The Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the relevant Regulations (hereinafter referred to as the “Legislation”) were developed to help detect and deter money laundering and the financing of terrorist activities. It is also to facilitate investigations and prosecutions of money laundering and terrorist activity financing offences. The Legislation applies to you and to your employees.
What is Money Laundering?
Money laundering is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities, thereby avoiding prosecution, conviction and confiscation of the funds. Essentially, money laundering is the process whereby "dirty money" produced through criminal activity (for example, proceeds of fraud, drug-trafficking, terrorism, etc.), is transformed into "clean money", the criminal origin of which is difficult to trace. There are three recognized stages in the money laundering process:
Placement – Placing the proceeds of crime in the financial system. This can be done by breaking up large amounts of ill-gotten cash into less conspicuous sums that are then deposited in various bank accounts.
Layering – Involves converting the proceeds of crime into another form and creating complex layers of financial transactions in order to disguise the audit trail as well as the source and ownership of funds.
Integration – Involves placing the laundered proceeds back into the economy to create the perception of legitimacy.
Under Canadian law, a money laundering offence involves concealing or converting property or the proceeds of property (e.g. money), knowing or believing that these were derived from the commission of an offence to the Criminal Code or any other Federal Act.
These offences include the following:
- Illegal drug trafficking
- Forgery
- Murder
- Robbery
- Counterfeit money
- Stock manipulation
A money laundering offence may also extend to property or proceeds derived from illegal activities that took place outside Canada. As a result, you need to be vigilant with offshore transactions.
What is Terrorist Financing
Terrorist financing provides funds for terrorist activity. Terrorists need financial support to carry out terrorist activities and achieve their goals.
The fundamental aim of terrorist financing is to obtain resources to support terrorist activities. The sums needed to mount terrorist attacks are not always large and the associated transactions are not necessarily complex. There are two primary sources of financing for terrorist activities. The first involves getting financial support from countries, organizations or individuals. The other involves revenue-generating activities, which may include criminal acts and therefore may appear similar to other criminal organizations.
Like criminal organizations, they have to find ways to launder the illicit funds to be able to use them without drawing the attention of the authorities. For this reason, transactions related to terrorist financing look a lot like those related to money laundering. Therefore strong, comprehensive anti-money laundering regimes are key to also tracking terrorists' financial activities.
Legislative Requirements
The Legislation has three key objectives:
- To implement specific measures to detect and deter money laundering and the financing of terrorist activities and to facilitate investigations and prosecution of the related offences;
- To respond to the threat posed by organized crime by providing law enforcement officials with the information they need to deprive criminals of the proceeds of their criminal activities, while protecting individual privacy; and
- To help fulfill Canada's international commitments to fight multinational crime.
Methods of Money Laundering
There are as many methods to launder money as the imagination allows, and the schemes being used are becoming increasingly sophisticated as technology advances. The following are some examples of common money laundering methods:
- Early termination of a product, especially at a loss caused by front-end loading, or where cash was tendered and/or the refund cheque is to a third party;
- Launderers use family members, friends or associates who are trusted within the community, and who will not attract attention, to conduct transactions on their behalf.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
FINTRAC is an agency, independent from government with the mandate to lead the fight against money laundering. It operates at arm's length from law enforcement agencies, and collects, analyses and discloses information to help detect, prevent and deter money laundering and the financing of terrorist activities in Canada and abroad.
When FINTRAC determines that there are reasonable grounds to suspect the information would be relevant to warrant investigating or prosecuting a money laundering offence or a terrorist financing offence, it discloses only designated information to law enforcement agencies. FINTRAC is required to ensure that personal information under its control is protected from unauthorized disclosure, and is subject to the Privacy Act.
Penalties for non-compliance
Failure to comply with the legislative requirements can lead to criminal charges, fines and imprisonment, as well as, administrative penalties. Such penalties are fully described in FINTRAC's Guideline 4: Implementation of a Compliance Regime. The Penalties are as follows:
- failure to report a suspicious transaction or failure to make a terrorist property report - conviction of this could lead to up to five years imprisonment, to a fine of $2,000,000, or both;
- failure to report a large cash transaction or an electronic funds transfer - conviction of this could lead to a fine of $500,000 for a first offence and $1,000,000 for each subsequent offence;
- failure to retain records - conviction of this could lead to up to five years imprisonment, to a fine of $500,000, or both; and
- failure to implement a compliance regime — conviction of this could lead to up to five years imprisonment, to a fine of $500,000, or both.
