Archived FINTRAC Policy Interpretations

My question pertains to the obligations of real estate brokers/agents with respect to the keeping of client information records and ascertaining identity, specifically when the real estate broker’s/ agent’s vendor or purchaser client is a corporation.  

Does the real estate broker/agent have to ascertain the identity of the person signing the agreement of purchase and sale on behalf of the corporate vendor/purchaser (i.e. the authorized signing officer of the corporate vendor or purchaser) and keep records of his/her identification, or is confirming the existence of the corporation sufficient? 

Pursuant to subsection 39(1) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), every real estate broker or sales representative, when they act as an agent in respect of the purchase or sale of real estate, must “keep the following records:
(a) a receipt of funds record in respect of every amount that they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body;
(b) a client information record in respect of every purchase or sale of real estate; and
(c) where the receipt of funds record or the client information record is in respect of a corporation, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of transactions with the real estate broker or sales representative”.

A client information record is defined at subsection 1(2) of the PCMLTFR as “a record that sets out a client’s name and address and
(a)   If the client is a person, their date of birth and the nature of their principal business or their occupation, as applicable; and
(b)   If the client is an entity, the nature of their principal business”.

Furthermore, subsection 59.2(1) of the PCMLTFR, states that “every real estate broker or sales representative shall, in respect of a transaction for which a record is required to be kept under subsection 39(1),
(a)   in accordance with subsection 64(1), ascertain the identity of every person who conducts the transaction;
(b)   in accordance with section 65, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted and the names of its directors; and
(c)   in accordance with section 66, confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted”.

For the purposes of the PCMLTFR, a client is defined at section 2 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and means “a person or entity that engages in a financial transaction with another person or entity”.

As a result,  when acting as an agent in the purchase or sale of real estate, a real estate broker or sales representative must satisfy all of the requirements associated with every person and every corporation engaged in the transaction. Specifically, when the purchaser or vendor is an entity, the client information record must reflect both the person engaged in the transaction, as well as the entity on whose behalf they are acting, as that entity is also engaged in the transaction with the real estate broker or sales representative. With regard to the corporation, along with the client information record, a copy of the part of official corporate records that contains any provision relating to the power to bind the corporation in respect of the transaction must also be kept. In terms of identification, as per section 59.2  of the PCMLTFR, the real estate broker or sales representative must ascertain the person’s identity in accordance with the identification methods set out at subsection 64(1) of the PCMLTFR, and must fulfil the associated record keeping requirements outlined at section 64.2 of the PCMLTFR. The real estate broker or sales representative must also confirm, in accordance with section 65 of the PCMLTFR, the corporation’s existence and ascertain its name and address, as well as the names of its directors.

Additional record keeping requirements exist in relation to the third party determination. As per section 10 of the PCMLTFR, “every person or entity that is required to keep a client information record under these Regulations in respect of a client shall, at the time the client information record is created, take reasonable measures to determine whether the client is acting on behalf of a third party”. FINTRAC’s Guidance: Third party determination requirements, indicates that “A third party is a person or entity who instructs another person or entity to conduct an activity or financial transaction on their behalf. When you are determining whether a third party is giving instructions, it is not about who owns or benefits from the money, or who is carrying out the transaction or activity, but rather about who gives the instructions to handle the money or conduct a transaction or particular activity. If you determine that the individual in front of you is acting on someone else's instructions, that someone else is the third party”. Section 7 of the PCMLTFR further states that “a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account”. Consequently, if a third party determination is made, or cannot be made but there are reasonable grounds to suspect that this is the case, additional records must be kept.

Please note that, pursuant to subsection 52(2) of the PCMLTFR, if a real estate broker or sales representative is required to keep a record about information that is readily available in other records that they have kept, then they do not have to record the same information again.

For the following scenarios, what is the difference in the third party determination when opening an account and in a large cash transaction:

Scenario 1: Person A opens an account in the name of ‘Person B In Trust’ and intends to process transactions through that account for Person B only (Person A is a trustee for Person B).

Scenario 2: Person A and Person B are the sponsoring members of an account for an unincorporated association. They intend to use the account for the unincorporated association.

Scenario 3: Trustee A is an authorized signor on the Smith Family Trust. Ms. Smith, who is one of the beneficiaries, received $11,000 in cash from the sale of a car that was owned by the Family Trust. She gave the money to Trustee A and told her to go put the money in the account at the financial institution.

