Guide on harm done assessment for money services businesses registration violations

On this page

1. Introduction
   • 1.1 Purpose of the guide
   • 1.2 Definition of harm
   • 1.3 Considering harm in AMP calculations
2. Violations related to registration requirements for money services businesses
3. Violation related to the requirement to register with FINTRAC
   • 3.1 Harm done in the case of a violation related to the requirement to register with FINTRAC
   • 3.2 Penalty determination for a violation related to the requirement to register with FINTRAC
4. Violations related to submitting registration application, renewal, clarification, and notification information
   • 4.1 Harm done in the case of violations related to submitting registration application, renewal, clarification, and notification information
   • 4.2 Harm done in the case of violations related to submitting registration information within the prescribed period
   • 4.3 Harm done in the case of violations related to renewing a registration
   • 4.4 Penalty determination for violations related to submitting registration application, renewal, clarification, and notification information
   • 4.5 Non-compliance in the case of information that serves more than one purpose
5. Violation related to the cessation of MSB activities
   • 5.1 Harm done in the case of a violation related to the cessation of MSB activities
   • 5.2 Penalty determination for a violation related to the cessation of MSB activities

1. Introduction

This page presents how we assess the harm done and calculate the base penalty amount applied to money services businesses registration violations.

1.1 Purpose of the guide

This guide presents how FINTRAC approaches the harm done criterion and the base penalty amount for violations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the Act) and its regulations. According to section 73.11 of the Act, FINTRAC must consider the harm done by a violation, that the purpose of an administrative monetary penalty (AMP) is to encourage compliance rather than to punish, and all other criteria prescribed in the regulations, including a reporting entity's (RE) history of compliance, when determining the amount of a penalty. Considerations for the non-punitive nature of an AMP and an REs' compliance history are assessed in another step in the penalty calculation and are outlined separately in FINTRAC's AMP policy.

1.2 Definition of harm

FINTRAC defines "harm" as the degree to which a violation interferes with achieving the objectives of the Act^{Footnote 1} or with FINTRAC's ability to carry out its mandate^{Footnote 2}. Therefore, the consequences of non-compliance, when an AMP is imposed, are linked to its effects on Canada's efforts to combat money laundering and terrorist activity financing (ML/TF).

Compliance enforcement activities are undertaken to prevent and correct the harm that comes from non-compliance with the Act and regulations. REs' adherence to requirements such as record keeping and verifying client identity assists in the deterrence of ML/TF and supports investigations and criminal prosecutions. The requirements related to reporting ensure that FINTRAC is supplied with the high-quality, timely financial transaction reports it needs to produce the financial intelligence that helps with the investigation and prosecution of ML/TF offences.

1.3 Considering harm in AMP calculations

When determining a penalty, FINTRAC considers the harm caused, that is, the degree to which the non-compliance interferes with the purpose of the Act and/or with FINTRAC's mandate. Non-compliance and harm are measured using the standards described in this guide, which outline the benchmark amounts for the corresponding levels of harm for a specific violation. FINTRAC considers the specific circumstances of each case, including the extent of the non-compliance and mitigating factors, which may further reduce the actual amounts applied.

2. Violations related to registration requirements for money services businesses

The money services business (MSB) sector is vulnerable to ML/TF due to certain factors. MSBs often specialize in cash transactions and transferable monetary instruments, international electronic funds transfers, informal remittance systems and foreign currency exchanges, which have all been used by criminals for ML/TF. MSBs vary in size, complexity and business model; and are unregulated in Canada. Some MSBs are transient in nature, meaning that they can open, close, and change owners quickly. As a result, the Financial Action Task Force (FATF), an inter-governmental body that sets standards and promotes measures to combat ML/TF, and Canada's National Inherent Risk Assessment^{Footnote 3} have identified the MSB sector as posing a higher risk for ML/TF offences.

MSBs must register with FINTRAC to ensure that it is aware of the businesses that operate in Canada and their activities. The information in the MSB registry helps FINTRAC ensure effective compliance in the sector, using a risk-based approach. The information also allows FINTRAC to assess the eligibility of owners, directors and senior officers to operate an MSB in Canada. As the MSB registration information is accessible through FINTRAC's website, the registration status of these businesses is made public.

When MSBs fail to register and keep their registration information up to date, FINTRAC's ability to ensure that they comply with the requirements that are designed to detect, prevent and deter ML/TF offences is impacted.

