Garbage In, Garbage Out…

…a reasonably reasonable assessment of the

reasonably unreasonable “Reasonable

Grounds to Suspect” threshold and its

unreasonably definitive ill-defined definition.

Chris Randle, CAMS-Audit

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EXECUTIVE SUMMARY

“Reasonable grounds to suspect” is the Canadian regulatory threshold that triggers a reporting

entity’s obligation to report suspicious transactions, and their liability for failing to do so. It

is an inherently subjective threshold, applicable to all reporting entities, under all of their

various operating models, and in all circumstances; by its very nature, scope, and purpose it

is an expansive threshold which remains open to a variety of interpretations from a variety of

perspectives.

The product of this, the suspicious transaction report, is the primary purpose served by every

requirement of the Canadian anti-money laundering/countering terrorist financing (AML/CTF)

regime; to provide financial intelligence to the Financial Transactions and Reports Analysis

Centre of Canada (FINTRAC), who can analyze the information and in turn provide actionable

intelligence to law enforcement and intelligence agencies in Canada and abroad. All record-

keeping, risk scoring, training, and effectiveness testing activities exist to drive the

identification and reporting of suspicious transactions.

Reporting entities of all sizes grapple with whether or not to report transactions, and material

risk exists on either side of that decision. The failure to identify and report legitimately

suspicious transactions can result in catastrophic penalties for the reporting entity, and a

critical gap in intelligence data for FINTRAC; on the other side, defensive over-reporting can

cause a strain and misappropriation of resources, resulting in the potential for a reporting

entity to fail to identify and report other activities of material value to the regime.

The suspicious transaction reporting threshold is of foundational importance. The continued

evolution and maturation of Canada’s regime requires that this threshold be defined as clearly

as possible, and for a reporting entity’s effectiveness against it to be tested and publicly

reported on with commensurate priority. This is not presently the case. FINTRAC’s guidance

relative to this threshold is conflicting and ambiguous; its published audit findings fail to

provide any value to other reporting entities seeking to learn lessons from the failures of

others. Stakeholders, including the Financial Action Task Force (FATF), have noted that

material deficiencies are present across the regime, both at the reporting-entity level but also

on the part of FINTRAC in its capacity as the national financial intelligence unit (FIU).

Through a comprehensive review of the available guidance, this paper strives to define,

clarify, and articulate the present standard, and then to propose new language and guidance

relative to this standard to assist reporting entities with their adjudications against it.

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Notice to Reader:

Canada’s national AML/CTF regime is enacted through the Proceeds of Crime (Money

Laundering) and Terrorist Financing Act (PCMLTFA, The Act) and its enabling regulations. The

Act grants FINTRAC the mandate to act as Canada’s FIU, responsible for the analysis of

intelligence related to financial transactions conducted through designated reporting entities

in Canada; reporting entities include all financial entities inclusive of banks and credit unions,

as well as money services businesses, dealers in precious metals and stones, accountants,

British Columbia notaries, real estate brokers and agents, life insurance agents, securities

dealers, and casinos. The Act further grants FINTRAC the authority to act as a regulator of

every reporting entity, with the ability to audit and enforce the requirements of Canada’s

AML/CTF regime.

Where appropriate in this paper, I have chosen to reference FINTRAC’s Guidelines (The

Guidelines), as opposed to The Act and its regulations, to define the various obligations of

reporting entities to detect and report suspicious transactions; The Guidelines are derived

from The Act and its regulations, are written in plain language, and document FINTRAC’s

expectations for the conduct of reporting entities relative to their obligations under The Act.

There are minor variances between The Act and its regulations, and The Guidelines, where

The Guidelines interpret a reporting entity’s obligations to The Act and its regulations, and in

some cases, this interpretation does expand the scope of those obligations; FINTRAC conducts

audits relative to the requirements articulated within The Guidelines, and can assess

administrative monetary penalties for failure to comply with The Guidelines, or with the

underlying obligations of The Act and regulations. Alternatively FINTRAC can refer evidence

of a reporting entity’s non-compliance to law enforcement for investigation and the

assessment of criminal sanctions for any failure to comply with The Act and its regulations.

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CONTENTS

INTRODUCTION ................................................................................................................................. 5

SETTING THE CONTEXT .................................................................................................................. 6

Understanding How FINTRAC Detects Unreported Suspicious Transactions .............. 6

Understanding Penalties for Non-Compliance ...................................................................... 9

Summary of Context .................................................................................................................. 10

UNDERSTANDING THE THRESHOLD ......................................................................................... 12

“Financial Transactions” ............................................................................................................ 12

“Reasonable Grounds to Suspect” ......................................................................................... 14

“Related to the Commission of a Money Laundering Offense” ..................................... 17

“Related to the Attempted Commission of a Money Laundering Offense” ................ 19

FINTRAC’s Public Notices of Administrative Monetary Penalties .................................. 22

EVIDENTIARY STANDARD ............................................................................................................ 27

RISKS TO THE REGIME ................................................................................................................. 30

Risks of Under-Reporting .......................................................................................................... 30

Risks of Over-Reporting ............................................................................................................ 31

Personal Liability ................................................................................................ 32

FINTRAC’s Disclosures ......................................................................................... 33

RE-DEFINING THE THRESHOLD ................................................................................................. 35

Proposing a New Standard ....................................................................................................... 35

CONCLUSION ................................................................................................................................... 40

Calls to Action .............................................................................................................................. 40

APPENDIX I – FINTRAC POLICY INTERPRETATIONS ........................................................... 42

APPENDIX II – SURVEY RESPONDENT DEMOGRAPHICS .................................................... 53

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INTRODUCTION

Reporting entities maintain extensive obligations under The Act. Primary among these are

requirements that reporting entities submit suspicious transaction reports to FINTRAC:

Transactions if reasonable grounds to suspect

7) Subject to section 10.1, every person or entity referred to in section 5 shall

report to the Centre, in the prescribed form and manner, every financial

transaction that occurs or that is attempted in the course of their activities and

in respect of which there are reasonable grounds to suspect that

(a) the transaction is related to the commission or the attempted commission

of a money laundering offense; or

(b) the transaction is related to the commission or the attempted commission

of a terrorist activity financing offense. 1

Though they share a common reporting threshold, this paper will focus on requirements

relative to the reporting of transactions related to money laundering as opposed to terrorist

financing. All references to transactions include reference to attempted transactions unless

otherwise stated.

Understanding this definition of a suspicious transaction, which is the threshold that triggers

both an obligation to report but also a reporting entity’s liability should they fail to do so,

remains a challenge. A comprehensive review and interpretation of FINTRAC’s guidance

relative to this regulatory threshold is necessary to fully understand, articulate, and manage

against these obligations.

1 Proceeds of Crime (Money Laundering) and Terrorist Financing Act, Section 7: http://laws-

lois.justice.gc.ca/eng/acts/P-24.501/page-2.html#h-8

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SETTING THE CONTEXT

Canada’s national AML/CTF regime is constantly evolving and maturing; FINTRAC’s approach

to compliance enforcement generally, and with respect to the suspicious transaction reporting

obligations of reporting entities, has been an area of particular focus. In 2014, FINTRAC

announced its strategy to modernize its suspicious transaction reporting compliance

assessment methodology, expending significant resources to improve their capacity to

identify instances where a reporting entity may have failed to report a suspicious transaction.

In 2016, national media reported that FINTRAC had fined a bank more than $1.1 million.

FINTRAC disclosed that the fine, formally called an administrative monetary penalty (AMP),

was assessed for multiple compliance failures including the bank’s failure to report one

transaction that FINTRAC deemed to have met the criteria for suspicious transaction

reporting. In media interviews, a spokesperson for FINTRAC stated that the size of this AMP

was intended as a message of deterrence to all reporting entities in Canada:

“In this case, the entity paid the penalty. We decided not to name the entity,

so that we could send a message of deterrence now, as quickly as possible,”

the spokesman said.

“Generally, Canadian financial institutions have a positive history of

compliance. But we wanted to send a message of deterrence right across all

sectors, to all entities that have obligations,” he said. 2

While FINTRAC has issued AMPs previously, 79 since December 30th 2008, the average value

of the other 78 is a little more than $30 thousand each. Prior to this specific AMP, only entities

in the securities dealers industry had been issued AMPs relative to their failure to report a

suspicious transaction 3; the format and content of FINTRAC’s public reporting of these prior

AMPs makes it impossible to determine how many entities in that industry have been

assessed AMPs for that specific violation type. The imposition of this AMP demarcates a

material change in FINTRAC’s approach to compliance enforcement; given FINTRAC’s efforts

to enhance their suspicious transaction reporting compliance assessment methodology, and

their increased appetite to issue AMPs and at values intended to act as a deterrent to all, it is

critical that reporting entities understand their obligations and liabilities relative to the

requirement to report suspicious transactions.

Understanding How FINTRAC Detects Unreported Suspicious Transactions

FINTRAC has not provided any formal guidance relative to how it seeks to detect suspicious

transactions that a reporting entity has failed to report. FINTRAC has the authority to audit

all aspects of a reporting entity’s operations, including the authority to inspect all documents

2 The Globe and Mail, ”Canadian bank fined $1.1-million for failing to report suspicious transaction”:

http://www.theglobeandmail.com/report-on-business/canadian-bank-fined-11-million-for-failing-to-report-

suspicious-dealing/article29533055/ 3 FINTRAC, Public notice of administrative monetary penalties: http://www.fintrac-canafe.gc.ca/pen/4-eng.asp

7 | P a g e

that have or ought to have been retained by the entity, and to interview all of its employees.

FINTRAC can initiate an audit at any time, and may choose to limit or broaden the scope of

any such engagement at its sole discretion.

To understand how FINTRAC may seek to detect unreported suspicious transactions, a brief

explanation of FINTRAC’s sources of financial intelligence is necessary.

Prescribed Reporting

Reporting entities are required to send certain prescribed reports to FINTRAC, within specific

prescribed timelines and containing certain prescribed information. These reports include:

suspicious transaction reports (STR), for any transaction or attempted transaction for

which a reporting entity has established that there are reasonable grounds to suspect

that the transaction is related to the commission or attempted commission of a money

laundering offense4;

large cash transaction reports (LCTR), for any deposit of $10,000 or more of cash, in

a single transaction or through any combination of transactions conducted within a 24

hour period, by or on behalf of the same individual or entity5;

electronic funds transfer reports (EFTR), for any transfer of funds in to or out of

Canada, totalling $10,000 or more, in a single transaction or through any combination

of transactions conducted within a 24 hour period, by or on behalf of the same

individual or entity6; and

casino disbursement reports, for any disbursements of $10,000 or more, in a single

transaction or through any combination of transactions conducted within a 24 hour

period, by or on behalf of the same individual or entity7.

Other Reporting

FINTRAC also receives reporting from other sources beyond designated reporting entities,

including:

cross-border currency or monetary instruments reports, submitted by the Canada

Border Services Agency (CBSA) any time a person enters or leaves Canada carrying a

sum of currency or monetary instruments totalling $10,000 or more, or if such sums

are sent by mail; a seizure report is also filed where a person fails to properly declare

to the CBSA that such currency has been carried or sent8; and

voluntary disclosures may be submitted to report suspicions of money laundering, by

any person in Canada or abroad9.

Law Enforcement

4 FINTRAC, Guideline 2(3.1): http://www.fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-1 5 FINTRAC, Guideline 7A(3.2): http://www.fintrac-canafe.gc.ca/publications/guide/Guide7A/lctr-eng.asp#s3-2 6 FINTRAC, Guideline 8A(3.4): http://www.fintrac-canafe.gc.ca/publications/guide/Guide8A/nseft-eng.asp#s3-4 7 FINTRAC, Guideline 10A(2.2): http://www.fintrac-canafe.gc.ca/publications/guide/Guide10A/10A-eng.asp#s2-2 8 Cross-border Currency and Monetary Instruments Reporting Regulations (SOR/2002-412), sections 2, 4, 11:

http://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-412/page-1.html#h-2 9 FINTRAC, Providing Voluntary Information to FINTRAC: http://www.fintrac-canafe.gc.ca/reporting-

declaration/vol/1-eng.asp

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As a financial intelligence unit, FINTRAC is also responsible for the receipt and management

of financial intelligence disclosures from law enforcement agencies in Canada and abroad,

including:

the Canada Revenue Agency;

local, provincial, and national law enforcement and intelligence agencies; and

international sources including other financial intelligence units, international law

enforcement and intelligence agencies.

