The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) requires certain types of businesses to file reports about certain types of transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which reviews the reports to determine whether the transaction might involve criminal or terrorist activity financing.

FINTRAC gives law enforcement agencies financial intelligence that is relevant to the investigation or prosecution of money laundering offences and terrorist activity financing offences. It also gives CSIS financial intelligence that is relevant to threats to the security of Canada.

Financial institutions; insurance companies, brokers and agents; accountants; securities dealers; casinos; real estate brokers, agents and developers; money services and remittances businesses; dealers in precious metals and stones; and notaries in BC are all required to report to FINTRAC.

These businesses are required by law to collect detailed and specific information about their clients and their transactions, maintain detailed records, report all transactions over $10,000 and report any transaction if they have reasonable grounds to suspect a money laundering or terrorist financing offence is going on.

These reports are made without the client’s knowledge. Up to $2 million in fines or up to five years in prison can be imposed on businesses or businesspeople who fail to file the reports.

Requirement for Proof of Identity

Before these businesses carry out or attempt to carry out the transaction, they must confirm the client’s identity. For this reason they have to require the client to show at least one of a number of different types of identity documents. These include a birth certificate, a current driver’s license, a Canadian or foreign passport, a record of landing, a permanent resident card, a certificate of Indian status, a territorial ID card or other similar document.

The document must be valid, must have a unique identifying number (such as a license number or passport number) and cannot have expired.

The document used to prove the client’s identity must be original. The businesses are not allowed to rely on copies of documents.

If the business concludes that the transaction is a reportable transaction, they must file one or more of several different types of reports: Suspicious Transaction Reports, Large Cash Transaction Reports, Terrorist Property Reports and Electronic Funds Transfer Reports.

Suspicious Transaction Reports

Suspicious Transaction Reports must be filed when there are reasonable grounds to suspect that the transaction is related to money laundering or terrorist financing. What the “reasonable grounds” are will vary depending on the business and what is normal in the particular industry. There is no minimum amount of value for a transaction to be reported to FINTRAC. The key is whether the reporting business has reasonable grounds in the circumstances to believe that the transaction may be associated with money laundering or terrorist financing.

Terrorist Property Reports must be filed when the business knows or believes that it has property in its possession or control that is owned or controlled by or on behalf of a terrorist or terrorist group. Large Cash Transactions reports must be filed about all transactions involving more than $10,000 received in cash. Electronic Funds Transfers reports must be filed by casinos, financial entities and money services and remittance businesses, when the business sends or receives international electronic funds transfers of $10,000 or more.

Detailed Personal Information to be Included in the Reports

FINTRAC encourages the reporting businesses to give it as much personal information about their clients as possible. It appears that there are no limits on the amount or type of information that FINTRAC will accept, and the reports can include a wide range of personal information about the client, his or her friends and associates, the client’s behaviour, and the impressions and opinions of the reporting business about the client’s behaviour.

FINTRAC specifically suggests that the reports could include details about the indicators the reporting business observed that caused it to be suspicious and why the indicators are suspicious given the nature of the industry the reporting business is in; information about the client including known aliases or associates; and information about other connected transactions if they are also being reported.

Politically Exposed Foreign Persons

Some reporting businesses * also have to determine whether the client is a politically exposed foreign person or their family member.
A politically exposed foreign person is an individual who holds or has ever held one of the following offices or positions in or on behalf of a foreign country:

  1. a head of state or government;
  2. a member of the executive council of government or member of a legislature;
  3. a deputy minister (or equivalent);
  4. an ambassador or an ambassador’s attaché or counsellor;
  5. a military general (or higher rank);
  6. a president of a state owned company or bank;
  7. a head of a government agency;
  8. a judge; or
  9. a leader or president of a political party in a legislature; or
  10. the holder of any office or position listed in the regulations enacted under the PCMLTFA.

A politically exposed foreign person is also these family members of the individual described above:

  1. mother or father;
  2. child;
  3. spouse or common law partner;
  4. spouse’s or common law partner’s mother or father and
  5. brother, sister, half-brother or half-sister (that is, any other child of the individual’s mother or father).

An individual or family member described above is a politically exposed foreign person regardless of their citizenship, residence status or birth place.
If the person is a politically exposed foreign person, their accounts and transactions must be more closely monitored on an ongoing basis to detect suspicious transactions. This requirement to report on people based solely on the job they hold or the job held by a family member is extremely broad and privacy-invasive.

FINTRAC analyzes all the information provided in the reports together with information it gets from other sources such as data brokers, law enforcement and other federal agencies. It can give the information to law enforcement, the Canada Revenue Agency (in cases which include tax matters), CSIS, Canada Border Services, Citizenship and Immigration Canada (in cases which include immigration matters) or other government bodies if there are “reasonable grounds to suspect that the information would be relevant to investigating or prosecuting a money laundering or terrorist financing offence.”

Serious Privacy Rights Concerns With These Reporting Requirements to FINTRAC

These reporting requirements pose significant risks to privacy rights because businesses are required to act as de facto agents of the state, collecting information solely for the purposes of reporting it, and making independent judgments about the suspiciousness of their clients and their transactions.  These reporting requirements give governments a great deal of personal information for investigatory purposes without requiring the government to get a warrant or show reasonable grounds to get the information. And the information can be retained for a long period – as much as 15 years in some cases.

FINTRAC also has enforcement power and can impose penalties and fines, so there is a risk that businesses wanting to avoid the chance of high penalties will report even more than is necessary.

Critics have argued that the large number and type of businesses that are required to file these reports is far more than necessary to address money laundering and terrorist financing, and will inevitably capture millions of innocent transactions and people. The requirement to report on politically exposed foreign persons is potentially unconstitutional in that it may infringe the equality rights of individuals who are captured by the definition.

In addition, the law was originally intended to deal with money laundering and terrorist financing, but FINTRAC is allowed to give the information to the Canada Revenue Agency if it believes the information may also be evidence of a tax fraud or evasion; to Canada Border Services if it believes the information may be used to investigate immigration fraud, avoidance or duties or smuggling; or to the Communications Security Establishment for purposes of surveillance.

All of these privacy-invasive measures have been introduced without much evidence showing that they are necessary. There is little publicly available evidence about the size or scope of money laundering and terrorist financing problems in Canada, and little evidence to show that these measures are needed or even if they work.

* These are financial entities, securities dealers, money services and remittances businesses and life insurance companies, brokers and agents.