Key takeaways
- Third-party determination identifies who is truly instructing the transaction or benefiting from it, not just who is conducting it at the counter.
- Staff must ask direct, understandable questions to establish instruction and control, rather than making assumptions based on a customer's role or appearance.
- Beneficial ownership verification and third-party determination are separate assessments — a company's beneficial owner is not automatically the third party in every transaction.
- When a third party is identified, specific information must be recorded including their name, address, occupation, and relationship to the conductor.
- Refusal to identify a third party requires documentation of unsuccessful reasonable measures and may trigger STR consideration.
Introduction
Identifying the person standing behind a transaction is a critical regulatory obligation for Canadian Money Services Businesses (MSBs). In financial compliance, the individual standing at the counter or logging into the mobile app — the customer or conductor — is not always the true instructing party. Criminal networks, sanctioned entities, and individuals attempting to structure funds frequently use nominees or intermediaries to shield their identities. A FINTRAC third-party determination ensures that MSBs pierce this veil.
Third-party determination is entirely separate from standard identity verification. While identity verification confirms who the person is, a third-party determination uncovers who is truly directing the activity. Third-party determination errors frequently happen because frontline staff confuse the person conducting the transaction with the person providing the funds, or they confuse an authorized employee with an independent third party. They may mistakenly assume that the beneficial owner of a company is automatically the third party for every corporate transaction.
To satisfy this obligation, staff must ask clear, direct questions rather than making assumptions based on a customer's appearance or corporate status. If a customer provides inconsistent answers, the transaction must be documented and escalated. While compliance software can prompt questions and record data, software-generated answers cannot replace human staff judgement. Ultimately, identifying an undisclosed third party fundamentally affects suspicious transaction analysis and the integrity of the financial system.
Quick Answer
When an applicable transaction or recordkeeping trigger occurs, an MSB should:
- Determine whether the customer is acting for another person or entity.
- Ask direct and understandable questions to establish instruction and control.
- Take reasonable measures to obtain required information if the third party's identity is not immediately provided.
- Record the third party's identity, occupation, and relationship to the conductor.
- Document unsuccessful reasonable measures if the customer refuses to provide information.
- Escalate inconsistent, evasive, or suspicious circumstances to the compliance officer.
- Retain evidence supporting the determination for five years.
What Is a FINTRAC Third-Party Determination?
Under FINTRAC third-party determination guidance, a third party is an individual or entity other than the individual conducting the transaction, who directs what happens with the funds or receives the primary benefit. Acting on behalf of another person or entity means the conductor is receiving instructions, whether direct or indirect, from someone else. The role of the person conducting the transaction is simply the executor. The determination concerns control, instruction, or benefit rather than only who physically provides the cash. For example, if Person A hands cash to Person B, and Person B uses that cash to pay their own rent via an MSB, Person A is merely the source of funds. However, if Person A gives cash to Person B and tells Person B to send it to an overseas account, Person A is the third party instructing the transaction. The determination must be based on the actual circumstances and facts presented.
When Must an MSB Make a Third-Party Determination?
MSBs must make a third-party determination when specific regulatory obligations are triggered under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. The primary triggers include:
- Large cash transactions: Receiving CAD $10,000 or more in cash.
- Large virtual-currency transactions: Receiving virtual currency equivalent to CAD $10,000 or more.
- Account opening: When opening a formal account for a customer.
- Specific record creation: When an MSB is required to keep a client information record or receipt of funds record.
Upon these triggers, the MSB must consider the person conducting the transaction and obtain information about any third party involved. If a third party is identified, mandatory records must be kept. If the determination cannot be completed because the customer is uncooperative, the MSB must document its unsuccessful reasonable measures and escalate the interaction.
