In response to the use of sophisticated money laundering techniques and alternative financial channels by Russian businesses and individuals to evade Canada's sanctions laws, Canada has passed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA"). These amendments, passed as part of Budget 2024, will, once in force, give an expanded role to the Financial Transactions and Reports Analysis Centre of Canada ("FINTRAC") and impose new reporting and record keeping requirements on many Canadian businesses, including businesses that are not otherwise subject to reporting obligations under the PCMLTFA.
We discuss the key changes and their implications below.
Expanded Mandate for FINTRAC
Amendments to the PCMLTFA modify FINTRAC's mandate to include detecting, preventing and deterring sanctions evasion, thus expanding its role which was more narrowly focused on money laundering and the financing of terrorist activities. This will permit FINTRAC to use its expertise to support the efficacy of Canada's sanctions regime.
New Duty to Report a "Sanctions Evasion Offence"
Beginning August 19, 2024, reporting entities under the PCMLTFA, such as banks, securities dealers, and life insurance companies, will be required to report transactions to FINTRAC that they suspect may be related to the commission or attempted commission of a "sanctions evasion offence", which is defined as a contravention of a restriction or prohibition established by an order or regulations made under the United Nations Act, the Special Economic Measures Act ("SEMA"), and the Justice for Victims of Corrupt Foreign Officials Act. Failure by reporting entities to report such offences will be subject to fines up to $2,000,000 and/or imprisonment for up to five years.
New Requirements in Relation to Imports/Exports and New Powers of Seizure at the Border
A number of other amendments to the PCMLTFA address importation/exportation and appear to be designed to combat trade-based financial crime, which refers to the use of international trade transactions for illegal purposes including laundering money and sanctions evasion. While these amendments will only enter into force when regulations are passed—which will also provide more details—they will impact many Canadian businesses, including those not otherwise subject to reporting requirements under the PCMLTFA.
New Reporting Requirements for Importers/Exporters
Amendments to the PCMLTFA will impose a requirement on persons importing or exporting goods under the Customs Act to report whether their imported/exported goods are proceeds of crime or relate to money laundering, to the financing of terrorist activities or sanctions evasion, and that the goods are actually being imported or exported. Declarations must also be made in respect of any financial transactions purporting to pay for goods being imported or exported.
New Record Keeping Requirements
Additional amendments will impose record keeping obligations related to both importations and exportations. These obligations will apply much more broadly than to just importers/exporters, including to those who cause or arrange for goods to be imported or exported for commercial purposes, as well as persons that produce, supply, distribute, or consume these goods for a commercial purpose. Specific reporting requirements as well as details about Administrative Monetary Penalty System penalties for violations of these obligations will be provided under the yet to be enacted regulations.
New Government Powers of Retention and Seizure at the Border
New provisions in the PCMLTFA give Canada Border Services Agency officers substantial new powers at the border. These powers include the ability to retain goods if a person fails to fulfill the reporting obligations discussed above, before returning them if a declaration is made or seeking their forfeiture if no such declaration is made. Officers may also seize as forfeit goods that they have reasonable grounds to believe are proceeds of crime or are related to money laundering, the financing of terrorist activities or sanctions evasion. The forfeiture may only be set aside by the Minister of Public Safety and Emergency Preparedness, further to a review initiated by the Minister or to a request by the person from whom the goods were seized or the goods' owner.
Key Takeaways
These amendments indicate a determination by Canada to strengthen the efficacy, monitoring and enforcement of Canada's sanctions regime through the use of legislation that is not typically considered to be part of Canada's sanctions regime. While the full impact of many of the amendments discussed above will not be fully known until regulations are released, they will impose new due diligence and compliance responsibilities on both FINTRAC reporting entities and businesses, and increase the potential risk of violations and the consequences of violations. These amendments therefore highlight the critical role of understanding the applicable sanctions regimes, clarity on supply chains and the centrality of sanctions compliance programs in managing and reducing this risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.