Pursuant to subsection 8(1) of the Proceeds of Crime (Terrorist Financing) and Money Laundering Regulations (PCMLTFR), every person or entity that is required to keep a large cash transaction record under these Regulations shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party.

This obligation differs from the third party determination required for an account opening, outlined at subsection 9(1), which states, “Subject to subsections (4) and (4.1), every person or entity that is required to keep a signature card or an account operating agreement in respect of an account under these Regulations shall, at the time that the account is opened, take reasonable measures to determine whether the account is to be used by or on behalf of a third party.”

In the context of a large cash transaction “a third party is an individual or entity other than the individual who conducts the transaction”. As a result, the account holder, or those authorized to act on the account may be considered a third party to the transaction if they give instructions to conduct the transaction.

Conversely, when opening an account, a third party is an individual or entity, other than the account holder or those authorized to give instructions about the account, who directs what happens with the account.

Therefore, pertaining to scenarios 1 and 2, the account holder or those authorized to act on the account cannot be considered a third party when opening an account. That said, for any subsequent transaction conducted on the account, Person A or Person B may be considered as a third party if they are instructing another person or entity to conduct a transaction on the account.

For scenario 3, because a large cash transaction is conducted by Trustee A at the instruction of Ms. Smith, Ms. Smith is considered the third party regardless of whether she is a beneficiary to the Trust. The point to remember is not about who benefits from the money, but rather who gives instructions in regards to dealing with the money.

With regard to a large cash transaction record, is it possible that someone may be considered a third party for his/her own account when the account holder is not the person conducting the transaction? In other words, is an account holder giving instructions to another person (the third party) to make a deposit in his/her account considered a third party by FINTRAC?

With regard to third party determination, section 8 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations states:
8 (1) Every person or entity that is required to keep a large cash transaction record under these Regulations shall take reasonable measures to determine whether the individual who in fact gives the cash in respect of which the record is kept is acting on behalf of a third party.

(2) Where the person or entity determines that the individual is acting on behalf of a third party, the person or entity shall keep a record that sets out
(a) the third party’s name, address and date of birth and the nature of the principal business or occupation of the third party, if the third party is an individual;
(b) if the third party is an entity, the third party’s name and address and the nature of the principal business of the third party, and, if the entity is a corporation, the entity’s incorporation number and its place of issue; and
(c) the nature of the relationship between the third party and the individual who gives the cash."

Moreover, in a situation where employees act on behalf of their employer, who owns the account, section 7 of the Regulations states, “For the purposes of these Regulations, a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account." For this purpose, when employees act for their employer, they are considered to be acting on behalf of a third party. The only exception is when an employee deposits a large sum in cash into the employer's business account. In such a case, the employee is not considered to be acting on behalf of a third party. This exception only applies when the account in which the employee deposits a large amount of cash is a business account.

The determination of whether the individual who deposits a large sum in cash is acting for a third party is always a question of fact. It is up to each financial entity to make its own determination based on the information available to it. However, FINTRAC has previously indicated that a third party is a person or entity that gives instructions to another person to make transactions in an account. Thus, the appropriate question to ask is not who holds or benefits from the money, but rather who gives instructions to process this money. To determine who the third party is, it is necessary to know whether the person who gives the large sum of cash is acting according to another person's instructions. If this is the case, the other person is a third party. For example, if a father asks his son to deposit a large sum in cash into his account, even if he is the holder of the account in question, the father is the third party in this case because the son is depositing the large amount of cash according to his father's instructions.

In light of these facts, it seems possible that a person may be considered a third party with regard to his/her own account when giving instructions to another person to make a large cash transaction in his or her own account.

I would like to know how to report EFTOs ordered by an employee when there is an ongoing agreement between the MSB and employer. Here are three scenarios:

Scenario 1:
There is an ongoing service agreement between the MSB and the entity. The employee, who is on the list of authorized employees orders an EFTO. I am wondering whether the entity’s name should be entered in Part B, and whether Part D should be left blank.

Scenario 2:
There is an ongoing service agreement between the MSB and the entity. The employee, who is not on the list of authorized employees, orders an EFTO. In this case, I would record “the individual name” in Part B and “the entity name” in Part D. Is this correct?

Scenario 3:
There is no ongoing service agreement in place. The employee, who is the owner, director or shareholder of the entity, orders an EFTO.

