FINTRAC’s Implementation of Regulatory Amendments

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FINTRAC’s Implementation of Regulatory Amendments

In an effort to further improve the effectiveness of the Anti-Money Laundering and Anti-Terrorist Financing Regime, two sets of regulatory amendments were published in the Canada Gazette on July 10, 2019, and another one more recently on June 10, 2020. Some of the regulatory amendments came into force on June 1, 2020, but the majority of the amendments will come into force on June 1, 2021, the latter of which is the focus of this message to all reporting entities.
FINTRAC wants to acknowledge the valuable contributions and the ongoing collaboration, on the implementation of these amendments by the Canadian Bankers Association and its members, as well as the Guidance and Policy Interpretation Working Group (GPIWG) and the FINTRAC Reporting Working Group (FRWG), which both have representation from all reporting entity sectors. Furthermore and to help reporting entities understand their obligations, FINTRAC regularly provides presentations at conferences and training events attended by reporting entities, industry associations and other regulators

Guidance and Policy Interpretation Working Group (GPIWG)
The Guidance and Policy Interpretation Working Group (GPIWG) is chaired by FINTRAC and reports to the Advisory Committee on Money Laundering and Terrorist Financing (ACMLTF), which is led by Finance Canada. The GPIWG membership generally consists of national industry associations representing most reporting entity sectors. The GPIWG members identify and discuss guidance and interpretation issues related to all sectors, as well as technical issues and questions that may arise. They also provide views on the development of guidance and on regulatory/legislative measures.

Implementation plan for regulatory amendments
The implementation of the above-noted regulatory amendments involves two key streams: 1) changes to FINTRAC’s and reporting entities’ IT systems; and, 2) the drafting of over 60 guidance documents.
1. Delivery schedule of IT systems changes
FINTRAC’s delivery schedule involves a staggered implementation approach for the reporting obligations coming into force on June 1, 2021. Since last summer, FINTRAC has been collaborating with dealers in virtual currency (VC) and other representatives from reporting entity sectors to develop the new large virtual currency transaction report (LVCTR). The LVCTR has been the priority of FINTRAC since all reporting entities will be required to use this new reporting form as of June 1, 2021, to report VC transactions of a value of $10,000 or more to FINTRAC. As shown in the delivery schedule, FINTRAC will continue to work closely with reporting entities in revising the existing forms. FINTRAC will provide batch reporting specifications, as well as reporting guidance, to reporting entities approximately nine (9) months in advance of the roll-out of each revised form, allowing time for systems changes and user testing before each form is finalized and operational.
FINTRAC expects reporting entities to comply with the amendments, but understands that many may face challenges in meeting these new and changing obligations because of pandemic-related stresses on their businesses. Given the scope and magnitude of the changes, and the impact on both FINTRAC and REs, FINTRAC will exercise flexibility when assessing and enforcing the Regulations.

