ABCsolutions Inc. CREA - Introduction

Transcription

1 CREA - Introduction

2 The AMLTF course is designed to assist CREA members to comply in part with the training component under Canada s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and supporting Regulations. The following pages detail information regarding the AML/CTF course, such as: A Learning Objectives Course Modules B C How To Complete the AML/CTF Course Background Information The Five Required Elements of a Compliance Regime Penalties for Non-Compliance 2

3 Define money laundering and terrorist financing and recognize how each are typically carried out. Identify the criminal elements commonly involved in money laundering and terrorist financing as well as government bodies involved in fighting these elements. Identify the main reports and associated reporting procedures set out in the PCMLTF Regulations and the instances that require them to be completed. Identify the record keeping and client identification requirements. 3

4 Identify suspicious (completed or attempted) transactions and behaviours, and recognize the importance of Know Your Client (KYC) rules. State the various penalties for non-compliance. State the range of Administrative Monetary Penalties in respect of a violation. Identify the main components of a Compliance Regime and the main areas of a risk assessment approach. 4

5 The AML/CTF course consists of this Introduction module, and an additional five mandatory modules: Module Module One: Module Two: Module Three: Module Four: Module Five: Content About Money Laundering & Terrorist Financing The Players Reporting Requirements Record Keeping & Client Identification Requirements About Suspicious Transaction Indicators Progress through the course by completing all the modules in sequence. 5

6 Background: Real estate brokers and sales representatives must report to FINTRAC (Financial Transaction and Reports Analysis Centre of Canada) when they have reasonable grounds to suspect a transaction is related to a money Laundering offence or a terrorist activity financing offence. What is a Money Laundering Offence? Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property (such as money) knowing or believing that these were derived from the commission of a designated offence. In this context, a designated offence means most serious offences under the Criminal Code or any other federal Act. It includes, but is not limited to those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, tax evasion and copyright infringement. A money laundering offence may also extend to property or proceeds derived from illegal activities that took place outside Canada. 6

7 What is a Terrorist Activity Financing Offence? Under Canadian law, terrorist activity financing offences make it a crime to knowingly collect or provide property, such as funds, either directly or indirectly, to carry out terrorist crimes. This includes inviting someone else to provide property for this purpose. It also includes the use or possession of property to facilitate or carry out terrorist activities. Only suspicion that a transaction is related to a terrorist activity financing offence triggers a requirement to report the suspicious transaction to FINTRAC as related to terrorist activity financing. 7

8 Real estate brokers and sales representatives must comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA) and its supporting Regulations must ensure that an internal Compliance Regime is in place. The Compliance Regime, requires and provides reporting entities with implementation requirements comprising five main components: 1. Policies and Procedures Required Components of A Compliance Regime: 2. Compliance Officer (CO) Your must create internal, written policies and procedures regarding anti-money laundering and counter terrorist financing initiatives. They must be kept up to date. You must have a CO who is accountable to oversee the Compliance Regime. 8

9 Required Components of A Compliance Regime: 3. Training Program Must be written and ensure your employees are continuously trained on the requirements set out in the PC(ML)TFA and your organization s Compliance Regime. 4. Review Process Has to cover your policies and procedures, your assessment of risks related to money laundering and terrorist financing and your training program. The review also has to be done every two years. 5. Risk Based Assessment & Documentation A risk assessment is an analysis of potential threats and vulnerabilities to money laundering and terrorist financing to which your business maybe exposed. The following factors must be documented: products and services and the way in which they are offered; the geographic locations where these activities are conducted; and the geographic locations of your clients. This is in addition to your client identification, record keeping and reporting requirements. 9

10 Every real estate brokerage compliance officer shall report on their Compliance Regime in writing to a senior brokerage official within 30 days after assessment of their Regime. That report includes: the findings of the review; any updates made to the policies and procedures within the reporting period, including: (a) reasonable measures to keep client identification information up-todate (b) detecting transactions for reporting to FINTRAC (c) mitigating risks the status of the implementation of the updates to those policies and procedures. 10

11 The Compliance Regime establishes two distinct mandates for reporting entities: 1. That an operational framework is in place. 2. That employees are able to demonstrate an understanding of money laundering and terrorist financing and their organization's policies and procedures. By ensuring these measures are carried out effectively, reporting entities are able to mitigate the following risks: Type of Risk Legal Reputational Operational Consequences Financial loss due to adverse financial contracts that turn out to be unenforceable and/or incurring criminal penalties for non-compliance. Financial loss resulting from a lack of consumer trust due to negative publicity regarding an organization s business. Direct or indirect financial loss due to inefficient internal procedures, people or systems. 11