Customer, Conductor and Third Party: Key Differences
| Role | Meaning | Typical Example | Possible Third-Party Implication | Common Misunderstanding |
|---|---|---|---|---|
| Customer / Account Holder | The entity holding the MSB relationship. | A registered corporation. | May be the third party if an employee conducts. | Assuming the account holder is always an individual. |
| Conductor | The person physically executing the transaction. | A walk-in retail user. | If acting alone, there is no third party. | Confusing the conductor with the ultimate beneficiary. |
| Third Party | The person instructing the transaction or receiving the benefit. | A parent giving a child money and instructions. | Must be identified and recorded. | Assuming the fund provider is automatically the third party without checking instruction. |
| Beneficiary | The ultimate recipient of the funds. | An overseas supplier. | May overlap with the third party depending on control. | Treating every beneficiary as the third party. |
| Beneficial Owner | Individuals owning 25% or more of an entity. | A majority shareholder. | Not automatically a third party unless directing the transaction. | Assuming beneficial ownership checks satisfy third-party rules. |
| Authorised Representative | An individual acting within normal corporate duties. | A corporate treasurer paying invoices. | The company is the relevant party. | Assuming the employee is acting as a third party for the company. |
Third-Party Determination vs Beneficial Ownership
Determining whether a transaction is conducted for another person or entity is operationally different from beneficial ownership verification, which identifies the individuals who own or control a corporate entity. A company's beneficial owner is not automatically the third party in every transaction. If a corporate treasurer sends a wire transfer to pay a vendor, the transaction is conducted for the company, not for the beneficial owner personally.
A transaction may involve both considerations. If a beneficial owner uses a corporate MSB account to pay for their personal yacht, the beneficial owner is acting as a third party instructing the corporate account. Completing beneficial ownership verification at onboarding does not automatically complete the third-party determination for a subsequent large cash transaction.
Questions Staff Should Ask
Staff must ask practical, neutral questions adapted to the transaction type and customer relationship. Examples include:
- Are you conducting this transaction for yourself?
- Is another person or organisation instructing you to send these funds?
- Who owns or controls the funds involved?
- Who will receive the primary benefit of the transaction?
- Are you acting as an employee, agent, representative, or intermediary?
- What is your relationship with the person or entity providing the funds?
- Why are you conducting the transaction for them?
- Who decided the amount, recipient, or transaction method?
- Do you have authority to act for the person or entity?
Staff should avoid leading questions designed to obtain a quick "no" answer (e.g., "You aren't doing this for anyone else, right?").
How to Assess the Customer's Answer
Staff should not accept or reject an answer automatically. They must assess whether the answer is clear and matches account records. If a student claims they are sending CAD $15,000 for their own business investments, the relationship is not plausible. Staff must consider whether documents support the explanation, whether another party clearly controls the destination, and whether the funds truly belong to another person or entity. If the explanation changes during questioning, it indicates evasion and warrants escalation.
What Information Must Be Recorded?
If a third party is identified, FINTRAC recordkeeping requirements mandate capturing specific information. For an individual third party, the MSB must record their name, address, date of birth, and principal occupation. For an entity, the MSB must record the entity's name, address, principal business, and incorporation details.
Crucially, the MSB must record the relationship between the third party and the person conducting the transaction (e.g., "employer/employee" or "father/son"). The basis for the determination must be logged. Do not describe optional information as mandatory, but ensure the core statutory fields are complete.
Reasonable Measures
Taking reasonable measures means making a genuine, documented attempt to obtain required information. FINTRAC reasonable-measures guidance suggests asking the customer directly, reviewing account-opening information, examining corporate authority documents, checking invoices, reviewing previous transactions, or contacting an authorised representative.
Reasonable measures depend on the type of transaction, the information already available, the level of risk, and the practicality of obtaining the data. There is no fixed universal number of steps. Taking reasonable measures that ultimately fail does not automatically end the MSB's obligations; it triggers specific documentation requirements.
Documenting Unsuccessful Reasonable Measures
When an MSB cannot obtain the required third-party information, it must record the unsuccessful reasonable measures. The record must include the exact questions asked, the date and method of inquiry, and the customer's specific response. It should log which documents were requested and any contradictions identified. The record must identify the staff member involved and note any follow-up attempts. Recording failed attempts does not automatically make the transaction acceptable; refusal or inability to provide information requires further compliance escalation and STR consideration.
