What does Canada's AML legislation mean to you
As of June 23, 2008, you have to report both attempted and completed "suspicious transactions" when there are reasonable grounds to suspect that the transaction is related to a money laundering or terrorist financing offence.
- Penalties for failing to report a suspicious transaction are severe:
- from 6 months to five years imprisonment
- fines from $500,000 to $2,000,000
- administrative monetary penalties, or
- all three of the above
- If you fail to report a suspicious transaction, Sun Life Financial may terminate your Advisor's Agreement.
- Your E&O insurance will not cover you if you offend the legislation.
- To file a suspicious transaction report, email Money Laundering. You'll be contacted with instructions.
- Contact Money Laundering as soon as your suspicion about the transaction is aroused.
- You must keep confidential the fact that you are reporting a transaction.
- What is money laundering?
- How is money laundered?
- What is terrorist financing?
- Methods of terrorist financing
- Why insurance and investment products may be vulnerable
- Suspicious transaction reporting requirements
- Penalties for failing to report suspicious transactions
- How do you report?
- Timelines for filing a suspicious transaction report
- Recognizing a suspicious transaction
- After you decide to report a suspicious transaction
- Know your customer
- Appendix A - Canada's legislation: The Proceeds of Crime (Money Laundering) and Terrorist Financing Act
- Appendix B - Information required in a suspicious transaction report
- Appendix C - Suspicious transaction indicators that you would most likely encounter
Money laundering is the process used to conceal the true origin and ownership of the proceeds of criminal activities, such as drug trafficking, fraud, extortion, and a host of other criminal offences. The ultimate objective is to make the dirty money look like clean money, so the criminal origin is difficult to trace and the money can be used in legitimate business.
There are 3 stages in the money laundering process.
- Placement involves placing the proceeds of crime in the financial system.
- Layering involves converting the proceeds of crime into another form and creating complex layers of financial transactions to disguise the source and ownership of funds.
- Integration involves placing the laundered proceeds back in the economy so the money appears to be legitimate.
Life insurance companies are most likely to be victimized at the layering stage of the money laundering process.
There are as many methods to launder money as the imagination allows, and the schemes are becoming more complex as technology advances. Two common money laundering methods you might encounter are:
- Use of Nominees - This is one of the most common methods of laundering assets. A launderer conceals the source and ownership of funds by using family members, friends or associates who are trusted within the community, and who will not attract attention, to conduct transactions on his or her behalf.
- Structuring or "smurfing" - Many inconspicuous people deposit cash or buy bank drafts at various institutions, and the cash is subsequently transferred to a central account. These people, commonly referred to as "smurfs," do not attract attention because they appear to be conducting ordinary transactions since the amounts are below reporting thresholds.
For more examples of money laundering techniques, see www.fintrac.gc.ca (Guideline 1: Backgrounder - Methods of money laundering)
Terrorist financing refers to supplying funds for terrorist activity. Terrorist activity has, as its main objective, to intimidate a population or compel a government to do something. This is done by intentionally killing, seriously harming or endangering a person, causing substantial property damage that is likely to seriously harm people or by seriously interfering with or disrupting essential services, facilities or systems.
To generate and launder funds, a terrorist organization must develop sources of funding and means of obscuring the links between those sources and the activities the funds support. It needs to find a way to make sure that the funds are available and can be used to get whatever goods or services are needed to commit terrorist acts. The fundamental aim of terrorist financing is to obtain resources to support terrorist activities. The sums needed to mount terrorist attacks are not always large and the associated transactions are not necessarily complex.
There are 2 main methods of financing for terrorists:
- Direct financial support from individuals, organizations or countries with sufficient means; and
- Revenue-generating activities that may include both legitimately-earned income and funds earned from illegal activities.
For more examples of terrorist financing techniques, see www.fintrac.gc.ca (Guideline 1: Backgrounder - Methods of terrorist financing)
As the banking system makes it harder to launder the proceeds of crime, the professional launderers may turn to insurance and investment-type products. Life insurance and investment products can be attractive to money launderers for several reasons. For example:
- Some products offer a wide variety of available investment options, liquidity, portability and ease of transfer.
- They can be purchased in large amounts without attracting extensive regulatory review.
