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Outlier Team Update: Promoting Suzie Fernandes

The Outlier team is thrilled to announce that Suzie Fernandes has been promoted to the position of Chief of Staff. 

Suzie joined the Outlier team in 2018. Her ability to be meticulously organized has played a key role in our growth. Her knack for analyzing situations and determining what’s needed to keep the Outlier team moving forward has us excited about her having a more hands-on role in the company maintaining many of our day-to-day operations.

Please join us in congratulating Suzie on her promotion and wishing her well in her new role.

 

 

From the new CEO, David Vijan

Firstly, I want to thank Amber for all the work she has done as Outlier Compliance Group’s CEO for the past 11 years. Outlier Compliance Group is different from other consulting firms which is a testament to her leadership over the years. Amber may be taking time to enjoy other things in life but she will remain with the Outlier team as Chairperson and Strategic Advisor.

This part of the transition delights me to no end. Although I bring almost 20 years of my own compliance and leadership experience, growing, scaling, and professionalizing compliance teams, I truly believe that you only get to the next horizon by collaborating and having the support of the people who got you this far. Knowing that Amber will continue to be a part of the Outlier family is a great comfort.

For our clients, I want to assure you that not much will change. Outlier Compliance Group will continue to be the company where our core staff members have at least 10,000 hours (and often more than a decade) of in-house compliance experience, and we will still be the company that believes good compliance is good business. I may be stepping into the role of CEO but our services are and will remain a team effort. As always, we are committed to providing you with top tier compliance support and we appreciate your business.

As the Canadian regulatory environment becomes more complicated, we will continue to help companies in both established and emerging sectors navigate increasingly complex Canadian regulatory requirements. Our clients range from startups just beginning their compliance journey to large firms looking to elevate their compliance systems to meet an evolving regulatory landscape. As such, we will be looking to offer expanded services, some of which will be formed via strategic partnerships, where it makes sense for our clients’ needs. Stay-tuned for more on that front in the near future. 

I look forward to working with you on your compliance journey and welcome any questions or concerns. Feel free to reach out directly via email to info@outliercanada.com

From the outgoing CEO and incoming Chairperson, Amber D. Scott

When Outlier Solutions Inc. (Outlier Compliance Group) launched in 2013, the business model was relatively novel: a consulting firm made up exclusively of highly-experienced compliance professionals with deep in-house compliance experience. The firm took its name from Malcolm Gladwell’s Book, “Outliers, the Story of Success,” which espoused the notion that to be truly proficient in a skill, 10,000 hours of practice is required. 

That was the bar that was set, met, and most often exceeded by every compliance professional that joined our team over the years. I am very fortunate to have in David Vijan a co-founder and colleague with experience in growing, scaling, and professionalising compliance teams. As of today, David will be officially taking over as CEO of Outlier Solutions Inc.

I cannot imagine anyone more qualified than David to take the business and the team forward. While I will be stepping back from most day-to-day functions, I will remain a strategic advisor to Outlier, and the Chairperson of the Board.  

As I transition into my new role, I can’t help but reflect on the Outlier journey that started over a decade ago. At the beginning, the goal was nothing short of changing the face of consulting. 

I was frustrated with the “leverage model”. This model is used by the big accounting and consulting firms that throw bodies, often junior with little in-house experience, at a problem in the hopes of resolving it, thereby “leveraging” the team members for this purpose. I wanted to do something that was different, not only in terms of the skills of their consultants, but in every aspect of corporate life: from compensation to leadership.

This was not simply hubris on my part, though I’m sure there was a healthy dash of that as well. I wanted to build the types of services that I wished I had access to when I was a Compliance Officer working in-house. 

A wide range of concepts fell under this umbrella, from practical advice on operational compliance, to true fixed-fee services (because no one likes surprise invoices!) It also includes online tools accessible to small businesses that may not be able to pay for consulting services but still have compliance obligations to meet. 

