When Routine Tasks Create Compliance Obligations Under FINTRAC

Accountants and accounting firms may have obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations. These obligations are designed to help combat money laundering and terrorist financing in Canada.

As professionals with specialized financial and tax expertise, accountants may be vulnerable to being exploited—either knowingly or unknowingly—for illicit purposes. This is particularly relevant when practitioners engage in triggering activities, which involve executing transactions or giving instructions related to client assets. To avoid being unwittingly compliant in a money laundering scheme, the best defense is knowing the signs of money laundering. To assist with this, the Financial Transactions and Reports Analysis Centre of Canda (FINTRAC) has published potential indicators of money laundering and terrorist financing specific to accounting firms.

What Are Triggering Activities?

Under Section 47(1) of the PCMLTFA, an accountant or accounting firm is considered to be engaged in a triggering activity when they, on behalf of a person or entity:

1. Receive or pay funds or virtual currency
2. Purchase or sell securities, real property, immovables, or business assets/entities
3. Transfer funds, virtual currency, or securities by any means; or
4. Give instructions in connection with any of the above activities

These activities typically involve dealing with client assets, either by conducting transactions or instructing another party to do so.

Examples of Common Triggering Activities

• Making payments to the CRA on behalf of a client.
  (Note: Client approval is irrelevant—if the practitioner makes the payment, it is considered a triggering activity)
• Issuing instructions to a lawyer to execute a transaction in respect to the activities noted in a-c above.
  This constitutes a triggering activity as the practitioner is directing the transaction.

Advice vs. Instructions: Clarifying the Difference

A common grey area for tax practitioners is distinguishing between advice and instructions. According to FINTRAC’s interpretation notice:

• Instructions = Directing a third party to execute a transaction
  Example: “Please create Corporation XYZ and issue X shares as per my client’s instructions.”
• Advice = Recommending a course of action without directing execution
  Example: “I recommend transferring X shares to ABC corporation for tax purposes.”

A key consideration for tax practitioners is the specific wording used when communicating with third parties. If your request can reasonably be interpreted as directing or ordering a third party to carry out a transaction, it will likely be considered a triggering activity under the PCMLTFA.

Requirements when performing triggering activities

If you are performing triggering activities, you may be subject to the following obligations from FINTRAC:

1. Compliance Program

   • Implement a compliance program     
     Compliance program requirements
   • Conduct a risk assessment     
     Risk assessment guidance
     
     

   A strong foundation for an effective compliance program typically includes the following core components:

   • Performing a Risk Based Analysis on your business, and on any clients for which a business relationship has been established.
   • Establishing policies and procedures around Know Your Client that algin with one of the methods prescribed by FINTRAC. Organizations that already maintain KYC frameworks can adapt and refine their existing processes to ensure they meet all FINTRAC requirements.
   • Establishing policies and procedures for identifying beneficial ownership, ensuring that the organization can accurately determine and verify the individuals who ultimately own or control a client entity.
   • Establishing policies and procedures for detecting and reporting suspicious transactions, including internal escalation protocols and guidance on when a Suspicious Transaction Report (STR) must be filed with FINTRAC.
   • It should be noted that these elements do not make up a complete compliance program and should be used as key areas to start with as practitioners build out their compliance program.
     
     

2. Know Your Client (“KYC”)

   • Verify identity of persons and entities
     • Accountants must verify the identity of persons or entities when performing triggering activities. When to verify the identity of persons and entities—Accountants.
     • Accountants must verify the identity of persons and entities using the methods prescribed by the PCMLTFA and associated Regulations. Methods to verify the identity of persons and entities.
     • Accountants must obtain and take reasonable measures to confirm the accuracy of beneficial ownership information for entities. Beneficial ownership requirements.
   • Establish and monitor business relationships
     • Accountants are deemed to have established a business relationship with a client the second time they perform a triggering activity that requires the need to verify the identity of that client. Business relationship requirements.  
     • Accountants have ongoing monitoring requirements when a business relationship has been established with a client. Ongoing monitoring requirements
       
       

3. Transaction Reporting

   • Submit reports to FINTRAC, including:
     • Suspicious Transaction Reports.
     • Listed Person or Entity Property Reports.
     • Large Cash Transaction Reports.
     • Large Virtual Currency Transaction Reports.
       
       

4. Record Keeping

   • Maintain records related to transactions and client identification. Record keeping requirements for accountants.
     
     

5. Ministerial Directives

   • Stay current with Ministerial directives and transaction restrictions. Ministerial directives and transaction restrictions.