While the entirety of FINTRAC’s detection methodologies may not be known publicly, FINTRAC

has many detection vehicles at its disposal, which can be deployed either remotely or through

the execution of a formal audit. A reporting entity must reasonably assume that each of these

elements could be included in FINTRAC’s detection regime.

Remote Detection

FINTRAC may review LCTRs or EFTRs submitted by the reporting entity, to detect

scenarios that may be similar to transactions or typologies previously reported as

suspicious by the reporting entity, which have not been reported in the present

circumstance.

FINTRAC may review LCTRs and EFTRs submitted by the reporting entity, for entities

related to a previously filed STR, where the presently (or previously) reported large

cash transaction (LCT) or electronic funds transfer (EFT) has not also been reported

as suspicious.

FINTRAC may review previous STRs submitted by the reporting entity, to identify

where the reporting entity has ceased to file for ongoing activity for the same entity.

FINTRAC may identify entities that maintain business relationships with the reporting

entity and with other reporting entities, through the information contained in any

prescribed reports received from either; where an entity has been found to be

suspicious by another reporting entity, FINTRAC may challenge the subject reporting

entity if the reporting entity has failed to identify indicators of potentially suspicious

transactions conducted within its own business relationship.

FINTRAC may identify entities that maintain business relationships with the reporting

entity through the information contained in any prescribed reports or other

intelligence, which are suspected by law enforcement to be involved in money

laundering, and may challenge the reporting entity if it has failed to identify indicators

of potentially suspicious transactions conducted within its own business relationship.

FINTRAC may evaluate the money laundering typologies detected and reported, the

sophistication of those typologies, as well as the volume and quality of any reports

submitted by the reporting entity, against other entities within the reporting entity’s

peer group, to assess the quality of the subject reporting entity’s detection regime.

Audit Detection

FINTRAC may review the reporting entity’s policies and procedures relative to the

obligation of all employees to detect and report indicators of potentially suspicious

activity; FINTRAC may interview employees involved in the management of specific

business relationships to determine if any indicators were identified and not reported.

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FINTRAC may audit all documented cases and case sources to challenge the escalation

or adjudication of any indicators identified. Case sources may include but are not

limited to: system-generated money laundering alerts; production orders or other

requests from law enforcement; fraud detection or case management systems; list

scan results; and unusual transaction reports submitted by the reporting entity’s

employees.

FINTRAC may review all de-marketed or closed business relationships and rejected

account applications, where any closure or denial may be related to an attempt to

commit a designated offense (i.e. fraud).

FINTRAC may review all rejected credit applications, or files where a credit loss has

been realized, to determine if the reason for the rejection or loss may be related to a

designated offense or an attempt to commit a designated offense (i.e. fraud, tax

evasion). FINTRAC may also review approved credit applications, to determine

whether any deviations in reported or verified income versus actual or apparent

income have been escalated for review relative to the commission of a designated

offense (i.e. fraud, tax evasion).

FINTRAC may review any fraud loss or other loss records, including their corresponding

general ledger entries, to determine if the money laundering activities associated with

those designated offenses went unreported.

Understanding Penalties for Non-Compliance

As the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is a part of the

Criminal Code of Canada, failure to comply with a provision of The Act, including failing to

report a suspicious transaction, may result in criminal penalties for both the reporting entity,

and for any employee that fails to report or appropriately escalate a suspicious transaction.

Alternatively, FINTRAC also has the ability to assess an administrative monetary penalty

(AMP) against both the reporting entity and its individual employees.

Non-compliance with Part 1 of the Proceeds of Crime (Money Laundering)

Terrorist Financing Act may result in criminal or administrative penalties. Both

criminal and administrative monetary penalties (AMPs) cannot be issued

against the same instances of non-compliance.

Criminal penalties

FINTRAC may disclose cases of non-compliance to law enforcement when there

is extensive non-compliance or little expectation of immediate or future

compliance. Criminal penalties may include the following:

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 offense, $1 million for subsequent offenses.

Failure to meet record keeping requirements: up to $500,000 and/or 5

years imprisonment.

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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, with the intent to prejudice a

criminal investigation: up to 2 years imprisonment. 10

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.

Violations are classified by the Proceeds of Crime (Money Laundering) and

Terrorist Financing Regulations as minor, serious or very serious and carry the

following range of penalties:

Minor violation: from $1 to $1,000 per violation

Serious violation: from $1 to $100,000 per violation

Very serious violation: from $1 to $100,000 per violation for an

individual, and from $1 to $500,000 per violation for an entity (e.g.

corporation)

The limits above apply to each violation, and multiple violations can result in a

total amount that exceeds these limits. 11

There are penalties if you fail to meet the suspicious transaction reporting

obligations. Failure to report a suspicious transaction could lead to up to five

years imprisonment, a fine of up to $2,000,000, or both. Alternatively, failure

to meet the suspicious transaction reporting obligations can lead to an

administrative monetary penalty.

Penalties for failure to report do not apply to employees who report suspicious

transactions to their superior.

There are also penalties if you tip anyone off about a suspicious transaction

report, if your intent is to harm or impair a criminal investigation. 12

Summary of Context

FINTRAC maintains the regulatory authority to audit and issue penalties, and the intelligence

information necessary to know where to look to find suspicious transactions that a reporting

entity has failed to identify and/or report. FINTRAC can issue penalties based on any systemic

or enterprise-level failures assessed, but can also challenge each individual decision to report

10 FINTRAC, Penalties for non-compliance: http://fintrac-canafe.gc.ca/pen/1-eng.asp 11 FINTRAC, Administrative monetary penalties: http://fintrac-canafe.gc.ca/pen/2-eng.asp 12 FINTRAC, Guideline 2(5.3): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s5-3

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or not to report a specific suspicious transaction given a specific set of circumstances.

Referring to the foregoing Penalties for Non-Compliance, the failure to report a single

transaction which, at FINTRAC’s sole discretion, meets the ‘reasonable grounds to suspect’

threshold, may result in the assessment of the most severe penalties applicable under The

Act and its regulations. Reporting entities should therefore consider their compliance against

this requirement to be the single greatest threat to their regimes.

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UNDERSTANDING THE THRESHOLD

The definition of a suspicious transaction, as derived from the foregoing, is comprised of three

parts:

Suspicious transactions are financial transactions (completed or attempted) where

reasonable grounds to suspect that they are related to the commission or attempted

commission of a money laundering offense has been established.

FINTRAC provides formal guidance relative to this threshold in the form of The Guidelines,

and also through alternate channels including Policy Interpretations (FPI); sourced from

inquiries submitted by reporting entities, FINTRAC has published these questions and their

responses in order to supplement the guidance they have provided in The Guidelines.

The full texts of the FPIs summarized in this guidance and those otherwise identified

as relevant are provided in the appendices as a resource for the Reader.

In order to gain a robust understanding of this obligation, a comprehensive analysis of the

guidance relative to each of the contingent parts of the threshold is necessary.

“Financial Transactions”

While not specifically defined within The Act, its regulations, nor The Guidelines, Statistics

Canada defines a financial transaction as:

A transaction involving the acquisition or disposal of a financial asset. 13

Applying this definition to the operation of a reporting entity, it encompasses a wide variety

of activities undertaken by the reporting entity through the course of their business activities.

Intuitively, examples of non-financial transactions may include activities like the opening of

an account or operation of a safe-deposit box. However, through a FPI, FINTRAC has provided

the following opinion relative to the operation of a safe-deposit box:

In order for safety deposit boxes to be subject to section 7 of the Act as a

financial transaction that occurs or that is attempted, the renting of the safety

deposit box can be considered the "financial transaction" aspect of section 7.

The financial transaction would then be the paying of an amount and in return

the client can use the safety deposit for a set time period. 14

13 Statistics Canada; Glossary: http://www.statcan.gc.ca/eng/nea/gloss/gloss_f#Financialtransaction 14 FINTRAC; Policy Interpretations, Reporting #219: http://www.fintrac-canafe.gc.ca/publications/FINS/2-

eng.asp?s=1

13 | P a g e

This guidance means that reporting entities should identify suspicions relative to non-financial

transactions in order to assess whether or not a reportable financial transaction may have

been attempted or completed through the execution of these non-financial transactions.

With respect to both completed and attempted transactions, FINTRAC provides some direct

guidance:

Completed Transactions:

A completed transaction is one that has occurred. For example, if you process

a deposit from a client towards the purchase of an asset such as a life insurance

policy or a house, a financial transaction has occurred. This is true even if the

final sale associated to the deposit does not go through. In this example, the

refund of the deposit would also be a financial transaction. 15

Note in the example provided, the distinction established between a ‘business’ transaction

and a ‘financial’ transaction, where even a failed ‘business’ transaction is still considered a

completed ‘financial’ transaction for the purposes of reporting.

Attempted Transactions:

An attempted transaction is one that a client intended to conduct and took

some form of action to do so. An attempted transaction is different from a

simple request for information, such as an enquiry as to the fee applicable to a

certain transaction. An attempted transaction includes entering into

negotiations or discussions to conduct the transaction and involves concrete

measures to be taken by either you or the client.

The following are examples of attempted transactions:

A financial entity or casino refuses to accept a deposit because the client

refuses to provide identification as requested.

A securities dealer or life insurance agent refuses to process a

transaction for which the client insists on using cash because their

business practice is not to accept cash.

A client of a real estate agent starts to make an offer on the purchase

of a house with a large deposit, but will not finalize the offer once asked

to provide identification.

An individual asks an accountant to facilitate a financial transaction

involving large amounts of cash. The accountant declines to conduct the

transaction.

A money services business will not process a request to transfer a large

amount of funds because the client requesting the transfer refuses to

provide identification requested. 16

15 FINTRAC; Guideline 2(3.2): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-2 16 FINTRAC; Guideline 2(3.2): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-2

14 | P a g e

Note that in each of these examples, a specific transaction was initiated; inferred therefore is

that an attempted transaction must be one where the intended purpose (e.g. to deposit) and

nature (e.g. deposit of cash) of the transaction attempted is evident, rather than a situation

where a transaction was possible or contemplated, but that it had not yet been defined as

material action was not taken in its attempt.

Guidance relative to financial transactions can be summarized as:

both financial and non-financial transactions should be assessed for indicators that

could result in ‘reasonable grounds to suspect’, but only financial transactions are

reportable; and

both completed and attempted financial transactions are reportable.

“Reasonable Grounds to Suspect”

FINTRAC has provided some guidance relative to the definition of this standard. This guidance

is broken into two contingent parts; guidance relative to the level of the threshold, and an

expansive list of common indicators that may lead to a determination that the threshold has

been met.

As a resource for the Reader, FINTRAC’s list of indicators may be found on its website

at:

o “Examples of Common Indicators”

http://www.fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s7

o “Examples of Industry-Specific Indicators”

http://www.fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s8

Relative to defining of the threshold:

“Reasonable grounds to suspect” is determined by what is reasonable in your

circumstances, including normal business practices and systems within your

industry. 17

Transactions, whether completed or attempted… may give rise to reasonable

grounds to suspect that they are related to money laundering… regardless of

the sum of money involved. There is no monetary threshold for making a report

on a suspicious transaction. A suspicious transaction may involve several

factors that may on their own seem insignificant, but together may raise

suspicion that the transaction is related to the commission or attempted

commission of a money laundering offense…

17 FINTRAC Guideline 2(3.1): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-1

15 | P a g e

As a general guide, a transaction may be connected to money laundering…

when you think that it (or a group of transactions) raises questions or gives

rise to discomfort, apprehension or mistrust. 18 (emphasis FINTRAC)

In a recent presentation, representatives from FINTRAC provided additional guidance relative

to the “reasonable grounds to suspect” threshold, describing it as:

A legal threshold reached through considering several facts including financial

transaction(s) occurring in the course of your business, and the context around

those transaction(s). 19

FINTRAC went further, describing “reasonable grounds to suspect” in the context of thresholds

considered lower and higher than same.

