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FINTRAC updates STR guidance

April 2020

This guidance will come into force on 1st June 2020.

All reporting entities (REs) and individuals employed by REs must report suspicious transactions under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations. If you are an individual who works for an RE and the  RE is actively reporting suspicious transactions, we do not require duplicate reporting. An employee is only expected to report STRs to FINTRAC should they believe that their employer has not submitted an STR as prescribed by the PCMLTFA and associated Regulations. 

This guidance should be read in conjunction with the two other suspicious transaction reporting guidance documents:

This guidance document answers the following questions:

  • What is a suspicious transaction report (STR)? 
  • What measures do you need to take to enable your submission of STRs to FINTRAC? 
  • What are reasonable grounds to suspect (RGS)? 
  • When do you submit an STR to FINTRAC? 
  • How does FINTRAC assess your compliance with the obligation to submit STRs?
  • How can you assess your own compliance with the obligation to submit STRs?

**Note: In this document, all references to a transaction should be understood to mean both single and multiple transactions, and include both attempted andcompleted transactions. All references to the commission of ML/TF also include the attempted commission of ML/TF. 

1. What is a Suspicious Transaction Report (STR)? 

FINTRAC operates within the legislative authority of the PCMLTFA and associated Regulations. Its mandate is to prevent, detect and deter ML/TF activities, while ensuring the protection of the information under its control. 

For FINTRAC to achieve its mandate, regulated individuals and entities (reporting entities —REs) must implement the legislated requirements and set out specific measures in their compliance programs, including developing and implementing policies and procedures, identifying clients, keeping records and submitting prescribed transaction reports to FINTRAC. FINTRAC assesses and analyzes the data from those reports to create a picture that serves to uncover financial relationships and networks that will: 

  • assist law enforcement in investigating or prosecuting offences related to ML/TF, as well as threats to the security of Canada; 
  • detect trends and patterns related to ML/TF risks; 
  • uncover vulnerabilities of the Canada’s financial system; and 
  • enhance public awareness of ML/TF matters. 

One of the most valuable and unique report types submitted to FINTRAC is the STR. In addition to the prescribed information, STRs allow for an expansion on the descriptive details surrounding a transaction that is derived from your assessment of what you are seeing through your business interactions and activities. Additional information, such as nicknames, secondary names, beneficial ownership information, IP addresses, additional account numbers, email addresses, virtual currency transaction addresses and their details, details of purchases or e-transfers, locations, relationships, and background information are all additional details that FINTRAC uses in its analysis and production of financial intelligence disclosures. 

Because of the importance of FINTRAC’s financial intelligence to the overall safety and security of Canadians and Canada’s financial system, FINTRAC reviews and assesses every STR it receives. When warranted, such as in the case of STRs related to threats to the security of Canada, FINTRAC expedites its analysis in order to disclose financial intelligence to law enforcement and other intelligence partners within 24 hours. 

Failing to submit an STR, or not submitting an STR in a timely manner, may directly affect FINTRAC’s ability to carry out its mandate. Therefore, FINTRAC expects that when you have completed your measures and determined that you have reached reasonable grounds to suspect that a transaction is related to the commission of an ML/TF offence, you will prioritize the submission of that STR.

For more information on ML/TF, see FINTRAC’s Guideline 1: Backgrounder. 

2. What measures do you need to take to enable your submission of STRs to FINTRAC?

In order to submit an STR to FINTRAC, you will need to ensure that you have completed the measures that enable you to reach your grounds to suspect the commission of ML/TF. These measures include: 

  • screening for and identifying suspicious transactions; 
  • assessing the facts and context surrounding the suspicious transaction;
  • linking ML/TF indicators to your assessment of the facts and context; and 
  • explaining your grounds for suspicion in an STR, where you articulate how the facts, context and ML/TF indicators allowed you to reach your grounds for suspicion. 

What is a fact?

A fact, for the purpose of completing an STR, is defined as an event, action, occurrence or element that exists or is known to have happened or existed — it cannot be an opinion. For example, facts about a transaction could include the date, time, location, amount or type. Facts known to the RE could also include account details, particular business lines, the client’s financial history or information about the individual or entity (for example, that the individual has been convicted of a designated offence or is the subject of a production order, or that an entity is being investigated for fraud or any other indictable offence).  