The goal was always to build solutions that would provide excellent value to Canadian businesses, large and small, from coast to coast to coast. My experience at Outlier has exceeded my wildest expectations. If I could go back in time and give a piece of advice to myself as a new entrepreneur, I would tell myself to think bigger!

The week that Outlier was formed, one of my mentors, Michelle McCarthy, asked me if I had thought about what my exit would look like. I hadn’t, and didn’t want to pay that much mind, as I was hyper focussed on solving more immediate problems. 

I told her that I wanted to create something that would not only function but excel without me. I wanted a team of professionals with skills that exceed my own and who would carry the work forward in ways that had not yet occurred to me. I wasn’t thinking about it at the time, but I am now reminded of how one of my favourite business books, Good to Great, emphasises the importance of having the right people in place and the success of internally promoted CEOs. 

My eternal support for and commitment to David, the Outlier team, our clients, and strategic partners is unwaveringly strong. I can say that there is not a doubt in my mind that the Outlier team is the best compliance consulting team in Canada, and I am excited to see how the vision that began over a decade ago continues to grow and expand.

Outlier Compliance Group welcomes Divya Bhaktha!

The Outlier Compliance Group team is thrilled to welcome our newest member, Divya Bhaktha.

Divya brings deep money services business (MSB) and banking experience.

Divya’s Bio

Divya joins the Outlier team with more than 15 years compliance experience working within the Money Services Business and Financial Institution sector. Throughout her career she has held both operational and oversight roles managing regulatory compliance and risk, contributing to the development and implementation of policies and procedures, conducting comprehensive internal compliance audits, effectiveness reviews, risk assessments and the training of team members, senior management and executives; with proven strengths in communication and building strong business relationships.

Divya got into compliance after a short role in accounting, her initial step into the world of AML/ATF was in 2009 when she was given an opportunity to handle the Compliance program for an MSB. In the same year, she gained her ACAMS designation and subsequently attended several ACAMS and MSB conferences to strengthen her knowledge. Once exposed to this world there was no looking back. She started by understanding the societal impact of money laundering and terrorist financing, the critical need for regulations and importance of compliance.

Her passion to get a broader exposure led her to gain experience at an FI and also in the crypto space. It was while working at the FI, that she became aware of something called “Bitcoin” which piqued her interest in crypto. Her experience has provided her with insights into the perspectives and challenges of both the MSB and FI sectors. She is enthusiastic about rethinking problems to uncover solutions and make operational success a reality.

As with all our consultants, Divya has deep subject matter expertise and supports Outlier’s mission statement “good compliance can enable good business”. She is passionate about compliance and risk management, and believes that businesses can be successful and compliant at the same time.

Please join us in welcoming Divya!

She’ll be attending the Futurist conference in Toronto as her first official Outlier event. Please say hello and welcome her to the team.

9 Years of Entrepreneurship


If you had told me ten years ago that I would be in the longest-running position in the history of my career, I wouldn’t have believed you. Back then, I was unhappy for various reasons, and while I had started to think about what I really wanted from my work life, I had yet to take some of the big steps to get there. I won’t go into the gory details of where I was or the situations that weren’t working for me. Suffice it to say that there was a lot that wasn’t working, and I didn’t know how to fix it… but I had some ideas.

If you’re sitting in a spot, like I was then, perhaps feeling a bit despairing and lost despite what many might consider your own success, this post is for you. It’s been written as a love letter, from the woman that I am today to the woman that I was then… Whether today you’re solving problems like a champion, just putting one foot in front of the other, or sitting on the couch thinking that you may want to get up – it’s all part of the journey.

Give yourself permission to name the things that you really want

Once, a former mentor (Lin, a founder of CU Training, now retired) literally gave me permission to take notes with coloured markers. The notes included cartoons of key points. I love to draw. It’s a great memory aid, but it’s something that I saw as being “unprofessional” and had trained myself out of…

This conversation got me thinking – what else hadn’t I given myself permission to write (or draw)? Were there things that I wasn’t giving words to?

Of course, there were.

In fact, there were a whole lot of things that I had been afraid, for one reason or another, to think too deeply about, let alone describe. So many of these things related to what I really wanted from life.