“Simple Suspicion” (lower)

Hunch or intuition leads you to think that ML (money laundering) or TF

(terrorist financing) may be occurring

Cannot articulate reasons for suspicion

“Reasonable Grounds to Suspect”

There is a possibility that ML or TF is occurring

Able to present reasons for why you are suspicious but they do not need

to be proven or verified

“Reasonable Grounds to Believe” (higher)

There is a probability that ML or TF is occurring

Able to present a set of verified facts that can be proven and support

this suspicion 20

In this, FINTRAC has set a very low bar for this threshold; arguably, money laundering is

always ‘possible’, and their guidance here includes no mention of a standard relative to what

evidentiary threshold these ‘reasons’ should meet in order to constitute ‘reasonable grounds’.

To this standard, it could be argued that the presence of any indicia of money laundering

must result in the filing of a suspicious transaction report, irrespective of neither their

assessed credibility nor the context in which they have occurred.

Relative to the review of indicators of potentially suspicious activity, FINTRAC provides

the following:

The context in which the transaction occurs or is attempted is a significant

factor in assessing suspicion. This will vary from business to business, and from

one client to another. You should evaluate transactions in terms of what seems

18 FINTRAC Guideline 2(6.1): http://www.fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s6-1 19 FINTRAC, “Compliance for Intelligence” presented at the Canadian Institute’s 15th Annual Forum on Anti-Money

Laundering, April 26th, 2016. 20 FINTRAC, “Compliance for Intelligence” presented at the Canadian Institute’s 15th Annual Forum on Anti-Money

Laundering, April 26th, 2016.

16 | P a g e

appropriate and is within normal practices in your particular line of business,

and based on your knowledge of your client. The fact that transactions do not

appear to be in keeping with normal industry practices may be a relevant factor

for determining whether there are reasonable grounds to suspect that the

transactions are related to money laundering…

An assessment of suspicion should be based on a reasonable evaluation of

relevant factors, including the knowledge of the customer's business, financial

history, background and behavior. Remember that behavior is suspicious, not

people. Also, it could be the consideration of many factors–not just one factor–

that will lead you to a conclusion that there are reasonable grounds to suspect

that a transaction is related to the commission or attempted commission of a

money laundering offense… All circumstances surrounding a transaction should

be reviewed. 21 (emphasis FINTRAC)

The indicators have to be assessed in the context in which the transaction

occurs or is attempted. Each indicator may contribute to a conclusion that there

are reasonable grounds to suspect that the transaction is related to the

commission or attempted commission of a money laundering offense…

However, it may also offer no indication of this in light of factors such as the

client's occupation, business, financial history and past investment pattern.

Taken together, the presence of one or more indicators as well as your

knowledge of your client's business or financial affairs may help you identify

suspicious transactions. 22

An attempt to conduct a transaction does not necessarily mean the transaction

is suspicious. However, the circumstances surrounding it might contribute to

your having reasonable grounds for suspicion. 23

…behavior is suspicious, not people. …it is the consideration of many factors–

not any one factor–that will lead to a conclusion that there are reasonable

grounds to suspect that a transaction is related to the commission or attempted

commission of a money laundering… offense. All circumstances surrounding a

transaction should be reviewed, within the context of your knowledge of your

client. 24 (emphasis FINTRAC)

Becoming aware of certain indicators could trigger reasonable grounds to

suspect that one or more transactions from the past (that had not previously

seemed suspicious) were related to money laundering… For example, this could

happen if it were reported in the media or some other reliable source that one

of your clients is suspected of being involved in illegal activity. If this amounts

21 FINTRAC Guideline 2(6.1): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s6-1 22 FINTRAC Guideline 2(6.3): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s6-3 23 FINTRAC Guideline 2(3.2): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-2 24 FINTRAC Guideline 2(8.1): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s8-1

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to suspicion regarding a previous transaction with this client, you would have

to report it to FINTRAC within 30 days of detecting this new fact.25

The regulatory threshold of ‘reasonable grounds to suspect’ remains poorly defined; an

emotive response like discomfort, apprehension or mistrust is represented as sufficient in

some parts of the guidance, where a contextual review of multiple indicators is required in

others. The threshold may be as low as the presence of any indicia of money laundering, or

of a single indicator, or may require the consideration of multiple indicators to establish that

the threshold has been met. The most consistent guidance provided suggests that a

determination that ‘reasonable grounds to suspect’ exist should include consideration for:

Transactional and behavior behavioral norms in the reporting entity’s industry;

Transactional and behavior behavioral norms of the client, when considered against

their specific attributes;

Transactional and behavior behavioral norms of other clients that share similar

attributes with the subject client;

The context in which the subject transactions were conducted;

Transactional and behavior behavioral activities that, irrespective of client or industry

attribute considerations, are consistent with established money laundering

methodologies; and

Indicia must be based on behaviors and actions, not attributes or risks.

Risks are attributes, which may include transactional behaviors/activities, that indicate

the likelihood that money laundering is or could occur.

Indicia are behaviors and/or transactional activities that suggest that money

laundering is occurring.

“Related to the Commission of a Money Laundering Offense”

FINTRAC defines a money laundering offense as:

…a money laundering offense 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 offense. In this context, a designated offense means most serious

offenses 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 offense may also extend to

property or proceeds derived from illegal activities that took place outside

Canada. 26

25 FINTRAC Guideline 2(6.3): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s6-3 26 FINTRAC Guideline 2(3.1): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-1

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In this case, FINTRAC’s guidance requires clarification and expansion through referral to its

definition in the Criminal Code of Canada:

Laundering proceeds of crime

462.31 (1) Every one commits an offense who uses, transfers the possession

of, sends or delivers to any person or place, transports, transmits, alters,

disposes of or otherwise deals with, in any manner and by any means, any

property or any proceeds of any property with intent to conceal or convert that

property or those proceeds, knowing or believing that all or a part of that

property or of those proceeds was obtained or derived directly or indirectly as

a result of

(a) the commission in Canada of a designated offense; or

(b) an act or omission anywhere that, if it had occurred in Canada,

would have constituted a designated offense. 27

designated offense means

(a) any offense that may be prosecuted as an indictable offense under this or

any other Act of Parliament, other than an indictable offense prescribed by

regulation, or

(b) a conspiracy or an attempt to commit, being an accessory after the fact in

relation to, or any counselling in relation to, an offense referred to in paragraph

(a); 28

A designated offense therefore, is any indictable (serious) criminal offense or violation

of other Federal Acts, not limited to those identified in FINTRAC’s guidance.

If reasonable grounds to suspect have been established relative to the commission of a

designated offense, then based on the terms included in the definition “uses, transfers the

possession of, sends or delivers to any person or place, transports, transmits, alters, disposes

of or otherwise deals with, in any manner and by any means,” 29every subsequent financial

transaction related to the proceeds of that designated offense are clearly reportable as being

related to the commission of a money laundering offense.

What of the transaction(s) related to the commission of the designated offense itself? The

language used in The Act, its regulations, and The Guidelines is very specific, and potentially

misleading. A suspicious transaction must be “reported where there are reasonable grounds

to suspect that the transaction is related to the commission or attempted commission of a

money laundering offense;” 30in drafting these requirements, the term ‘money laundering’

offense was chosen over ‘designated’ offense. One could infer therefore, based on the

27 Criminal Code (R.S.C., 1985, c. C-46); Part XII.2 462.3(1): http://laws-lois.justice.gc.ca/eng/acts/C-46/page-

93.html?txthl=462.3#s-462.3 28 Criminal Code (R.S.C., 1985, c. C-46); Part XII.2 462.3(1): http://laws-lois.justice.gc.ca/eng/acts/C-46/page-

93.html?txthl=462.3#s-462.3 29 Criminal Code (R.S.C., 1985, c. C-46); Part XII.2 462.3(1): http://laws-lois.justice.gc.ca/eng/acts/C-46/page-

93.html?txthl=462.3#s-462.3 30

FINTRAC, Guideline 2(3.1): http://www.fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s3-1

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language chosen, the reporting obligation exists only in relation to those transactions that are

related to the commission of the money laundering offense and not the designated offense

that generated the proceeds to be laundered.

Scenario 1:

As an example under this interpretation, a client deposits a counterfeit check to their account,

and then transfers the funds to a different account. In this scenario, the deposit of the

counterfeit check would not be reportable. Instead only the transfer of its proceeds, the

transaction related to the commission of a money laundering offense, would be reported.

Scenario 2:

In a different example under this same interpretation, the client deposits the same counterfeit

check, but this time the bank prevents the transfer of any funds; in this case no transaction

would be reportable as there weren’t any proceeds of the designated offense for there to be

any transactions related to the commission of the money laundering offense.

“Related to the Attempted Commission of a Money Laundering Offense”

Reviewing again the terms in the definition of the Laundering Proceeds of Crime offense “uses,

transfers the possession of, sends or delivers to any person or place, transports, transmits,

alters, disposes of or otherwise deals with, in any manner and by any means” 31, it becomes

virtually impossible to conceive of any scenario where a designated offense, committed to

generate proceeds (intentionally or otherwise), does not then also result in the commission

of a laundering offense relative to those proceeds.

Revisiting Scenario 2 from above, where the attempt to commit fraud was unsuccessful, the

attempted commission of a designated offense must therefore also be considered related to

the attempted commission of the subsequent money laundering offense. By the same logic,

the transaction related to the commission of the fraud in Scenario 1 must then also be

reported.

Considered from the perspective of a reporting entity’s obligations, it is not necessary for the

reporting entity to conclusively establish the nexus between the commission of a designated

offense and the subsequent implied money laundering offense to a standard of ‘absolute

certainty’; but rather they need only be able to demonstrate that ‘reasonable grounds to

suspect’ exist that a money laundering offense has been committed or attempted. Therefore

in any context, and in any case, transactions related to the commission or attempted

commission of a designated offense must be considered to be related to the commission or

attempted commission of a money laundering offense for the purposes of suspicious

transaction reporting.

31 Criminal Code (R.S.C., 1985, c. C-46); Part XII.2 462.3(1): http://laws-lois.justice.gc.ca/eng/acts/C-46/page-

93.html?txthl=462.3#s-462.3

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FINTRAC’s Policy Interpretations, however, offer conflicting guidance. Across three examples,

FINTRAC states that the transactions related to the designated offense are reportable, might

be reportable, and are not reportable.

Question:

Company A provided an overview of a case in which a person is suspected of

committing fraud. The fraud was committed with funds provided by 500

individuals. The 500 individuals may be, either knowingly or not, involved in

tax evasion. The primary question is whether or not the 500 individual

transactions are required to be reported, or if only the transactions subsequent

to the receipt of the funds, which would be the point in time at which the

predicate offense (fraud) was completed, must be reported.

Answer:

…If the reporting entity has reasonable grounds to suspect that a financial

transaction that occurs or that is attempted in the course of their activities is

related to the commission or the attempted commission of a money laundering

offense…, a suspicious transaction report must be submitted to FINTRAC. Based

on the information provided, the reporting entity has, reasonable grounds to

suspect that these financial transactions, which occurred in the course of their

activities, are related to the commission or the attempted commission of a

money laundering offense. They are therefore reportable.

Date Answered: 2015-01-19 32

Here, FINTRAC has taken a definitive position that the transactions related to the

commission of the designated offense are reportable.

Question:

Does FINTRAC require companies that provide a medium for victims to make

payments related to ransomware (a type of malware that prevents or limits

users from accessing their system) to file STRs/ASTRs in Canada?

Answer:

…As a result, for a transaction to qualify as a suspicious transaction, reportable

under the PCMLTFA and the Proceeds of Crime (Money Laundering) and

Terrorist Financing Suspicious Transaction Reporting Regulations, the reporting

entity must have reasonable grounds to suspect it is related to the commission

or attempted commission of… a money laundering offense… A money

laundering offense is typically committed or attempted with the intention to

conceal or convert proceeds derived from the commission of a designated

offense, which could include drug trafficking, bribery, or fraud. It is, therefore,

for the individuals and entities that are reporting entities under Part 1 of the

PCMLTFA, to determine whether they have reasonable grounds to suspect that

32 FINTRAC; Policy Interpretations, Reporting #41: http://fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

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a transaction or attempted transaction is related to a money laundering…

offense. If so, an STR must be sent within 30 calendar days.