12 Non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) Terrorist Financing Act may result in criminal or administrative penalties. Criminal Penalties: Failure to report suspicious transactions: up to $2 million and/or 5 years imprisonment. Failure to report a large cash transaction or an electronic funds transfer: up to $500,000 for the first offence, $1 million for subsequent offences. Failure to meet record keeping requirements: up to $500,000 and/or 5 years imprisonment. Failure to provide assistance or provide information during compliance examination: up to $500,000 and/or 5 years imprisonment. Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report ( tipping off ), with the intent to prejudice a criminal investigation: up to 2 years imprisonment. Failure to comply with the PCMLTFA and its Regulations can lead to criminal charges against you if you are a person or entity. 12

13 Civil Penalties: Since December 30, 2008, FINTRAC has legislative authority to issue an Administrative Monetary penalty (AMP) to reporting entities that are in non-compliance with Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Each violation is classified as a minor, serious or very serious violation. The history of compliance by the realtor or brokerage with the PC(ML)TF Act will be taken into account in determining the amount of a penalty. Range: Subject to the Act, the range of penalties in respect of a violation is: (a) $1 to $1,000 in the case of a minor violation; (b) $1 to $100,000 in the case of a serious violation; and (c) $1 to $500,000 in the case of a very serious violation. Can AMPs be issued against a specific person within a reporting entity or are AMPs only applied against the entity itself? FINTRAC can only issue AMPs against the person or entity who is the subject of the obligations under Part 1 of the Act. In the case of a corporation or partnership it is the entity that is subject to the obligations under Part 1 of the Act. In the case of a sole proprietorship, it is the owner/operator of the business who is subject to those obligations. 13

14 Recommendation 5 of the Financial Action Task Force (FATF) proposes that reporting entities: Implement (a) Corporate and (b) Customer Due Diligence [CDD] measures that assess the degree of risk for money laundering and/or terrorist financing based on the type of customer, ongoing business relationship, and/or financial transaction. Products & Services Geographic Locations Client & Business Relationships There is no definitive, single model for a risk-based approach the following slides will help to provide a framework. 14

15 In the context of money laundering and terrorist financing, a risk-based approach (RBA) is a process that encompasses the following: the risk assessment of your business activities using certain factors; the risk-mitigation to implement controls to handle identified risks; keeping client identification up to date; and the ongoing monitoring of financial transactions that pose higher risks. 15

16 You may want to perform the risk assessment for your business in two stages: Stage 1: Business-based risk assessment of your products and services, and the geographic location in which your business operates. Stage 2: Relationships-based risk assessment of products and services your clients utilize as well as the geographic locations in which they operate or do business. Risk assessments are usually done by the compliance department. You should be aware who in your organization has this responsibility. It all starts with a risk assessment of the business itself. Your Clients Your Business 16

17 To be considered: your products and services and the delivery channels through which they are offered; the geographic locations where you conduct your activities and the geographic locations of your clients; other relevant factors related to your business; and your clients and the business relationships you have with them. 17

18 Risk Assessment Risk Mitigation When your risk assessment determines that risk is high, you have to develop written risk-mitigation strategies (policies and procedures to mitigate high risks) and apply them for high risk situations. 18

19 I m done this Introductory Module, what do I do now? Congratulations! You are now ready to proceed to Module 1: About Money Laundering and Terrorist Financing. Good Luck! 19

20 CREA Module One: About Money Laundering & Terrorist Financing

21 Define money laundering and terrorist financing. Explain the three stages associated with money laundering. State the three common sources of terrorist financing. Differentiate between the methods used by criminals and terrorists when laundering funds. 2

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23 Definition: Money laundering (proceeds of crime) is the method by which dirty money received from criminal activities is processed through legitimate businesses, such as real estate companies, and converted into clean money. Once cleaned, the money cannot be easily traced to the person originating the transaction or to the criminal origin of the funds. Hence, the criminal can now do what they want with their money! 4

24 1. Placement Entry of illegal funds into the financial system 2. Layering 3. Integration Hiding the origin of the funds through multiple and/or complicated transactions Exit of clean funds from the financial system without attracting suspicion 5

25 1 Purpose of the stage: Placement is the initial entry of the proceeds of crime into the financial system. This stage serves two purposes: 1. Relieves the criminal of holding and guarding their dirty money; AND 2. Places the money in the legal financial system The initial deposit of cash into the banking system (placement) is the riskiest part of the process because the money is in cash form and still close to its illegal origins. 6

26 1 Many money launderers use individuals, or smurfs, to help place their proceeds of crime into the legitimate financial system. Criminals may use one or more smurfs to assist with their laundering activities, depending on the size of their illegal operation. They usually place small, inconspicuous sums of cash (below the reporting threshold - structuring) into a bank account or several bank accounts, or purchase a monetary instrument, such as a bank draft or traveler's cheque. This activity can be done over a period of one day or several days, usually involving many smurfs and multiple transactions. These monetary instruments are then given to the criminal and the monies in the bank account(s) are transferred into the criminal s own account using an electronic funds transfer. 7

