Canada’s anti-money laundering and anti-terrorist financing regime was first established in the Proceeds of Crime (Money Laundering) Act. Given the changing face of global terrorism, the Act was adapted in 2001 to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The PCMLTFA requires financial institutions and financial intermediaries to comply with certain client identification, record-keeping, reporting and internal compliance measures. This includes reporting suspicious and large cash transactions to Canada’s financial intelligence unit, Financial Transactions Reports Analysis Centre of Canada (FINTRAC).

PCMLTFA amendment s under Bill C-25 received Royal Assent in December 2006. Some of those amendment s a re now in force, with others effective June 23, 2008, December 30, 2008 and September 28, 2 0 09. These amendment s propose to enhance the PCMLTFA by strengthening "know your client" standards, closing potential gaps in the regime, increasing compliance, monitoring and enforcement , and strengthening FINTRAC’s intelligence function. Administrative monetary penalties and the reporting of large cash disbursements are also introduced.

The following summarizes key amendments applicable to casinos and comments on the effectiveness of several of the changes.

CHANGES AFFECTING REPORTING, RECORD KEEPING AND CLIENT IDENTIFICATION

Suspicious Transaction Reports
Currently, the requirement to report suspicious transactions to FINTRAC applies only on transaction completion. Effective June 23, 2008, casinos must also report attempted but uncompleted suspicious transactions. Regardless of why the transaction was not completed (whether at the request of the patron or upon the decision of the institution) a STR is required if the attempted transaction is suspicious. The STR must explain why the transaction was suspicious or why the transaction was not completed and casinos must retain a copy of the report.

In addition, when reporting a suspicious transaction, "reasonable measures" must be taken to identify the patron before submitting a STR unless the casino has already identified the patron, or doing so would inform the patron that the report will be submitted. Interestingly, patrons are not required to provide this information in order for the transaction to be completed. In many cases, therefore, identity may not be ascertainable unless the patron is known to the institution, so the requirement to take "reasonable measures" begs the question: What benefit is the STR to FINTRAC if it contains information about the transaction itself, but little, if any, information about the patron attempting the transaction?

Large Cash Disbursements
Amendments effective September 28, 2009, will require casinos to report large cash disbursements to FINTRAC within 15 days of completing the transaction. Currently, large cash disbursements are recorded but not reported. Reporting entities will also be required to take reasonable measures to determine if the transaction is being completed on behalf of a third party. If so, the date of birth of the third party must also be recorded. Casinos should amend processes and procedures far in advance of September 2009 to be ready for this new reporting obligation.

Foreign Currency Exchange Transactions
Currently, casinos must ascertain patron identity and keep a transaction ticket when conducting a foreign currency exchange transaction of $3,000 or more. The $3,000 threshold pertains only to casinos, as other institutions are required to keep a transaction ticket on all foreign currency transactions. Effective June 23, 2008, casinos will also be required to keep a transaction ticket for all foreign currency exchange transactions, regardless of the amount. The requirement to ascertain identity for transactions of $3,000 or more remains unless the patron already has an account with the casino.

The new requirement brings casinos in line with other financial institutions conducting foreign exchange transactions, but is not anticipated to create additional operational burdens in that casinos (likely) maintain required documentation on all foreign currency transactions, regardless of the amount.

Doubts About Information Collected
Currently, if a patron has been previously identified, there is no need to do so again if the patron is recognized. Effective June 23, 2008, if doubt exists about the information collected concerning the patron’s previous identification, casinos will be required to identify the patron again.

Date of Birth on Records
Currently, when an account is opened or when a patron requests an extension of credit of $3,000 or more, casinos are required to record the name, address and principal business or occupation of the individual. Effective June 23, 2008, there will also be a requirement to keep the patron’s date of birth on those records.

Can an Account Be Opened?
Effective June 23, 2008, if a casino cannot identify an individual or entity at the account opening stage according to the identification criteria, the account cannot be opened at all.

CHANGES AFFECTING COMPLIANCE REGIMES
Casinos are currently required to appoint a person responsible for implementing a compliance regime. Effective June 23, 2008, additional measures to enhance compliance regimes will be required. These include having up-to-date written compliance policies approved by senior management and maintaining a written, ongoing compliance training program for employees and agents authorized to act on behalf of the institution.

Risk Based Approach to Assessing Money Laundering and Terrorist Financing
The biggest change in the area of compliance regimes is the requirement to assess and document money laundering and terrorist financing risks specific to the institution using a risk based approach. The risk assessment must take into account the entity’s clients, business relationships, products and ser vices, delivery channels, geographic location of activities and any other factors relevant to the operation. In addition, there is also a requirement to establish and document a review of policies, the risk assessment and training program for effectiveness. The review is required every two years and is to be done by an internal or external auditor. If the review determines that the risk for money laundering or terrorist financing is high, measures to mitigate the risk will need to be implemented. Reasonable measures to keep client identification up to date and to conduct ongoing monitoring to detect suspicious transactions based on the size and complexity of the operation will also need to be taken.

ADMINISTRATIVE MONETARY PENALTY REGIME
Currently, the PCMLTFA only allows for serious criminal penalties if the Act is contravened. These penalties can result in imprisonment for up to 5 years, fines of between $500,000 and $2,000,000, or both. Amendments effective December 30, 2008, give FINTRAC the ability to levy fines on lesser contraventions, with a stated purpose of taking a more balanced and gradual approach to compliance; not to punish institutions, but to encourage compliance.

Violations and penalties will be classified in one of three categories: Minor, Serious and Very Serious. A series of violations identified on a Notice of Violation will be considered to be a serious violation if the total of the penalties is equal to $10,000 or more. The regulations specify maximum penalties for each category as it relates to the institution. Examples of those violations are:

Minor ($1 to $1,000.00) – Failure to keep a large cash transaction record for every amount in cash of $10,000 or more received in the course of a single transaction;

Serious ($1 to $100,000) – Failure to assess and document the risk referred to in subsection 9.6(2), taking into consideration prescribed factors; and

Very Serious ($1 to $500,000) – Failure to include required information in a report.

With respect to these compliance regime changes, consideration of the FINTRAC function as the agency responsible for collecting and analyzing information supplied by reporting entities, including casinos, based upon triggering criteria in the PCMLTFA is worthwhile. FINTRAC is not a regulator of reporting entities. As such, the prospect of FINTRAC levying monetary penalties in instances of non-compliance with the Act is concerning. This is especially so where, for example, a reporting entity is fined for failing to assess and document money laundering and terrorist financing risks specific to the institution using a risk based approach (a "serious" violation subject to a fine of up to $100,000). In this example, the reporting entity may have fully complied with its obligations to complete and file all required

LCTs and STRs during a reporting period, but failed to asses what FINTRAC, based on its own analysis, regards as a high risk for money laundering or terrorist financing. At some level, therefore, this requirement delegates to the reporting entities one of the core functions of FINTRAC, namely, analyzing information supplied by reporting entities based upon triggering criteria in the PCMLTFA. Rather than delegating FINTRAC’s analytical function, the primary focus of the legislation should be to ensure the maximum flow of accurate information from reporting entities to FINTRAC. This, in the writer’s opinion, is the foundation upon which the international money laundering and terrorist-financing regime was built, and the motivation for moving beyond this at the current time is unclear.

Patricia Carnevale heads the Niagara Casinos' Compliance Training Department and specializes in, among other things, Gaming Control Act, Proceeds of Crime, Liquor License and Responsible Gaming matters.