2019 AML Updates For DPMS | Outlier Solutions

Background

On July 10^th, 2019, the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations were published. This article is intended to give a high-level summary of the amendments as specific to DPMSs. If you’re the type that likes to read original legislative text, you can find it here. We also created a red-lined version of the regulations, with new content showing as tracked changes, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the amount of changes. There are three different “coming into force” dates that should be noted:

June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
June 1, 2020: changes related dealers in virtual currency (which do not apply to DPMSs).
June 1, 2021: all other regulatory amendments.

This does give regulated entities some time to get their AML compliance programs updated and in order, but we recommend that you start budgeting and planning now.

Updated guidance from FINTRAC is expected to be seen ahead of the coming into force dates. Given the legislative changes, there will be changes to FINTRAC policy interpretations as well so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

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What Does This Mean For My Business?

Changes to Canada’s AML regulations will have a direct impact on DPMS AML obligations, including the following:

Reporting;
Customer identification; and
Compliance Program requirements.

While there are quite a number of changes, only some will have more of an impact on DPMSs. We’ve summarized the changes that will impact DPMSs below.

Defining a DPMS

The recent amendments has changed the definition of a DPMS slightly to read:

(1) A dealer in precious metals and precious stones, other than a department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province, that buys or sells precious metals, precious stones or jewellery, for an amount of $10,000 or more is engaged in an activity for the purposes of paragraph 5(i) of the Act. A department or an agent of Her Majesty in right of Canada or an agent or mandatary of Her Majesty in right of a province carries out an activity for the purposes of paragraph 5(l) of the Act when they sell precious metals to the public for an amount of $10,000 or more.

(2) The activities referred to in subsection (1) do not include a purchase or sale that is carried out in the course of or in connection with manufacturing a product that contains precious metals or precious stones, extracting precious metals or precious stones from a mine or polishing or cutting precious stones.

(3) For greater certainty, the activities referred to in subsection (1) include the sale of precious metals, precious stones or jewellery that are left on consignment with a dealer in precious metals and precious stones. Goods left with an auctioneer for sale at auction are not considered to be left on consignment.

Neither the PCMLTFA, nor the Regulations, define consignment. As understanding of the term can vary, we hope to see this defined in upcoming FINTRAC guidance.

Certain activities that were already exempt from the DPMS designation, including manufacturing jewellery, extracting precious metals or precious stones from a mine, and cutting or polishing precious stones, has been expanded to capture other types of manufacturing processes that may also involve the use or consumption of precious metals and stones (e.g. diamonds used to manufacture drill bits). This is described as being consistent with the original policy intent.

FINTRAC Reporting

Large Virtual Currency Transaction Reporting

If you accept, or plan on accepting, payments using virtual currencies like bitcoin, these will be treated similar to cash payments. For any payments valued at CAD 10,000 or more, made by or on behalf of the same person or entity within a 24-hour period, you will need to identify the customer, and submit a report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

24-hour Rule

The final regulations clarify that multiple transactions performed by, or on behalf of, the same customer or entity within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For DPMSs, this would apply to recipients of CAD 10,000 or more in cash or virtual currency.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or requested transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amended this to “’as soon as reasonably practicable’ after measures have been completed to establish that there are reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing”.

This means that a report will be due shortly after a reporting entity conducts an analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change related to Terrorist Property Reports has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

Information Included in Reports to FINTRAC

Certain information is required in reports to FINTRAC. The final regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. Some of the additional data fields are:

every reference number that is connected to the transaction;
type of device used by person who makes request online;
number that identifies device;
internet protocol address (IP address) used by device;
person’s or entity’s user name; and
date and time of person’s online session in which request is made.

These fields require significantly more data to be included in reports, especially for transactions that are conducted online. Such changes may mean working with your IT folks to ensure you are retaining the necessary data in a format that will be easy to extract.

For full details on what has changed for FINTRAC report fields, we have created unofficial redline which can be found here.

Customer Identification

Currently, there is a requirement that when customers are identified, the document and/or data that you collect must be in its “original” format. The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic”, valid and current. This would allow for scanned copies of identification documents, so long as authentication of the identification documents takes place.

In addition, there are provisions that allow reporting entities to rely on the identification conducted previously by other reporting entities. If this method is used to identify a customer, the reporting entity must immediately obtain the identification information from the other reporting entity, and have a written agreement in place requiring the entity doing the identification to provide the identification verification as soon as feasible.

Reasonable Measures

In cases where DPMSs were required to keep records related to reasonable measures to obtain certain information (such as third-party determinations for large cash transactions), the requirement has been removed with this round of changes. It is important to note that you must still take reasonable measures where necessary, and it is only the requirement to keep a record of the measures used that has been repealed.

New Products & Technology Channels

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. With this round of changes, all reporting entities will be required to assess the risk related to their products and delivery channels, as well as the risk associated with the use of new technologies, prior to release.

This has been a best practice since the requirement to conduct a risk assessment came into force but this change makes this a formal requirement.

Training Program

While training is a current obligation, the current revisions introduce an additional requirement, for all regulated entities, in which there must be a documented plan for the ongoing compliance training program, and delivery of that training. In practice, this means that in addition to documenting the training that has been completed, you will need to clearly document future training plans.

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2019 AML Changes For DPMSs