27 1 Structuring involves splitting transactions into separate amounts under the $10,000 threshold to avoid the transaction reporting requirements of the PC(ML)TF Act. Many money launderers rely on this placement technique because numerous deposits can be made without triggering the cash reporting requirements. Structuring is a criminal offence itself, as well as an indicator of other potentially illegal activity. Be on your guard for situations involving frequent deposits of small amounts of money by one or several clients or businesses where such activity is unexpected or unusual. This could indicate structuring. 8

28 & Structuring 9

29 1 Methods Buying a House Currency Smuggling Currency Exchanges Blending Funds Direct Deposit Examples Purchaser is a drug dealer and makes a deposit using cash generated from illegal drug sales The physical movement of illegal currency or monetary instruments over the border Purchasing foreign money with illegal funds through foreign currency exchanges Using a legitimate cash focused business to comingle dirty funds with the day s legitimate sales receipts Deposit illegal funds directly into a beneficiary s bank account under the name of a fictitious or thirdparty account holder 10

30 2 Purpose of the stage: The purpose of the layering stage is to further separate the dirty money from its source by using different types of financial transactions to hide the money trail and disguise any link with the original crime that generated the dirty money; and if necessary the owner of the illegal funds. Example: International Wire Transfers Money is deposited into an account (placement) and is then wired across the border to another account (layering). 11

31 2 Typically, layers are created by moving money through electronic funds transfers into and out of domestic and offshore bank accounts of fictitious individuals and shell companies. Given the large number of electronic funds transfers daily and the sometimes limited information disclosed about each transfer, it is often difficult for authorities to distinguish between clean and dirty money. 12

32 2 Some offshore centres combine loose anti-money laundering procedures with strict bank secrecy rules. Criminals can easily maintain and transfer funds from banks in these centres because details of client activities are generally denied to third parties, including most law enforcement agencies. 13

33 2 A shell corporation is a company that is formally established under applicable corporate laws but does not actually conduct a business. Instead, it is used to engage in fictitious transactions or hold accounts and assets to disguise the actual ownership of these accounts and assets. Sophisticated money launderers use a complex maze of shell corporations in different countries. Most money transfers take place through these shell corporations. At times, money is transferred through numbered accounts rather than through named accounts. For example: 1. Money Launderer sets up Apricot Trading Co. under the laws of the United Apple. 2. Apricot Trading Co. opens bank accounts with various banks. 3. Smurfs working for Money Launderer transfer illegal funds to the Apricot Trading Co. accounts. 4. Apricot Trading Co. transfers these funds to other accounts or invests them in securities. 14

34 2 Methods Purchase of monetary instruments Assets bought, then sold International wire transfers Examples Once the illegal proceeds of crime are successfully placed within the financial system, they can be changed into an easily transportable bank draft or traveler's cheque Assets bought with illegal funds and then resold either locally or internationally (e.g., stocks, commodities or real estate) Money is deposited into an account (placement) and is then wired across the border to another account 15

35 3 Purpose of the stage: The purpose of the integration stage is to return the illegal funds to the criminal in what appears to be a legitimate format. For example: Money that is remitted or wired from Canada to Country X where it is delivered to a criminal. Now it can be used for any purpose (e.g., build a house, buy land, etc.). 16

36 3 Real estate sales and purchases are a favoured method of integrating illegal money. A drug trafficker used the money he made from the drug trade to buy a house. The majority of the property was paid for in cash, with the remainder in a mortgage. After the sale of the property was finalized, the drug dealer immediately sold the property to an offshore company, which was later discovered to be controlled by the drug dealer through a nominee (family or friend) relationship. Following this sale, the property was placed back on the market and was purchased by an innocent third party. 17

37 3 The use of consultants in money laundering schemes is quite common. The consultant might not even exist. For example, the criminal could actually be the consultant. In this case, the criminal is channelling money back to him/herself. This money is declared as income from services performed and can be used as legitimate funds. In many cases, the criminal will employ an actual consultant (e.g. accountant, lawyer or investment manager) to do some legitimate work. This could involve purchasing assets. Often, the criminal transfers funds to the consultant's client account from where the consultant makes payments on behalf of the criminal. 18

38 3 Methods Property sales Front companies and false loans Mortgages Examples The sale of property that was originally bought by a shell company to integrate laundered money back into the economy. Criminals incorporate a front company in a country with secrecy laws (true ownership of the front company is then protected). They then give the front company illegal funds, in the guise of a loan, making the funds appear legitimate. Criminal uses proceeds for down payment on a house. The mortgage for the balance is provided by a financial institution and then the mortgage is paid off quickly (within 12 months) by wire transfers. 19