Date Answered: 2015-08-11 33

In this case, where the subject transactions are clearly related to the commission of a

designated offense and definitive guidance could be provided, FINTRAC chose only to reiterate

that the decision-making onus remains with the reporting entity.

Question:

Are credit unions required to report the suspicious alerts they receive from their

Fraud Alert System regarding their clients’ debit cards. More specifically, the

Fraud Alert System sends alerts to the reporting entity when their clients’ debit

cards have been suspected of being skimmed (i.e.: where debit card

information such as the personal identification number has been illegally

recorded). Are these transactions, or attempted transactions, to be reported to

FINTRAC as Suspicious Transaction Reports (“STR”)?

Answer:

…In the current case, the alerts being issued by the Fraud Alert System are in

relation to the skimming or suspected skimming of debit cards, a criminal

offense amounting to fraud, as opposed to a money laundering or terrorist

activity financing offense. However, if following the card skimming, efforts are

made to conceal or convert the proceeds, this may amount to the commission

or attempted commission of a money laundering offense. Any transactions or

attempted transactions related to these efforts would then be reportable as

STRs in accordance with section 7 of the PCMLTFA.

Date Answered: 2013-08-19 34

This FPI clearly distinguishes between the commission of a designated offense and the

commission of a money laundering offense, directing that the transactions related to the

commission of a designated offense are not reportable.

It is the opinion of the writer that transactions related to card-present fraud

exploitation should be exempt from suspicious transaction reporting requirements;

reporting entities already report these under contract to the card-service system

providers, like the Interac Association, and this information is of little intelligence value

to FINTRAC as reporting entities could only report the locations where the exploitation

transactions occurred along with the victim’s personal data.

Multiple other FPIs have been posted by FINTRAC relative to the suspicious transaction

reporting threshold. The full texts of these have been included in the appendices as a

reference for the Reader.

33 FINTRAC; Policy Interpretations, Reporting #26 http://fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1 34 FINTRAC; Policy Interpretations, Reporting #107: http://fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

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The purpose and intent of Canada’s AML/CTF regime is clear - to generate actionable

intelligence for use by law enforcement agencies to detect, investigate, and prosecute illegal

acts committed domestically or abroad. While FINTAC’s guidance relative to what

transactions are actually reportable remains contradictory, understanding what constitutes a

money laundering offense per the Criminal Code of Canada affirms that failing to report

transactions related to the commission or attempted commission of a designated offense runs

counter to the purpose and intent of the suspicious transaction reporting requirement.

FINTRAC’s Public Notices of Administrative Monetary Penalties

Another possible source of formal guidance could be found in the publication of FINTRAC’s

enforcement activities; however, FINTRAC does not publish detailed reports of any of its

‘enforcement actions’ like other regulators may do in other jurisdictions. FINTRAC has the

discretion to publicly identify or keep secret the name of a reporting entity that has been the

subject of an enforcement action, and, in either case, will only report basic violation data

publicly. For example, FINTRAC issued an administrative monetary penalty of $1.1 million

against a Canadian bank, reported in April of 2016; FINTRAC used its discretionary authority

and chose not to identify the bank publicly, issuing notice only that a bank had been fined for

the failure to report a suspicious transaction and other money transfer transactions. FINTRAC

failed to provide any detailed synopsis for how it came to the determination that a suspicious

transaction should have been filed, what facts lead them to the determination that the

“reasonable grounds to suspect” threshold had been met, nor did they provide information

relative to any other mitigating or aggravating factors.

Even where FINTRAC decides to publicly name a penalized entity, it only includes the value

of the AMP assessed and a description of the specific regulatory requirement(s) not met;

FINTRAC does not release any information about the specific violation(s) committed by the

penalized entity, nor any information relative to the assessment of the AMP and how they

determined its value in that specific circumstance.

Primary public notice of the assessment of an AMP:

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35

35 FINTRAC, Public notice of administrative monetary penalties: http://www.fintrac-canafe.gc.ca/pen/4-eng.asp

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Public notice of the specific nature of the violations that resulted in the assessment of an

AMP:

36

Aside from their public notices of administrative monetary penalties, FINTRAC provides only

a summary list of violations that have resulted in AMPs, by industry. Where multiple entities

from a specific industry have been penalized, the summary list does not indicate which

violations were committed by which sanctioned entity, nor if any entity had multiple instances

of the same violation. There is also no information from FINTRAC to indicate the frequency

with which a specific violation is found to occur within a given industry.

In the case of the bank that received the AMP of $1.1 million, the single largest AMP ever

issued by FINTRAC and the first to be issued to a bank, FINTRAC disclosed only that the fine

amount was $1,154,670, and that the following violations were committed:

36 FINTRAC, Public notice of administrative monetary penalties, Howell Investment Management Inc., ‘violation’

view: http://www.fintrac-canafe.gc.ca/pen/4-eng.asp?m=41

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37

The amount of the fine and the nature of the violations that promulgated it are only

attributable to this single instance with this single bank, because no other bank has yet been

fined; therefore, the summary table by industry, in this case for banks, contains only the

information related to this single instance.

37 FINTRAC, Public notice of administrative monetary penalties, Bank ‘View’: http://www.fintrac-

canafe.gc.ca/pen/4-eng.asp

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38

As evidenced by these examples, reporting entities cannot derive any meaningful guidance

from FINTRAC’s enforcement actions in order to improve and secure their own regimes.

FINTRAC’s failure to disclose details of their AMP determinations, results in a failure of

Canada’s AML/CTF regime to establish precedent, against which reporting entities could

reasonably be measured. Given that transparency of enforcement is a foundational tenet of

a society based on the democratic rule of law, FINTRAC must begin publishing detailed

summaries explaining its findings and the specific reasons for them, even if they continue to

use their discretion in choosing not to name those entities found to be non-compliant.

An additional concern is the fact that so few findings relative to a reporting entity’s failure to

identify and report a suspicious transaction have been identified. This represents a

fundamental risk to the effectiveness of Canada’s regime; since the requirement was

introduced in 2008, FINTRAC has found that only one financial entity (bank or credit union)

has failed to report a suspicious transaction. Given the size of Canada’s economy and the

overwhelming share of that economic activity that is conducted through its banks and credit

unions every day, this is an unacceptably low level of enforcement against, and feedback

provided to, reporting entities relative to these obligations.

38 FINTRAC, Public notice of administrative monetary penalties: http://www.fintrac-canafe.gc.ca/pen/4-eng.asp

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EVIDENTIARY STANDARD

As an alternative to the contradictory and inadequate formal guidance provided, Canada’s

court system has considered the definition of several subjective standards and thresholds,

which are applicable in a wide variety of circumstances. The court considers these relevant

evidentiary standards in order (high-to-low):

“absolute certainty”

“beyond a reasonable doubt”

“on a balance of probabilities”

“reasonable and probable grounds to believe”

“reasonable grounds to suspect”

“mere suspicion”

To seek a better understanding of the “reasonable grounds to suspect” threshold, a review of

Canada’s evidentiary standards established through its Courts is necessary. In Sellathurai v.

Canada (Public Safety and Emergency Preparedness), 2007 FC 208 (CanLII), Justice Simpson,

through referral to several other precedent cases that established the standards both above

and below the subject standard, articulated the evidentiary threshold required to establish

“reasonable grounds to suspect”.

[67] Although this case concerns “reasonable grounds to suspect”, the

Supreme Court of Canada’s interpretation of the phrase “reasonable grounds

to believe” is an appropriate starting point. In Mugesera v. Canada (Minister

of Citizenship and Immigration), 2005 SCC 40 (CanLII), [2005] 2 S.C.R. 100

at paragraph 114, the Court said the following:

The first issue raised by s. 19(1)(j) of the Immigration Act is the meaning of

the evidentiary standard that there be “reasonable grounds [page 145] to

believe” that a person has committed a crime against humanity. The FCA has

found, and we agree, that the “reasonable grounds to believe” standard

requires something more than mere suspicion, but less that the standard

applicable in civil matters of proof on the balance of probabilities: Sivakumar

v. Canada (Minister of Employment and Immigration), 1993 CanLII 3012 (FCA),

[1994] 1 F.C. 433 (C.A.), at p. 445; Chiau v. Canada (Minister of Citizenship

and Immigration), 2000 CanLII 16793 (FCA), [2001] 2 F.C. 297 (C.A.), at para.

60. In essence, reasonable grounds will exist where there is an objective basis

for the belief which is based on compelling and credible information: Sabour

v. Canada (Minister of Citizenship & Immigration) (2000), 2000 CanLII 16300

(FC), 9 Imm. L.R. (3d) 61 (F.C.T.D.). [my emphasis]

[68] In the earlier case of R. v. Monney, 1999 CanLII 678 (SCC), [1999] 1

S.C.R. 652, the Court had considered section 98 of the Customs Act, R.S.C.,

1985, c. 1 (2nd Supp.), which required a customs officer to suspect on

reasonable grounds that a person had narcotics secreted on or about his person

before conducting a strip search.

[69] In this context, the Court said at paragraph 49:

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…Having determined, however, that the search conducted by the customs

officers was constitutionally permissible pursuant to s. 98 of the Customs Act

on the basis of reasonable grounds to suspect, which can be viewed as a lesser

but included standard in the threshold of reasonable and probable grounds to

believe, I see no reason to interfere with the implicit factual finding at trial,

confirmed on appeal, that Inspector Roberts had at the very least reasonable

grounds to suspect that the respondent had ingested narcotics. [my emphasis]

[70] The question then is how to describe the lesser but included standard. In

my view, even reasonable grounds to suspect must involve more than a “mere”

or subjective suspicion or a hunch. The suspicion must be supported by

credible objective evidence. In this regard, see R v. Calderon, 2004 CanLII

7569 (ON CA), [2004] O.J. No. 3474. There, the Ontario Court of Appeal

considered whether police officers had reasonable grounds to suspect that the

appellants had been implicated in the transportation of drugs. In that

connection, the Court noted that an objective assessment was essential. The

Court said at paragraph 69 that “… even a hunch born of intuition gained by

experience …” would not support a conclusion that reasonable grounds to

suspect were present.

[71] If credible objective evidence is required to support a suspicion, the

question becomes where does the lesser standard appear. To this point, both

reasonable grounds to believe and suspect have been treated identically. In

my view, the difference must appear in the characterization of the evidence. In

Mugasera, supra, the Court said that “compelling” evidence was needed to

support reason to believe. In my view, this is where the distinction is

made. Evidence to support a suspicion need not be compelling; it must simply

be credible and objective. 39

The Court therefore defines “reasonable grounds to suspect” as being:

any case where evidence to support the suspicion is “credible and objective”;

a higher standard than “mere suspicion” which may be based on a “hunch born of

intuition and gained by experience”; and

a lower standard than “reasonable grounds to believe”, where “there is an objective

basis for the belief which is based on compelling and credible information”.

Reasonable: Having sound judgment; fair and sensible; based on good sense; 40

Credible: Able to be believed; convincing; capable of persuading people 41

Objective: (Of a person or their judgement) not influenced by personal feelings or

opinions in considering and representing facts; Not dependent on the mind for

existence; actual 42

39 Sellathurai v. Canada (Public Safety and Emergency Preparedness), 2007 FC 208 (CanLII), par. 67:

http://canlii.ca/t/1qp2l#par67

40 Oxford Dictionaries: http://www.oxforddictionaries.com/us/definition/english/reasonable 41 Oxford Dictionaries: http://www.oxforddictionaries.com/us/definition/english/credible 42 Oxford Dictionaries: http://www.oxforddictionaries.com/us/definition/english/objective

29 | P a g e

Compelling: Not able to be refuted; inspiring conviction 43

One might assume that the regulatory threshold envisioned in The Act would equate to the

evidentiary threshold established by Canada’s judicial system. However, FINTRAC’s guidance

does not clearly align the regulatory threshold to its evidentiary counterpart, and may in fact

represent it as a lesser threshold. At the very least, this is a possible interpretation given

FINTRAC’s representations throughout some portions of their guidance.