Write it down

This led to a trip to a shop in Victoria, BC, where I bought a beautiful notebook that I didn’t write anything in for a while. It would become the place where I wrote down what I wanted in life. This is the page from that book for “work.”

When I put pen to paper in this book, the rules are simple. I don’t beat myself up about what’s not working in my current state. I have a good think about what I really want, and I write it down. Whether it seems improbable or downright impossible, I write it down.

Looking back at this page, written over a year before my company, Outlier Compliance Group was a conscious thought, I can see its beginnings here.

Keep writing

I look back at and add to the old pages, building on the ideas there. It makes me smile to see where I’ve grown into myself and accomplished things that I thought impossible. I add new pages to the book.

It’s easier now to give myself permission to write than it was at first, but it’s still not easy! That’s okay. I think that’s part of how I know that I’m still growing and pushing myself.

Be open to opportunity

In the last decade, I’ve worked with amazing companies and entrepreneurs. I’ve consulted governments and NGOs. I’ve taught classes and presented at conferences around the world. I’ve made the type of career decisions and personal investments that have set me up to be secure in a way that I would have found unfathomable. Some of the people that I admire most in the world have become mentors and friends.

Sometimes, I think about where I was at various points in my life: living in poverty, in the foster care system, in very unhealthy work environments, and I wish that I could reach back into the past and let that version of me see the me that I am today… to let that version of me know that all of the hard work that I was doing would prepare me for opportunities that I wouldn’t have dared to dream of then.

The best part is that, eventually, success can become a virtuous cycle. The more opportunity I seize, the more seems to flow my way, and the more I am prepared to tackle… and the more that I am able to help others to help themselves along the way!

Take enough risk to get knocked down

This is not to say that it’s easy to seize opportunities, or that I don’t get knocked down from time to time. I do, and it’s not fun!

When something knocks me down, I try to remember that this is the price of “stepping into the ring.” Sometimes, I’ll get knocked down.

This is part of the risk-return curve; there’s no success without risk.

Get back up and do it again

Once, an interviewer presented me with a big list of leadership characteristics and asked me what the most important was to me. After reading the list, I asked if I could add another word to the list. That word is relentlessness, and I stand by it.

This is not to say that I keep doing the same thing over and over and expecting a different result, but rather that I learn, adjust tactics and pursue my goals with ardour.

If you can’t find it, build it

I think that everyone close to me had a sense that I would do something entrepreneurial long before I did. I was always looking for novel ways to solve problems, no matter the environment that I was in. This has become the number one question that I ask entrepreneurs that come to me for advice – what problem are you solving?

It’s important from a business perspective, as well as from a personal satisfaction perspective. When we understand what we’re doing and why, we all tend to be more motivated and focused.

Find your tribe

I am grateful every day for the incredible people in my life. I grew up feeling like an outsider, and I had to a large extent, accepted that this is the way I would always feel (and I was ok with that). It takes me by surprise sometimes to realize that I don’t feel that way anymore. I spend most of my waking hours solving problems and socializing with people that I love, respect and admire. Even when we’re dealing with difficult or stressful situations, I am still grateful for my friends, colleagues and clients every day.

The caveat here is that there are only 24 hours in a day. Each hour that you spend with the wrong folks is a missed opportunity to spend time with the right folks. Choose wisely!

Forgive yourself

This is something that I am still learning, and maybe I will be forever… When I make mistakes, I take it hard. I can hold a grudge for a very long time, and while I think that’s healthy in some cases, I shouldn’t be holding a grudge against myself. Making mistakes is part of learning and growing, and I need to be honest, forgive myself and get to learning rather than dwelling.

The idea that there are only 24 hours in a day is important here too. Time spent beating oneself up is not time well spent.

FINTRAC MSB Registration Expired?!?

FINTRAC Registration

Over the past few months, we have heard from several money services businesses (MSBs) that have experienced issues in renewing their MSB registrations with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). In most cases, these issues are easily resolved. However, if MSB registration issues are not addressed promptly, administrative monetary penalties (AMPs) or criminal charges may ensue.