39 3 Methods Consultants Corporate Financing Examples Money launderer sets up a shell corporation and a related bank account in an offshore jurisdiction. The shell corporation hires a consultant. The consultant performs services and makes payments for the shell corporation. The consultant is paid by the shell corporation. Money launderer sets up a shell corporation and a related bank account in an offshore jurisdiction. He also sets up a legitimate business in his country of residence. Using illegal money in the offshore account, the shell corporation makes a business loan to, or equity investment in, the legitimate business. is typically combined with a number of other techniques, including the use of offshore banks, consultants, complex financial arrangements, electronic funds transfers, shell corporations and actual businesses. This allows money launderers to integrate very large amounts of money into the legitimate financial system. 20

40 Mortgage frauds commonly involve the cooperation of mortgage industry insiders, such as vendors, real estate agents, mortgage brokers, lawyers, credit agency employees, lenders and title insurers. These insiders may, for example, knowingly or unknowingly accept the use of false personal or financial information, use inaccurate appraisals, or transfer mortgage funds to an individual knowing they will be misused. Some criminal groups recruit (or coerce) new Canadians to act as nominees on fraudulent mortgage applications, some of whom are left financially responsible for the mortgage. Massive Fraud in Calgary A recent alleged mortgage scheme in Alberta illustrates the scope, sophistication and profitability of fraud. Court documents filed by a financial institution allege that about 100 individuals generated at least $140 million, about $70 million of which was for phony mortgages, with expected losses after foreclosures of $30 million. The financial institution named 14 groups in its civil lawsuit and the individuals named in the lawsuit are bank employees, lawyers, mortgage specialists, real estate agents, and a federal politician. Funds were allegedly channeled to Lebanon, India, Saudi Arabia and the United Arab Emirates. TheRCMPandCalgarypoliceannounced that a joint criminal investigation will be conducted and that it will take a considerable period of time to undertake hundreds of interviews and examine thousands of documents collected by the financial institution. CISC (2010) Report on Organized Crime 21

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42 Proceeds of crime enters the real estate market in a number of forms, including cash, various types of monetary instruments, wire transfers, account transfers, and mortgages. When attempting to detect a suspicious transaction, a real estate professional should generally focus on how the property is financed. For example, look for: Large amounts of cash (often in small denominations); Unusually large cash and non-cash personal equity financing by the purchaser; Suspicious or unknown sources of personal equity or mortgage financing; The use of a number of monetary instruments (in small denominations) to personally finance the purchase of real property; and Funding drawn from a bank account in a tax haven country. 23

43 A Real Case: Example One Real estate represents one of the most common destinations of the proceeds of crime. The proceeds of crime generally enter the real estate market in the form of a mortgage, loan, cash, a monetary instrument such as cheques and bank drafts, or wire transfers. A condominium located in the prairies was purchased for $100, in the name of the spouse of a farmer (the accused) who was involved in smuggling large quantities of liquor and cigarettes from the United States into Canada. Of the total purchase price amount, $48,985 was paid through mortgage financing, while the remaining amount was being financed by the purchaser ($51,673.00). This personal financing included $24,434 in cash. A law firm representing the spouse in the purchase of the condominium accepted various forms of payments of cash and monetary instruments to finance the purchase of the home. 24

44 continued Records seized from the law office showed deposits of cash, cheques, and postal money orders into the law firm s trust account. In addition $7,200 in cash was given to the law firm, plus monetary instruments provided by the spouse to the law firm included cheques drawn on the couple s bank account, third party cheques, cheques payable to the couple drawn on one of their own accounts, and 6 postal money orders payable to the couple totalling $4,174. Each money order was for $750. All of the postal money orders, with exception of two, showed the sender as the spouse. The sender of the other two postal money orders was shown as the brother of the spouse. In a six month-period, 29 deposits totalling $90, were made into the law firm s trust account on behalf of the spouse of the accused. 25

45 A Real Case: Example Two Police identified at least 11 homes in the Greater Toronto Area that were associated with members of a criminal organization, which specialized in large scale drug smuggling and money laundering. Of the 11 homes, two were registered in the names of active members of the criminal organization, two were registered in the names of numbered companies belonging to members, and seven were registered in the names of wives or daughters of members or associates of the criminal group. Of these latter seven properties, three had private mortgage financing by members or associates of this crime group. These three mortgages were provided on top of existing mortgages, registered by reputable schedule 1 banks at the time the property was purchased. The three properties were purchased for a total of $1,150, The total value of the mortgage financing provided by banking institutions at the original time of purchase was $750,

46 continued The total value of the additional private mortgages provided by the crime group members or associates was $359,000. In all three of these real property transfers, the same lawyer represented the purchaser in the title transfer and/or in preparation of mortgages. In addition, the lawyer also represented the purchasers in two of the original bank mortgage financing for one property and the mortgage for a third property. 27