43 Oxford Dictionaries: http://www.oxforddictionaries.com/us/definition/english/compelling

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RISKS TO THE REGIME

The foundational nature of the requirement to identify and report suspicious transactions

means that the risks associated with the failure of a reporting entity to execute against it are

existential. Absent a clearly articulated and consistently enforced standard, the effectiveness

of the entire national regime is at risk.

Risks of Under-Reporting

The two primary risks associated with the under-reporting of suspicious transactions are:

the failure of the national regime to receive the financial intelligence necessary to be

effective in its purpose; and

the potential assessment of catastrophic penalties against reporting entities who fail

to comply with their obligations to detect and report suspicious transactions.

As an example of the possible scope of this potential under-reporting due to the

misinterpretation of the current reporting threshold, a survey was recently conducted among

credit unions in Canada seeking to understand the current state of their money laundering

detection regimes. Of the 14 respondents, who represented 44 percent of the assets under

management by the industry, only the responses of two credit unions indicated that their

suspicious transaction detection regimes were designed to systemically identify indicia relative

to the commission or attempted commission of a designated offense and the subsequent

transactions related to money laundering offenses:

Requirement

all activities relative to the commission or attempted commission of a

designated offense through the credit union must be reviewed for eligibility

to report as a suspicious transaction;

Success against this requirement necessitates that the credit union assess all

points of contact with a member, and all sources of information about a member

obtained through the normal course of business, to reasonably identify enhanced

risks of involvement by that member in the commission of a designated offense.

High Risk: no documented formal activities

specific to the detection of identifiable

designated offenses

Medium Risk: some documented formal

activities specific to the detection of

identifiable designated offenses

Low Risk: robust documented formal

activities specific to the detection of

identifiable designated offenses

Unscored: no response

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Only two credit unions provided a comprehensive list of case intake sources

to indicate that reasonable efforts to identify evidence of a designated

offense are undertaken, and therefore reviewed to determine eligibility for

reporting; this list included: indicators of fraud, inquiries from law

enforcement including the receipt of production orders, referrals from the

Credit Union Office of Crime Prevention Investigators (CUOCPI), and the

formal review of negative media.

One other credit union noted that their AML cases are ‘sometimes’ referred

from a fraud investigation; another stated that they are ‘exploring the

possibility’ of including fraud in their reporting regime, though they also

report sharing human resources between their AML and fraud operations;

two others that share human resources between AML and fraud operations

did not reference referrals from fraud investigations as a source of their AML

cases.

Several noted the use of structured or unstructured negative media review

processes.

One additional credit union noted referrals from the receipt of production

orders.

High risk; absent a structured and comprehensive regime specific to the detection

of activities related to the commission of an identifiable designated offense,

material deficiencies are likely to occur frequently. 44

Apparent from this is that the under-reporting of suspicious transactions is a risk present in

today’s regime, where in this case, many reporting entities in the credit union system fail to

recognize the breadth of their detection and reporting obligations; their failure to maintain

detection regimes capable of systemically identifying transactions for review based on such

foundational indicator-types, for example their own fraud detection efforts or referrals from

law enforcement, instructs that they are very likely to fail to identify reportable transactions

on a frequent basis. This risk is likely to be present across multiple reporting entity industries,

particularly given the poor quality of the guidance provided.

Risks of Over-Reporting

The risks to both the regime and to reporting entities of over-reporting are several:

it can strain the resources of both the national FIU and also the reporting entity; in

the case of the reporting entity, this strain on resources may actually lead to the under-

reporting of suspicious transactions (additionally exposing them to those associated

risks) as their resources may then fail to adequately review and adjudicate other

instances in an attempt to keep up;

it can skew analytical data, used both to detect reportable activities, but also used to

assist in resource management and workforce planning activities; and

44 Chris Randle, “Money Laundering Detection Regimes, Credit Unions in Canada”, CAMS-Audit White Paper, 2016

32 | P a g e

it establishes precedent for the reporting entity, both at the client level and the

typology level, that FINTRAC may use in their audit assessments of the reporting

entity’s detection and reporting regimes to detect unreported suspicious transactions.

Further, once the reasonable grounds to suspect threshold has in-fact been met, the Courts

have established that evidence to the contrary must meet the ‘beyond a reasonable doubt’

standard, or else reasonable suspicion survives:

[72] With regard to the burden of proof on an applicant who wishes to dispel

a suspicion based on reasonable grounds, it is my view that such an applicant

must adduce evidence which proves beyond a reasonable doubt that there are

no reasonable grounds for suspicion. Only in such circumstances will the

evidence be sufficient to displace a reasonable suspicion.

[73] I have reached this conclusion because, if a Minister’s Delegate were only

satisfied on the balance of probabilities that there were no reasonable grounds

for suspicion, it would still be open to him to suspect that forfeited currency

was proceeds of crime. The civil standard of proof does not free the mind from

all reasonable doubt and, if reasonable doubt exists, suspicion survives. 45

Therefore, once a reporting entity has determined that a client is suspicious, practically, that

client must always be considered suspicious and the reporting entity must continue to report

every transaction related to that suspicion. A deeper interpretation could also include that

once reasonable suspicion is established, the mere presence of any relevant indicators,

irrespective of any critical testing, must also be considered reportable thereby lowering the

threshold-test for any subsequent reviews of that client. As a result, over-reporting may have

material implications for a reporting entity in the maintenance of its business relationships;

while FINTRAC does not require that reporting entities de-market business relationships that

it has deemed suspicious, a reporting entity’s ongoing obligation to monitor and report on the

activities of a client may result in the unjust and/or unnecessary termination of a relationship.

Personal Liability

The Act has also established personal liability for all employees or representatives of a

reporting entity, relative to their obligation to report suspicious transactions. Any employee

who fails to report a suspicious transaction, either to FINTRAC or their ‘superiors’, is liable for

the same potential penalties as the reporting entity itself. This liability, when combined with

the ‘good faith’ immunity clause, result in many reporting entities adopting a culture of

‘defensive filing’ which ironically, may only serve to aggravate their risk.

5.2 Immunity

45 Sellathurai v. Canada (Public Safety and Emergency Preparedness), 2007 FC 208 (CanLII), par. 72:

http://canlii.ca/t/1qp2l#par72

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No criminal or civil proceedings may be brought against you for making a report

in good faith concerning a suspicious transaction. This also applies if you are

not required to submit a report to FINTRAC, but decide to provide information

voluntarily to FINTRAC because of your suspicions of money laundering or

financing of terrorist activity. 46

FINTRAC’s Disclosures

As Canada’s financial intelligence unit, FINTRAC not only receives financial intelligence, but

also analyzes it and provides proactive disclosures to law enforcement and other intelligence

agencies, where it has met the ‘reasonable grounds to suspect’ threshold.

FINTRAC must disclose designated information to appropriate recipients once

reasonable grounds to suspect a money laundering, terrorist activity financing

offense or a threat to the security of Canada are met. 47 (emphasis FINTRAC)

In its annual report for 2015, FINTRAC claims to have completed 1,260 disclosures of

actionable intelligence to law enforcement and other intelligence agencies. 48 In the same

report, FINTRAC claims to have received 92,531 suspicious transaction reports 49; those

reports represent each instance where a reporting entity believes that it has met the

‘reasonable grounds to suspect’ threshold, virtually the same threshold that triggers

FINTRAC’s obligation to disseminate that information to law enforcement; reasonably it can

be assumed that many of those disclosures made by FINTRAC were comprised of numerous

suspicious transaction reports. In spite of that assumption, a disclosure ratio of 73:1 raises

questions about the effectiveness of both FINTRAC’s analysis, and the quality of the

submissions being made by reporting entities. FINTRAC further reports that it received 1,380

voluntary information records from Canadian law enforcement agencies during this period 50;

it can therefore be further assumed that a significant percentage of FINTRAC’s disclosures

were triggered as a result of the receipt of the voluntary information records received directly

from law enforcement, as opposed to FINTRAC’s analytical efforts determining that threshold

for disclosure had been met. The necessary conclusion derived from this is that either a

significant disparity exists between how FINTRAC and reporting entities interpret ‘reasonable

grounds to suspect’, or else that FINTRAC is failing to review a significant percentage of the

reports submitted, perhaps as a result of over-reporting by reporting entities.

Per the Financial Action Task Force’s (FATF) most recent mutual evaluation of Canada’s regime

(2015), they generally comment that the effectiveness of Canada’s financial intelligence

analysis and law enforcement activities are not commensurate with Canada’s risk of money

laundering:

46 FINTRAC, Guideline 2(5.2): http://fintrac-canafe.gc.ca/publications/guide/Guide2/2-eng.asp#s5-2 47 FINTRAC, FINTRAC, law enforcement and intelligence partners: Sharing intelligence, making the links:

http://www.fintrac.gc.ca/publications/brochure/2011-02/1-eng.asp 48 FINTRAC, FINTRAC Annual Report 2015: http://www.fintrac.gc.ca/publications/ar/2015/1-eng.asp#s8.3 49 FINTRAC, FINTRAC Annual Report 2015: http://www.fintrac.gc.ca/publications/ar/2015/1-eng.asp#s8.1 50 FINTRAC, FINTRAC Annual Report 2015: http://www.fintrac.gc.ca/publications/ar/2015/1-eng.asp#s8.3

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3. Financial intelligence and other relevant information are accessed by

Canada’s financial intelligence unit, FINTRAC, to some extent and by law

enforcement agencies (LEAs) to a greater extent but through a much lengthier

process. They are used to some extent to investigate predicate crimes and TF

activities, and, to a much more limited extent, to pursue ML.

5. Law enforcement results are not commensurate with the ML risk and asset

recovery is low.

20. …FINTRAC’s analysis and disclosures are mainly prepared in response to

the requests made by LEAs (law enforcement agencies) in Voluntary

Information Records (VIRs)… 51

Clearly defined thresholds and effective feedback and enforcement efforts should result in

more targeted and effective detection efforts, as well as the provision of better quality and

more relevant intelligence information in the resultant reports.

51 The FATF, Canada’s Measures to Combat Money Laundering and Terrorist Financing 2016, Executive Summary:

http://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-canada-2016.html

RE-DEFINING THE THRESHOLD

The Department of Finance, responsible for drafting the Proceeds of Crime (Money

Laundering) and Terrorist Financing Regulations in response to any changes to The Act,

suggested a change in the language defining the reporting threshold in July of 2015.

Former language:

9 (2) The report shall be sent to the Centre within 30 days after the day on

which the person or entity or any of their employees or officers detects a fact

respecting a financial transaction or an attempted financial transaction that

constitutes reasonable grounds to suspect that the transaction or attempted

transaction is related to the commission of a money laundering offense or a

terrorist activity financing offense. 52

Proposed language:

Subsection 9(2) of the Regulations is replaced by the following:

(2) The report shall be sent to the Centre within 30 days after the day on which

the person or entity or any of their employees or officers detects a fact

respecting a financial transaction or an attempted financial transaction that

could reasonably be expected to raise reasonable grounds to suspect that the

transaction or attempted transaction is related to the commission of a money

laundering offense or a terrorist activity financing offense. 53(emphasis mine)

The Department of Finance issued the proposed language to reporting entities for

consultation. Those reporting entities largely interpreted that the new language, “could

reasonably be expected to raise reasonable grounds to suspect”, appeared to reduce the

‘reasonable grounds to suspect’ threshold, and further confused the expected standard. After

this consultation, the Department of Finance chose to maintain the present regulatory

language stating that it was not their intention to reduce the threshold, only to clarify it.

While the use of a term to define the use of the same term does not improve its clarity, this

attempt does appear to indicate that policy makers recognize that the present threshold is

problematic and ill-defined.

Proposing a New Standard

Developing a new standard requires review of what exists today:

52 Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting

Regulations (SOR/2001-317), Subsection 9(2): http://laws-lois.justice.gc.ca/eng/regulations/SOR-2001-317/page-

2.html#docCont 53 Canada Gazette, Regulations Amending Certain Regulations Made under the Proceeds of Crime (Money

Laundering) and Terrorist Financing Act, 2015, Subsection 9(2): http://gazette.gc.ca/rp-pr/p1/2015/2015-07-

04/html/reg2-eng.php

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Suspicious transactions are financial transactions (completed or attempted) where

reasonable grounds to suspect that they are related to the commission or attempted

commission of a money laundering offense has been established.

