When to identify individuals and confirm the existence of entities – Money services businesses

June 2017

This guidance on client identification is applicable to money services businesses that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations.

You are considered to be a money services business if you are an individual or an entity that is engaged in the business of any of the following activities:

Money services businesses include alternative money remittance systems, such as Hawala, Hundi, Chitti, etc.

Details on how to identify individuals and confirm the existence of entities are available in FINTRAC’s guidance Methods to identify individuals and confirm the existence of entities.

Throughout this guidance, references to dollar amounts (such as $10,000) are in Canadian dollars. Furthermore, all references to cash mean money in circulation in any country (bank notes or coins) and does not include cheques, money orders or other similar negotiable instruments.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) specify when you must identify an individual or confirm the existence of an entity, and how you must do this. The point at which you identify a client will vary depending on the activity or transaction that is carried out.  Knowing your clients includes identifying them in accordance with the Regulations, but you also have further obligations in this regard, such as requirements related to the ongoing monitoring of business relationships, the determination of politically exposed persons or heads of international organizations, beneficial ownership and third party determination. Please refer to FINTRAC’s guidance on these subjects for more information.

**Note: Exceptions to your client identification requirements are listed in the last section of this guidance.

Identifying clients

As a money services business, you must identify individuals and confirm the existence of entities for certain activities and transactions, as listed below. Entities can be corporations, trusts, partnerships, funds, and unincorporated associations or organizations.

When you have to confirm the existence of an entity that is a corporation, you also have to verify its name and address, and the names of the corporation’s directors.

The formation of a business relationship and the ensuing obligations are tied to your requirement to identify clients. For non-account-based relationships, you are considered to be in a business relationship with every individual you have had to identify at least twice, and with every entity whose existence you have had to confirm at least twice. If you have not identified an individual or confirmed the existence of an entity because an exception applied, you are still considered to be in a business relationship, and must conduct ongoing monitoring and keep certain records.

You are also required to take reasonable measures to determine if a client is acting on the instruction of a third party when creating a client information record or conducting a large cash transaction. In this case, reasonable measures may include asking the individual, or relying on information you may already have about the individual. If you determine that the individual in front of you is acting on someone else's instructions, that “someone else” is the third party.

As a money services business, you are responsible for identifying clients for:

  1. Issuing or redeeming negotiable instruments of $3,000 or more
  2. Remittances or transmissions of $1,000 or more
  3. Foreign currency exchange of $3,000 or more
  4. Large cash transactions
  5. Suspicious transactions
  6. Client information records

1. Issuing or redeeming negotiable instruments of $3,000 or more

You have to identify any individual who conducts a transaction for the issuance or redemption of negotiable instruments, such as traveller’s cheques or money orders of $3,000 or more, at the time the transaction takes place.

2. Remittances or transmissions of $1,000 or more

When you remit or transmit $1,000 or more by any means, you have to identify the individual who makes the request at the time the transaction takes place.

For example, when you send $1,000 or more through an electronic funds transfer (EFT), you have to identify the individual who makes the request at the time the transaction takes place. An EFT means the transmission of instructions, through any electronic, magnetic or optical device, telephone instrument or computer, for the transfer of funds to or from Canada.

If you transmit funds as an EFT of any amount at the request of a client, including an EFT sent within Canada that is a SWIFT MT 103 message, you must include originator information.

If you receive an EFT of any amount, including an EFT sent within Canada that is a SWIFT MT 103 message, you must take reasonable measures to ensure it includes originator information. In this context, reasonable measures could include contacting the institution that sent the payment instructions.

3. Foreign currency exchange of $3,000 or more

When you exchange $3,000 or more in foreign currency, you must identify the individual conducting the transaction at the time the transaction takes place.

4. Large cash transactions

You must identify every individual who conducts a large cash transaction at the time the transaction takes place. A large cash transaction occurs when you receive $10,000 or more in cash in a single transaction. A large cash transaction also occurs when there are multiple cash transactions of less than $10,000 each that total $10,000 or more within a 24-hour period, when you know that they are conducted by, or on behalf of the same individual or entity.

5. Suspicious transactions

You must take reasonable measures to identify individuals who conduct or attempt to conduct suspicious transactions before sending a Suspicious Transaction Report. Reasonable measures in this case may include asking the individual to provide photo identification.

All suspicious transactions and attempted suspicious transactions, including transactions that are normally exempt from client identification requirements, require you to take reasonable measures to identify them.

6. Client information records

You must confirm the existence of an entity when you create a client information record for an ongoing service agreement for electronic funds transfers, funds remittance or foreign exchange services.  This includes a service agreement for the issuance or redemption of money orders, traveller’s cheques or other negotiable instruments.

You must confirm the existence of an entity within 30 days of creating a client information record.

Keeping client identification information up to date

You must update client information at a frequency that will vary based on your risk assessment. As a part of your ongoing monitoring requirements, you must keep all client identification information up to date. High-risk clients’ identification information must be updated more frequently, and you must take any other appropriate enhanced measures.

To keep client identification information up to date, you must take measures such as asking the client to provide information to confirm or update their identification information. In the case of an individual, this may include confirming or updating the information by using the options that are available to identify individuals who are not physically present.

In the case of clients that are entities, measures to keep client identification information up to date may include consulting a paper or electronic record, or obtaining information verbally.

Exceptions

You do not have to re-identify an individual or re-confirm the existence of an entity if you previously did so using the methods specified in the Regulations in place at the time and kept the associated records, so long as you have no doubts about the information used.

You do not have to verify the names of the directors when you confirm the existence of a corporation that is a securities dealer.

You do not have to identify an individual who conducts a large cash transaction if the cash is received from a financial entity or public body.

You do not have to verify the identity of an authorized employee who conducts a transaction for their employer under a service agreement.

You do not have to take reasonable measures to identify the individual who conducts or attempts to conduct a suspicious transaction only if:

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