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48 Definition: Terrorist financing (proceeds for crime) is the process by which funds are provided for terrorist activity. A terrorist, or terrorist group, is one that has a purpose or activity to facilitate or carry out any terrorist action, and can involve: Individuals; Groups; Trusts; Partnerships; Organizations. Suspected or known terrorists, terrorist groups or listed persons: In Canada, these groups are monitored by the Office of the Superintendent of Financial Institutions (OSFI). Lists of these offenders or groups are posted on both the OSFI and the United Nations web sites and should be consulted regularly. 29

49 To Recruit and Sustain Acquire Influence Build the Support Base Carry out Examples money is needed to recruit, support, train, transport, house, compensate and equip terrorist agents money is needed to sustain media campaigns and win political support money is needed for educational and social programs to win members and create a support base terrorist activity 30

50 Terrorist Financing: Sources: There are three common sources of terrorist financing: State Sponsored Terrorism Criminal Revenue Generated Support Legal Sources The following pages will review each source. 31

51 1. State Sponsored Terrorism This occurs when a terrorist or terrorist group in another country that is experiencing political and/or cultural unrest is sponsored by: another country a legally wealthy dissident individual 32

52 2. Criminal Revenue Generated Support It is not uncommon for organized crime groups to sponsor terrorists or terrorist groups in their homeland or neighbouring jurisdictions. In these cases, a portion of the money generated from the organized crime group s traditional illegal activities are laundered into the accounts of the terrorists. Traditional criminal activities include: selling illegal drugs; smuggling; prostitution; gambling; or kidnapping. 33

53 3. Legal Sources Many terrorist groups are culturally based. As such, they are able to develop strong foundations of financial support across communities, countries, and in some cases the world. On the community level, immigrants generally set up and give donations or pay membership fees to local associations and religious groups, which replicate those of their homeland and assist in protecting their heritage. Through the legal acquisition of the funds, and the legal financial transactions of the association or religious group (such as sending wire transfers home and setting up accounts at home), the capacity to place terrorist-destined funds into another country s economy often comes with relative ease. 34

54 Terrorist Financing vs. Money Laundering Because a large amount of funding for terrorism activities comes from legitimate sources, terrorism financing is sometimes depicted as the reverse of traditional money laundering. Instead of illegal money being 'washed' to make it legal, terrorist financing often involves the task of filtering legitimate funds into terrorist hands. 35

55 Indicators to Watch For: Although both criminals and terrorists launder money to obscure its origin, there are differences in methodology. Specifically: Terrorists Access to funds: not usually constrained by time Deposits: small amounts (e.g. under $300.00) and/or under reporting threshold Transactions: frequently, 10 or 12 times every two months. Smurfs: used to make deposits into financial institutions Criminals Access to funds: want funds as soon as possible Deposits: take greater risks, deposit larger amounts but generally still under reporting threshold Transactions: vary in frequency Smurfs or nominees (e.g., relatives, family members): used to make deposits into financial institutions 36

56 I m done Module 1, what do I do now? Congratulations! You can proceed to Module 2: The Players. Good Luck! 37

57 CREA Module Two: The Players

58 Identify the main categories of money launderers in Canada. Identify the Canadian organizations involved in our national fight on money laundering and terrorist financing. Explain some of the responsibilities of the Canadian organizations regarding money laundering and terrorist financing control. 2

59 Part 1: The Criminal Element 3

60 Money Laundering Risk: Crime and Crime Statistics Estimated that narcotics-related offences account for 75% of all money laundered in Canada. Customs and Excise 15% Theft and Fraud - 7.5% 4

61 Main Categories of Money Launderers: Any crime that generates profits may require money laundering. Those who stay in crime for longer periods of time and derive their primary income from criminal activity are more likely to launder their profits. The main categories of money launderers include: 1. Organized Crime Groups 2. White Collar Professionals 5

62 1. Organized Crime Groups In Canada, there are six broad organized crime groups: I. Outlaw Motorcycle Gangs (OMG) II. Eastern European Organized Crime (EEOC) III. Asian Organized Crime (AOC) IV. Traditional Organized Crime (TOC) V. Aboriginal-based Crime Gangs VI. Indo-Canadian Criminal Groups 6

63 2. White Collar Professionals During the 80s and 90s, it became recognized that large amounts of money generated from non-drug related crimes were a significant portion of the illicit funds laundered each year. Further investigation led to the discovery of two trends: A. Contracted Professionals Criminal organizations contracted professionals to find more complex methods to launder their proceeds of crime. These professionals were able to provide criminals investment advice to clean their money. B. Globalization The globalization and integration of financial markets have allowed professionals to manipulate international markets and banking systems to their advantage to route transactions through other countries that have lax money laundering laws. 7

64 Part 2: Canadian Money Laundering and Terrorist Financing Control Organizations 8

65 Fighting Money Laundering and Terrorist Financing in Canada: With a stable financial system, close proximity to the United States, and a moderate judiciary when it comes to sentencing (compared to other countries), Canada has become a hub for laundering money from Canadian criminals and transnational organized crime groups alike. However, Canada s compliance with the FATF s Forty Recommendations, through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, is making great strides detecting and deterring money laundering and terrorist financing in Canada. There are several Canadian government organizations involved in this fight, including the: 1. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) 2. Canadian Security Intelligence Service (CSIS) 3. Office of the Superintendent of Financial Institutions (OSFI) 4. Law Enforcement - Federal, Provincial, and Municipal Police forces 5. Canada Border Services Agency (CBSA) 9