What is context? 

Context, for the purpose of completing an STR, is defined as information that clarifies the circumstances or explains a situation or transaction. This type of information is essential to differentiate between what may be suspicious and what may be reasonable in a given scenario.

You may observe or understand the context of a transaction through: 

  • a general awareness of the events occurring in an individual or entity’s business environment or community; 
  • your knowledge of the typical financial activities found within your business; 
  • regular know your client (KYC) activities (for example, confirming identification details of the individual, their occupation or business, how they generate their wealth, their typical or expected transactional behaviours, etc.); 
  • the information obtained through the application of your risk-based approach; and 
  • illustrative client details (for example, the background, behaviour and actions of your client). 

A transaction may not appear suspicious in and of itself. However, a review of additional contextual elements surrounding the transaction may create suspicion. Conversely, the context of a particular transaction, which may have seemed unusual or suspicious from the onset, could lead you to reassess your client’s current and past transactions and conclude that they are reasonable in that circumstance. 

Your suspicion of ML/TF will likely materialize from your assessment of multiple elements (transactions, facts, context, and any other related information that may or may not be an indicator of ML/TF). When these elements are viewed together, they create a picture that will either support or negate your suspicion of ML/TF. Below are some examples of how suspicion may arise:

  1. An individual:
    • asks several questions about your reporting obligations to FINTRAC (context)
    • wants to know how they can avoid their transaction being reported to FINTRAC (context)
    • structures their amounts to avoid client identification or reporting thresholds (fact)
    • keeps changing their explanation for conducting a transaction or knows few details about its purpose (context)
  2. Transactions constantly being made by a third party on behalf of another individual:
    • a client conducts a transaction while accompanied, overseen or directed by another party (fact)
    • payments to or from unrelated parties (foreign or domestic) (fact)
    • client appears to be or states that they are acting on behalf of another party (context) 

For reporting sectors that deal with accounts:

  1. An individual making a deposit to a personal account, where the individual:
    • has an income or job that is not consistent with the deposit amounts (fact) 
    • keeps changing their reason for the deposit or cannot or will not provide a reason (context)
    • exhibits nervous behaviour (context)
  2. Transactions to a business account with the following additional elements:
    • deposits to the account are made by numerous parties that are not signing authorities or employees (fact)
    • the account activity involves wire transfers in and out of the country (fact), which do not fit the expected pattern for that business (context)
    • multiple deposits are made to the account by third parties (fact)
  3. Transactions frequently being made by a third party on behalf of another individual:
    • multiple payments made to an account by non-account holders (fact)
    • account is linked to seemingly unconnected parties (context)

What is an ML/TF indicator?

ML/TF indicators are potential red flags that can initiate suspicion and indicate that something may be unusual without a reasonable explanation. Red flags typically stem from one or more facts, behaviours, patterns or other factors that identify irregularities related to a client’s transactions. These transactions often present inconsistencies with what is expected or considered normal based on the facts and context you know about your client’s transactional activities. 

FINTRAC published ML/TF indicators for each RE sector. These were developed through a three-year review of ML/TF cases, a review of high-quality STRs, and literature published by international organizations such as the Financial Action Task Force (FATF) and the Egmont Group, and in consultation with RE sectors. These ML/TF indicators do not cover every possible situation; they are meant to provide all RE sectors with a general understanding of what is or could be considered unusual or suspicious. FINTRAC also publishes operational alerts and briefs that offer additional information on the identification of ML/TF related methods, techniques, and vulnerabilities. 

On its own, an indicator may not initially appear suspicious. However, it could lead you to question the legitimacy of a transaction, which may prompt you to assess the transaction to determine whether there are further facts, contextual elements or additional ML/TF indicators that would increase your suspicion to the point where submitting an STR to FINTRAC would be required. 

Criminal organizations often try to avoid the detection of ML/TF by using multiple concealment methods. Indicators of ML/TF can bring to light suspicious transactional activity, but it is your holistic assessment of facts, context and ML/TF indicators that will enable you to determine whether you have reached RGS that a transaction is related to the commission of an ML/TF offence. Indicators are also helpful to articulate your rationale for RGS in an STR. The explanation of how you reached your grounds for suspicion is extremely important for FINTRAC’s development and disclosure of financial intelligence. 