It is likely that registration-related issues have become more common as FINTRAC is increasingly requesting additional information or clarifications from MSBs as part of the initial registration and registration renewal process. These requests are sent via email to the contact person listed in the MSB registration form.

Check Your MSB registration Status

You can view the status of your MSB registration by searching for your business on the public MSB registry. While this article is about the MSB registration status, anytime you are on this page, it is a useful practice to check to ensure that all of the information is up to date. There are several possible options for the “Registration status of MSB” field:

Registered: this is the status that is displayed for active MSBs. The detailed view will also show the expiry date of the registration.

Ceased: this status is displayed when an MSB has cancelled their registration (e.g. because the business is no longer conducting MSB activity or is only performing MSB activity as the agent of another MSB).

Expired: this status is displayed when an MSB has not submitted an MSB registration renewal on time, has not responded to requests for information from FINTRAC, or has not provided sufficient information to FINTRAC to complete the renewal process.

Revoked: this status indicates that FINTRAC has revoked an MSB’s registration.

If the Expiry Date is Coming Up Soon

If you notice that your MSB’s registration is expiring soon, there are several steps that you should take proactively. First, make sure that you have your login credentials and access FINTRAC’s secure MSB Registration portal. On the left-hand side of the screen, you may see an option to submit your renewal application. If this option is not yet present, it is still a useful practice to select “view completed form” and review the MSB information to ensure that everything is up to date. If there is anything that needs to be updated, you can update the form (information must be updated within 30 days of any changes; do not wait for the renewal date to make updates).

If the renewal can be processed at this time, make sure that you take the time to look at all data fields. Are these fields complete and accurate? Does the information related to the MSB’s beneficial ownership match what will be found in any corporate registries (if not, additional information and/or correction may be required before the registration can be processed). FINTRAC may request additional information by email, and your registration will not be renewed until these queries have been satisfied.

If the Registration is Expired

If you notice that your registration has expired, you should immediately access FINTRAC’s secure MSB Registration portal to renew it. It may be that you have simply missed a deadline, or that you did not notice an error message or request for additional information from FINTRAC. Whatever the cause, you should work to resolve the issue and renew the registration as soon as possible.

If you are not able to renew the registration, contact FINTRAC immediately by emailing guidelines-lignesdirectrices@fintrac-canafe.gc.ca and MSBRegistration@fintrac-canafe.gc.ca immediately with the subject line “URGENT – MSB Renewal Issue – Renewal Date Passed”.

  • In the body of the email, let them know:
  • The company name and MSB number
  • That you have been attempting to renew the MSB registration
  • If you have responded to any requests for additional information, the details of these correspondences (attach copies if possible)
  • Ask what information is needed at this stage to renew the MSB registration

Keep a copy of this and all communications with FINTRAC.

You may also want to consider making a voluntary self-declaration of non-compliance (VSDONC) to FINTRAC. For help with disclosures, check out our previous blog post.

If you receive a “Notice of Violation”

Where an MSB registration is expired, and the MSB continues to perform MSB activities (other than as an agent for another MSB), a penalty may be assessed, and a “Notice of Violation” may be issued. At this stage, a law firm should be engaged (we’re happy to recommend competent firms if this is something that you need). There are specific and relatively short timeframes for all response steps, and this should be treated as urgent.

We’re here to help.

If you are not sure what to do next or need assistance with compliance, please get in touch.

Outlier Compliance Group welcomes Karene Lewis!

The Outlier Compliance Group team is thrilled to welcome our newest member, Karene Lewis!

Karene brings deep banking (including credit union) and money services business (MSB) experience.

Karene’s Bio

Karene joins the Outlier team with more than 15 years of experience in the financial services sector; over 10 years of experience working in the Credit Union sector; over eight years of working experience building relationships with MSBs and PSPs, and enhancing and managing compliance programs for a variety of regulated entities.