66 1. FINTRAC FINTRAC is Canada's financial intelligence unit (FIU), a specialized agency created to collect, analyze, and disclose financial information and intelligence on suspected money laundering and terrorist financing activities. Created in July 2000, the Centre is an integral part of our country's National Initiative to Combat Money Laundering. Mission: To provide law enforcement and intelligence agencies with financial intelligence on money laundering, terrorist activity financing, and threats to the security of Canada, while ensuring the protection of the information it holds. 10

67 FINTRAC continued: Mandate: Some of the specific mandates of FINTRAC are to: Receive and collect reports on suspicious and prescribed financial transactions relevant to money laundering and terrorist financing activity; Receive reports on the cross-border movement of large amounts of currency or monetary instruments; Analyze and assess the information it receives; Provide law enforcement and CSIS with intelligence relevant to the investigation or prosecution of money laundering offences and terrorist financing activity offences; and Ensure compliance by financial intermediaries and other reporting entities with their obligations under the Act and its supporting Regulations. 11

68 2. Canadian Security Intelligence Services (CSIS) Created in 1984, CSIS s mandate is to collect information in Canada and abroad, and to advise government about activities that may constitute a threat to the security of Canada. This includes anyone who advocates the use of violence to further political, religious, or ideological objectives. Counter-terrorism Program: The purpose of this program is to help: ensure that Canada is not a place where people are killed or injured by terrorists; safeguard against acts of terrorism being planned in Canada; to help prevent Canada from being a source of funds or material for terrorist activity; ensure that Canada does not provide a base for terrorists; protect Canadian institutions; and protect Canadians travelling or working abroad. 12

69 3. Office of the Superintendent of Financial Institutions (OSFI) OSFI is the primary regulator of federally chartered financial institutions and administered pension plans. OSFI s mandate is to safeguard policy holders, depositors, and pension plan members from undue loss by ensuring public confidence in the financial services industry. As part of it s supervisory mandate, OSFI performs regulatory audits on financial institutions, including audits on compliance with the Proceeds of Crime (Money Laundering) Terrorist Financing Act. Information sharing: OSFI and FINTRAC (2004) are permitted to disclose information with one another on the policies and practices used by financial institutions to ensure compliance with the financial transaction record-keeping and reporting obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. 13

70 4. Law Enforcement The RCMP are responsible to enforce all federal Acts of Parliament, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Although all Canadian police forces can investigate money laundering and terrorist financing offenses, the Royal Canadian Mounted Police (RCMP), in particular its Integrated Proceeds of Crime Initiative (IPOC) Units, and the provincial law enforcement authorities in Ontario (the Ontario Provincial Police) and Québec (Sûreté du Québec) undertake virtually all money laundering and terrorist financing investigations. Integrated Proceeds of Crime Program (IPOC) To coordinate the RCMP s overall efforts to combat money laundering and terrorist financing, the Integrated Proceeds of Crime Program was created. 14

71 5. Canada Border Services Agency (CBSA) Keeping Canada s border open to travel and trade but closed to crime requires the CBSA to manage border operations effectively. The CBSA delivers a variety of programs and services for people (travellers, settlers, etc.) and for goods (commercial trade). Some programs and services are designed to help travellers and trade enter Canada smoothly, while others are focused on enforcing laws and keeping threats to our safety and health out of Canada. In January 2004, the Government of Canada established the National Risk Assessment Centre (NRAC) to protect Canadians against current and emerging threats. With almost $2 billion daily in cross-border trade with the United States, keeping the trade system open is critical to ensuring Canada s economic prosperity. It is equally critical to protect the border against potential threats to our health, security, and economy. 15

72 I m done Module 2, what do I do now? Congratulations! You re now ready to move on to Module 3: Reporting Requirements Good Luck! 16

73 CREA Module Three: Reporting Requirements

74 State the importance of know your client rules as they relate to anti-money laundering and terrorist financing initiatives. Identify the reports the real estate industry are required to complete under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA). Identify when a report must be completed, report completion timeframes, and where reports must be sent. State some of the relevant penalties for non-compliance to the PC(ML)TFA. 2

75 Fact 1: Money laundering and terrorist financing is done to obscure the true identity of the individual(s) generating the illicit funds. Fact 2: As with any money laundering scheme, it can range from extremely simplistic (the purchasing of property with no attempt to conceal their identity or source of funds) to extremely complicated operations involving offshore transactions, nominees, and lawyers. 3