3. What are reasonable grounds to suspect (RGS)? 

Understanding the differences between the thresholds can help clarify what RGS means for your organization and how it can be operationalized within your compliance program. See diagram 1: Threshold for suspicion, an overview of the different thresholds.

Simple suspicion is a lower threshold than RGS and is synonymous with a “gut feeling” or “hunch”. In other words, simple suspicion means that you have a feeling that something is unusual or suspicious, but do not have any facts, context or ML/TF indicators to support that feeling or to reasonably conclude that an ML/TF offence has occurred. Simple suspicion could prompt you to assess related transactions to see if there is any additional information that would support or confirm your suspicion. 

Reasonable grounds to suspect (RGS) is the required threshold to submit an STR to FINTRAC and is a step above simple suspicion, meaning that there is a possibility that an ML/TF offence has occurred. You do not have to verify the facts, context or ML/TF indicators that led to your suspicion, nor do you have to prove that an ML/TF offence has occurred in order to reach RGS. Your suspicion must be reasonable and therefore, not biased or prejudiced.

Reaching RGS means that you consider the facts, context and ML/TF indicators related to a financial transaction and, after having reviewed this information, you conclude that there are RGS that this particular financial transaction is related to ML/TF. You must be able to demonstrate and articulate your suspicion of ML/TF in such a way that another individual reviewing the same material with similar knowledge, experience, or training would likely reach the same conclusion.

The explanation of your assessment should be included in the narrative portion, Part G, of the STR. Many factors will support your assessment and conclusion that an ML/TF offence has possibly occurred; they should be included in your report to FINTRAC. 

Reasonable grounds to believe is a higher threshold than RGS and is beyond what isrequired to submit an STR. Reasonable grounds to believe means that there are verified facts that support the probability that an ML/TF offence has occurred. In other words, there is enough evidence to support a reasonable and trained person to believe, not just suspect, that ML/TF has occurred. For example, law enforcementmust reach reasonable grounds to believe that criminal activity has occurred before they can obtain judicial authorizations, such as a production order. 

If you are in receipt of a production order, by law enforcement, you must perform an assessment of the facts, context, and ML/TF indicators to determine whether you have RGS that a particular transaction is related to the commission of ML/TF. 

If you identify a transaction whereby you reach reasonable grounds to believe that an ML/TF offence has occurred, you must begin an assessment of the related transactions immediately as you have surpassed the RGS threshold. If assessed by FINTRAC and there are reasonable grounds to believe that a transaction is related to the commission of an ML/TF offence, and you have not begun an assessment of the facts, context or ML/TF indicators, you may be cited for a missed STR. In situations involving time-sensitive information, such as suspected terrorist financing and threats to national security, you are encouraged, as a best practice, to expedite the submission of your STRs. We recommend that this be included in your policies and procedures. 

Diagram 1: Threshold of suspicion

Diagram 1: Threshold of suspicion

4. When do you submit an STR to FINTRAC? 

You must submit an STR as soon as practicableFootnote 1 after completing the measures (described above in section 2) required to establish RGS that a transaction is related to the commission of an ML/TF offence.

Therefore, the measures you completed enabled you to prepare the STR to the best of your ability; the STR will include the relevant facts, context and ML/TF indicators that enabled you to conclude that you had RGS the commission of an ML/TF offence. Once you have completed the measures, you must submit the STR to FINTRAC as soon as practicable.

As soon as practicable should be interpreted to mean that you have completed the measures that have allowed you to determine that you reached the RGS threshold and as such the development and submission of that STR must be treated as a priority report. FINTRAC expects that you are not giving unreasonable priority to other transaction monitoring tasks and may question delayed reports. The greater the delay, the greater the need for a suitable explanation. STRs can be complex yet you must treat them as a priority and ensure they are timely; you must also complete the measures that enabled you to conclude that you have RGS the commission of an ML/TF offence before you submit the report to FINTRAC. 

