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FATF updates International Anti-Money Laundering Standards - What you need to know

09/03/2012


No news is good news

Given the upheaval of Canadian AML standards in Canada threatened by multiple consultations and a parliamentary review, reporting entities are eager to know the impact that international anti-money laundering standard changes might have on their operations.

Those international standards are maintained by the Financial Action Task Force (FATF), and they were updated on February 15, 2012 for the first time since 2003. The standards take the form of recommendations that countries should use to put in place countermeasures to combat money laundering and terrorist financing, and they include the measures that countries should impose on businesses and people in their jurisdictions towards those ends.

A breakdown of the updates

The updates condensed 49 recommendations into 40. Four of those recommendations could have a notable impact on Canadian companies, since Canada is a member of the FATF and has consequently signed on to be bound by its standards. We have described those four recommendations and their potential impact below.

Broadening Politically Exposed Person (PEP) Obligations: Recommendation #12

In addition to taking measures to determine if individual customers are PEPs, the recommendations would have financial institutions determine if beneficial owners are too. If this standard became law in Canada, financial institutions would have to ensure that they collected the information about beneficial owners that would make it possible to conduct a PEP determination. Those additional determinations would presumably lead to a greater number of positive findings and then enhanced due diligence.

The FATF definition of PEP includes those which are domestic and foreign, as well as their close associates. Canada’s definition currently covers only foreign PEPs and consultations propose to expand that definition to cover close associates.

Professional Privilege, Lawyers, and AML Requirements: Recommendation #23

The new FATF standard removes the AML obligation exceptions extended to professions otherwise covered by privilege or secrecy protections. Lawyers in Canada successfully argued for exemptions for AML obligations because of their privilege protections. If that situation remains unchanged, it will mark a deviation between Canada’s standards and the FATF recommendations on our Country’s next evaluation.

Liability for Directors and Senior Management for AML Compliance Lapses: Recommendation #35

The FATF standard requires member countries to provide for civil and criminal for directors and senior management for AML non-compliance. While criminal penalties can today be applied to directors and senior management, it is uncertain whether civil ones can.

Weapons of Mass Destruction: Recommendation #7

By adding a new Recommendation 7, the FATF has expanded its role from just money laundering and terrorist financing to include Weapons of Mass Destruction (WMD). While Canada’s ratification of United Nations resolutions largely addresses the requirements contemplated by this recommendation, suspicious transaction reporting and risk assessment requirements are likely to be expanded in Canada to match that new scope.

How MNP can help

As the most experienced anti-money laundering practice in Canada, MNP LLP can provide expert services and guidance regarding your AML compliance program. These changes, although not legislatively mandated, potentially could appear as an amendment to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations. Those amendments could still arise out of the three processes underway to change Canada’s AML legislation: two Department of Finance consultations, as well as a parliamentary review of the legislation.

If you have any questions, please feel free to contact the National AML Practice Leader, Matthew McGuire at [email protected]