the focus on third-party money laundering and digital assets, due diligence on transactions must be conducted as applicable to the organisation’s risk exposure. This could include enhanced monitoring of accounts associated with digital assets and increased scrutiny of transactions that might be linked to third-party money laundering.
• Training and Education: Credit unions must ensure that staff are adequately trained to understand and comply with the new regulations. This will require ongoing education and training programs to keep the team updated on the evolving nature of financial crimes and the latest compliance requirements.
• Collaboration with Authorities: The enhanced role of the CBSA and the creation of a Trade Transparency Unit may require credit unions to collaborate more closely with law enforcement and regulatory authorities. Credit unions might need to respond to more requests for information and assist in investigations related to trade-based financial crime.

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Canada's Modern Slavery Act

Canada's Modern Slavery Act represents a significant legislative effort to combat modern slavery and human trafficking in business operations and supply chains. It is expected to come into force on January 1, 2024. It reflects a growing global trend towards increased corporate accountability for human rights issues.

For your awareness, here is a general overview of the critical aspects of the Act:

• Scope and Purpose: The Act addresses issues of forced labour and child labour in the business operations and supply chains of companies operating in Canada or Canadian companies operating abroad.
• Reporting Requirements: It mandates certain entities to annually report on measures to prevent and reduce the risk of forced labour and child labour in their operations and supply chains.
• Applicability: The Act applies to entities, including corporations, trusts, and partnerships, that meet specific criteria regarding annual revenue, business activities, and presence in Canada.
  • Applicability is dependent on the following factors for private sector entities:
    • Produce, sell, or distribute goods in Canada or elsewhere or import goods into Canada, or
    • Control entities engaged in these activities.
  • And:
    • Are either listed on a stock exchange in Canada or have a place of business, do business, or have assets in Canada.
    • Meet at least two of the following conditions in one or the two most recent financial years:
      • At least $20 million in assets.
      • At least $40 million in revenue.
      • An average of at least 250 employees.
• Content of Reports: Reports must include information on the entity's structure, the goods it produces or the services it provides, its policies regarding forced and child labour, and the steps taken to assess and manage the risk of these labour abuses in its operations and supply chains.
• Enforcement and Penalties: The Act provides mechanisms for enforcement, including penalties for non-compliance. Entities that fail to comply with the reporting requirements or that provide false or misleading information may face legal consequences.
• Public Accessibility: The reports must be publicly available, typically on the entity's website, to ensure transparency and facilitate public scrutiny.
• Global Context: This Act is part of a broader global movement where governments increasingly hold businesses accountable for human rights violations in their supply chains. Similar legislation exists in other countries, such as the UK's Modern Slavery Act.
• Impact on Businesses: The Act encourages businesses to be more vigilant and proactive in identifying and addressing human rights abuses in their operations and supply chains. It can also affect consumer perception and investor decisions.
• Collaboration with International Efforts: Canada's Modern Slavery Act aligns with international standards and efforts to combat modern slavery, such as the United Nations Guiding Principles on Business and Human Rights and the International Labour Organization's conventions.

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FINTRAC's Recent AMPs Issued to RBC and CIBC

FINTRAC has recently imposed significant administrative monetary penalties on two of Canada's largest banks, Royal Bank of Canada (RBC) and Canadian Imperial Bank of Commerce (CIBC), for non-compliance with money laundering and terrorist financing measures under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and it’s associated Regulations.

RBC's Penalty

1. Amount: RBC was fined $7.475 million on November 3, 2023.
2. Violations: The fine was imposed for three specific violations:
   • Failure to submit suspicious transaction reports (STRs) in cases where there were reasonable grounds to suspect transactions related to money laundering or terrorist financing.
   • Not filing separate STRs for different branch locations before May 2021.
   • Lack of appropriate and documented governance for implementing anti-money laundering (AML) procedures.
3. Context: These violations were identified during a compliance examination in 2022.
4. Nature of Penalty: This penalty was for administrative violations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations, not for criminal offences​​​​​​.

CIBC's Penalty

1. Amount: CIBC was fined $1.3 million.
2. Violations: The fine was due to:
   • Failure to submit a suspicious transaction report when there was suspicion of it being related to money laundering or terrorist activity.
   • Failures in reporting information related to large money transfers from outside Canada.
3. Context: During its 2021 examination, FINTRAC found an instance where CIBC didn't file an STR despite knowing the client had been arrested and charged with criminal offences; additionally, over a thousand cases where information related to money transfers was incomplete.
4. Resolution: CIBC has fully paid the penalty, and proceedings have concluded​​.

Implications for Credit Unions

While the recent penalties have been imposed on major banks, they serve as a significant reminder and caution for credit unions regarding the importance of compliance with AML and anti-terrorist financing regulations. Credit unions are subject to the same regulatory requirements and must ensure robust systems and processes are in place to detect and report suspicious activities.

Thank you to those who’ve contacted the CCUA to discuss the two recent fines, highlighting potential contradictions between FINTRAC’s previously released guidance and what FINTRAC included as reasoning for the penalties. The CCUA will provide further analysis and support measures shortly to ensure our sector maintains best practices in line with Canada’s AML/ATF regime requirements.

However, the recent enforcement actions by FINTRAC indicate a no-tolerance approach towards non-compliance in the financial sector. Enhanced due diligence measures, improved reporting mechanisms, and ongoing training for staff in credit unions to ensure adherence to regulatory requirements will aid in avoiding similar penalties for credit unions.