3. Violation related to the requirement to register with FINTRAC

This section outlines FINTRAC's approach to the violation related to the requirement to register with FINTRAC, including the harm assessment and penalty calculation.

3.1 Harm done in the case of a violation related to the requirement to register with FINTRAC

MSBs are required to register with FINTRAC so that it can be aware of their activities, operations, and structures in Canada. Information that is essential for compliance activities analysis is made available to FINTRAC through registration, thus enabling it to ensure compliance using a risk-based approach, and to assess the eligibility of owners, directors and senior officers to operate an MSB in Canada. When an MSB does not register, FINTRAC is not able to apply appropriate measures and to effectively carry out its mandate, to ensure compliance and to help protect Canada's financial system from being exploited for ML/TF.

An unregistered MSB could signal non-compliance with other requirements under the Act and its regulations which were designed to protect the integrity of Canada's financial system. An MSB that fails to register with FINTRAC poses risks to the achievement of the objectives of the Act and to FINTRAC's mandate which is to assist in the detection, prevention and deterrence of ML/TF.

3.2 Penalty determination for a violation related to the requirement to register with FINTRAC

The maximum prescribed penalty of $100,000 applies when a business is actively engaged in the activities set out in paragraph 5 (h) of the Act without being registered with FINTRAC.

FINTRAC recognizes that the factors surrounding the failure to register with the Centre can vary from one MSB to another. Therefore, FINTRAC will consider, on a case-by-case basis, any factor that mitigates the harm on the achievement of the objectives of the Act and FINTRAC's mandate. Relevant mitigating factors can reduce the penalty. For example, if no financial transactions were conducted by the MSB as of the time that the non-compliance is identified and the MSB corrects this non-compliance by registering with FINTRAC immediately, and before the first transactions are carried out.

4. Violations related to submitting registration application, renewal, clarification, and notification information

This section outlines FINTRAC's approach to the violations related to the requirement to submit information to apply for registration, to renew a registration, to clarify registration information, to notify FINTRAC of new information, and to notify FINTRAC of a change in registration information; including the harm assessment and penalty calculation.

4.1 Harm done in the case of violations related to submitting registration application, renewal, clarification, and notification information

MSBs must be registered with FINTRAC so that it can be aware of their activities, operations, and structures in Canada. The MSB registration information lets FINTRAC know of the types of activities, products and services provided by MSBs that could be used for ML/TF, such as cash transactions and transferable monetary instruments, international electronic funds transfers, informal remittance systems and foreign currency exchanges.

MSB registration information also includes details on an MSB's business model and size. This information allows FINTRAC to understand the complexity of the MSB's operations and helps to assess the risks and consequences of non-compliance. Information gathered for registration allows FINTRAC to determine whether any person or entity who owns, directs or controls an MSB is ineligible because they are listed in the United Nations Suppression of Terrorism Regulations, in s. 83.01 (1) of the Criminal Code, or for having been convicted of one or more of the offences set out in s. 11.11 of the Act.

When an MSB does not submit an application for registration in the prescribed manner and with the prescribed information, does not notify FINTRAC of changes, or does not provide us with a requested clarification, our understanding of this higher risk sector is incomplete and our ability to ensure compliance in the sector is diminished. Registration information that is not submitted in the prescribed manner or that is incomplete, outdated, or unclear diminishes the effectiveness of FINTRAC's compliance activities and its ability to ensure compliance in the MSB sector.

Registration information also helps FINTRAC's strategic analysis activities and enhances public awareness by making part of the registry available to the public. Not complying with registration information requirements diminishes FINTRAC's ability to understand matters related to the MSB sector. Missing, incomplete or outdated registration information could affect FINTRAC's ability to assess and produce relevant and timely information, including when providing non-compliance disclosures to law enforcement.

4.2 Harm done in the case of violations related to submitting registration information within the prescribed period

The Act prescribes a timeline for an applicant or a registrant to submit specific types of registration information. When information is not submitted in time, FINTRAC's ability to determine whether a person or entity that owns, directs or controls an MSB is eligible for registration and its ability to assess the risks and weaknesses of the MSB's operations are impaired. The delay could have an impact on FINTRAC's ability to analyze, assess and disclose up-to-date information for the investigation and prosecution of offences under Part 1 or 1.1 of the Act. Delays could also prevent FINTRAC from applying effective measures to ensure compliance and to remain up to date on the sector.