Her areas of knowledge and experience in regulatory compliance and risk management were gained through various roles throughout her career in the financial services sector; managing regulatory compliance and risk, contributing to the development and implementation of policies and procedures, conducting comprehensive internal compliance audits, effectiveness reviews, risk assessments and the training of team members, senior management and executives; with proven strengths in communication and building strong business relationships.

Karene got into compliance when in her role as Business Relationship Manager, she was tasked with managing the MSB and high-risk client program for the financial institution. In order to become more familiar with the industry that she was now going to be working so closely with, she attended a Canadian MSB conference, where she learned so much about these regulated entities, how they are typically formed out of a need to provide financial services to often underserved communities and as a way for families to send financial assistance to family members in need, in diasporas around the world. With this knowledge, she was hooked and wanted to find out how she could help bring a positive light to this much-needed service while ensuring adherence to all applicable regulatory compliance laws and regulations.

Karene supports Outlier’s mission statement, “good compliance can enable good business.” She is passionate about compliance and risk management and believes that businesses can be successful and compliant at the same time; sometimes all you need is a little help and some guidance to set you on the right path.

Please join us in welcoming Karene!

She’ll be attending the Futurist conference in Toronto as her first official Outlier event. Please say hello and welcome her to the team.

EFTs, PSPs & Crowdfunding : Canada’s Changing Regulatory Landscape

On April 27th, 2022 amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) and associated regulations related to penalties for non-compliance were passed. These amendments were unusual, as there was little prior public consultation, no pre-publication for public comment, and they came into force “on publication” (right away). This is particularly unusual, as new business models were included in the money services business (MSB) and foreign money services business (FMSB) categories.

Specifically, a number of payment services providers (PSPs) became MSBs through a change in the definition of electronic funds transfers (EFTs), and companies that provide crowdfunding services also became MSBs/FMSBs. Historically, these types of changes would have included a pre-publication of the proposed amendment with time for industry participants to comment. There is also, generally, a period of time between the publication of final amendments and the coming into force date (often a year). Absent these buffers, both industry and Canada’s AML regulator, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) have been scrambling to assess the many nuances of the amendments.

While we’ve seen a number of responses to individual applicants for MSB registrations and requests for policy interpretations from FINTRAC, today’s release was the first substantial piece of public guidance from the regulator. For those inclined, it can be accessed here: https://fintrac-canafe.canada.ca/notices-avis/2022-07-21-eng

EFTs and PSPs

What may have seemed like an inconsequential change to the definition of EFTs, which removed certain exemptions, has significant impacts on payment services providers.

“As payment services are not a prescribed service under the PCMLTFA, FINTRAC is taking the position that persons or entities that provide invoice payment services or payment services for goods and services are engaged in the business of remitting or transmitting funds, or dealing in virtual currency.”

FINTRAC’s guidance goes on to define each of these activities and the (very limited) exemptions in each case.

Crowdfunding

While crowdfunding gets a nod in the title of the guidance, it doesn’t really factor into the substance of today’s piece. There are definitions in the amendments themselves in this case, and it’s likely that additional guidance will follow as FINTRAC works through these registrations.

“crowdfunding platform means a website or an application or other software that is used to raise funds or virtual currency through donations. (plateforme de sociofinancement)”

“crowdfunding platform services means the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them. (services de plateforme de sociofinancement)”

FINTRAC’s MSB/FMSB Registration Process

The guidance notes that FINTRAC is working on getting businesses registered “over the next several weeks.” As there are many businesses that will be newly registering as MSBs or FMSBs, industry participants should expect some delays. It has also become much more common for FINTRAC to ask for additional details about the business, such as the business model and flow of funds.

There is also a tool to check to see if your business should be registered: https://www.fintrac-canafe.gc.ca/msb-esm/questions/2-eng

If you’re ready to register, you can find an overview of the process and links to the pre-registration form here: https://fintrac-canafe.canada.ca/msb-esm/register-inscrire/reg-ins-eng

Requesting Policy Interpretations

There are two important FINTRAC email addresses. If you have a question specifically about whether or not your business should register, first try msb-esm@fintrac-canafe.gc.ca.

