The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) was introduced to detect and deter money laundering and the financing of terrorist activities. Financial planners are obviously prime targets of these criminals when executing their services and, therefore, are subject to strict reporting requirements of certain types of transactions — including attempted ones — as well as the related detailed record-keeping and due diligence concerning these transactions under PCMLTFA.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) introduced updated new guidelines earlier this year around these reporting and record-keeping requirements, and financial planners need to stay current with these requirements or face severe administrative monetary or even criminal penalties, as lack of awareness is never a good legal defence. Whether your licensed activities include mutual funds, securities, exempt-market or insurance products, the PCMLTFA requirements are broadly similar. Furthermore, your dealer also has responsibility for these requirements; ultimately, though, you are closest to the client and you should be meticulous in your records.

You are obligated under PCMLTFA to report the following:

  • Suspicious transactions that may be, on reasonable grounds, a transaction or attempted transaction related to the commission of a money laundering or terrorist activity financing offence.
  • Where you know that there is a property in your possession or control that is owned or controlled by, or on behalf, of a terrorist or a terrorist group.
  • Large cash transactions involving amounts of $10,000 or more.

The updated new guidelines give greater clarity as to your obligations in the following areas:

  • You now must go to greater efforts to ascertain the true identities of these certain individuals, corporations or other entities that you deal with, including all known beneficiaries and settlors of a trust. In addition, you are required to keep a record showing the measures that you took to confirm the information’s accuracy.
  • You must determine beneficial ownership — who ultimately controls the corporation or entity — and you must search through as many levels of information as necessary in order to determine the beneficial ownership. If beneficial ownership information cannot be obtained, then the client must be considered “high-risk.”
  • You now must also conduct an ongoing monitoring of the business relationship of all your clients, including keeping client identification information up to date and reassessing whether your clients are a risk for money-laundering and terrorist activities financing on a regular basis.
  • You must also determine whether the individual conducting the transaction is acting on the behalf of a third party and take reasonable measures to the determine the validity of the information and source of funds as well as keep records.
  • You must also take reasonable measures to determine whether you are dealing with a politically exposed foreign person. Your reasonable measures can include asking the client or consulting a credible source of commercially or publicly available information about politically exposed persons. For subsequent transactions, you must reassess to determine whether the client’s status has changed to a politically exposed foreign person. As with your other due diligence, you must keep records to prove that you have done this.
  • For life insurance agents, there’s a special requirement: if you receive a lump-sum payment of $100,000 from an individual for an annuity or life insurance policy, you have to take reasonable measures to determine whether you are dealing with a politically exposed foreign person within 14 days after the transaction occurred.

This is a high-level summary of some of the main new requirements in the updated guidelines — and I encourage you to review the guidelines in greater detail on FINTRAC’s website, at www.fintrac-canafe.gc.ca.

Ensuring you understand and adhere to these requirements will have three benefits: First, you can avoid the penalties with non-compliance with these rules. Second, you can perform your duty to society by ensuring these illegal activities are not allowed in our financial system. And third, you can protect yourself and your family.

In relation to the last point, a former RCMP investigator into money laundering once said to me, “These criminals don’t trick you into helping them, but they entrap you.” Basically, his message was that they ask you to do things for them, and you first refuse. They then revisit you and inform you of where your children go to school and where your wife or husband works, and ask you to reconsider. But by using these guidelines and performing the necessary investigation and due diligence on potential new clients, you can identify high-risk clients and avoid this potential situation.

Just like you do with the other aspects of your client relationships, doing your homework and keeping proper records are key to managing this issue.