76 Introduction: Within the Compliance Regime procedures set out by the PC(ML)TFA Regulations, there are clear reporting requirements for all Canadian real estate brokers or sales representatives when they act as an agent in respect of the purchase or sale of real estate. Where a real estate broker or sales representative is an employee of a reporting entity, these requirements are the responsibility of the employer except with respect to reporting suspicious or attempted transactions and terrorist property, which is applicable to both. Where a real estate agent is acting on behalf of a broker, these requirements are the responsibility of the broker except with respect to reporting suspicious transactions and terrorist property, which is applicable to both. These requirements are in place to give FINTRAC the capability to analyze the reports in order to detect and deter money laundering and terrorist financing activities within the real estate industry. 4

77 In this module, we ll discuss the reporting requirements. But first, we ll look at the cornerstone to ensuring these reports and records are as accurate and effective as possible; as well as, how a real estate broker or sales representative can take proactive measures towards preventing money laundering or terrorist financing from occurring. This cornerstone is referred to as Know Your Client or KYC. 5

78 Know Your Client: KYC Policy: KYC policy refers to documentation which sets out your company s approach to ensuring that it can effectively identify, verify and monitor its clients and the financial transactions in which they engage, relative to the risks of money laundering and terrorism financing. KYC is important for a number of other reasons. For example, if you know your clients well, you may be able to prevent damage to your company s reputation and avoid fraud, money laundering or excessive risk in financial transactions involving clients. 6

79 The Principal Objectives of a KYC Policy include: ensuring that only legitimate and bona fide clients are accepted; ensuring that clients are properly identified and that they understand the risks they may pose; verifying the identity of clients using reliable and independent documentation; monitoring client accounts and transactions to prevent or detect illegal activities; and implementing processes to effectively manage the risks posed by clients trying to misuse your services. Knowing Your Client is not just Good Business, it is a Regulatory Requirement. 7

80 KYC Major Policy Elements: 1. Client acceptance: The point at which a new client is accepted or rejected is the easiest point at which the risk of dealing with illegal money can be avoided. By following good client acceptance policies, dealing with entities and individuals who might engage in illegal transactions can be avoided. 2. Client identification: Establishing the identity of clients is central to the KYC policy both for the client acceptance or rejection decision and for the ongoing monitoring of client accounts and transactions. By identifying clients effectively, the business is able to deal with them in the appropriate manner. 3. Client verification: Verifying that clients are who they say they are is vital to any client identification procedure. Merely collecting client information is not enough for an effective KYC policy. Reliable and independent documentation should be used to support and confirm the identification details a client provides. For example, citing an original primary photographic identification document such as a passport or driver s licence. 8

81 KYC Major Policy Elements continued: 4. Accounts and transactions monitoring: In an effective KYC policy, client accounts and transactions are properly classified in terms of risk and are regularly monitored. Through checks and thresholds, unusual activities, activities by high-risk clients, or suspicious behaviour can be detected and reviewed. 5. Risk management: To ensure that the risks posed by money laundering and other criminal activities are identified, mitigated and managed good risk management practices are essential. Another objective of the KYC policy is to look past the appearance of the client and obtain visibility into the sources of the client's money. The basic objective is to obtain an understanding of the risk the client poses to business. 9

82 Client Identification: Taking prudent steps to assess whether the individual you re dealing with is in fact who they say they are can help protect your industry from unknowingly doing business with a criminal or terrorist. Some of these prudent steps could include: Reviewing audited financial statements or annual reports of commercial clients Asking for picture identification Internet searches Visiting the client s office(s) Obtaining references 10

83 Reporting Obligations: Large Cash Transactions Terrorist Property Suspicious Transactions 11

84 The Reports 1. Large Cash Transactions Cash means Canadian currency or foreign currency and includes money in circulation in any country (bank notes or coins) but excludes cheques, money orders or other similar negotiable instruments. 12

85 The Reports: 1. Large Cash Transactions When to Report: A Large Cash Transaction Report must be completed when you: Receive an amount of $10,000 CND or more in cash in a single transaction, unless the cash is received from a financial entity or a public body; or Undertake two or more cash transactions of less than $10,000 CDN each that together total $10,000 CDN or more within 24 consecutive hours of each other, and are made by or on behalf of the same person or entity. Foreign Currency: If the transaction is in foreign currency, the funds must be converted into Canadian dollars using the Bank of Canada noon rates available at the time of the transaction. This rate is not based on the exchange rate but only to check whether the funds exceed the $10,000 CDN threshold. 13

86 The Reports: 1. Large Cash Transactions What Does By or on Behalf of the Same Person Mean? 1. BY: If an individual, who makes 2 or more transactions, is the same person and the total amount of the transaction is $10,000 or more within 24 consecutive hours, then an LCT Report must be made. 2. ON BEHALF OF: If 2 or more transactions are being made for the same person (on behalf of), but the individual is different in each of those transactions, and the amount of the transaction is $10,000 or more an LCT Report must also be made. 14

