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:
**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:
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:
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 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:
For reporting sectors that deal with accounts:
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
4. When do you submit an STR to FINTRAC?
You must submit an STR as soon as practicable1 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:
In assessing what constitutes a practicable timeframe to complete the measures that precede submitting an STR, FINTRAC may review:
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 review. 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. 2