4.3 Harm done in the case of violations related to renewing a registration

When there is a significant delay in submitting information to renew a registration, FINTRAC may consider that the MSB is operating as an unregistered MSB. Much like an MSB that did not register, an MSB operating without renewing its registration could be showing disregard for the Act and its regulations, which are designed to protect the integrity of Canada's financial system. Therefore, an MSB not renewing its registration with FINTRAC could pose risks to the achievement of the objectives of the Act and FINTRAC's mandate to assist in the detection, prevention and deterrence of ML/TF.

4.4 Penalty determination for violations related to submitting registration application, renewal, clarification, and notification information

The table below details the levels of harm, the types of non-compliance, their descriptions and corresponding penalties. FINTRAC has identified four levels of harm and a penalty scale that goes up to the prescribed maximum penalty of $100,000. Failing to register or failing to provide information that would make the person or entity ineligible to register is the most severe type of non-compliance and is assigned the prescribed maximum penalty, as this has the greatest impact on achieving the objectives of the Act and FINTRAC's mandate. When the non-compliance can apply to more than one level of harm, the penalty will be based on the highest level of harm. Mitigating factors may apply and could reduce the penalty.

4.4.1 Level 1 harm – Information that identifies MSBs and confirms eligibility to register with FINTRAC is non-compliant

Failure to register with FINTRAC when engaged in the business of foreign exchange dealing, remitting or transmitting funds, or issuing or redeeming money orders, traveller's cheques or other similar negotiable instruments has the highest impact on the achievement of the objectives of the Act and FINTRAC's mandate; therefore the maximum prescribed penalty of $100,000 applies. This poses a potential risk that Canada's anti-money laundering and anti-terrorist financing (AML/ATF) regime may be unaware of businesses engaged in MSB activities. As a result, FINTRAC is not able to fulfill its mandate of ensuring compliance under paragraph 40(e) of the Act, and the public and law enforcement agencies would be unable to confirm whether an entity is registered and subject to the Act and its regulations.

Information that identifies MSBs is information about the business, such as the legal name, legal status, operating/trade names, the names of its directors or of the persons or entities who own or control 20% or more of the business, and the business address. This is basic information that identifies the legal entity engaged in the MSB activities, along with those directing/controlling the business. It is used to confirm the legal entity's eligibility to register with FINTRAC. Some of the identifying information is made public, to show that the MSBs have satisfied the legal requirement to register, and must comply with other requirements of the Act and its regulations, such as identifying clients, reporting to FINTRAC and keeping records. Without the identifying information described above, FINTRAC is not able to register the legal entity operating an MSB, nor can it identify the persons or entities that direct, own or control the business to determine its eligibility for registration. The Act restricts MSB registration eligibility to persons or entities who have not been convicted of a number of specific serious offences, including Act offences. This restriction is to protect Canada's financial system from being used for ML/TF, which is an objective of the Act. As a result, a registered MSB that fails to provide information that would have affected its eligibility to be registered poses serious potential harm to the achievement of the objectives found under paragraph 3 (d) of the Act. In such a case, the harm to the objectives of the Act and FINTRAC's mandate is equal to failing to register. Therefore, a penalty of $100,000 applies and an existing registration would be revoked.

4.4.2 Level 2 harm – Information that identifies all parties, relationships and flow of funds related to the business activities is non-compliant

FINTRAC uses information such as the names and addresses of agents, the telephone numbers and e-mail addresses of individuals and entities that may also have requirements under the Act and its regulations to identify relationships that the business has with other entities and individuals, as well as to identify the flow of funds. This information helps FINTRAC plan its compliance activities. Bank account information and information on other MSBs that are used by the registered MSB help to identify the flow of funds and also help in planning compliance activities.

In addition, the details on the names, addresses and contact information may be used by FINTRAC to identify new subjects for analysis, much like the way we use this information from reports that have been submitted.

Next to the failure to register or the failure to provide information in an application that would affect the eligibility to register, non-compliance with information that identifies parties, relationships and flow of funds related to the MSB business poses the second most serious harm to the objectives of the Act and FINTRAC's ability to carry out its mandate. Therefore, a penalty of $75,000 applies as a benchmark. Relevant mitigating factors will be considered and may reduce the actual penalty determined. For example, the extent to which this information type is non-compliant from the registration information – an MSB that does not provide any details on agents and bank accounts used for remitting and transmitting funds versus an MSB that omitted to add one new MSB agent.