Insurance transactions also allow the launderers to change the form of funds, not just from cash in-hand to cash on-deposit, but from cash to a secure and liquid asset in an entirely different form, such as a big refund cheque issued by and bearing the name of the insurance company.
What has to be reported?
As of June 23, 2008, you have to report a suspicious transaction (either attempted or completed) when there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence.
Who has to report suspicious transactions?
You do. The regulations apply to:
- Sun Life Financial, Sun Life Financial Trust Inc. and Sun Life Financial Investment Services (Canada) Inc.
- All employees and advisors of those companies
- All advisors' employees
Since reporting a suspicious transaction is everyone's responsibility, more than one person might report the same transaction. That's expected - don't let a concern about multiple reports stop you from filing your report.
See Appendix A for information about Canada's strengthened money laundering and terrorist financing legislation, about FINTRAC, the agency to which we will submit your reports, and about Canada's part in the international fight against money laundering and terrorist financing.
Failing to comply with reporting requirements can lead to criminal charges and stiff fines against you and Sun Life Financial. You can be subject to up to five years' imprisonment, a fine of up to $2,000,000, administrative monetary penalties or all three. If you fail to report a suspicious transaction, Sun Life Financial may terminate your Advisor's Agreement.
Reports of suspicious transactions are confidential. You are protected from criminal and civil legal proceedings for submitting suspicious transaction reports in good faith.
Send an email to Money Laundering as soon as your suspicions are aroused, saying you have a suspicious transaction to report. You'll be contacted with instructions.
The report is lengthy and requires basic information about the transaction and the customer. See Appendix B for a list of the information you will have to enter.
Your suspicion about a relationship to a money laundering or terrorist financing offence may be the result of more than one transaction. In this case, include all the transactions that contributed to your suspicion in the same report.
Reports must be filed electronically. FINTRAC will acknowledge receipt of your report to us.
You must make your report to FINTRAC within 30 days of your suspicion being aroused. FINTRAC is an independent agency responsible for collecting, analyzing and, in appropriate circumstances, disclosing information about suspicious transactions.
The 30-day time limit begins when you encounter a reason to suspect the transaction. For example, if a transaction takes place on February 1 and a reason to suspect it doesn't come to light until you meet the customer again on July 1 for a portfolio review, then you must report the transaction by July 31. You should contact Money Laundering immediately to allow enough time for you to complete the report within the 30-day time limit.
You'll need to consider each case globally and evaluate several relevant factors, such as the customer's occupation, normal business practices, financial history, past investment patterns, background and behaviour. Several indicators considered together - not just one - might lead you to conclude there are reasonable grounds to suspect that a transaction is related to the commission of a money laundering or terrorist financing offence. You should examine each transaction in the context of what seems appropriate and is within normal practices, and consider all of the circumstances surrounding the transaction.
- There is no minimum dollar amount for reporting a suspicious transaction.
- This legislation applies to all movement of funds, not only to cash transactions.
- A suspicious transaction can involve any type of product.
Because each case is unique and involves many considerations, there is no definitive checklist of characteristics of a suspicious transaction. Regulatory guidelines list examples of common indicators and examples of industry-specific indicators that might point to a suspicious transaction. See Appendix C in this document for some indicators you could most likely encounter.
You must keep confidential the fact that you are filing a report. Telling your customer or other people could be considered an attempt on your part to interfere with a possible criminal investigation into money laundering. It's also important to limit any discussion about whether to report a transaction as suspicious. If you need guidance, you can email Money Laundering. If your customer asks whether you plan to report the transaction, simply say that we comply with the law. The customer's question, in this case, could be considered suspicious.
You do not have to keep a record of suspicious transactions. Record-keeping will be encompassed by the reporting process. You also do not have to record transactions that you examined but decided did not have to be reported.
It's the most effective weapon against being used unwittingly to launder money. The need to report suspicious transactions makes it more important than ever that you take the time to get to know your customers. Establish each new customer's identity when you start the relationship. Get to know each customer's business, background, family and financial situations, objectives and patterns. Above all, be alert for any sign that should arouse suspicion.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act has three key objectives:
- to detect and deter money laundering and terrorist financing
- to provide law enforcement officials with the information they need to counter the threats of organized crime and terrorism
- to help fulfill Canada's international commitments to fight transnational crime and terrorism
Specific regulations include the following:
Record keeping and reporting
You will have to keep certain records, verify the customer's identity, and report suspicious transactions (completed and attempted), as well as certain other financial transactions, to FINTRAC:
- electronic funds transfer reporting (applicable only to transactions with Sun Life Financial Trust Inc.)