Personal Third-Party Transaction Examples
Example 1: Family member sending a remittance
A mother hands her son CAD $12,000 in cash and instructions to wire funds. The mother is the third party because she provided the funds and the instructions. Her details must be recorded.
Example 2: Friend conducting a transaction for another person
A customer sends funds using cash provided by a friend who is dictating the destination. The friend is the third party instructing the transaction.
Example 3: Caregiver assisting an elderly customer
An elderly customer instructs a caregiver to drive them to the MSB, where the elderly customer authorizes a transaction. Practical assistance (driving) differs from instructing. The elderly customer is the conductor; there is no third party.
Example 4: Person using funds supplied by a spouse
A husband deposits CAD $15,000 from a joint bank account he shares with his wife. He decides to invest it in virtual currency. Because he is an equal owner of the funds and acting on his own initiative, the wife is not a third party. Do not assume every family transaction involves a third party.
Example 5: Customer refuses to identify the person behind the transaction
A customer reads instructions from a text message but refuses to say who sent it. The MSB must document the unsuccessful reasonable measures, refuse or hold the transaction depending on policy, and escalate for STR consideration.
Business and Corporate Transaction Examples
Example 1: Employee sending funds for an employer
An office manager deposits CAD $11,000 in cash for the company account. The company is the customer. The office manager is the conductor acting within their corporate authority. The company is recorded as the third party (the entity on whose behalf the transaction is conducted).
Example 2: Director conducting a company transaction
A director's position does not remove the need to understand who is instructing the transaction. If the director deposits corporate funds, the company is still the third party on whose behalf they act.
Example 3: Accountant or lawyer acting for a client
An accountant wires funds on behalf of a corporate client. The corporate client is the third party instructing the professional representation. There is no automatic legal exemption from recording this relationship.
Example 4: Agent collecting or sending funds
If an MSB uses an agent, the agent is the conductor acting on behalf of the principal MSB. However, if a retail customer uses a courier (agent) to drop off funds, the customer remains the third party instructing the courier.
Example 5: Parent company funding a subsidiary transaction
A subsidiary MSB account receives a transfer, but instructions explicitly state it is to settle debts for the parent company. The parent company is the third party instructing the subsidiary.
Example 6: Business customer using a personal account
A customer uses their personal MSB account to receive payments for their unregistered business. The business (even if informal) is the third party, and this mismatch requires further inquiry.
Example 7: Nominee or informal representative
An individual holds an account but admits a foreign corporation directs all trading activity. The foreign corporation is the third party. Nominee arrangements carry extreme risk.
Virtual-Currency Third-Party Examples
Virtual currency presents unique challenges. A comprehensive FINTRAC LVCTR guide highlights these risks. For instance, if a customer deposits virtual currency from another person's wallet, the customer must be asked about the relationship. If a customer receives instructions from an external wallet owner on Discord, that external owner is the third party. If a company employee uses a personal wallet for business transactions, the company is the third party. If a customer purchases virtual currency and requests it be sent directly to another person's unhosted wallet, the MSB must determine if the customer is buying it for themselves (as a gift) or if the wallet owner instructed the purchase. Wallet data supports an inquiry but does not automatically prove legal ownership or control. Do not treat an external or unhosted wallet as automatically suspicious.
Third-Party Determination and Suspicious Transaction Reporting
Third-party involvement is not automatically suspicious; corporations use employees daily. However, refusal to answer, inconsistency, or unexplained control by a third party creates relevant indicators. A third-party determination and an STR decision are separate assessments. Filing a prescribed transaction report does not remove the need to consider an STR. If an STR is unwarranted, a decision not to file an STR should be documented separately where appropriate.
