Canada’s Anti-Money Laundering and Sanctions Overhaul Gets Serious: New Players, More Rules and Broad Reports

Canada’s Anti-Money Laundering and Sanctions Overhaul Gets Serious: New Players, More Rules and Broad Reports

Approximately 300,000 companies will have new obligations under Canada’s anti-money laundering legislation. Clients should read carefully to see if this includes their businesses.

The Department of Finance has opened consultations on upcoming changes to Canada’s anti-money laundering (“AML”) and anti-terrorist financing (“ATF”) regime, which will now capture wide swaths of Canadian businesses that previously had no obligations. Stakeholders should submit comments on the proposed changes until December 30, 2024.

By integrating economic sanctions into Canada’s AML and ATF regime, Canadian authorities can now swiftly penalize companies for sanctions evasion and address businesses with inadequate procedures for managing sanctions-related risks in the import or export of goods. This inclusion allows authorities to leverage the existing administrative monetary penalties under the AML and ATF framework to enforce sanctions compliance more effectively.

The McMillan team has previously published on some of the new features of Canada’s AML/ATF regime including:

• The new reporting requirement on import and export of goods from Canada in relation to money laundering and sanctions evasion;
• Canada Border Services Agency’s (“CBSA”) power to seize goods at the border for sanctions evasion;
• the new sanctions evasion offence under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”); and
• the border reporting requirement and administrative monetary penalties (“AMPs”) under the PCMLTFA.

Below we expand on new proposed regulations that would implement some of these initiatives.

1.  Additional Details on the New Reporting Requirement for Importers and Exporters

One of the key changes to Canada’s money laundering regime requires importers and exporters to declare that the goods they are importing or exporting are not related to money laundering, terrorist financing, or sanctions evasion. Under these changes, any person or entity that imports or exports goods for sale, commercial, industrial, or for other purposes set out in the PCMLTFA[1] (“Traders”) are responsible for:

• declaring whether their imported or exported goods are proceeds of crime or related to money laundering, terrorist financing, or sanctions evasion;
• attesting that the goods are in fact being imported or exported (to prevent phantom shipments);
• retaining records similar to the records they are already required to maintain for customs and tax purposes;
• truthfully answering questions about the import or export of goods when asked by a CBSA border services officer.[2]

On November 30, 2024, the Department of Finance tabled new regulations, the Proceeds of Crime (Money Laundering) and Terrorist Financing Reporting of Goods Regulations (“Reporting of Goods Regulations”) which will implement this reporting requirement.[3] The new declaration requirement in respect of AML and sanctions evasion will be made at the same time, and in the same manner as, current reports made under the Customs Act.[4] In other words, the declaration will be completed via an additional attestation added to existing customs forms.

The recordkeeping requirements under the proposed Reporting of Goods Regulations apply broadly. This requirement is expected to affect as many as 272,000 businesses. In addition to importers and exporters, certain producers, and certain businesses that supply, distribute or consume goods will have record-keeping obligations if they:

• transact with goods “for sale or for any industrial, occupational, commercial, institutional or other like use, or any other use that may be prescribed” (i.e., not for individual or personal use); and
• have a completed and signed Certificate of Origin of goods exported to a free trade partner (other than Certificates of Origin under the CPTPP or CUSMA).

The records that importers and exporters must maintain are aligned with existing record-keeping requirements under the Customs Act. They will include commercial documents (invoices, bills of lading), customs documents (import declarations, permits), financial records (payment records, bank statements), and transportation records (shipping documents, delivery receipts). Such records must be retained for a minimum of 6 years.[5]

The Reporting of Goods Regulations also introduce penalties for failing to comply with the new requirements.  Traders will be subject to monetary penalties for contraventions related to failure to report, improperly answering, poor or improper record-keeping, and failing to meet the obligation to provide accurate information.[6] If traders receive a notice of violation and do not pay the penalty or request a review within the specified time and manner, they will be deemed to have committed the violation and will be penalized.[7]

Traders can minimize penalties if they cooperate with the CBSA upon receipt of a Notice of Violation. If a Trader voluntarily discloses the details of an unintentional violation, the monetary penalty will range from $1 to $500.[8] In all other instances, the penalty will be the greater of the value of the goods involved, the declared value of those goods, or the value of financial transaction intended to pay for those goods.[9]

Importantly, due diligence is not a defence in a proceeding related to a violation. This means that even if importers conduct detailed due diligence on the source of goods they import, including via sanctions screening and the use of end-use statements, they may still be held liable for a violation if the goods are found to be related to sanctions evasion.