- large cash transaction reporting (not likely to affect advisors due to our no-cash policy),
- client identification, and
- record keeping.
Stiff penalties will apply to failures to follow the regulations:
- Failure to report a large cash transaction - up to five years' imprisonment or a fine of $500,000 for a first offence and $1,000,000 for each subsequent offence.
- Failure to retain records - up to five years' imprisonment, a fine of $500,000 or both.
- Failure to implement a compliance regime - up to five years' imprisonment, a fine of $500,000 or both.
These measures will help maintain the integrity of Canada's financial infrastructure. They also represent sound business practices for reducing your risk of being drawn into money laundering or terrorist financing schemes and facing the serious consequences.
Canada's legislation supports initiatives by the Financial Action Task Force on Money Laundering (www.fatf-gafi.org), an international organization of which Canada is a member, to establish international standards aimed at strengthening international co-operation in the fight against money laundering. The measures will help detect and deter organized criminal and terrorist activities in Canada and help ensure Canada is not used to facilitate money laundering for criminals and terrorists.
The extent of money laundering activity
No one knows the actual amount of money laundered yearly, although it has been suggested by the International Monetary Fund to be between two and five per cent of global GDP. Translated into Canadian terms, this would suggest that approximately $28 billion to $70 billion is laundered annually. Financial institutions are prime targets because they may provide a variety of services and instruments which permit launderers to conceal the sources of dirty money.
The risk of money laundering in Canada
Canada is considered an attractive jurisdiction for money laundering and terrorist financing because of its stable currency and relatively strong economy, its long, un-defended border and huge volume of commercial and financial trade with the U.S. Moreover, according to forensic accountants, it is significantly cheaper to launder a dirty dollar here compared to the U.S.
How your reports will help in the fight against money laundering and terrorist financing
The money laundering process usually involves a complex series of activities aimed at turning criminal profit into legitimate assets. In most cases, this involves a trail of financial transactions which can be unusual. Red flags tend to emerge.
Through reports to FINTRAC, a store of information is established for analysis by specialists trained in the detection of money laundering and terrorist financing. Linkages to know criminal/terrorist groups and active investigations often surface during the analysis. Or the police might inform FINTRAC about current investigations and ask that data be searched for transactions linked to suspects. In both cases, information from the reports provides law enforcement agencies with an additional tool for building a successful case.
You will be asked for information about the following aspects of the transaction:
- the place of business where the transaction occurred
- details about the transaction or attempted transaction
- account information (where applicable)
- the person conducting the transaction
- the person or entity on whose behalf the transaction is conducted (where applicable)
- The customer refuses to produce personal verification documents, wants to establish identity through means other than person identification, inordinately delays presenting corporate documents.
- The customer is accompanied and watched, secretive, nervous, over justifies.
- The customer displays uncommon curiosity about internal controls, or unusual knowledge about law around suspicious transaction reporting.
- The customer deposits large third-party cheques.
- The customer frequently makes deposits to the account of another person who is not an employer or family member.
- The customer has account(s) with a large number of small cash deposits and a small number of large cash withdrawals.
- The customer requests a product that has no discernible purpose.
- The customer shows more interest in the cancellation than in the long term benefits of the product.
- The customer is willing to deposit or invest at rates that are not advantageous or competitive.
- The transaction involves an offshore (shell) bank whose name may be very similar to the name of a major legitimate institution.
- The transaction is unnecessarily complex for its stated purpose.
- The transaction seems to be inconsistent with the customer's apparent financial situation or usual pattern of activities. For example, a customer who has other small policies or transactions based on a regular payment structure makes a sudden request to purchase a substantial policy with a lump payment.
- Payments made by way of third-party cheques are payable to, or endorsed over to, the customer.
- A customer makes a large purchase with the stated objective of giving you as the advisor a big commission, even though that customer could get a better rate elsewhere.
- The customer only wants to make cash payments.
- The customer gives a post office box address rather than a street residence address.