Subsection 10(1) of the Proceeds of Crime (Terrorist Financing) and Money Laundering Regulations (PCMLTFR) requires that reporting entities take reasonable measures to determine whether a client is acting on behalf of a third party when they are required to keep a client information record. When a money service business (MSB) enters into an ongoing electronic funds transfer agreement with an entity, it is required to keep a client information record with respect to the entity and a list containing the name, address and date of birth of every employee authorized to order transactions under the agreement (s. 32 PCMLTFR). Additionally, section 7 of the PCMLTFR makes it clear that a person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer’s business account.

When making a third party determination it is not about who "owns" the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual conducting the transaction is acting on someone else's instructions. If so, that other individual is the third party. As each situation will be different, this determination must always be based on the facts of each specific scenario. Each entity will be responsible for making their own determination based on the information available to them. You have provided the following three scenarios:

Scenario 1
In this situation, the employee is the client as he or she is conducting the transaction and his/ her information should be entered in Part B. The third party would be the entity/employer, as it is instructing the employee to order the EFTO. As such, the entity’s information should be recorded in Part D.

Scenario 2
In this scenario, I have assumed that by “individual,” you mean “employee”. If this is the case, the employee would be the client, as he or she is conducting the transaction. As such, his/ her information, including full name and address, should be entered in Part B. As the employee is not on the list of authorized employees, the MSB would be required to ascertain this individual’s identity in the event the EFTO being ordered is $1000 or more, pursuant to paragraph 59(1)(b) of the PCMLTFR. Subsection 59(4) of the PCMLTFR provides an exception to this obligation if the employee is authorized to order transactions under an ongoing service agreement. The entity is the third party as it is providing instructions to the employee. As such, the entity’s information should be entered in Part D.

Scenario 3
At the outset, it should be noted that the terms owner, director and shareholder may not always be synonymous with each other. To explain further, the shareholder could either be an employee, or the shareholder could be a director, the owner or one of the owners, which would change the way in which an EFTO report must be filled out. For example, if the shareholder is an employee, he or she is acting on the instructions of another individual or the entity so the shareholder will be considered the client (Part B) and the party providing this individual with instructions to order the EFTO will be the third party (Part D). If, on the other hand, the shareholder is the owner, one of the owners or a director of the entity, he or she may be speaking directly for the entity when ordering the EFTO. The entity can only speak by means of a physical person, which may be the Board of Directors (if the company has one) or the owner(s) (if the company is a sole proprietorship and/or the company does not have a Board of Directors). As such, the individual conducting the transaction (be it the owner(s), director(s) or shareholder (who is a director or owner)) would not be a separate body from the entity. Therefore, the entity would be the client and its information should be entered in Part B. Since the director and/ or owner is the voice of the entity, there would be no third party in this scenario. That being said, pursuant to paragraph 59(1)(b) of the PCMLTFR, the MSB must still ascertain the identity of the person who conducts the electronic funds transfer if it is $1,000 or more.

Are directors who were present at a meeting where the signing officers for the corporation’s bank/credit union account(s) were appointed, but who were not among those appointed signing officers, considered 3rd parties?

Subsection 9(1) of the PCMLTFR states that “Subject to subsections (4) and (4.1), every person or entity that is required to keep a signature card or an account operating agreement in respect of an account under these Regulations shall, at the time that the account is opened, take reasonable measures to determine whether the account is to be used by or on behalf of a third party”.

When a reporting entity has the obligation to make a third party determination, it is actually a question of fact, and the questions to ask themselves are: Is there a party giving instructions or not? Is there a person or persons or another entity that gives the instructions in regards to that account? If so then there is a third party because in order to act on behalf of someone, they must instruct you to do so. However, if the third party does not provide instructions then there is no third party.

As per section 7 of the PCMLTFR, in a third party determination, when employees are acting on behalf of their employers, they are considered to be acting on behalf of a third party. The only exception to this is when an employee deposits cash to the employer's account. In that case, the employee is not considered to be acting on behalf of a third party. This is only true if the account in which the employee deposits cash is a business account.

XYZ’s policies and procedures does not address the Third Party Determination. However, as a way to meet the Third Party Determination, XYZ’s representatives told us during the exam interview that, although they don’t ask a specific question to that matter to the client, XYZ has included a provision in their Customer Agreement that read as follow:

“3. Responsibility for Customer Orders/Trades: Customer acknowledges that XYZ does not know whether someone entering orders with Customer's user name/password is Customer. Unless XYZ is notified and agrees, Customer will not allow anyone to access Customer's account. Customer is responsible for the confidentiality and use of Customer's user name/password and agrees to report any theft/loss of such user name/password, or any unauthorized access to Customer's account, immediately by telephone or electronically through the XYZ website. Customer remains responsible for all transactions entered using Customer's user name/password.”

