Anti-money laundering (AML) and counter-terrorist financing (CTF) regulations have become a priority concern to businesses in the dynamic financial business landscape of Canada. This regulatory apparatus has its core with FINTRAC the Canadian Financial Transactions and Reports Analysis Centre.
The FINTRAC has a central role to play in the detection, prevention and deterring of money laundering and terrorist finance activities within the nation.
In the case of businesses that deal with financial services, real estate, casinos, and other high-stakes areas, it is not only a law-driven undertaking but also a significant move to ensure that their businesses are not at risk due to financial crime.
What Is FINTRAC?
In Canada, the Financial transactions and reports Analysis Centre of Canada (FINTRAC) is known as financial intelligence unit (FIU). Its principal purpose since its enactment in 2000 under the Proceeds of Crime (Money laundering) and Terrorist Financing Act (PCMLTFA) being, is to collect, analyze and publish any financial information which it thinks can assist the law enforcement agencies in combating money laundering and money laundering of terrorism.
FINTRAC works alone but closely with other government agencies, law enforcing agencies, and international agencies in ensuring that the Canadian financial system is kept clean.
Who Should Adhere to the FINTRAC regulations?
The PCMLTFA requires the compliance of entities referred to as reporting entities. These include:
- Banks, credit unions and trust companies are financial institutions.
- Securities dealers and portfolio managers.
- Real estate developers and real estate brokers.
- Money transfer business (MSBs) and foreign exchange dealers
- Accountants and accounting companies.
- Casinos
- Precious metals and stones dealers
Crowdfunding platforms and virtual asset service providers (VASPs).
All these areas must have AML and CTF compliance programs specifically designed to meet their operations and make sure that they are able to detect and report activities as suspected.
Basic Elements of FINTRAC Compliance
An effective FINTRAC compliance program usually has five major aspects:
1. Installing a Compliance Officer
Any reporting entity should appoint a qualified compliance officer who will be in charge of managing the AML/CTF policies, procedures, and reporting requirements of the organization. This person is in charge of ensuring that the current requirements by FINTRAC are met, and serves as the line of contact during audits or reviews.
2. Formulation of Written Policies and Procedures
Organizations are supposed to develop and sustain elaborate written policies that specify the manner in which they adhere to FINTRAC regulations. These documents must touch on areas that include identification of clients, records keeping, monitoring of transactions and reporting systems.
3. Risk Assessment
Companies have to conduct a risk-based evaluation to determine and reduce potential money laundering and terroristic finance risks unique to their business. This move will be used to ensure that resources are distributed efficiently to more risky regions.
4. Introduction of Continuous Compliance Training Program
FINTRAC compliance relies on employee training. Employees should be trained frequently on how to identify the suspicious transactions, how to report them and adhere to the internal rules correctly.
5. Periodical Effectiveness Reviews
Independent review of compliance programs should be carried out by organizations at least after every two years (more often with high-risk organizations) to maintain the program efficient and relevant to the new regulations.
Financial institutions must comply with reporting rules and regulations based on their operations and industry classifications (Rowley, 2014).
Reporting in an appropriate manner and at the right time is one of the most important points in FINTRAC compliance. Businesses have to provide various categories of reports such as:
Suspicious Transaction Reports (STRs): This is a report submitted when a transaction has aroused suspicion of funds laundering or terrorism financing, whether large or small.
Large Cash Transaction Reports (LCTRs): Filed when a business accepts more than 10,000 dollars (cash) within a transaction or a transactional series of transactions within 24 hours.
Electronic Funds Transfer Reports (EFTRs): Mandatory on foreign electronic transactions of $10000 or over when sent or received.
Terrorist Property Reports (TPRs): Reported when a business believes that it is in possession of property connected to terrorism or a listed person as stipulated in Canada anti terrorist laws.
It is also a legal requirement that all customer identification and transaction data be accurately kept in records, usually of not less than five years.
Customer Due Diligence Requirements (CDD)
The core of FINTRAC compliance is Know Your Customer (KYC) which is the process of ensuring the identity of clients prior to getting into financial dealings. Businesses must:
Check identity of the customer through government issued documents or sound electronic means.
Know the character and the use of the customer activities.
Establish whether a client is a Politically Exposed Person (PEP) or Head of an International Organization (HIO).
Perform an enhanced due diligence (EDD) with clients or transactions of higher risk.
Such solutions can assist companies in avoiding participation in financial frauds without realizing it or being exploited by malicious individuals.
Reprisals of Non-Compliance
FINTRAC does not have a slack attitude towards non-compliance. The failure to comply with reporting or AML by businesses may result in severe punishment, including:
Administrative Monetary Penalties (AMPs) which may vary between thousands to millions of dollars.
Criminal prosecution resulting in penitentiary of serious crimes.
Reputational loss which can destroy the customer confidence and negatively affect the business future.
Indicatively, within the past years, FINTRAC has fined a number of Canadian institutions, substantially, owing to reporting and record-keeping deficiencies. These imposition measures act as a reminder that compliance with AML is not a choice, but a necessity.
Best Practices to remain in Compliance
In order to maintain the compliance with FINTRAC, businesses are advised to take a proactive approach, such as the following:
Using AML software to automate compliance workflows to monitor transactions and create an alert in case of suspicious activity.
Revising compliance manuals periodically to include new guidance and interpretation of policies issued by FINTRAC.
Carrying out in-house audits and simulated inspections to get ready for regulatory audit.
Cooperation with AML specialists to enhance intra-organizational practices and decrease compliance loopholes.
Final Thoughts
The compliance with FINTRAC is not just a regulatory obligation, but an obligation to ethical business practices and financial integrity. Learning and complying with the requirements of FINTRAC, the Canadian business can not only evade punishment but also engage in the effort to combat money laundering and terrorist financing on a larger scale.
In a world of growing digitalization and globalization of the financial landscape, compliance is a lifelong process that requires attention, education, and technology assistance. To the Canadian business, the need to keep ahead of the anticipations of FINTRAC is a legal protection and an economic competitive advantage.