Changing some of the language in the current definition can provide significantly greater

clarity:

A suspicious transaction is one where credible and objective evidence can be

articulated to indicate that a financial transaction (completed or attempted) may be

related to the commission or attempted commission of a designated offense.

Replacing ‘reasonable grounds to suspect’ with ‘credible and objective evidence’ aligns the

threshold with the evidentiary standard and clarity provided by Canada’s court system. While

this threshold does remain subjective, its precedent guidance has been well tested, is

transparent, and is available both to reporting entities and FINTRAC.

Replacing ‘money laundering offense’ with ‘designated offense’ ensures that reporting entities

aren’t inappropriately attempting to distinguish between those transactions that are related

to the commission or attempted commission of a designated offense versus those that may

be related to the laundering if its proceeds.

However, as the primary purpose of Canada’s regime is to generate actionable intelligence,

the reporting of suspicious activity should not be limited solely to the reporting of transactions.

Arguably it may be impossible for a reporting entity to be able to identify specific financial

transactions that may be related to a suspicion that an individual or entity may be in some

way related to the commission of a designated offense; reporting entities are unlikely to have

a complete understanding of the nature of the offenses suspected, or else are unlikely to have

access to the sum total of the financial activities of that individual or entity for use in their

assessments. A reporting entity may therefore fail to identify a reportable transaction,

thereby depriving FINTRAC of what may be useful intelligence and exposing themselves to

potential penalty. Canada’s suspicious transaction reporting regime should go a step further,

and change the threshold which defines it to include the reporting of suspicious activities that

are not necessarily attributable to a specific transaction or series of transactions. The

threshold should not be reliant on a transaction at all, but rather should be dependent on the

identification and articulation of indicators that result in the determination that an individual

or entity is suspicious; where transactional indicators are present, they should still be required

to be reported.

Proposed new standard:

The suspicious activity threshold is met when credible and objective evidence can be

articulated to indicate that a subject may be related to the commission or attempted

commission of a designated offense. If those indicators include transactions, then

those transactions must also be reported.

‘Subject’ is defined as:

o an individual or entity that has, or has attempted, to establish a business

relationship with a reporting entity; or

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o an individual or entity that has conducted a financial transaction with a

reporting entity outside of a business relationship.

‘Transaction’ is defined as:

o any interaction between a reporting entity and subject that establishes or

attempts to establish a business relationship;

o any interaction between a reporting entity and subject that occurs once a

business relationship has been established or attempted; or

o any financial transaction completed or attempted outside of a business

relationship.

‘Interaction’ is defined as any financial or non-financial transaction, communication, or

other engagement of any kind between a reporting entity and a subject.

For greater clarity, FINTRAC defines a business relationship as:

…a relationship that you establish with a client to conduct financial transactions

or provide services related to those transactions.

For financial institutions, these relationships can be established within or

outside of an account.

Account-based business relationship: You are in a business relationship with a

client that holds an account with you. You enter into a business relationship

when a client opens an account with you. For a new or existing client that has

one or more accounts, the business relationship includes all transactions and

activities relating to those accounts.

Non-account-based business relationship: If your client does not have an

account, you enter into a business relationship when you conduct two or more

transactions in which you have to:

ascertain the identity of the individual; or

confirm the existence of a corporation or other entity.

In such a case, the business relationship only includes transactions and related

activities for which you have to ascertain the identity of your client…

If you have a client without an account who conducts two or more suspicious

transactions, you have still entered into a business relationship with that client,

even if you are unable to ascertain the identity of that client. This is because

suspicious transactions require you to take reasonable measures to ascertain

the identity of the client…, and so two or more of these transactions will trigger

a business relationship.

A business relationship is established when two transactions that require you

to ascertain the identity of your client occur within a maximum of five years

from one another. If a period of five years passes from the last transaction that

required you to ascertain the identity of your client, the business relationship

with that client ceases in the case of non-account-based business relationships.

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In the case of clients who hold an account, the business relationship ceases five

years after the client closes that account. 54

The adoption of this new standard and definition would oblige reporting entities to submit

suspicious activity reports in every instance where they can articulate credible and objective

evidence that an individual or entity may be related to the commission or attempted

commission of a designated offense. Whether those indicators be related to, among other

activities, account openings and closings, conversations and communications, credit

applications that do not meet the current ‘attempted financial transaction’ threshold, or wealth

planning activities that do not necessarily result in a financial transaction, these would all now

be reportable irrespective of the identification of specific financial transactions related to those

suspicions. Credible and objective evidence must also include indicators from sources that

are not the subject, for example articles in the media or production orders from law

enforcement; therefore the implication that indicators may or may not be related to a direct

engagement with the subject is a critical inclusion in the proposed standard.

This standard also expands the scope of what a reporting entity must consider relative to the

commission of a designated offense; where the existing standard focuses on the reporting of

financial transactions related to a designated offense, this implies that reporting entities need

only consider those designated offenses that could potentially generate proceeds to be

laundered, being predicate offenses. This inference by the reporting entity is problematic as

many designated offenses may be indicative of money laundering risk, without being

themselves predicate offenses. For example, a reporting entity’s awareness that a subject

has been charged with a violent offense, assault or murder, may not trigger a review for

transactions related to a money laundering offense as neither is considered a predicate

offense. Each may however be indicative of, for example, an affiliation of the subject with

organized crime or some other money laundering risk; absent context, which the reporting

entity is unlikely to have, valuable financial intelligence may go unreported.

To further supplement this standard and provide still greater clarity, the establishment of

specific indicators could trigger a requirement to report, irrespective of context. This list of

indicators could be developed to include reporting triggers specific to each reporting entity’s

industry, and be reviewed periodically to align with risks identified in the National AML/CTF

Risk Assessment and any other tactical or strategic objectives identified by the national

regime. Some examples specific to financial entities could include:

Cash deposit structuring to avoid prescribed reporting thresholds; evidence of intent

to avoid the prescribed reporting threshold is not required.

Electronic funds transfer structuring to avoid prescribed reporting thresholds;

evidence of intent to avoid the prescribed reporting threshold is not required.

Misrepresentation of personal identification.

Misrepresentation of beneficial ownership and/or control information relative to an

entity.

Where a material misstatement of assets, income, or liabilities has been provided for

any purpose.

54 FINTRAC, Guideline 6G(5): http://fintrac-canafe.gc.ca/publications/guide/guide6/6G-eng.asp#s5

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Where income reported to the Canada Revenue Agency is not commensurate with the

income apparent through a business relationship, where the reporting entity has

obtained the information relative to the income reported to the Canada Revenue

Agency through the course of its business activities; minimum threshold of $10,000

variance in the reporting year. (Amend Guideline 6 to require the obtainment of tax

filing data for the two years prior to an application for credit)

Where apparent business transactional activity is being transacted through an account

held for an individual that is not a sole proprietorship; minimum threshold of $10,000

in a rolling 12-month period.

Where apparent personal transactional activity is being transacted through an account

held for an entity; minimum threshold of $10,000 in a rolling 12-month period.

Exemptions:

Victim transactions related to a card-present fraud exploitation should not be reportable.

Adopting this standard would serve to improve clarity and therefore result in:

a reduced risk of non-compliance for reporting entities;

improved quality in the intelligence received by FINTRAC;

improved ability of reporting entities to determine and articulate the level of human

and technological resources necessary to execute against this standard;

less subjectivity, allowing reporting entities to better test the compliance and

effectiveness of their systems and processes; and

easier to understand training for all employees of a reporting entity.

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CONCLUSION

The risks to Canada’s AML/CTF regime are several and severe as a result of the lack of clarity

inherent in the current ‘reasonable grounds to suspect’ threshold; effectiveness testing and

compliance programs cannot out-audit a standard that is poorly designed, poorly defined, and

poorly articulated. The result is that reporting entities will continue to struggle to provide

actionable intelligence to FINTRAC and will continue to be at risk of being assessed

catastrophic penalties for these failures; FINTRAC and law enforcement agencies will continue

to fail to provide commensurate response to the threats posed by money laundering. Both

groups will continue to struggle to balance the needs of the regime against their limited

resources, failing to use them to their best effect and challenging the credibility of any

business case that could justify an increase. To improve the effectiveness of the national

suspicious transaction detection and reporting regime, several ‘calls to action’ should be

considered.

Calls to Action

There are several stakeholders who are responsible for the management and effectiveness of

the national AML/CTF regime. Principal amongst these are Canada’s federal Department of

Finance and FINTRAC. The Department of Finance is responsible for the drafting and

maintenance of the regulations that enable the Proceeds of Crime (Money Laundering) and

Terrorist Financing Act, and is responsible for the oversight of FINTRAC’s operations. FINTRAC

provides interpretive guidance relative to The ACT and its regulations, and is the primary

regulator for all reporting entities relative to their obligations under the regime. These two

stakeholders therefore have primacy relative to the establishment of policies within the

regime. In their roles, they must consider enacting these recommendations to improve the

effectiveness of the regime:

make the auditing of suspicious transaction detection, adjudication, and reporting

activities the highest priority of the regime;

improve the clarity and consistency of guidance provided to reporting entities relative

to these obligations;

provide non-audit and investigative feedback directly to reporting entities with respect

to the suspicious transaction reports that are submitted;

establish precedent and provide detailed guidance through the publishing of audit

findings that result in the assessment of AMPs, irrespective of whether the sanctioned

entity is publicly identified; and

clearly align the regulatory threshold “reasonable grounds to suspect” to the

evidentiary threshold established by Canada’s judicial system.

While reporting entities must also take action to:

establish and maintain robust detection regimes, while providing sufficient human and

technological resources to ensure their effectiveness;

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ensure that all employees have the training and tools necessary to understand their

obligations to detect and recognize indicators of all designated offenses that they are

likely to encounter in their roles; and

actively seek feedback from their regulators, auditors, peers, and law enforcement

partners to identify applicable best practices, and to ensure their alignment to the

priorities of the regime.

Change is necessary. Continuing to feed poor-quality intelligence into the regime will result

in the regime continuing to generate ineffectual results that are incommensurate with the real

risks that exist.

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APPENDIX I – FINTRAC POLICY INTERPRETATIONS

All of the following excerpts are available from FINTRAC’s Policy Interpretations.

http://www.fintrac.gc.ca/publications/FINS/1-eng.asp

219. Safety Deposit Box

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

Do safety deposit boxes meet the definition in section 7 of the Act of a "financial transaction"

for filing suspicious transaction reports?

Answer:

In order for safety deposit boxes to be subject to section 7 of the Act as a financial transaction

that occurs or that is attempted, the renting of the safety deposit box can be considered the

"financial transaction" aspect of section 7. The financial transaction would then be the paying

of an amount and in return the client can use the safety deposit for a set time period.

Therefore, if there are reasonable grounds to suspect that the "rental" of the deposit box is

related to money laundering or terrorist funding, then the financial institution can file a STR.

However, the mere fact that the client visits his safety deposit box, without a another factor

attached to it, such as a duffel bag filled with cash, does not mean that it is suspicious. The

problem with the safety deposit boxes is that the financial institutions do not know what is

being deposited or withdrawn from them. Thus, it becomes even more difficult to determine

if any activities surrounding the safety deposit boxes would trigger the threshold of reasonable

grounds to suspect that it is related to money laundering or terrorist funding.

Date Answered: 2009-09-10

Activity Sector: Bank, Caisse populaire, Centrals/Coops, Co-op credit society, Credit Union,

Trust and/or loan company

Obligation: Reporting

Guidelines: 2 , 3A, 3B

41. STR Reporting - Related Transactions

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

Company A provided an overview of a case in which a person is suspected of committing

fraud. The fraud was committed with funds provided by 500 individuals. The 500 individuals

may be, either knowingly or not, involved in tax evasion. The primary question is whether or

not the 500 individual transactions are required to be reported, or if only the transactions

subsequent to the receipt of the funds, which would be the point in time at which the predicate

offense (fraud) was completed, must be reported.

