By Alma Angotti
On 2 December, 2020, FINTRAC issued guidance on potential red flags related to virtual currency transactions, virtual currency users, virtual currency issuers, and virtual asset service providers (VASP). The Guidance is not intended to be an exhaustive list and should be used in conjunction with other indicators and context to determine if there are reasonable grounds to suspect that the activity is associated with reportable potential money laundering or terrorist financing, and whether there is valuable financial intelligence to include in the suspicious transaction report narrative.
FINTRAC noted several virtual currency indicators of potential money laundering or terrorist financing, which can be grouped by theme:
In Canada as of 1 June, 2020, virtual currency dealers and service providers are currently considered a Money Service Business (MSB) for the purposes of anti-money laundering laws. In addition, the Canadian Securities Administrators provided guidance that because certain crypto assets that are securities or derivatives are traded on a platform, such platforms would be subject to securities legislation. Despite the uncertainties of how to classify virtual currency-related businesses, the expectations of developing and maintaining a compliance program to include and address virtual currency is clear.
The potential impact of the regulatory expectations should be weighed by all parties currently dealing with virtual currency transactions and verified users, parties who are considering entering the virtual currency industry in Canada or for Canadians from a foreign jurisdiction, and parties who may be inadvertently dealing with virtual currency. The anti-money laundering regulations require all covered entities or those wishing to become a virtual currency dealer to be registered with FINTRAC, have compliance programs in place, keep and retain prescribed records, and report suspicious or terrorist financing-related transactions.
Virtual currency’s increase in popularity, accessibility, and related businesses has been gaining significant momentum. FINTRAC’s guidance on potential indicators of money laundering or terrorist financing was released to provide additional resources and training materials for anti-money laundering compliance purposes.
The Guidance provides specific indicators or red flags that may be incorporated into a covered entity’s existing compliance program or as an advisory for those who are considering assessing their entry into the industry. The Guidance identifies red flags that should be incorporated into a robust AML and sanctions compliance program.
Covered entities and those considering entering the industry in Canada and abroad should consider proactively evaluating their existing compliance and training programs for areas that may require enhancements to comply with the Guidance. This includes identifying and assessing any operational or technical limitations that would inhibit compliance with the Guidance and evaluating their current trainings, policies, procedures, and controls relating to customers, products, services, and transactions associated with virtual currency.
Guidehouse can help financial institutions, MSBs, VASPs, and those considering entering the virtual currency industry in Canada and abroad assess their compliance programs in light of the Guidance, including determining changed obligations under the Guidance and developing and implementing updates to trainings, operations, policies, procedures, controls, and technology. Its areas of relevant expertise include the following:
Guidehouse can quickly review and assess your financial crime program to determine whether it is sound, identify gaps or weaknesses, or conduct training on AML and Sanctions compliance, including blockchain tracing and analytics. Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offer innovative advice and solutions for responding to heightened regulatory requirements.
Contributing author: Ji Kang
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