From crowdfunding to sanctions, CPAs must understand the risks and applicable requirements when it comes to anti money laundering and anti-terrorist financing.
The nature of the work of accountants presents “a significant money laundering vulnerability,” notes The Commission of Inquiry into Money Laundering in British Columbia’s final report. CPA Canada highlighted the risks and challenges at The One National Conference as Canada battles with money launderers, and why CPAs must keep abreast of developments.
The panel, Anti-Money Laundering and Anti-Terrorist Financing – Canada’s Changing Landscape, explored how the types of industry sectors and certain transactions and activities that are connected to the laundering of proceeds of crime might be seen by CPAs in public practice and in business; and efforts the Canadian government has made as it aims to strengthen the anti-money laundering and anti-terrorist financing (AML/ATF) Regime. Its key takeaways include:
Global trends
In a world where instances of fraud are rising and geopolitical tensions and economic sanctions are inspiring bad actors to find creative ways to launder funds, it’s critical that CPAs keep abreast of new AML/ATF developments and know who they’re doing business with. Some global money laundering threats and trends to be aware of include:
- Misuse of citizenship and residency by investment programs as a typology can bring risk to countries of being exploited by criminals and corrupt actors.
- Crowdfunding platforms may be vulnerable to being exploited for terrorism financing to fund nefarious activity.
- Cross-border and trade-based money laundering (TBML), and shadow banking are global problems where money flows across borders sometimes seamlessly and is often linked to crimes like the trafficking of fentanyl and other drugs.
“We have to remain vigilant on things that we know best, unusual transactions, transactions with countries or parties that we don’t know much about,” notes José Hernandez, a CPA and CEO of Ortus Strategies. “The rules are adapting to an evolving landscape, and they will keep on adapting. Accountants need to follow our instincts.”
Evading sanctions
The evasion of economic sanctions and money laundering are connected and both threaten the safety of Canadians and the integrity of our financial system. With the amount of turmoil in the world today, especially over the last two years since Russia’s war on Ukraine, there has been increased focus on economic sanctions. Effective in August 2024, Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reporting entities also have other legal obligations under Canada’s sanctions laws and associated regulations with respect to monitoring and reporting of relevant property ownership, export and import of goods and other activity in connection with sanctioned individuals and entities. CPAs undertaking activities covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) need to stay on top of these new requirements.
“When it comes to keeping the financial system safe and Canadians safe, we’re all in this together,” says Jeremy Weil, CPA and Vice-President of the Financial Action Task Force. “The government cannot keep Canadians safe from financial crime if key actors in the system are not rigorously implementing preventative measures, and CPAs in particular have a special role to play.”
Boosting Canada’s efforts
Last June, Finance Canada launched a public consultation to examine additional ways to strengthen Canada’s AML/ATF Regime, Corporations Canada launched a public beneficial ownership registry for private federal corporations in January and the House of Commons Standing Committee on Finance initiated the five-year statutory review of the PCMLTFA in February of this year.
“There is a recognition that financial crimes such as money laundering, terrorist financing and the evasion of financial sanctions threaten the safety of Canadians and the integrity of our financial system,” says Justin Brown, Senior Director Financial Crimes Policy, Governance & Transparency, Department of Finance Canada. “In order to combat these crimes, Canada needs to take a comprehensive approach that continuously adapts, to address these evolving threats.”
The government continues to treat AML as a priority area and as such, there’s been a significant amount of financial investment and a large number of legislative and regulatory changes in years past with more proposals such as ensuring that law enforcement has the powers it needs to pursue financial crimes, investigations, prosecutions and asset recovery, enhanced information sharing and expanding the scope of AML requirements to different sectors where risks were identified such as factoring companies, cheque cashing businesses, and leasing and finance companies.
“CPAs may be working in organizations that are in sectors or they may have clients in sectors that are or may be affected by the AML Regime,” says Michele Wood-Tweel, FCPA and vice-president of Regulatory Affairs at CPA Canada. “Part of the awareness CPAs need is understanding what sectors in the economy have responsibilities under the AML Regime in Canada and be aware that it’s growing. It’s not shrinking in terms of where the risks and vulnerabilities are.”
Though these areas are already high priorities, an international evaluation by the Financial Action Task Force (FATF) next fall will ensure the Canadian AML/ATF Regime accounts for emerging risks, threats and vulnerabilities and international recommendations. “In the past, we’ve had a lot of attention around technical compliance with what the international recommendations are,” says Wood-Tweel. “This round is going to be more around operational effectiveness.”
Risk-based approach
In 2024, FINTRAC made some changes to its supervision structure to allow for a more risk-based and sectoral approach to better understand, assess, and mitigate money laundering and terrorist financing risks. Specialized units were created for each of their reporting entity sectors, such as the Designated Non-Financial Businesses and Professions (DNFBPs) unit, which includes the accountant sector.
“Understanding AML obligations is important,” says Julie Ethier, Supervision Manager, Designated Businesses and Professions Unit, Supervision Sector at FINTRAC. “But it also helps to better understand and get a better grasp on the emerging risks and what to look for.”
Accountants and accounting firms must fulfill specific obligations as required by the PCMLTFA when they engage in certain “triggering activities” on behalf of a person or entity, or give instructions on behalf of a person or entity. Obligations under the PCMLTFA include having a compliance program, knowing your client, transaction reporting, record keeping and applying measures in Ministerial directives.
Challenges for CPAs in industry
With the speed of change, organizations’ legislative and regulatory compliance requirements are rising. Under the banner of responsible business, CPAs have an important role to play in advisory, employment, leadership or governance capacities. Rather than just add on to the number of separate programs in an organization to comply, it’s an opportunity to step back and look for common and practical ways to address similar risks and requirements efficiently and effectively, by leveraging existing data and using technology tools.
Although there are different and specific rules and requirements for AML/ATF, many business issues are related. Having good governance, responsible business practices and knowing who your organization or client is doing business with is key to identifying potential money laundering risks. As CPAs, our understanding of the risks and applicable requirements is critical.
Sarah Mulhall is CPA Canada's Director of Regulatory Affairs and Public Interest.
Originally published by CPA Canada. Publication date: November 26, 2024