In addition, given that this is an online services, XYZ does not see the added value of asking a third party determination question when anyone can use in fact the username/password.

May you confirm if this blanket statement is acceptable and addresses the requirement to use reasonable measures to determine if there is a third party?

As per sections 8, 9 and 10 of the Regulations, the third party determination requirement for reporting entities can come into effect with respect to large cash transaction records, keeping a signature card or an account opening agreement and keeping client information records.

Given their record keeping requirements, as per section 22 and subsection 23(1) of the PCMLTFR, securities dealers are required to consider the third party requirements when:

• they have to keep a large cash transaction record; and
  Whenever they have to keep a large cash transaction they have to take reasonable measures to determine whether the individual who is giving the cash is acting on the instructions of a third party.
   
• they have to keep a signature card, an account operating agreement or an account application
  Whenever they open an account and are required to keep a signature card, an account operating agreement or an account application, they have to take reasonable measures to determine whether the account is to be used by or on behalf of a third party.

While online securities dealers would not likely be handling large cash transactions, you may still want to point out that the blanket statement in the Customer Agreement does not at all address a large cash transaction scenario.

If the Customer Agreement is the “signature card, account operating agreement or account application”, then for the blanket statement within the Customer Agreement to be acceptable, it would need to address both the matter of whether the account is to be used by a third party or on behalf of a third party. The clause included in the policy interpretation request appears to cover off only the former situation. By confirming that the username and password will not be shared, the individual signing the Customer Agreement is agreeing that the account will not be used by a third party. The statement does not, however, address the matter of whether the account will be used on behalf of a third party, that is, whether there will be someone, other than the person authorized to give instructions in respect of the account, directing the activity in the account.

Although we cannot dictate the specific language within an agreement, the reporting entity should be informed that, should they wish to proceed with a blanket statement of this sort, the wording must be revised to address the matter of the account being used “ by or on behalf of a third party.”

We have a question about power of attorney. After our discussion with some financial institutions, some of them treat power of attorney as third party from their broad view of explanation.

Could you please advise me of your point of view if power of attorney is third party?

The rule of thumb in regards to the third party determination under subsection 8 to 10 of the regulations is the following - when a reporting entity has the obligation to make a third party determination, it is actually a question of fact, and the question to ask ourselves is: Is there a party giving instructions or not? If so then there is a third party because in order to act on behalf of someone, they must instruct you to do so.

Let me explain - An account gives the power of attorney to an individual (friend, family or other) to conduct transactions at the bank on their behalf. The account holder is incapacitated and cannot provide instructions. The reporting entity would still have to make a third party determination as per our legislative requirements, however, there is no third party in this case, as the account holder does not provide instructions.

Another scenario: A person breaks both his legs, and can't get to the bank. He provides a power of attorney to his niece to conduct transactions on his behalf at the bank. The reporting entity makes a third party determination as per our legislative requirements, and in this case, in fact, the uncle (i.e. the third party) is providing instructions to his niece. So the reporting entity would have to record keep the required information re: third party determination.

So, really, whether there is a power of attorney or not, it does not waive the requirement for a reporting entity (that has that obligation mind you) to take reasonable measures to determine if there is a third party - however, if the third party does not provide instructions then there is no third party.

A daughter has a full power of attorney for her father. A notary is handling a transaction that is conducted by the daughter on behalf of her father. The daughter gives the notary a cheque (father's cheque, for the amount of $5000) for the transactions

When conducting the transaction, does the notary have to ID the father or only the daughter?

For the purpose of receipt of funds records, who is the one that the notary is identifying in terms of "from whom the funds are received"? daughter (the cheque handler), father (the owner of the cheque) or both? What happen if it's a $5000 bank draft (from father's account) that the notary is receiving, rather than a personal cheque?

Is there 3rd party in this case?

For the receipt of funds record, you would identify:

1. If cheque is made to daughter from her father - you identify the daughter (as she will be endorsing the cheque);
2. If cheque is made to notary by the father - identify the father as he is providing the funds;
3. In the case of the bank draft - identify the daughter, as the draft is treated like cash.

Furthermore if the daughter is acting on behalf of the father and he gives her instructions, then the father is the third party. However, if the daughter does not receive any instructions from her father there is not third party.