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Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

stipulates that, "Subject to section 10.1, every person or entity referred to in section 5 shall

report to the Centre, in the prescribed form and manner, every financial transaction that

occurs or that is attempted in the course of their activities and in respect of which there are

reasonable grounds to suspect that (a) the transaction is related to the commission or the

attempted commission of a money laundering offense; or (b) the transaction is related to the

commission or the attempted commission of a terrorist activity financing offense." If the

reporting entity has reasonable grounds to suspect that a financial transaction that occurs or

that is attempted in the course of their activities is related to the commission or the attempted

commission of a money laundering offense or a terrorist activity financing offense, a

suspicious transaction report must be submitted to FINTRAC. Based on the information

provided, the reporting entity has, reasonable grounds to suspect that these financial

transactions, which occurred in the course of their activities, are related to the commission or

the attempted commission of a money laundering offense. They are therefore reportable.

Date Answered: 2015-01-19

Activity Sector: Bank, Caisse populaire, Centrals/Coops, Co-op credit society, Credit Union,

Trust and/or loan company

Obligation: Reporting

Guidelines: 2,3

26. Payments related to ransomware

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

Does FINTRAC require companies that provide a medium for victims to make payments

related to ransomware (a type of malware that prevents or limits users from accessing their

system) to file STRs/ASTRs in Canada?

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

states that “Subject to section 10.1, every person or entity referred to in section 5 shall report

to the Centre, in the prescribed form and manner, every financial transaction that occurs or

that is attempted in the course of their activities and in respect of which there are reasonable

grounds to suspect that (a) the transaction is related to the commission or the attempted

commission of a money laundering offense; or (b) the transaction is related to the commission

or the attempted commission of a terrorist activity financing offense.” As a result, for a

transaction to qualify as a suspicious transaction, reportable under the PCMLTFA and the

Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction

Reporting Regulations, the reporting entity must have reasonable grounds to suspect it is

related to the commission or attempted commission of either a money laundering offense or

a terrorist activity financing offense. A money laundering offense is typically committed or

attempted with the intention to conceal or convert proceeds derived from the commission of

a designated offense, which could include drug trafficking, bribery, or fraud. A terrorist activity

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financing offense occurs when property (including funds) are knowingly collected to carry out

terrorist crimes. It is therefore for the individuals and entities that are reporting entities under

Part 1 of the PCMLTFA, to determine whether they have reasonable grounds to suspect that

a transaction or attempted transaction is related to a money laundering or a terrorist activity

financing offense. If so, an STR must be sent within 30 calendar days.

Date Answered: 2015-08-11

Activity Sector: Money services business

Obligation: Reporting

Guidelines: 2,3

Act: Part 1, 7

107. Card skimming

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

Are credit unions required to report the suspicious alerts they receive from their Fraud Alert

System regarding their clients’ debit cards. More specifically, the Fraud Alert System sends

alerts to the reporting entity when their clients’ debit cards have been suspected of being

skimmed (i.e.: where debit card information such as the personal identification number has

been illegally recorded). Are these transactions, or attempted transactions, to be reported to

FINTRAC as Suspicious Transaction Reports (“STR”)?

Answer:

Pursuant to section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing

Act (PCMLTFA), financial entities have the obligation to report every financial transaction that

occurs, or is attempted in respect of which there are reasonable grounds to suspect that the

transaction is related to the commission or the attempted commission of a money laundering

offense or a terrorist activity financing offense. Under Canadian law, a money laundering

offense involves various acts committed with the intention of concealing or converting

property or the proceeds of property (such as money), while knowing or believing that this

property was derived from the commission of a designated offense. In the current case, the

alerts being issued by the Fraud Alert System are in relation to the skimming or suspected

skimming of debit cards, a criminal offense amounting to fraud, as opposed to a money

laundering or terrorist activity financing offense. However, if following the card skimming,

efforts are made to conceal or convert the proceeds, this may amount to the commission or

attempted commission of a money laundering offense. Any transactions or attempted

transactions related to these efforts would then be reportable as STRs in accordance with

section 7 of the PCMLTFA.

Date Answered: 2013-08-19

Activity Sector: Bank, Caisse populaire, Centrals/Coops, Co-op credit society, Credit Union,

Trust and/or loan company

Obligation: Reporting

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82. International Sanctions - STR

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

I would like your opinion on cases in which we find potential breaches of international

sanctions and on whether or not we have to report to FINTRAC. For example: 1. A Canadian

entity wants to conduct a transaction with a foreign entity against which sanctions have been

imposed by the U.S. After we intervened, the Canadian entity changed the name of the foreign

entity with which it wants to do business to a name that is not sanctioned. Our analysis shows

that this transaction relates to the entities' trade activities and we do not question the

legitimacy of these activities, so there is no doubt under the PCMLTFR. However, we question

the Canadian entity's behavior and its compliance with international sanctions. Should we

submit a suspicious transaction report in accordance with the PCMLTFA? 2. We are receiving

or sending an electronic funds transfer out of Canada (to a country that is not sanctioned)

and we have reason to believe that the electronic funds transfer could be in breach of

international and Canadian sanctions even though the sending/receiving country is not

sanctioned. The transaction relates to the business activities of the entities in question and

we do not question the legitimacy of these activities. Should we submit a suspicious

transaction report in accordance with the PCMLTFA? In all cases of possible sanction breaches,

we apply risk management measures to international sanctions, but we are still unsure as to

whether or not we have to report these activities to FINTRAC even though there is no doubt

under the PCMLTFR.

Answer:

Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act)

stipulates that, "Subject to section 10.1, every person or entity referred to in section 5 shall

report to the Centre, in the prescribed form and manner, every financial transaction that

occurs or that is attempted in the course of their activities and in respect of which there are

reasonable grounds to suspect that (a) the transaction is related to the commission or the

attempted commission of a money laundering offense; or (b) the transaction is related to the

commission or the attempted commission of a terrorist activity financing offense. If you have

reasonable grounds to suspect that the financial transaction that occurred or that was

attempted in the course of your activities is related to the commission or the attempted

commission of a money laundering offense or a terrorist activity financing offense, a

suspicious transaction report must be submitted to FINTRAC. "Reasonable grounds to

suspect" are determined based on what is reasonable for the reporting entity's circumstances,

including its common business practices and the systems in place in its industry. It is up to

the reporting entity to judge the legitimacy of transactions, taking into account what is

appropriate in the circumstances and consistent with common industry activities as well as

the client's level of knowledge. Moreover, section 7.1 of the Act indicates the following: 7.1

(1) Every person or entity referred to in section 5 that is required to make a disclosure under

section 83.1 of the Criminal Code or under section 8 of the Regulations Implementing the

United Nations Resolutions on the Suppression of Terrorism shall also make a report on it to

the Centre, in the prescribed form and manner. If a reporting entity concludes that it is

necessary to make a disclosure under section 7.1 of the Act, the entity must also make a

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report to the Centre. Moreover, it is important to note that, according to subparagraph

71(1)(c)(i) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations

(the Regulations), every person or entity must assess the risks of their clients and business

relationships. If the risk assessment reveals that the client or business relationship is high

risk, then the reporting entity would be required to take special measures to identify clients,

keep records and monitor financial transactions for high risk activities, in accordance with

subsection 9.6(3) of the Act, and discussed in more detail in section 71.1 of the Regulations.

Date Answered: 2013-12-19

Activity Sector: Bank, Caisse populaire, Centrals/Coops, Co-op credit society, Credit Union,

Trust and/or loan company

Obligation: Reporting

Guidelines: 2, 3

Regulations: 71(1)(c)(i), 71.1

Act: 7, 7.1, 9.6(3)

87. STR Inquiry - Hacker

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

One of the entities of a Canadian securities dealer and reporting entity under the Proceeds of

Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) was contacted by a hacker,

who took over their email address and attempted to solicit funds from various individuals. He

would like clarification on whether this incident should be reported to FINTRAC as a Suspicious

Transaction Report.

Answer:

According to section 7 of the PCMLTFA, a reporting entity must report every financial

transaction that occurs or that is attempted in the course of their activities in respect of which

there are reasonable grounds to suspect that: 1. the transaction is related to the commission

or the attempted commission of a money laundering offense; or 2. the transaction is related

to the commission or the attempted commission of a terrorist activity financing offense As

such, for a transaction to qualify as a suspicious transaction, reportable under the PCMLTFA,

the entity must have reasonable grounds to suspect it is related to the commission or

attempted commission of either a money laundering offense or a terrorist activity financing

offense. With respect to the Security Dealers sector, some relevant indicators that a

transaction is suspicious and may be related to money laundering and/ or terrorist financing

might include the following: • Accounts that have been inactive suddenly experience large

investments that are inconsistent with the normal investment practice of the client or their

financial ability. • Any dealing with a third party when the identity of the beneficiary or

counter-party is undisclosed. • Client attempts to purchase investments with cash. • Client

wishes to purchase a number of investments with money orders, traveller's checks, cashier's

checks,

Date Answered: 2013-12-02

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Activity Sector: Securities dealer

Obligation: Reporting

Guidelines: 2, 3

237. Guidance on identifying transactions which are suspicious because they

may be in furtherance of money laundering

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

In particular, I am looking for guidance on identifying those transactions which are suspicious

because they are or may be in furtherance of money laundering. I am aware of the 'common

indicators' and I am aware of what the term 'suspicious' means. My question has solely to do

with the nexus of suspicion with a money laundering offense. Guideline 2 provides the

following insight regarding what is a money laundering offense: "Money laundering offense

Under Canadian law, a money laundering offense involves various acts committed with the

intention to conceal or convert property or the proceeds of property (e.g. money) knowing or

believing that these were derived from the commission of a designated offense. In this

context, a designated offense means most serious offenses under the Criminal Code or any

other federal Act. It includes those relating to illegal drug trafficking, bribery, fraud, forgery,

murder, robbery, counterfeit money, stock manipulation, etc. The few exceptions to what is

a designated offense are for offenses such as those related to tax evasion or breach of

copyright." From that it seems obvious that I would need to know what the "various acts"

are; and what offenses are designated, in order to determine whether a transaction (or

attempted transaction) is suspicious because it is in furtherance of money laundering and

therefore ought to be reported to FINTRAC. We discussed my situation of a client who wished

to make a transaction, submitted a KYC with all required information, and when we ran his

name through the World Check database, it generated a hit indicating that he had been

charged with a federal offense of tax evasion. The details of the charge were that he owned

a warehouse where illegally imported cigarettes were stored. I confirmed with the client that

the hit related to him. He advised that it had all been a mistake and the charges had been

withdrawn and he had a letter from the RCMP so stating. I asked him for the document, and

for the name of his lawyer and asked him to instruct his lawyer to speak to me regarding the

charges. He agreed, but we never heard from him again. Of course, without satisfying me,

no transaction by him can proceed. You agreed that it was difficult to relate those

circumstances to money laundering. Suspicious? A bit. But how to tie it in to a suspicion of

money laundering? It would help to have some direction on the "various acts" and "designated

offenses".

Answer:

Following is a statement that might help the reporting entity in their identification of suspicious

transactions (however, it lists more the offenses found in the securities world). However, we

should be careful when we suggest to reporting entities to review the designated offenses

found in the criminal code, as it is not the predicated or designated offenses listed that should

be reported to FINTRAC as an STR, but financial transactions that reporting entities have

reasonable grounds to suspect are related to the commission of a money laundering offense,

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or the commission of a terrorist activity financing offense. Money Laundering offenses Under

Canadian Law, a money laundering offense involves various acts committed with the intention

to conceal or convert property or the proceeds of property (e.g. money) knowing or believing

that these were derived from the commission of a designated offense. In this context, a

designated offense means most serious offenses under the Criminal Code or any other federal

Act [ 4 ] . It includes those relating to illegal drug trafficking, bribery, fraud, forgery, murder,

robbery, counterfeit money, stock manipulation [ 1 ], insider trading [ 2 ], False prospectus

[ 3 ], secret commission, etc. [ 1 ] s. 382 of the Criminal Code [ 2 ] s. 382.1 of the Criminal

Code [ 3 ] s. 400 of the Criminal Code [ 4 ] Include most federal laws except the exemptions

listed in s. 462.3(1)of the criminal code.