87 The Reports: 1. Large Cash Transactions Who to Report to and How: The report must be sent electronically to FINTRAC if your company has the capacity to report in that manner. Please refer to your internal policies and procedures to determine your company s approach for reporting. Reporting Timeframes: Large Cash Transaction Reports must be sent to FINTRAC within 15 calendar days after the large cash transaction has taken place. 15

88 The Reports: 1. Large Cash Transactions When NOT to Report: You do not have to make a large cash transaction report to FINTRAC: If the cash is received from a financial entity. In this context, a financial entity means a bank, credit union, caisse populaire, a trust and loan company or an agent of the Crown that accepts deposit liabilities. If the cash is received from a public body. In this context, a public body means any of the following or their agent: a provincial or federal department or Crown agency; an incorporated municipal body (including an incorporated city, town, village, metropolitan authority, district, county, etc.); a hospital authority. A hospital authority means an organization that operates a public hospital. 16

89 The Reports: 1. Large Cash Transactions Penalties for Non-Compliance: Failure to report a large cash transactions could lead to criminal charges against those individuals and/or the company which is subject to the PC(ML)TFA, which upon conviction could result in a fine of up to: $500,000 for the first offence; and $1,000,000 for all subsequent offences. Administrative monetary penalties (AMPs) are an additional tool to criminal sanctions with the objective of supporting and enhancing efforts to ensure compliance on the part of reporting entities. AMPs allow for a measured and proportionate response to particular instances of non-compliance. 17

90 The Reports 2. Terrorist Property 18

91 When to Report: Immediately The Reports: 2. Terrorist Property A Terrorist Property Report must be completed if you have property in your possession or control that you know is owned or controlled by or on behalf of a terrorist or terrorist group or a listed person. This includes information about any transaction or proposed transaction relating to that property. Property means any type of real or personal property in your possession or control. This includes any deed or instrument giving title or right to property, or giving right to money or goods. A terrorist or a terrorist group includes anyone that has as one of their purposes or activities facilitating or carrying out any terrorist activity. A terrorist group includes anyone on a list published in Regulations Establishing a List of Entities issued under the Criminal Code. A listed person includes anyone on a list published in the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism issued under the United Nations Act. 19

92 The Reports: 2. Terrorist Property Property in these cases can include: Cash Money orders Real estate Funds in a realtors trust account In cases where you only suspect that the designated property is owned or controlled by a terrorist or terrorist group, a Suspicious Transaction Report (completed or attempted) should be submitted to FINTRAC. When it can be shown that the property belongs to a terrorist and/or terrorist group named on the terrorist lists published by OSFI, then a Terrorist Property Report must be filed with FINTRAC In cases, where the terrorist name is similar too, but not an exact match, to a name of a group or individual on the respective OSFI lists then you would file either a Suspicious Transaction (completed or attempted) Report to FINTRAC. 20

93 Who to Report to and How: The Reports: 2. Terrorist Property The report must be sent to FINTRAC in paper format (not electronically) either by registered mail or by fax. Information in a Terrorist Property Report: The Terrorist Property Report will require information regarding: the property the suspected terrorist or terrorist group Lists are available on the OSFI website at: anyone who owns or controls the property on their behalf any transactions or proposed transactions related to the property 21

94 Who Else to Report to and How: The Reports: 2. Terrorist Property In addition to making a Terrorist Property Report to FINTRAC, there is also a requirement under the Criminal Code to report. It is an offence under the Criminal Code to deal with any property if you know that it is owned or controlled by or on behalf of a terrorist or a terrorist group. It is also an offence to be involved in any transactions in respect of such property. You must disclose to the RCMP and CSIS, the existence of property in your possession or control that you know is owned or controlled by or on behalf of a terrorist or a terrorist group. This includes information about any transaction or proposed transaction relating to that property. Information is to be provided to them, without delay, as follows: RCMP, Anti-Terrorist Financing Team, unclassified fax: (613) CSIS Financing Unit, unclassified fax: (613)

95 A Systemic Approach to Identifying Suspicious Transactions An effective systemic approach to identify suspicious financial activity may safeguard you and your company from the risk of being involved with terrorist financing and money laundering offences. Consider the SAFE approach, which may assist you in meeting the FINTRAC compliance requirements. The four steps of the systemic approach to suspicious activity identification include: Screen Ask Find Evaluate 23

96 Suspicious Activity Identification System SCREEN Step One Screen the client s account for suspicious indicators. The recognition of an indicator, or several indicators, of suspicious activity is the first step in the suspicious activity identification system. ASK Step Two Ask the client appropriate questions If an employee carries out a transaction or transactions for a client bearing one or more suspicious activity indicators then they should question the client on the reason for conducting the transaction and the identity of the source and ultimate beneficiary of the money being transacted. 24