4.4.3 Level 3 harm – Information that provides context on the MSB's operations is non-compliant

FINTRAC uses this information to identify risks and vulnerabilities in the MSB sector in order to direct compliance strategies to those areas with the most impact, and to tailor its activities accordingly. Information such as the volume of transactions processed by the MSB, the services it offers, and its number of branches or agents, all provide context on the MSB's operations that can affect FINTRAC's risk assessment.

Failing to provide, clarify, notify of newly obtained registration information, or failing to notify of a change in registration information in the manner prescribed could diminish FINTRAC's ability to risk assess an RE. As a result, FINTRAC may be unaware of the risks and vulnerabilities in the AML/ATF regime, have inaccurate information on the MSB's operations and consequently, direct compliance strategies and activities to the wrong areas. For example, failing to list all branch locations/agents, significantly under-representing the value of the transactions conducted or failing to list all services offered could result in an MSB being assessed as posing a lower risk than it does in reality. If FINTRAC is unaware of the true context of an MSB's operations and incorrectly assesses the associated risks and vulnerabilities, its ability to effectively achieve its compliance mandate is weakened. This can cause considerable harm to FINTRAC's ability to achieve its mandate under paragraph 40 (e), as well as its ability to assist in meeting the objectives identified under paragraphs 3 (a) to (e) of the Act. Therefore, a penalty of $50,000 applies, barring any relevant mitigating factors.

4.4.4 Level 4 harm – Information that enhances the efficiency of FINTRAC's analysis is non-compliant

As noted above, FINTRAC uses the information collected for the purpose of registering MSBs to assess the RE for risk, in order to effectively plan compliance activities, and for analysis. FINTRAC uses automated systems to process the large amount of data that is collected for registration. In order for these systems to function efficiently for risk assessment and compliance strategies, prescribed information must be provided accurately and correctly. When registration information is provided in the wrong manner, is not precise, or not maintained, the effectiveness and timeliness of FINTRAC's analysis can be affected because the information cannot be automatically analyzed. For example, including extraneous or no longer relevant registration information, such as information on bank accounts that are no longer used to remit or transmit funds, may affect the efficiency of FINTRAC's analysis and assessment, or require manual intervention. The penalty for this type of violation is set at $25,000, barring any relevant mitigating factors.

4.5 Non-compliance in the case of information that serves more than one purpose

Most types of information that must be provided to FINTRAC can be useful for more than one of the purposes described above. For this reason, when determining the penalty amount for a violation that has deficiencies that result in more than one level of harm, the penalty is determined at the amount assigned to the highest harm level. FINTRAC considers registration information in its entirety, and not just the elements that are non-compliant, to assess the level of harm and corresponding penalty.

5. Violation related to the cessation of MSB activities

This section outlines FINTRAC's approach to the violation related to the requirement to submit notification of cessation of activities, including the harm assessment and penalty calculation.

5.1 Harm done in the case of a violation related to the cessation of MSB activities

When FINTRAC is not notified of the cessation of an MSB's activities, its ability to carry out compliance activities efficiently is obstructed. For example, FINTRAC may initiate compliance activities with that MSB, such as planning a compliance examination or confirming with the MSB that it has ceased activities, while there is no need to do so. The outdated registration information could also misinform the public and the police about businesses that are registered with FINTRAC and engaged in MSB activities. However, since the MSB is no longer conducting the activities for which it is registered, the harm done to the achievement of the objectives of the Act and FINTRAC's mandate is less than the harm done by not complying with other registration requirements.

5.2 Penalty determination for a violation related to the cessation of MSB activities

To manage its compliance activities efficiently, FINTRAC must be able to identify which MSBs have ceased to operate and when they have done so. If a cessation of activity notification is not received by the end of the period set out in the Act, FINTRAC's ability to carry out compliance activities in an efficient and effective manner is diminished. This has the same impact on the objectives of the Act and FINTRAC's mandate as the fourth level of harm described in the previous section. Therefore, the penalty is typically set at $25,000, barring any relevant mitigating factors. For example, if the RE took measures to inform FINTRAC of the cessation of MSB activities but did not formally submit a cessation form.