View the text equivalent for Legs & Regs – Roll-out Plan (as of January 2021)
The diagram is entitled “Delivery schedule”. It is a timeline going from October 2020 to April 2024 divided into three-month periods. The coming into force date of June 1, 2021 is marked with a diamond on the timeline. Below the timeline, there are activities and their respective dates.
As part of the first group of activities, there is an icon that indicates that the distribution of the Large Virtual Cash Transaction Report (LVCTR) package, including technical specifications, validation rules and guidance, will take place in February 2021. This is followed by “REs to Test LVCTR Upload” from March 2021 to May 2021. There is an icon following this activity that indicates that the Reporting of LVCTR starts via the uploading functionality on June 1, 2021.
The second group of activities includes five activities, starting with “FINTRAC to Develop LVCTR Report Specifications” which goes from January 2021 to May 2021. There is an icon following this activity that indicates that the distribution of report specifications (RESTful API, XML, JSON), validation rules and guidance will be done in June 2021. It is followed by “REs to Develop LVCTR” from June 2021 to January 2022, then “ Convert and Certify” from February 2022 to April 2022. There is an icon following this activity that indicates that the reporting starts via RESTful API, FWR and Batch will start on May 2022.
The third group of activities includes six activities, starting with “Collaborate on STR and LCTR Requirements” which goes from June 2021 to December 2021. It is followed by “FINTRAC to Develop Report Specifications” from January 2022 to May 2022. There is an icon following this activity that indicates that the distribution of report specifications (RESTful API, XML, JSON), validation rules and guidance will be done in June 2022. This is followed by “REs to Develop STR and LCTR” from June 2022 to November 2022, and “Certify” from December 2022 to February 2023. There is an icon following this activity that indicates that reporting via RESTful API, FWR and Batch will start in March 2023.
The fourth and final group of activities includes six activities, starting with “Collaborate on EFTR and CDR Requirements” which goes from June 2022 to December 2022. It is followed by “FINTRAC to Develop Report Specifications” from January 2023 to May 2023. There is an icon following this activity that indicates that the distribution of report specifications (RESTful API, XML, JSON), validation rules and guidance will be done in June 2023. This is followed by “REs to Develop EFTR and CDR” from June 2023 to November 2023 and “Certify” from December 2023 to February 2024. There is an icon following this activity that indicates reporting starts via RESTful API, FWR and Batch will start in March 2024.
2. Drafting of guidance documents and consultations
FINTRAC values the diverse views of reporting entities and consults broadly on new or revised guidance documents before publishing them on its website. In support of the implementation of the regulatory amendments, there are approximately 60 guidance documents that need to be developed or updated. Broad consultations are done mainly through the GPIWG, while other sector-specific consultations will be done with particular sectors. With the input of GPIWG members, FINTRAC aims to consult on the draft guidance documents in order of priority and will publish the majority of them in a staggered approach before June 1, 2021. It should be noted that guidance related to existing reporting forms will be published after June 1, 2021 as indicated in the delivery schedule provided above.
FINTRAC will continue to be flexible and use its operational discretion to mitigate current and emerging risks, and will inform all stakeholders of any revisions in its implementation plan, including any changes to the delivery schedule. Please refer to this website and @FINTRAC_Canada on Twitter for future updates.

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Guidance on the risk-based approach to combatting money laundering and terrorist financing – June 2017 
Guidance on the risk-based approach to combatting money laundering and terrorist financing

This guidance and the sector specific risk-based assessment workbooks have not been updated to reflect recent legislative amendments and will be removed from FINTRAC’s website on June 1, 2021.

June 2017
Table of Contents
Introduction
The Concept of Risk
General Overview and Purpose of this Guidance
Risk-Based Approach Cycle

Annex A – References
Annex B – Example of Risk Segregation for Business Based Risk Assessment
Annex C – Likelihood and Impact Matrix Tool
Introduction
The object of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations is to detect and deter money laundering and terrorism financing. In 2008, the Government of Canada introduced amendments to the PCMLTFA and its Regulations to enhance the Canadian anti-money laundering and anti-terrorism financing (AML/ATF) regime.  As part of these amendments, the Risk-Based Approach (RBA), which requires reporting entities to conduct assessments of their exposure to money laundering and terrorism financing risk using a number of prescribed criteria, was introduced. These criteria are further discussed in this document. FINTRAC has also provided guidance on this matter in Guideline 4: Implementation of a Compliance Regime.
On the international front, the Financial Action Task Force (FATF), an inter-governmental body, has developed a series of Recommendations that are recognised as the international standard for combating money laundering, terrorism financing and other related threats to the integrity of the international financial system.  More specifically, the FATF developed Recommendation 1 on the RBA, an effective way to combat money laundering and terrorist financing.
By regularly assessing their money laundering and terrorism financing risks, reporting entities can protect and maintain the integrity of their businesses while contributing to the integrity of the Canadian financial system as a whole. While each reporting entity is responsible for its own risk assessment, FINTRAC has developed this guidance document to help reporting entities meet the RBA obligations.
This guidance document is structured to help reporting entities better understand what the RBA is and take inventory of their risks relating to products, services and delivery channels, clients and business relationships, geography and other relevant factors. It will also help in implementing effective mitigation measures and in monitoring the money laundering and terrorist financing risks reporting entities may have or encounter as part of their activities and business relationships.
This guidance document is intended for all activity sectors covered under the PCMLTFA. However, some examples and/or indicators may apply only to certain activity sectors.
Note: Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations require that you consider the risk of new technologies and developments as well as the risk resulting from the activities of affiliates will be coming into force in June 2017. These new elements will be further developed in this guidance document in the coming months.
The Concept of Risk
What is risk?
Risk can be defined as the likelihood of an event and its consequences. In simple terms, risk can be seen as a combination of the chance that something may happen and the degree of damage or loss that may result from such an occurrence. In the context of money laundering/terrorist financing (ML/TF), risk means:
At the national level: threats and vulnerabilities presented by ML/TF that put at risk the integrity of Canada’s financial system and the safety and security of Canadians.
At the reporting entity level: threats and vulnerabilities that put the reporting entity at risk of being used to facilitate ML/TF.

