The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has imposed a penalty of $229,350 on Simple Canadian Services, a money services business (MSB) operating in Surrey, British Columbia. This action stems from significant non-compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) following a compliance examination conducted in 2022.
This case underscores the importance of adhering to Canada’s anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, as FINTRAC continues to enforce compliance to protect the financial system.
Beyond reporting this news, this article offers actionable steps businesses can take to strengthen their compliance frameworks and avoid penalties like these.=
Key Violations Identified by FINTRAC
Simple Canadian Services was penalized for multiple failures, including:
- Failure to Report Incoming Electronic Funds Transfers (EFTs):
The company did not report EFTs of $10,000 or more in a single transaction as required. - Non-Existent or Inadequate Compliance Policies:
They lacked written and up-to-date compliance policies and procedures, a fundamental element of any AML program. - Insufficient Risk Assessments:
The company failed to assess and document the risk of money laundering and terrorist financing activities. - Failure to Conduct Prescribed Reviews:
Regular reviews of compliance measures were not instituted or documented, leading to systemic weaknesses. - Improper Handling of High-Risk Transactions:
Transactions from high-risk foreign jurisdictions were not treated with the enhanced due diligence required by ministerial directives.
FINTRAC’s Position on AML Compliance
Sarah Paquet, FINTRAC’s Director and Chief Executive Officer, reinforced the importance of compliance in safeguarding Canada’s financial ecosystem:
“Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime is in place to protect the safety of Canadians and the security of Canada’s economy. FINTRAC will continue to work with businesses to help them understand and comply with their obligations under the Act. We will also be firm in ensuring that businesses continue to do their part and we will take appropriate actions when needed.”
How Businesses Can Strengthen AML/CTF Compliance
Non-compliance not only results in hefty fines but also tarnishes a company’s reputation. To avoid penalties like those faced by Simple Canadian Services, businesses should consider the following steps:
1. Develop Comprehensive Compliance Policies
- Create written policies and procedures that outline your organization’s approach to AML/CTF compliance.
- Ensure these policies cover key areas, including client identification, record-keeping, transaction monitoring, and reporting requirements.
- Update policies regularly to reflect changes in regulations or your business operations.
2. Conduct Regular Risk Assessments
- Evaluate and document potential exposure to money laundering or terrorist financing risks based on:
- Your client base.
- Transaction patterns.
- Geographic locations of operations.
- Use a risk-based approach to identify high-risk transactions and clients.
3. Train Employees on AML/CTF Requirements
- Educate all employees, especially those in client-facing roles, on their obligations under the PCMLTFA.
- Training should include:
- Identifying suspicious transactions.
- Proper reporting procedures.
- Enhanced due diligence requirements for high-risk jurisdictions.
4. Implement Robust Transaction Monitoring Systems
- Utilize software to monitor transactions in real time.
- Flag unusual patterns, such as large cash deposits, repeated small transactions, or transfers to high-risk jurisdictions.
- Investigate flagged transactions and report suspicious activities to FINTRAC immediately.
5. Conduct Prescribed Compliance Reviews
- Schedule independent reviews of your compliance program annually or more frequently if needed.
- Ensure these reviews assess the effectiveness of your policies, procedures, and risk assessments.
- Address gaps identified during reviews promptly.
6. Treat High-Risk Jurisdictions with Enhanced Scrutiny
- Transactions involving high-risk foreign jurisdictions require enhanced due diligence (EDD).
- Develop procedures to:
- Verify source of funds.
- Understand the purpose of the transaction.
- Monitor for ongoing risks related to these jurisdictions.
7. Maintain Accurate Records and Timely Reporting
- Keep detailed records of all transactions, client identification documents, and internal communications related to compliance.
- Ensure timely reporting of:
- Suspicious transactions.
- Large cash transactions.
- Large virtual currency transactions.
- Incoming or outgoing EFTs over $10,000.
Tools and Resources for AML Compliance
To ensure compliance, businesses can leverage various tools and resources, such as:
- AML Software Solutions: Platforms like Verafin, ComplyAdvantage, and Actimize help automate transaction monitoring and reporting.
- Training Providers: Organizations like the Canadian MSB Association and ACAMS offer specialized training for AML/CTF compliance.
- Consultation Services: Work with compliance experts to audit and strengthen your AML framework.
Consequences of Non-Compliance: A Warning for Businesses
This case highlights the financial and reputational risks of failing to comply with AML/CTF regulations. FINTRAC’s role in safeguarding Canada’s economy involves strict enforcement measures, as seen in the $229,350 penalty imposed on Simple Canadian Services.
In 2023–24 alone, FINTRAC issued 12 Notices of Violation amounting to over $26 million in penalties, signaling its commitment to holding businesses accountable.
Take Action Today to Ensure Compliance
Businesses should take proactive measures to strengthen their compliance programs and align with the PCMLTFA. By doing so, they not only protect themselves from penalties but also contribute to the integrity of Canada’s financial system.
For expert guidance on implementing AML policies and avoiding penalties, explore our compliance resources or contact us today.
