Guide to Comply with Canada’s Anti-Money Laundering (AML) Legislation Matthew McGuire, MAcc, CPA, CA, DIFA, CAMS, AMLP Guide to Comply with Canada’s Anti-Money Laundering (AML) Legislation Matthew McGuire, MAcc, CPA, CA, DIFA, CAMS, AMLP DISCLAIMER This publication was prepared by the Chartered Professional Accountants of Canada (CPA Canada) as non-authoritative guidance. CPA Canada and the authors do not accept any responsibility or liability that might occur directly or indirectly as a consequence of the use, application or reliance on this material. Library and Archives Canada Cataloguing in Publication McGuire, Matthew, author   Guide to comply with Canada’s anti-money laundering (AML) legislation / Matthew McGuire, MAcc, CPA, CA, DIFA, CAMS, AMLP. Also available in French. ISBN 978-1-55385-877-5 (pbk.)   1. Money laundering--Canada--Prevention. 2. Money--Law and legislation--Canada- -Criminal provisions. 3. Accounting--Law and legislation--Canada. I. Chartered Profes- sional Accountants of Canada II. Title. KE1024.R42M34 2014     345.71’0268     C2014-905959-0 KF1030.R3 M34 2014 © 2014 Chartered Professional Accountants of Canada All rights reserved. This publication is protected by copyright and written permission is required to reproduce, store in a retrieval system or transmit in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise). For information regarding permission, please contact [email protected] iii Preface The Anti-Money Laundering Committee (AML Committee) of the Chartered Professional Accountants of Canada (CPA Canada) has commissioned this publication Guide to Com- ply with Canada’s Anti-Money Laundering (AML) Legislation to help CPA Canada mem- bers and Accounting Firms deal with recent changes in AML regulatory requirements. Accountants and Accounting Firms are reporting entities under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) with specific regula- tory requirements when they engage in certain activities. This Guide sets out recent changes to Canada’s AML Legislation and provides practical guidance for AML compliance that is relevant to Accountants and Accounting Firms. Accountants and Accounting Firms are at risk of penalties (both monetary and crimi- nal) for non-compliance with the AML Legislation in the event of, for example, failure to report suspicious transactions. An effective AML compliance program is key to mitigat- ing this risk. This publication aids Accountants and Accounting Firms by addressing comprehensive topics including: • AML standards and regime • who and what activities fall within the AML obligations • money laundering risk assessment • development of a compliance regime • AML and privacy obligations • Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) examinations • ongoing monitoring of business relationships Throughout the Guide there are questionnaires and checklists to help Accountants and Accounting Firms ask the right questions, FINTRAC forms, and practical guidance on how to complete the forms. iv Guide to Comply with Canada’s Anti-Money Laundering (AML) Legislation CPA Canada thanks the author, Matthew McGuire of MNP LLP, and acknowledges the contribution of the CPA Canada AML Committee. Particular gratitude is extended to Mr. McGuire’s colleague at MNP LLP, Iain Kenny, who provided valuable input and assistance throughout the project. Gordon Beal, CPA, CA, M.Ed. Vice-President Research, Guidance & Support CPA Canada Anti-Money Laundering Committee Matthew McGuire, MAcc, CPA, CA, DIFA, CAMS, AMLP, Chair Michael Ecclestone, LL.B., CAMS Monica Stark, CA, CAMS Author Matthew McGuire, MAcc, CPA, CA, DIFA, CAMS, AMLP Project Direction, CPA Canada Gigi Dawe, LL.M. Principal, Research, Guidance & Support Leader, Corporate Oversight & Governance Rayna Shienfield, J.D. Principal, Research, Guidance & Support Corporate Oversight & Governance Marial Stirling, CPA, CA, LL.B. Principal, Research, Guidance & Support Corporate Oversight & Governance Gordon Beal, CPA, CA, M.Ed. Vice-President, Research, Guidance & Support v Table of Contents Preface iii CHAPTER 1 Motivation for the Guide 1 CHAPTER 2 Determining if the Obligations Are Applicable 3 2.1 Definition of Accountant and Accounting Firm 3 2.2 Definition of Triggering Activities 4 2.2.1 Giving Instructions Versus Giving Advice 5 2.2.2 Specified Exemptions and Considerations 6 2.2.2.1 Employment Relationship 6 2.2.2.2 Assurance Related Activities 6 2.2.2.3 Trustee in Bankruptcy Services 7 2.2.2.4 Implications of Organizational Structure 7 2.2.2.5 A Note on Client Fees 8 2.3 Questionnaires to Assist in Determining Applicability 8 2.3.1 Do I Have Obligations as an Accountant? 