Threats: this could be a person (or group), object that could cause harm. In the ML/TF context, a threat could be criminals, facilitators, their funds or even terrorist groups.
Vulnerabilities: elements of a business that could be exploited by the identified threat. In the ML/TF context, vulnerabilities could be weak controls within a reporting entity, offering high risk products or services, etc.
Impact: this refers to the seriousness of the damage that would occur if the ML/TF risk materializes (i.e. threats and vulnerabilities)

What is risk management?
Risk management is a process that is widely used in the public and private sector to assist in decision-making. When dealing with ML/TF, it is the process that includes the recognition of ML/TF risks, the assessment of these risks, and the development of methods to manage and mitigate the risks that have been identified.
What are inherent and residual risks?
When assessing risk, it is important to distinguish between inherent risk and residual risk. Inherent risk is the intrinsic risk of an event or circumstance that exists before the application of controls or mitigation measures. On the other hand, residual risk is the level of risk that remains after the implementation of mitigation measures and controls. These concepts are further defined and explained in this guidance document. However, it is important to clarify that the risk assessment exercise described in this document focuses on the inherent risks to your business, activities and clients.
What is a risk-based approach?
In the context of ML/TF, a risk-based approach is a process that encompasses the following:
The risk assessment of your business activities and clients using certain prescribed elements;
Products, services and delivery channels;
Geography;
Clients and business relationshipsFootnote 1; and
Other relevant factors.

The mitigation of risk through the implementation of controls and measures tailored to the identified risks;
Keeping client identification and, if required, beneficial ownership and business relationship information up to date in accordance with the assessed level of risk; and
The ongoing monitoring of transactions and business relationships in accordance with the assessed level of risk.
It is paramount to remember that assessing and mitigating the risk of ML and TF is not a static exercise. The risks that have been identified may change or evolve over time as new products or new threats enter your business context. Consequently, your risk-based approach should be re-evaluated and updated when the risk factors change.
General Overview and Purpose of this Guidance
By law, your compliance regime has to include:
the appointment of a compliance officer;
the development and application of compliance policies and procedures. These policies and procedures have to be written and kept up to date;
an assessment and the documentation of risks related to ML/TF, as well as the documentation and implementation of mitigation measures to deal with those risks;
an ongoing compliance training program (if you have employees or agents or other individuals authorized to act on your behalf). The training program has to be written and maintained; and
a review of your compliance policies and procedures to test their effectiveness. The review has to cover your policies and procedures, your assessment of risks related to money laundering and terrorist financing and your training program.
This guidance document will mainly focus on item 3: the assessment and documentation of risks related to ML/TF.
The nature of some of your business activities, and the business relationships you have with certain individuals exposes your business to ML and TF risks. In order to mitigate these risks, and to comply with the PCMLTFA and associated Regulations, your reporting entity must conduct a risk assessment. This will allow you to establish procedures and controls that will help detect and mitigate possible ML/TF activities.
It should be noted that conducting high-risk activities or having high-risk business relationships is not against the law. Defining clients as high-risk does not cast your business in a bad light; it is an assessment that allows you to ensure that controls are put in place to mitigate the risks and to apply prescribed special measures. 
 