The Reporting of Goods Regulations, and the reporting requirement itself, are set to come into force on the same date, which is a day to be fixed by order of the Governor in Council.[10]

2. Voluntary Information Sharing and ‘Codes of Practice’ for Reporting Entities

Under Canadian privacy legislation, private sector entities (including financial institutions) have limited ability to share information. This could allow violators to exploit multiple institutions to facilitate illicit activities and evade detection.

To address this limitation, proposed amendments permit a reporting entity to disclose personal information, without the individual’s consent, to another reporting entity if:

1. the information was collected in the course of the person or entity’s activities;
2. the disclosure is reasonable for the purpose of detecting or deterring money laundering, terrorist activity financing or sanctions evasion;
3. making the disclosure with the individual’s knowledge or consent would risk compromising the ability to detect or deter money laundering, terrorist activity financing or sanctions evasion; and
4. the disclosure is made in accordance with the regulations.[11]

The legislative objective is that enhanced information sharing will help reporting entities more accurately assess customer risks and/or identify potential suspicious activity. This information sharing regime will be implemented by adding a new Part 8 to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the “Proceeds of Crime Regulations”). These changes would establish a voluntary information-sharing framework for entities regulated under the PCMLTFA, overseen by the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) and the Office of the Privacy Commissioner (“OPC”) in order to safeguard customer privacy.

Reporting entities that participate in the information disclosure and exchange system will be required to develop Codes of Practice, detailing how the information will be disclosed and protected under the Personal Information Protection and Electronic Documents Act (“PIPEDA”).[12] Participating entities will be required to provide the Codes of Practice to the OPC for approval and to FINTRAC for comment prior to use. The OPC will have a period of 90 days to approve or decline in writing a Code of Practice. If the OPC fails to notify an applicant of its decision within this timeline, the Code would be deemed approved.[13] Reporting entities will be required to renew the approval of a Code of Practice every five years.[14]

3. Strengthening Corporate Beneficial Ownership Transparency

Under the Proceeds of Crime Regulations, reporting entities are required to obtain and verify corporate beneficial ownership when they verify a corporation’s identity.[15] Under these changes,  reporting entities are also required to report material discrepancies (e.g. missing beneficial owners) between their records and a company’s registry filings to the Federal Corporation Database.[16] This requirement will apply only in situations where the reporting entity has determined the transaction to be high risk.[17] Failure to comply with the proposed reporting obligations would be subject to AMPs, with penalties ranging from $1 to $1000 per violation.[18]

These changes are set to come into force October 1, 2025.

The McMillan team is available to help clients assess the potential implications of these proposed new compliance and requirements.

[1] Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 at s 39.02(6). This provision is not yet in force.
[2] Bill C-59, An Act to implement certain provisions of the fall economic statement, 1st Sess, 44th Parl, 2024, Part 2.1 (Reporting of Goods); William Pellerin et al, “Sanctions Enforcement Rising: Border Seizures and Forfeitures, Administrative Penalties and a New Reporting Obligation for Sanctions Evasion Offences” (13 June 2024) McMillan Bulletin.
[3] Proceeds of Crime (Money Laundering) and Terrorist Financing Reporting of Goods Regulations, (2024) C Gaz I, Part I, Vol 158, No 48 [“Proposed Reporting of Goods Regulations”].
[4] Proposed Reporting of Goods Regulations, s 2.
[5] Proposed Reporting of Goods Regulations, ss 4(1) and 5(1).
[6] Proposed Reporting of Goods Regulations, s 10.
[7] Proposed Reporting of Goods Regulations, s 12(3).
[8] Proposed Reporting of Goods Regulations, s 14(1).
[9] Proposed Reporting of Goods Regulations, s 14(2).
[10] Section 21 of the proposed Reporting of Goods Regulations provides that “These Regulations come into force on the day on which section 285 of the Fall Economic Statement Implementation Act, 2023 comes into force, {…}”. Section 285 of the Fall Economic Statement Implementation Act, 2023, comes into force “On a day to be fixed by order of the Governor in Council.” (see section 306(1)).
[11] Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024, (2024) 44-1 at s 11.01(1). This addition is not yet in force: it will come into force on a day to be fixed by order of the Governor in Council (Section 351(3) of Bill C-69).
[12] Proposed Reporting of Goods Regulations at section 159.
[13] Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, C Gaz I, Vol 158, No 48 (2024) [“Amending Regulations], s 17.
[14] Ibid.
[15] Proceeds of Crime Regulations, SOR/2002-184, s 138.
[16] Amending Regulations, s 14.
[17] Amending Regulations, s 13.
[18] Amending Regulations, s 21.

by Dr. A. Neil Campbell, William Pellerin, Tayler Farrell, Nicole Davidson (Articling Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024