A Complete Guide to FINTRAC Reporting Obligations for Businesses

The current, highly regulated financial environment is not a simple box to be checked, and therefore, compliance is a very important safeguard against financial crime. In Canada, money laundering (ML) and terrorist financing (TF) is an area in which the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) takes the center stage in the detection, prevention, and deterrence of money laundering and terrorist funding.

The Proceeds of Crime (Money laundering) and Terrorist Financing Act (PCMLTFA) apply to businesses that have to comply with tough reporting requirements imposed by FINTRAC to allow transparency and accountability in the financial system.

This guide will describe the reporting requirements, to whom they are applicable and how the businesses can comply effectively with the requirements of FINTRAC.

Knowledge of FINTRAC and Its intent

FINTRAC is the financial intelligence unit (FIU) of Canada which was established in 2000 to gather, analyze, and publish information on suspected financial crime. The agency does not engage in crime investigation per se, but instead, it gives useful intelligence to the law enforcement and national security services.

The intention of the FINTRAC structure is to make sure that acceptable enterprises do not unfamiliaringly utilize to swash out unlawful revenues or fund terrorism. Through periodic reporting requirements, FINTRAC makes the financial system in Canada transparent and secure.

Who Must Report to FINTRAC

Reporting obligations applicable to FINTRAC include a number of entities, referred to as reporting entities (REs) and they include:

• Banks, credit unions, trust and loan companies.
• Securities dealers and portfolio managers.
• Virtual currency exchange and remittance companies in the category of money services business (MSBs)
• Real estates brokers and developers
• Accounting companies and accountants.
• Precious metals and stones dealers.
• Casinos
• Crowdfunding websites and other up and coming fintech organizations.

All such entities are required to report certain financial activities that can reflect suspicious or high-risk behavior in the course of such activity.

Varieties of Reports that are required by FINTRAC

In different circumstances, FINTRAC stipulates a number of categories of mandatory reports that have to be submitted. The major categories are listed below:

1. Suspicious Transaction Reports (STRs)

In case a business operates on the suspicion of the involvement of money laundering or terrorist financing in a transaction or an attempted transaction, it should file a Suspicious Transaction Report immediately. The test of suspicion is not evidence but a reasonable reason to suspect that the activity can be associated with illegal activity.

STRs are important as it helps FINTRAC to obtain early warning of possible crime and share intelligence with the partners in law enforcement.

2. Large Cash Transaction Report (LCTRs)

Businesses are required to file Large Cash transaction report upon receiving CAD 10,000 or more cash in a single transaction or in numerous transactions of the same nature within a 24 hour period.

Such reports assist FINTRAC to track the unusual transactions of physical cash that is frequently employed to cover the origin of the illegal money.

3. Big Virtual Currency Transaction Report (LVCTRs).

As the usage of digital assets increases, FINTRAC also requires reporting of large transactions in virtual currency of CAD 10, 000 or more in a 24 hour period.

To make sure that crypto-related transactions do not violate the anti-money laundering (AML) laws, virtual currency exchanges and MSBs need to monitor and report these transactions.

4. Electronic Funds Transfer Reports (EFTRs).

International electronic funds transfers of CAD 10,000 or above are required to be filed when a business initiates or receives an international electronic transfer of funds. It is applicable whether the exchange of money is outgoing or inbound of Canada.

The EFTRs assist in identifying the patterns of cross-border fund transfer which is usually red flags of illicit money transfer or a money laundering network to fund terror activities.

5. Terrorist Property Reports (TPRs).

When a business is aware or suspects that it is in possession of property connected to a terrorist or terrorist group, it has to submit a Terrorist Property Report, which is to be performed immediately. Moreover, the business should neither handle nor dispose such property and report to the law enforcers.

Submission of Reports to FINTRAC

All the reports are done electronically via the secure online reporting system of FINTRAC, which is called FINTRAC Reporting System (FRS). Companies have to open an account, appoint a compliance officer, and verify that all the necessary information is properly documented.

It must be timely and accurate -any delay or mistake can result in a lack of compliance or administrative fines.

Keeping of Records and Establishment of Clients

Besides reporting requirements, businesses are required to carry out appropriate records and client identification (KYC) to establish the identity of the persons engaging in reportable transactions.

The records should be maintained at a minimum of five years and the businesses should have mechanisms that will enable the retrieval of the records whenever the FINTRAC requests them. These are elements that are aimed at making it audit-able and facilitating investigation when required.

Punishments on Non-compliance

Compliance is an important issue to FINTRAC. Companies that do not comply in reporting or record-keeping may be given administrative monetary penalties (AMPs), be named publicly, and suffer reputational harm. Failure to comply may even result in criminal charges against the non-cooperating party under the PCMLTFA in extreme situations.

The violations that are common are missing internal compliance programs, inadequate identification of clients, and late and incomplete reports.

Best Practices: FINTRAC Compliance

The following best practices can be taken into consideration by the businesses to ensure their compliance and to prevent paying expensive fines:

Assign a Compliance Officer: Select a compliance officer to oversee the AML compliance and reporting.

Enact a Strong AML Program: Prepare written policies and procedures in accordance with the requirements of FINTRAC.

Educate the Employees: All the employees should learn the value of reporting suspicious activities as well as their need to do so.

Conduct Continuous Risk Assessment: It is important to continuously assess your exposure to money laundering and terrorist financing risks of your business.

Leverage Technology: Implement identity checks and transactions tracking to improve accuracy of reporting and make sure the reports are submitted in time.

Conclusion

FINTRAC reporting requirements are not only a regulatory measure, but it is an action to safeguard the businesses and the financial ecosystem of Canada against criminal abuse. Organizations might play a central role in enhancing financial transparency and integrity by being aware of the kind of reports needed, having good internal controls and adopting a compliance culture.

Financial crimes keep changing the world, a knowledgeable and obedient business is not only safe- it is also reliable to the regulators, partners and clients

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