 This guidance document should help you:
Consider business-wide elements or factors that may impact your ML/TF risk and apply controls and measures to mitigate the risks, addressing:
Your products, services and delivery channels;
Your business’ geography; and
Other factors relevant to your specific activities (e.g. legal, environmental, etc.)

Evaluate the risks associated with your clients and business relationships by looking at:
The products, services and delivery channels they utilize;
The geography related to your clients (their location, links to high-risk countries, where they conduct their business and transactions, etc.); and
Their activities, transaction patterns, characteristics, etc.
This specific assessment will allow you to identify high-risk business relationships and apply the prescribed special measures.

Identify and validate controls to mitigate your high-risk activities and business relationships, including prescribed special measures; and
Review and assess the status of your compliance regime with the PCMLTFA as well as the adequacy of your current controls to mitigate the identified high risks.
Risk-Based Approach Cycle
The following cycle represents the six steps of your risk-based approach:
identification of your inherent risks (business-based risk assessment along with the relationship-based risk assessment);
setting your risk tolerance;
creating risk-reduction measures and key controls;
evaluating your residual risks;
implementing your risk-based approach; and
reviewing your risk-based approach.
Overall FINTRAC expectations in regards to the RBA:
The expectations below are generic in nature.

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An investigation by RCMP NL Federal Serious and Organized Crime has netted significant results in ensuring justice was served to three individuals who were charged as a result of Project Broken. The extensive investigation examined an organized crime group and its inter-provincial drug trafficking network, which was responsible for the importation of large volumes of cocaine into the province and the laundering of monies associated with its operation.
On December 10, 2020, St. John’s resident Jonathan Brandon Mahon was sentenced in Newfoundland and Labrador Provincial Court to 7.5 years in jail after pleading guilty to the offences of Conspiracy to Traffic Cocaine, Possession of the Proceeds of Crime, Money Laundering, Careless Storage of a Firearm and Possession of an Unauthorized Firearm. He was also ordered to pay a fine of $196,255 in relation to the money laundering offences. At the time of his arrest, police seized a number of high-end vehicles and other items. These items have been forfeited to the Crown.
Project Broken led to the largest single seizure of illicit cash by police in the history of Newfoundland and Labrador, over $840,000, with other items seized including six kilograms of cocaine, firearms and vehicles. RCMP NL provided details of the investigation in a news conference on December 5, 2018. The total value of all items seized, including cash, was approximately $1.4 million. Multiple individuals were charged. For further details, see the Background links below.
Others also pled guilty for their roles in the distribution of cocaine from Quebec to Newfoundland and Labrador. On November 27, 2020, Michael Douglas Smith pled guilty in Quebec Superior Court to charges of Conspiracy to Traffic Cocaine and Possession of the Proceeds of Crime for his role in overseeing the distribution. Smith, who was already in jail as a result of a separate investigation (Project Tailwind), received a seven-year sentence.
On the same day, Charlotte Toomey entered guilty pleas to charges of Conspiracy to Traffic Cocaine and Possession of the Proceeds of Crime. She will return to court on March 11, 2021 for sentencing and remains free on bail.
Charges against others as a result of Project Broken remain before the courts.
The RCMP NL Federal Serious and Organized Crime Unit targets criminal activity involving national security, transnational and serious organized crime and cyber crime throughout the entire province of Newfoundland and Labrador.