Date Answered: 2009-07-17

Activity Sector: Money services business

Obligation: Reporting

Guidelines: 2

267. STR file - Identity fraud

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

This was filed under an ATTEMPTED Transaction. A gentleman left a small deposit for a

purchase of currency in order to safeguard the rate. After doing our verification of facts that

he had provided, and other circumstances, we decided to cancel the transaction. We left a

message on client's voice mail and did not hear from him further to our voice mail message.

We mailed out a refund check to the address noted on the Driver License as well as our

Transaction Invoice indicating that the sale was being cancelled. This morning, we received a

phone call from another gentleman, who had received our paperwork and check in the mail

informing us that he never had transacted anything in our office. Furthermore, he advised us

that he had received a Bank Statement, with his name from a bank where he did not have an

account. He continued that he contacted this Bank who had advised him that " le gars a été

arrêté/(the man was arrested)". The caller wanted to know what type of Identification I had

on him and I said that I could not discuss this. I called back the number that he had provided

and asked him to mail back the paperwork as well as the check. I also asked him to write that

he did not conduct anything at our office. He said that he will contact his lawyer to see what

he is going to do. He also said that the Police will want to see what I have. Please advise

what, if anything, if I am visited by Police, that I should disclose, or do I refer them to contact

FINTRAC? I believe that we may be looking at Identity Fraud.

Answer:

I agree with you. I suspect that there is a definite identity fraud in this case (so the police

should be involved), and a SATR should be filed with FINTRAC as well. As for divulging the

fact that they filed a SATR, under subsection 8 of the Act - no person or entity shall disclose

that they have made a report under section 7 (i.e. report on a transaction in respect of which

there are reasonable grounds to suspect that the transaction is related to a ML/TF offense),

or disclose the contents of such a report, with the intent to prejudice a criminal investigation,

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whether or not a criminal investigation has begun. In this particular case (and PI group please

correct me if I am wrong) - I do not believe that indicating that a SATR has been filed with

FINTRAC would prejudice a criminal investigation? However, on the other hand the report

should not be shared with law enforcement. I don't think there is any real risk in also telling

the RE that the prohibition would not apply in the given case if the RE chose to tell the police

it had filed an STR in those circumstances (or chose to share the content of the STR with

police).

Date Answered: 2009-03-24

Activity Sector: Money services business

Obligation: Reporting

Guidelines: 2,3

Act: 7, 8

305. Scenario referencing guideline 2

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=1

Question:

As the criteria in Guideline 2: Suspicious Transactions, are still at the consultation stage with

our industry, guidance is also requested concerning how the sales transactions described in

this scenario would be viewed by FINTRAC in relation to requirements for reporting suspicious

transactions.

Answer:

You are required to file a Suspicious Transaction report where there are reasonable grounds

to suspect that the transaction (or attempted transaction) is related to money laundering or

terrorist financing. Since exactly what constitutes reasonable grounds to suspect can vary

greatly from transaction to transaction it is impossible for FINTRAC to provide an exhaustive

list of what circumstances constitute reasonable grounds to suspect ML or TF. Because you

are very familiar with your industry, you and your members are in an excellent position to

determine if the particular circumstances of a given transaction should reasonably give rise

to suspicion. A transaction is certainly reportable to FINTRAC as suspicious when the

developer has concerns about the transaction in question. FINTRAC's guidance is intended to

assist developers in making this determination, but the fact that a client is non-resident does

not by itself automatically constitute a suspicious transaction and might be linked to ML or

TF.

Date Answered: 2008-11-20

Obligation: Reporting

Guidelines: 2,3

32. Lawyer making purchase/sale on behalf of a company

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=11

50 | P a g e

Question:

Are the names of the Directors of a company required when the purchase or sale of real estate

is conducted by a lawyer on behalf of the company?

Answer:

Real estate agents or brokers are subject to record keeping requirements under section 39 of

the PCMLTFR, which include keeping receipt of funds records, client information records, and

large cash transaction records. Subsection 59.2(1) of the PCMLTFR further requires that

“subject to subsection 62(2) and section 63, every real estate broker or sales representative

shall, in respect of a transaction for which a record is required to be kept under subsection

39(1), (a) in accordance with subsection 64(1), ascertain the identity of every person who

conducts the transaction; (b) in accordance with section 65, confirm the existence of and

ascertain the name and address of every corporation on whose behalf the transaction is

conducted and the names of its directors; and (c) in accordance with section 66, confirm the

existence of every entity, other than a corporation, on whose behalf the transaction is

conducted.” As per section 8 of the PCMLTFR, when a large cash transaction record is required

to be kept, a real estate agent or broker must also take reasonable measures to determine

whether the individual who provides the cash is acting on behalf of a third party. If it is

determined that the individual is acting on behalf of a third party, a real estate agent or broker

shall keep a record that sets out: (a) the third party’s name, address and date of birth and

the nature of the principal business or occupation of the third party, if the third party is an

individual; (b) if the third party is an entity, the third party’s name and address and the nature

of the principal business of the third party, and, if the entity is a corporation, the entity’s

incorporation number and its place of issue; and (c) the nature of the relationship between

the third party and the individual who gives the cash. Similarly, in respect of every client

information record that is kept, section 10 of the PCMLTFR requires that a real estate agent

or broker take reasonable measures to determine whether a client is acting on behalf of a

third party. If it is determined that the client is acting on behalf of a third party, a record must

be kept that sets out: (a) the third party’s name, address and date of birth and the nature of

the principal business or occupation of the third party, if the third party is an individual; (b)

if the third party is an entity, the third party’s name and address and the nature of the

principal business of the third party, and, if the entity is a corporation, the entity’s

incorporation number and its place of issue; and (c) the relationship between the third party

and the client. While the lawyer is making the purchase or sale on behalf of the corporation,

the lawyer is, essentially, operating as the physical body of the corporation. The lawyer is

therefore considered to be the client for record keeping and identification purposes and the

real estate agent or broker is required to keep a receipt of funds or large cash transaction

record and a client information record, for which the real estate agent or broker must then

ascertain identity and carry out a third party determination (client information or large cash

transaction record requirement). As stated above, according to paragraphs 59.2(1)(a), (b),

and (c), real estate agents or brokers must ascertain the identity of every person who

conducts the transaction, and confirm the existence of the corporation or the entity on whose

behalf the transaction is conducted. As such, the lawyer should be prepared to: a) be identified

in accordance with subsection 64(1) of the PCMLTFR, and b) provide documents confirming

the existence of the corporation, including the names of the directors in the case of a

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corporation. Of course, should the lawyer’s corporation fall under the exception outlined in

paragraph 62(2)(m) of the PCMLTFR, then the real estate agent or broker would not be

required to carry out the record keeping and client identification requirements outlined above.

The real estate agent or broker is required to take reasonable measures to determine if there

is a third party involved in the transaction, and it is only when they determine that there is in

fact a third party involved in the transaction that the record keeping obligation kicks in. In

addition, if an employee is acting on behalf of their employer, the employee is considered to

be acting on behalf of a third party. If the real estate agent or broker is not able to determine

that there is in fact a third party, but the real estate agent or broker has reasonable grounds

to suspect that there are instructions of a third party involved, the real estate agent or broker

has to keep a record to indicate the following: • in the case of a large cash transaction,

whether, according to the individual giving the cash, the transaction is being conducted on

behalf of a third party; or • in the case of a client information record, whether, according to

the client, the transaction is being conducted on behalf of a third party. This record must also

indicate details of why the real estate agent or broker suspects the individual is acting on a

third party's instructions. Finally, as per section 7 of the Proceeds of Crime (Money

Laundering) and Terrorist Financing Act, an STR is expected to be submitted to FINTRAC when

the real estate agent or broker has reasonable grounds to suspect that: “(a) the transaction

is related to the commission or the attempted commission of a money laundering offense; or

(b) the transaction is related to the commission or the attempted commission of a terrorist

activity financing offense.” A single indicator, such as not being able to determine if there is

a third party involved in the transaction, is not necessarily indicative of reasonable grounds

to suspect money laundering or terrorist financing activity. However, if a number of indicators

are present during a transaction or a series of transactions, then the real estate agent or

broker might want to take a closer look at other factors prior to making the determination as

to whether the transaction must be reported.

Date Answered: 2015-07-08

Activity Sector: Real estate

Obligation: Ascertaining Identification

Guidelines: 6B

Regulations: 8, 10, 39, 59.2(1), 62(2)(m), 64(1)

2. AMPs - Proof of ownership and source of funds

http://www.fintrac-canafe.gc.ca/publications/FINS/2-eng.asp?s=9

Question:

1. How long do financial entities have in order to establish proof of ownership on people or

companies that have made larges deposits into Canadian accounts? What could be the

consequences if the financial entity does not establish proof, within a certain time frame? 2.

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How long do financial entities have to identify the source of funds? What could be the

consequences if the financial entity does not identify the source of funds, within the certain

time frame?

Answer:

1. Reporting entities have to confirm the existence of any corporation or other entity for which

they open an account, other than a credit card account, before any transaction other than the

initial deposit, is conducted. An account cannot be opened if this requirement is not met.

FINTRAC undertakes a number of enforcement activities to ensure reporting entities meet

their legal obligations. This may include the assessment of the entity’s compliance with

reporting, record keeping and other anti-money laundering and anti-terrorist financing

obligations through an examination. Failure to keep records or ascertain the identity of clients

can lead to an administrative monetary penalty. Alternatively, FINTRAC may also refer cases

of non-compliance to law enforcement when there is severe non-compliance, or little

expectation of immediate or future compliance. In such cases, conviction of failure to retain

records could lead to up to five years imprisonment, to a fine of $500,000, or both. 2. Under

the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, certain reporting

entities must record the source of funds when their client is deemed to be a politically exposed

foreign person as defined in the Act. This determination is made in a couple of scenarios.

First, when a person opens a new account or becomes politically exposed following the

opening of an account. Second, when a person initiates or receives an international electronic

funds transfer of $100,000 or more. In these cases, the reporting entity is required to use

reasonable measures to confirm the source of funds as soon as the determination is made

that the person is politically exposed. The timeline to make this determination is currently 14

days after the account is opened or the electronic funds transfer has occurred. In addition,

when the business relationship with the client is deemed to be high-risk, enhanced measures

must be applied to mitigate the risk. One of the enhanced measures that may be applied in

such a case is to obtain information on the source of funds or source of wealth of the client.

Above and beyond these requirements, a transaction (or attempted transaction) may present

characteristics that lead the reporting entity to find they have reasonable grounds to suspect

that it is related to the commission of a money laundering or terrorist financing offense. In

such a case they are required to report the transaction to FINTRAC as suspicious. Suspicious

transaction reports are not linked to a mandatory monetary threshold. Rather, they provide

details about the transaction and the grounds for suspicion. In the presence of additional

indicators of money laundering, being unable or unwilling to confirm the source of funds or

provide complete information on activities may lead to grounds for suspicion. If the reporting

entity failed to take reasonable measures, within the prescribed period, to determine whether

the person who opens an account, or has an existing account holder, or is the initiator or

beneficiary of an electronic funds transfer of $100,000 or more is a politically exposed foreign

person, FINTRAC has the authority to issue administrative monetary penalty.

Date Answered: 2015-09-04

Activity Sector: Real estate

Obligation: AMPs

Guidelines: 4(10)

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APPENDIX II – SURVEY RESPONDENT DEMOGRAPHICS

The distribution of assets within the credit union system in Canada is heavily skewed in favor

of a small number of credit unions. As some respondents wished to remain anonymous, only

the most basic of demographic data may be presented in order to preserve their anonymity.

As a result of this distribution, the limited number of respondents represents a material

portion of the credit union system in Canada.

The figures are accurate as of August 2015, and represent all credit unions in Canada

excluding Quebec. 55

55 Credit Union Central of Canada; 2Q 2015 System Results, Aug 26, 2015 & Largest 100 Credit Unions 2Q 2015,

Sep 22, 2015 http://www.cucentral.ca/SitePages/Publications/FactsAndFigures.aspx