For other policy interpretation requests (or if your request is particularly complex), your best avenue is most likely guidelines-lignesdirectrices@fintrac-canafe.gc.ca.

Enforcement Actions

FINTRAC’s guidance indicates that the regulator will take a reasonable approach to entities required to register.

“We understand that there will be challenges in meeting certain obligations. FINTRAC will be reasonable in its assessment and enforcement approach, and is committed to working with reporting entities subject to the PCMLTFA and its Regulations to increase their awareness, understanding and compliance with their obligations. Please continue to monitor our website for updates or additional guidance.”

This gentle approach will not last indefinitely. If your business needs to be registered (and get its house in order AML compliance-wise), it’s time to get started.

We’re here to help.

Whether you want a hand drafting a policy interpretation request, an AML compliance program, or training for your newly minted AML Compliance Officer (congratulations, I’m sorry), we’re here to help. Please get in touch.

Outlier Solutions Inc. Offering Compliance Services to the Metaverse in Decentraland

February 23, 2022 Toronto — Outlier Solutions Inc. doing business as Outlier Compliance Group, a consultancy specializing in compliance solutions for reporting entities ranging from banks to dealers in virtual currencies (like bitcoin) to real estate firms, is one of the first to offer compliance services in the metaverse. Outlier will be joining as one of the professional service providers setting up shop in conjunction with Grinhaus Law Firm, a leading Canadian law firm in Blockchain regulatory advisory, and DGM Financial Group, a prominent Trust and corporate services office which helps structure crypto businesses internationally, in Decentraland, to service clients globally and through the metaverse.

Visitors to Decentraland will now be able to visit Outlier’s office, and book meetings with one of the team members. Visitors can discuss their Canadian compliance needs on topics such as Canadian anti-money laundering (AML), counter terrorist financing (CTF), privacy, and regulatory compliance management. Virtual spaces include traditional offices and a fountain (and of course, meetings can also be requested in person and via more traditional virtual meeting software). The Decentraland office is located at -39, 121, in the same neighbourhood as Decentraland University.

“The world, actual and virtual, is evolving rapidly” said Outlier’s Co-Founder and CEO, Amber D. Scott. “It’s important to understand what shape that evolution is taking, and no better way to learn than to be involved directly.” She adds, “It just makes sense that in order to be good advisors to companies operating in the metaverse, we would be there too.”

Scott’s avatar in Decentraland checks out the new virtual office space.

Founder of Grinhaus Law Firm, Aaron Grinhaus, stated, “we are pleased to welcome Outlier Solutions Inc. and complement our line up of professional services to help people and businesses navigate the ‘gray areas’ and legitimize the existence of the metaverse.”

Decentraland, with its 800,000+ residents and $54B in transactions, is also home to a wide array of companies and institutions from academia to crypto companies to fashion. This represents an opportunity to strategically grow Outlier’s presence as well as participate in the booming growth and creation in the metaverse.

Please direct media inquiries to decentraland@outliercanada.com.

About Outlier Solutions Inc.
Outlier Solutions Inc. dba Outlier Compliance Group is a Canadian consulting firm, founded in August of 2013, which is focused on developing compliance solutions for reporting entities. Outlier’s areas of expertise include anti-money laundering (AML), counter terrorist financing (CTF), privacy, and regulatory compliance.

For further information please visit https://www.outliercanada.com

About Grinhaus Law Firm
Grinhaus Law Firm was established in 2012 and is a business, tax and regulatory focused firm with a niche expertise in Blockchain and Smart Contract law.

For further information please visit https://grinhauslaw.ca

About DGM Financial Group
DGM Financial Group is a global financial services firm that provides Trust Administration, Corporate Services, Management Services to insurance and non-insurance companies, Family Office, Director Services, and is a Listing Sponsor on the Barbados Stock Exchange.

