Understanding how FINTRAC may impact your Business
The Financial Transactions and Reports Analysis Centre of Canada, otherwise known as FINTRAC, is Canada’s financial intelligence unit. Its main mandate is to detect, prevent, and deter money laundering and the financing of terrorist activities. Simply, its main goal is to prevent the funding of criminal organizations. While the acronyms associated with FINTRAC can cause some confusion, this blog post is designed to clarify how FINTRAC regulations may impact your business.
Which Businesses Must Report to FINTRAC?
The main businesses that must report their dealings with clients/customers are financial entities such as banks, life insurances companies, securities dealers, real estate brokers, casinos, and dealers in precious metals and stones. These types of business are the most likely to be used for money laundering purposes through large transactions (for a more complete list of the businesses that must report to FINTRAC click here).
For the purpose of this blog, we will be focusing on ‘dealers of precious metals and stones (DPMS). FINTRAC defines DPMS as an individual or entity that buys and/or sells precious metals, stones or jewelry in the course of its business activities.
FINTRAC requires businesses under its purview to maintain a compliance program to monitor funds from clients. Among the main requirements of the compliance program is a “risk-based approach” or (“RBA”). The RBA must be structured to help a DPMS business (or any other business subject to FINTRAC) identify the main risks associated with accepting a product or service from a potential client, and ensure timely compliance and reporting (full RBA workbook for DMPS businesses).
When do Dealers of Precious Medals and Stones Transactions Fall Under the Risk Based Approach?
- The $10,000 per 24 hours rule
Your business is subject to risk-assessment of clients if it ever engages in the purchase or sale of precious metals, stones or jewellery in an amount that is $10,000 or more in a single transaction. If such a transaction occurs, you must identify and maintain ongoing record keeping with that client.
The RBA also applies when multiple transactions are made within 24 hours of each other, with the same client, that exceed $10,000. It is important to emphasize that transactions made on a Monday and Tuesday, the first at 4:00 PM and the second at 3:00 PM, are still within 24 hours, and would trigger FINTRAC monitoring requirements.
- Reasonable Suspicion
In addition to having to obtain client information for large transactions as described above, your business must also obtain client information for any transactions deemed suspicious. If you believe a transaction/individual to be suspicious, or you believe that the person you are dealing with is buying on behalf of a third party when conducting a large scale transaction over $10,000 you should follow the procedures used for large scale transactions outlined above, and, at a minimum, ask the client to provide government issued photo identification.
You still must ensure diligence to risk assess clients you deem high risk. There are a few exceptions to this general rule: for example, you do not need to identify an individual in a large-scale transaction if the money is received from a financial entity or public body. You also do not need to identify the individual who conducts or attempts to conduct a suspicious transaction if you have already identified the individual and have no doubts as to their identification or if you believe that identifying the individual would inform them that you are submitting a suspicious transaction report.
When Must I Retain Client Information on the sale of Precious Metals, Stones or Jewelry?
For any transactions meeting these requirements you must verify the client’s identity using government issued photo identification and/or re-verify the identity to ensure it is up to date.
What Happens if I do not Comply with FINTRACT?
Non-compliance with FINTRAC can lead to serious repercussions. There are several types of penalties including but not limited to administrative, monetary and criminal penalties.
If the authorities deem you were wilfully blind or negligent in assessing suspicious transactions, you could be assessed with monetary penalties reaching $100,000. The penalties vary in terms of harm and the level of wilful blindness and/or negligence. Such punishments range from level 4 which carries a $25,000 fine to level 1, which carries a $100,000 fine. For the full breakdown of the potential penalties for non-compliance, please click here.
FINTRAC may also disclose cases of non-compliance to law enforcement when there is extensive non-compliance or little expectation of immediate or future compliance. Criminal penalties include failure to report suspicious transactions (with penalties up to $2 million and/or 5 years imprisonment) and failure to report a large cash transaction (up to $500,000 and/or 5 years imprisonment).
Overall, FINTRAC enforces highly complicated legislation, which may affect your DPMS business dealings with clients. If you are a dealer of precious metals and stones and would like to discuss these matters further, R&A Tax Law can help. If you have any questions, feel free to call us toll free at (844) 53-TAXES or email us at email@example.com.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.