8 2.3.2 Do We Have Obligations as an Accounting Firm? 10 2.4 Determination of Triggering Activities in Larger Firms 11 CHAPTER 3 What to Do if the Obligations Are Applicable 13 3.1 Required Tasks When Engaged in Triggering Activities 13 3.1.1 Receiving Funds of $3,000 or More 14 3.1.1.1 Exemptions 14 3.1.1.2 Receipt of Funds Record 15 3.1.1.3 Client Identification 15 vi Guide to Comply with Canada’s Anti-Money Laundering (AML) Legislation 3.1.2 Receiving Funds of $10,000 or More in Cash 17 3.1.2.1 Exemptions 17 3.1.2.2 Client Identification 17 3.1.2.3 Third Party Determination 19 3.1.2.4 Large Cash Transaction Record and Report 19 3.1.3 Suspicious Transaction or Activity 20 3.1.3.1 Establishing Reasonable Grounds for Suspicion 20 3.1.3.2 How Money is Laundered 21 3.1.3.2.1 Concealment within Business Structures 22 3.1.3.2.2 Misuse of Legitimate Businesses 23 3.1.3.2.3 Use of False Identities, Documents, or Straw Men 23 3.1.3.2.4 Exploiting International Jurisdictional Issues 23 3.1.3.2.5 Use of Anonymous Asset Types 23 3.1.3.3 Indicators of Money Laundering and Terrorist Financing 23 3.1.3.4 Tipping Off 24 3.1.3.5 Client Identification 25 3.1.3.6 Completing the Suspicious Transaction Record and Report 26 3.1.4 Knowledge of Terrorist Property 27 3.1.4.1 Terrorists, Terrorist Groups, and Designated Persons 27 3.1.4.2 Definition of Property 27 3.1.4.3 Filing a Terrorist Property Report 28 3.1.4.4 Advising the RCMP and CSIS 28 3.2 Ongoing Monitoring of Triggering Activity Business Relationships 28 3.2.1 Defining the Purpose and Intended Nature of a Business Relationship 29 3.2.2 Ongoing Monitoring: Detecting Suspicious Transactions and Assessing Consistency of Transactions with Client Knowledge and Risk 29 3.2.3 Ongoing Monitoring: Keeping Client Identification Information Up-To-Date 30 3.2.4 Ongoing Monitoring: Reassessing Client Risk Levels 30 3.3 Implementing and Maintaining a Program to Ensure Performance of Compliance Tasks 31 3.3.1 Designated Compliance Officer 31 3.3.1.1 Sample Role Description of a Compliance Officer 31 3.3.1.2 Sample Qualifications of a Compliance Officer 32 3.3.2 Risk Assessment and Mitigation 32 3.3.2.1 Accountants and Accounting Firms’ Risk of Money Laundering/ Terrorist Financing 32 3.3.2.2 Requirement for a Risk Assessment 33 3.3.2.3 Risk Assessment Process 33 Table of Contents vii 3.3.2.4 Risk Assessment 34 3.3.2.4.1 Clients and business relationships 34 3.3.2.4.2 Products and delivery channels 35 3.3.2.4.3 Geographic location of the activities 35 3.3.2.4.4 Any other relevant factor 36 3.3.2.4.5 Risk Mitigation 36 3.3.3 Enhanced Due Diligence and Ongoing Monitoring 36 3.3.4 Policies and Procedures 38 3.3.4.1 Minimum Policies 38 3.3.4.1.1 General Policies 39 3.3.4.1.2 Reporting 39 3.3.4.1.3 Record Keeping 39 3.3.4.1.4 Ascertaining Identification 39 3.3.4.1.5 Third Party Determination 40 3.3.4.2 Sample List of Policies and Procedure Headings 40 3.3.5 Ongoing Training Program 41 3.3.5.1 Who Must Take the AML Training? 41 3.3.5.2 What Should Be Included in the Ongoing Training Program? 42 3.3.5.3 Sample Training Schedule 42 3.3.6 Effectiveness Review 43 3.3.6.1 What Does the Effectiveness Review Cover? 43 3.3.6.2 Sample Scope 45 CHAPTER 4 AML and Privacy Obligations 47 4.1 Summary of KYC/CDD Requirements 47 4.2 Where AML and Privacy Get Complicated 47 4.3 What Does the AML Legislation Say About EDD Measures? 48 4.4 What Is Required for EDD Measures? 48 4.5 What Information Should Be Documented? 48 CHAPTER 5 Interactions with Other Reporting Entities 49 viii Guide to Comply with Canada’s Anti-Money Laundering (AML) Legislation CHAPTER 6 FINTRAC Examinations 51 6.1 FINTRAC’s Powers 51 6.2 How to Prepare 51 6.3 What to Expect 52 6.4 Follow Up 53 6.5 Compliance Assessment Report 54 CHAPTER 7 Appendix A — Canada’s AML Legislation 55 7.1 Provenance 55 7.2 Purpose 55 7.3 Players 56 7.4 Penalties and Criminal Fines for Non-Compliance 57 CHAPTER 8 Appendix B — Links to FINTRAC Guidance 59 CHAPTER 9 Appendix C — Summary of Changes Effective February 1, 2014 61 CHAPTER 10 Appendix D — FINTRAC Interpretation Notice No. 2 63 CHAPTER 11 Appendix E — FINTRAC Interpretation Notice No. 7 65 CHAPTER 12 Appendix F — Sample Receipt of Funds Record 67