The penalties, fines and business implications demonstrate the importance of having a strong compliance regime in place.
In addition to criminal charges, fines and penalties, failure to comply could cause important business implications, such as:
- Damage to reputation;
- Loss of market share;
- Damage to relationships with customers, peers and other stakeholders;
- Damage to credibility with regulators;
- Intensive and costly investigative audit and legal fees;
- Risk of shut down/loss of license; and
- Seizure of collateral.
Criminal or civil proceedings may not be brought against an individual for making a report in good faith concerning a suspicious transaction, a prescribed financial transaction or terrorist property. Furthermore, no one can be convicted of an offence if they exercise due diligence to prevent its commission.
How to Prevent Money Laundering
At the heart of money laundering prevention and the focus of the Legislation, is to "Know your client" – that they really exist and that they are who they say they are. This means taking reasonable steps to confirm the identity and legitimacy of potential customers, and investigating and/or reporting, to FINTRAC, instances when a current or prospective customer appears to be engaging in unusual or suspicious transaction.
Maintaining the highest standards of integrity
Standard Life is committed to maintaining the highest standards of integrity in the conduct of its business as a Canadian financial regulated institution. Our customers and our intermediaries should feel confident that Standard Life administers its business in full compliance with the Legislation.
Standard Life is also committed to co-operate with Canadian authorities that are responsible for enforcing the Legislation.
To comply with the Legislation, Standard Life has implemented internal policies and procedures. For example, we will not accept cash payments, nor should you accept cash on behalf of Standard Life for deposits or premium payments.
The New Business Guideline, available through Advisor Source, provides you with in depth procedures on the completion of applications and the submission of documentation.
As an advisor, you have legal obligations under the Legislation, to:
- Implement an Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF) compliance regime, which includes:
- The appointment of a compliance officer;
- The development and application of written policies and procedures;
- The assessment and documentation of risks for money laundering and terrorist financing and measures to mitigate high risks;
- The implementation and documentation of an ongoing training program; and
- A documented review of effectiveness of policies and procedures, training program and risk assessment.
- Take specific measures to identify the identity of your clients;
- Take reasonable measures to obtain information about the corporation or the entity's beneficial owner(s), when you have to confirm the existence of a corporation or an other entity;
- Take reasonable measures to determine if the client is acting on behalf of a third-party;
- Take reasonable measures to determine if an individual who makes a lump sum payment of $100,000 or more for an annuity or a life insurance policy is a politically exposed foreign person;
- Retain records of the information you collected; and
- Report, to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) suspicious and attempted suspicious transactions, terrorist property and other prescribed financial transactions and keep related records.
At the end of this document you will find several links to FINTRAC's guidelines. These guidelines use plain language to explain the application of the Legislation. We strongly recommend that you consult them to obtain further details about your obligations.
ePromo Bulletins
ePromo bulletins regarding the AML/ATF Legislation were previously sent to advisors. An archive of these bulletins is available on Advisor Source. You may refer to these bulletins for more information.
- Importance of Client Identification – April 21, 2008
- Record Keeping and Client Identification – May 6, 2008
- Politically Exposed Foreign Person Determination – June 9, 2008
- Anti-Money Laundering Review – January 25, 2011
For more information or any questions please contact the Regional Sales Office in your area.
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FINTRAC's Guidelines
Obligation to Report:
Suspicious and attempted transactions
- See Guideline 2: Suspicious Transactions and Guideline 3: Submitting Suspicious Transaction Reports to FINTRAC, provide detailed description of your obligation to report suspicious transactions.
Terrorist property
Large cash transactions
Obligation to Record Keeping and Client Identification
Obligation related to Third-Party Determination
Obligation related to the determination of Politically Exposed Foreign Person
Compliance Regime requirements