5. How does FINTRAC assess your compliance with the obligation to submit STRs?

FINTRAC uses a variety of assessment methods to ensure that you are detecting suspicious transactions and submitting complete reports in a timely manner. During an assessment, FINTRAC expects that you will be able to:

  • confirm that you have an ongoing monitoring process, and have measures described in your policies and procedures and risk assessment (that is, enhanced measures and special measures for high-risk activities and clients) that are operationalized to enable the timely detection, assessment and, when required, reporting of suspicious transactions;
  • demonstrate your process for identifying relevant transactions; 
  • explain how your process for detecting and assessing suspicious transactions is effective, reasonable and consistent with your risk assessment, and applied across all your business lines; and
  • demonstrate that you have a risk-based process and that it’s incorporated in your decision-making processes for the submission of STRs.

In assessing what constitutes a practicable timeframe to complete the measures that precede submitting an STR, FINTRAC may review:

  • your previously submitted STRs, including their quality, timing and volume; 
  • the nature of the original transaction;
  • the size of your business and your business model;
  • your internal processes and procedures; 
  • the complexity of the transactions;
  • the number of relevant transactions identified in the STR; 
  • the nature of the indicators and grounds for suspicion;
  • the facts of the case; 
  • the overall number of transactions in your assessment; and 
  • other relevant considerations.

For more information on how FINTRAC assesses STRs, see FINTRAC’s assessment manual.

6. How can you assess your own compliance with the obligation to submit STRs?

Under the PCMLTFA and associated Regulations, you are required to assess the effectiveness of your compliance program as a part of your two-year reviewFootnote 2. To help you with this review, you will find examples of how to assess your compliance program in relation to detecting and assessing suspicious transactions and submitting your STRs below. It is not mandatory to apply all the examples when conducting your review.

  • You could review previously submitted STRs to ensure that you are consistent in the detection, assessment and submission of STRs. For example, if certain ML/TF indicators have supported your suspicions of ML/TF, you assess whether these indicators apply to other situations to ensure that you are not missing suspicious transactions that should be or should have been reported to FINTRAC. This approach can help you build consistency within your organization.
  • If an STR was submitted to FINTRAC in respect of a transaction conducted by an individual or entity, you should continue to submit reports on the client’s transactions as long as they remain suspicious. That being said, a periodic re-assessment of your grounds for suspicion should be done. How often you perform this assessment should be documented as part of your policies and procedures. For instructions on submitting multiple STRs on a given client, refer to Reporting suspicious transactions to FINTRAC. 
  • You can work with others in your business sector to learn how others are detecting, assessing and reaching RGS the commission of ML/TF and to establish common ideas of what could be considered unusual or suspicious. Please consult FINTRAC’s operational briefs and alerts for more information on ML/TF risks and vulnerabilities that have been observed within certain sectors or that relate to specific forms of criminality (for example, human trafficking, romance fraud, fentanyl and other synthetic drug trafficking).
  • RGS means that you can articulate your suspicion in such a way that another individual with similar knowledge, experience and training would, based on the same information, likely reach the same conclusion. Applying this logic can help you direct your attention to those transactions that may fit some of the ML/TF indicators identified by FINTRAC. This will also help you determine if there are transactions that should be considered for further assessment and potential submission to FINTRAC. 
  • To assess the timeliness of your reporting of suspicious transactions, you may wish to conduct a sample review. You can review the measures you took to identify the relevant information in the STRs (facts, context and ML/TF indicators) and when this information became known to ensure that you are reporting as soon as practicable from the date you reached the RGS threshold. 
  • To assess the quality of your STRs, it is important that you consider the consistency and integrity of your Know your client information and provide all relevant information that led to your determination of the RGS threshold being met. 
  • STRs have fewer mandatory fields than other FINTRAC reports. This is intended to encourage reporting even in situations where you may not have information because the client did not provide any or when asking for details might “tip off” the client to your suspicions. Double-checking the quality of the STRs before submitting them is important and it is FINTRAC’s expectation that if you have the information within your institution, that it be reported.

Link:

FINTRAC guidance

Categories: Anti-Money Laundering FINTRAC Updates Guidance

eric9to5

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