For further information please visit https://dgmfinancialgroup.com/

About Decentraland
Decentraland is the first fully decentralized virtual world. Powered by DAO, which owns the most important smart contracts and assets of Decentraland. Decentraland is a software running on Ethereum that seeks to incentivize a global network of users to operate a shared virtual world. Decentraland users can buy and sell digital real estate, while exploring, interacting and playing games within this virtual world.

For further information please visit https://decentraland.org

Fraud & Reasonable Grounds to Suspect

One of the themes that was prevalent in Canadian AML for 2021 was the relatively low bar represented by “reasonable grounds to suspect” (RGS) and the types of transactions for which FINTRAC expected suspicious transaction reports (STRs) to be filed. One of our astute colleagues worked with us to craft some specific scenarios (the full version, including FINTRAC’s response, can be viewed here), and FINTRAC’s response seems to confirm a significant shift in position from previous discussions. Specifically, STRs are expected in cases of fraud, including cases in which the reporting entity’s client is believed to be the victim of fraud.

Here is a scenario that we asked about:

Scenario 2

A client reaches out to notify us that they sent the virtual currency to another party who promised them a generous short-term return. The client never received the promised funds and believes they have been defrauded. We review the customer account activity and do not find any anomalous activity either prior to or after the client sent the virtual currency to the wallet provided by the fraudster. The client appears to have sent their own funds to the fraudster and there is no account activity corresponding to any irregular transactions, including money mule indicators. Our client is simply a victim of fraud.

Based on strictly these facts, context and indicators, we have not reached reasonable grounds to suspect any money laundering or terrorist financing offences by our client. There may be downstream suspicion related to the wallet where the fraudulently obtained funds were sent but we do not have any suspicion based solely on our client’s transactions which include the transmission of virtual currency to that other wallet. We do not have any information or suspicion related to the other wallet except for the knowledge that our client’s virtual currency was sent to it.

Given the above, we believe no STR would be required. Could you please confirm our position? If the position taken here does not seem correct, please provide an underlying rationale.

And an excerpt from FINTRAC’s response:

In scenario 2, an STR should be submitted if the reporting entity reached reasonable grounds to suspect that the transaction or attempted transaction is related to fraud.

Not Just for Virtual Currency

While the scenario that we’ve provided is specific to virtual currency, the implications of this policy interpretation are not limited to transactions that involve virtual currencies. Every reporting entity type will deal with suspected and confirmed cases of fraud that touch their business models.

Why Does It Matter

To really get to why this matters so much, we need to first look at the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which is where the requirement is first defined in Section 7:

Transactions if reasonable grounds to suspect

7 Subject to section 10.1, every person or entity referred to in section 5 shall, in accordance with the regulations, report to the Centre every financial transaction that occurs or that is attempted in the course of their activities and in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission of a money laundering offence; or

(b) the transaction is related to the commission or the attempted commission of a terrorist activity financing offence.

This is important as the provision of the PCMLTFA (the section number) is what’s listed in the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, where potential penalties are defined. Violations of Section 7 of the PCMLTFA are considered “very serious”. In turn, a “very serious” violation can lead to a penalty of up to $500,000 – for each instance.

If you’re a quantitative type quietly working out the rough number of fraud cases that your reporting entity has had recently, multiplying by $500,000, and feeling a bit nervous, you are not alone.

What’s Next?

While guidance and policy interpretations do not carry the force of law, this is often a distinction without a difference. Might a reporting entity take an appeal to federal court and win? Perhaps…though under the existing rules, that reporting entity’s name will be published (required where the violation is considered to be “very serious”), which for some reporting entities would have significant consequences, including the loss of vital banking partner relationships. Further, the cost of competent representation in a federal appeal process is well beyond the means of most small and mid-sized reporting entities.

Industry associations will, no doubt, continue to lead important conversations with FINTRAC and seek clarification for their members.

In the meantime, for most Canadian reporting entities, the most pragmatic decision will likely be to devise internal guidelines that include reporting STRs related to fraud cases.

Need a Hand?

If you want to make updates to your compliance program to reflect this new policy interpretation, or assistance with Canadian AML generally, please contact us.

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