The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA”) and its related regulations govern money service businesses (“MSBs”) in Canada. MSBs are regulated by the Financial Transactions and Reports Analysis Centre (“FINTRAC”). FINTRAC defines an MSB as an organization that has a place of business in Canada and offers the following services: foreign exchange dealing, remitting or transmitting funds, issuing or redeeming money orders, dealing in virtual currency, and crowdfunding services.
Miller Thomson’s Structured Finance and Securitization lawyers have been routinely assisting a range of clients seeking advice about the MSB regulations. It appears to us that the regulation of MSBs in Canada is not particularly well known, including by active businesses who are likely covered by the requirements of applicable federal law. If you operate a platform or service that supports or facilitates the remittance of funds or deals in currency (for example), our experience suggests that you may be an MSB and caught by the requirements of the PCMLTFA. Our experience suggests that MSBs include a range of businesses that are not routinely engaging counsel to obtain advice on the registration, record keeping and reporting obligations of the federal law applicable to MSBs. This short article highlights key considerations for MSBs.
Registration
If an organization is considered to be an MSB, it must be registered with FINTRAC in order to carry on money services. The registration process permits Canadians to transfer money around the world while preventing money laundering. The failure of an MSB to register with FINTRAC is a violation of the PCMLTFA, which may result in criminal or administrative penalties, including fines of up to $2,000,000 and/or up to five years imprisonment.
Eligibility
Those ineligible to register an MSB include individuals convicted of certain offences and corporations, partnerships, or other types of entities with leaders or owners that own or control 20% or more of its shares that have been convicted of certain offences (such as money laundering offences, drug offences, or fraud for example).
Ongoing responsibilities
Once registered, an organization is required to keep the registration up to date. This includes responding to requests or clarifying information when requested, renewing MSB registration before it expires, and notifying FINTRAC if the organization decides to discontinue offering MSB services to Canadians. Furthermore, the PCMLTFA requires MSBs to establish and maintain a comprehensive and effective compliance program and establish programs and policies for verification of the identity of clients.
As of June 1, 2020, MSBs now include entities dealing in virtual currency (including cryptocurrency). In addition to the implementation of anti-money laundering compliance programs, MSBs are required to exercise customer due diligence, track and report client identity information, and report the following transactions to FINTRAC:
- A suspicious transaction report in respect of a financial transaction that occurs or is attempted, and for which there are reasonable grounds to suspect that the transaction is related to the commission or attempted commission of a money laundering or terrorist activity financing offence;
- A large cash transaction report when a reporting entity receives $10,000 or more in cash in the course of a single transaction, or when it receives two or more cash amounts totaling $10,000;
- A large virtual currency transaction report when a reporting entity receives virtual currency in an amount equivalent to $10,000 or more in the course of a single transaction; and
- An electronic funds transfer report upon a transmission of instructions for the transfer of $10,000 or more out of, or into, Canada in a single transaction; or in two or more transactions totaling $10,000.
Failure to comply with these new provisions can attract penalties that range from $1,000 to $500,000.
Please reach out to a member of Miller Thomson’s Structured Finance and Securitization team if you have any questions regarding money service businesses, the PCMLTFA and its related regulations.
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