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News release: FINTRAC releases money laundering indicators associated with online child sexual exploitation in support of Project Shadow

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News release: FINTRAC releases money laundering indicators associated with online child sexual exploitation in support of Project Shadow

December 10, 2020 – Ottawa – Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
FINTRAC published today its latest Operational Alert, Laundering of Proceeds from Online Child Sexual Exploitation, in support of Project Shadow. This Alert will assist businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in better identifying and reporting to FINTRAC financial transactions related to the laundering of funds associated with online child sexual exploitation.
The Operational Alert and its indicators were developed from an analysis of FINTRAC’s financial intelligence and in consultation with Scotiabank, the Canadian Centre for Child Protection and the Royal Canadian Mounted Police’s Sensitive and Specialized Investigative Services.
With the suspicious transaction reporting received from Canadian businesses across the country, FINTRAC will be able to generate and disclose additional financial intelligence to Canada’s police and law enforcement agencies in support of their money laundering investigations related to online child sexual exploitation.
FINTRAC’s Operational Alert will help facilitate and advance Project Shadow, Canada’s latest public-private partnership focused on combatting money laundering associated with financial crime. Co-led by Scotiabank and the Canadian Centre for Child Protection, Project Shadow is aimed at improving the collective understanding of online child sexual exploitation and strengthening the detection of the facilitation and the laundering of funds related to this illicit activity.
Quotes

“Through the dedicated efforts of businesses across the country and the financial transactions they report, FINTRAC is able to harness the power of financial intelligence to identify possible perpetrators—and broader networks—linked to this horrific crime. Project Shadow brings together key partners who share the common goal of protecting and rescuing our children from these terrible acts.”
Sarah Paquet, Director and Chief Executive Officer, FINTRAC

“Project Shadow shines a spotlight on the dark nature of online child sexual exploitation and how criminals are using our financial system to support their illicit activities. I believe our collective efforts to increase awareness, identify typologies and facilitate reporting to law enforcement will make an immeasurable difference in helping to combat this heinous crime.”
Stuart Davis, Executive Vice President and Global Head, Financial Crimes Risk Management, Scotiabank

“Every minute of every day, thousands of survivors of child sexual abuse are exploited online as offenders sell and trade the worst moments of their lives. Survivors need every single one of us in the battle against this horrific crime. Project Shadow is a new weapon against those profiting from the sexual exploitation of our most vulnerable, providing a critical insight into the complexity of the commercial nature of these crimes.”
Lianna McDonald, Executive Director, Canadian Centre for Child Protection

“Online child sexual exploitation is an insidious and horrendous crime. Project Shadow is helping us to investigate this illicit activity, identify and remove victims from sexually exploitative environments, and bring those who commit these terrible crimes to justice. Online child sexual exploitation is a borderless crime, and this project is a great example of the importance of partnerships in our multi-sectoral response strategies.
Chief Superintendent Marie-Claude Arsenault, Officer in Charge, Sensitive and Specialized Investigative Services, Royal Canadian Mounted Police
Quick Facts
With the reporting that it has received since the creation of Project Shadow, FINTRAC has produced more than 30 financial intelligence disclosures in relation to online child sexual exploitation for police and law enforcement partners.
Based on FINTRAC’s analysis, perpetrators and suspected perpetrators were nearly all males, mostly aged in their 40s and 50s, located in all Canadian provinces and territories, and employed in a wide range of occupations.
The top 10 jurisdictions receiving money transfers linked to online child sexual exploitation were: Philippines, Thailand, Colombia, the United States, Ghana, Ukraine, Dominican Republic, Romania, Jamaica and Russia.
Project Shadow is the fifth public-private partnership involving FINTRAC, the RCMP and Canadian businesses. Project Shadow is modelled after Canada’s innovative and successful public-private sector partnerships targeting human trafficking in the sex trade (Project Protect), trafficking of fentanyl (Project Guardian), romance fraud (Project Chameleon) and casino-related transactions through underground banking (Project Athena).
With Project Protect, for example, FINTRAC has seen a 750% increase in suspicious transaction reporting related to money laundering and human trafficking in the sex trade, and it has provided well over 500 disclosures of actionable financial intelligence to law enforcement agencies across the country and internationally.
Related Product
Associated Links
Contacts
Media RelationsFinancial Transactions and Reports Analysis Centre of Canada613-947-6875
[email protected].

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