Common Third-Party Determination Errors
Errors occur when staff ask only "Is this your money?" — which ignores who is providing the instructions. Treating the account holder as the only relevant party ignores reality. Confusing the beneficiary with the instructing third party skews the record. Assuming employees always act independently or that directors are always the third party are fundamental flaws. Failing to ask who provided instructions, failing to record the relationship, or accepting vague answers renders the determination invalid. Ignoring contradictory information, failing to document reasonable measures, treating family relationships as an automatic exemption, or relying solely on software-generated fields without human analysis will lead to severe compliance deficiencies.
Internal Third-Party Determination Workflow
To ensure consistent compliance, integrate this risk-based workflow into your AML compliance program:
- Identify the transaction or record requiring a determination.
- Identify the person conducting the transaction.
- Ask whether they are acting for another person or entity.
- Identify who provided the instructions and who owns or controls the funds.
- Identify who receives the main benefit.
- Determine the relationship between the parties.
- Obtain and verify required information.
- Review supporting documents.
- Record the determination.
- Document reasonable measures if unsuccessful.
- Escalate unclear or inconsistent answers.
- Consider suspicious transaction indicators.
- Apply any monitoring or relationship restrictions.
- Retain the required records.
Suggested Third-Party Determination Record
MSBs should adapt this practical internal template (not an official FINTRAC form) to capture required data.
Customer/Conductor Name: [Name] | Account/Ref: [ID]
Date & Time: [YYYY-MM-DD HH:MM]
Transaction Type & Amount: [e.g., LCT, CAD $12,000]
Is the person acting for another party? [Yes/No/Unsure]
Third Party Name: [Name]
Type: [Individual / Entity]
Address: [Full Address]
DOB / Registration Info: [Date or Corp ID]
Occupation / Principal Business: [Details]
Relationship to Conductor: [e.g., Employee, Spouse, Agent]
Source of Instructions & Funds: [Who directed it / Who funded it]
Intended Beneficiary: [Name]
Documents Reviewed: [e.g., Corporate Resolution]
Reasonable Measures Taken: [Questions asked]
Unsuccessful Measures (if applicable): [Why info was not obtained]
Staff Analysis & Escalation: [Notes on consistency]
Reviewer: [Name] | Approval: [Name]
Staff Training Requirements
Training must prepare frontline and compliance staff to recognize possible third-party activity. Staff must learn to ask clear questions and avoid leading questions that encourage concealment. They must distinguish practical assistance from instruction or control. Scenario-based training should teach staff to identify inconsistent explanations, record required information accurately, escalate refusals, and understand corporate and representative relationships without making unsupported assumptions.
Quality Assurance and Testing
An MSB should test its third-party determination controls through sample transaction reviews, focusing on large cash and virtual-currency reports. Quality assurance involves reviewing unsuccessful reasonable measures, comparing practices across branches, and testing complex corporate scenarios. Frontline supervision ensures immediate accuracy, compliance quality assurance provides periodic checks, and an independent AML effectiveness review offers a statutory assessment of the entire program's design and execution.
How Compliance Software Can Support the Process
Sophisticated FINTRAC reporting software assists with required questions, conditional fields, capturing entity relationships, attaching documents, and managing escalation workflows. It generates missing-information alerts and maintains robust audit trails. However, its limitations are severe if poorly designed. Incorrect field mapping, staff selecting default drop-down options without thinking, and an inability to detect indirect instructions compromise the data. Software cannot determine intent or control automatically; it supports the process, but the legal determination rests entirely with the MSB staff.
Final Third-Party Determination Checklist
Ensure every applicable transaction meets these standards:
- ☐ Applicable trigger confirmed.
- ☐ Conductor identified.
- ☐ Customer role understood.
- ☐ Instructions identified.
- ☐ Ownership or control of funds considered.
- ☐ Beneficiary identified.
- ☐ Relationship recorded.
- ☐ Third party identified.
- ☐ Individual or entity details collected.
- ☐ Supporting documents reviewed.
- ☐ Reasonable measures recorded.
- ☐ Contradictions assessed.
- ☐ Compliance escalation completed.
- ☐ STR consideration completed.
- ☐ Required records retained.
- ☐ Ongoing monitoring updated where necessary.
