Commercial Litigation and Dispute Resolution Blog

On November 7, 2011, the federal Government issued a consultation paper on proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing (“PCMLTF”) Act and Regulations which, if enacted, will impose significant new obligations on reporting entities covered by the legislation.

The PCMLTF legislation, as the name suggests, is aimed at detecting and deterring money laundering and terrorist financing activities.  Its provisions apply to a variety of businesses and professionals  who engage in financial activities, for example accountants, securities dealers, banks and other financial institutions, real estate brokers and money services businesses, and it requires those entities to comply with certain record keeping and due diligence requirements in respect of various prescribed financial transactions.

The federal Government’s approach to dealing with money laundering is influenced to a significant degree by recommendations published by the Financial Action Task Force (“FATF”), an international body whose object is to combat money laundering and terrorist financing on a global basis.  According to the Government consultation paper, the new proposed amendments to the PCMLTF legislation are intended to bring Canadian law into better compliance with the FATF recommendations.

Most entities that are subject to the PCMLTF legislation, which are known as reporting entities, have well established processes and compliance programs to ensure that they meet the requirements of the legislation.  Those compliance programs will have to be revised however, if the onerous new provisions contained in the proposed amendments are enacted.  The key changes proposed include:

• Rather than applying to specific transactions, the PCMLTF obligations will now apply to the entirety of the business relationship between the reporting entity and its customer.  As noted in the consultation paper, the amendments are intended to increase the range of activities to which the obligations will apply;

• The proposed amendments will require reporting entities to comply with the PCMLTF customer identification and verification requirements whenever they have a suspicion of possible money laundering or terrorist financing activities, regardless of whether the transaction in question would otherwise be subject to those requirements.  The requirements will also apply to any attempted suspicious transaction;

• The proposed amendments will make it mandatory for reporting entities to obtain information about the beneficial ownership of companies or other entities that conduct transactions falling under the PCMLTF legislation; and

• The proposed amendments will require reporting entities to engage in ongoing monitoring of their business relationship with a customer as a whole, again rather than simply focusing on certain prescribed transactions.

While there is no doubt that combatting money laundering and terrorist financing is an important objective, one wonders how the imposition of impractical, and in some cases unworkable, measures will advance that objective.  For example, in many instances, it will simply not be possible to determine the beneficial ownership of a private company, particularly a foreign-based one. Similarly, it is not clear how a Canadian reporting entity will be able to conduct continuous monitoring of the business activities of clients situated elsewhere around the globe. 

The proposed amendments to the PCMLTF legislation are still only in the consultation stage and it is possible that the consultation process will result in changes to the draft.  However, if history serves, the federal Government is intent upon tightening its approach to combatting money laundering as part of what it sees as its international obligation to comply with the FATF recommendations. There is a significant likelihood therefore that the proposed amendments will become law in the near future.