I’ve received notice of a FINTRAC exam. What do I need to do?
How was I selected for a FINTRAC examination?
FINTRAC selects its examination targets based on three criteria: their perceived risk of a company not complying with their anti-money laundering obligations (that is, the likelihood of non-compliance), how bad the consequences might be if a company did not comply (that is, the significance of non-compliance), and sector coverage. To assess risks of non-compliance, FINTRAC might consider a company’s: past examination results, tendency to cooperate with FINTRAC, compliance resources, reporting practices. The significance of a company’s non-compliance has to do with the importance of its records to law enforcement investigations related to money laundering. In terms of sector coverage, FINTRAC seems to favour conducting examinations of significant reporting entities at least once every 2 to 3 years.
What should I expect now?
In most cases, FINTRAC will call to advise you about an upcoming examination, and then send a letter to confirm. There are two main types of examinations: a desk exam, and an on-site exam. In a desk exam, the letter FINTRAC sends you will ask that you send your compliance documents, and some other documents relating to client identification and transaction you conducted to their offices. Typically, they will be assessing some 1 to 3 month period, and ask for the documents from that time. The deadline to respond is about one month later. A few weeks after that, your FINTRAC examiner will call to ask questions and to relay the results of their examination. Those results will be confirmed in a letter sent a few weeks later. If there are deficiencies, FINTRAC will typically ask you take no more than 30 days to make and send them a plan to address the deficiencies. If FINTRAC decides to issue a penalty as a consequence of those deficiencies, you will likely hear about it between 4 to 6 months later. You have 30 days from a notice of penalty to file an appeal with the Director of FINTRAC, who can take up to 90 days to respond to that appeal. If you’re unsuccessful with that appeal, you’ll have 30 days from that point to file an appeal to Federal Court.
In an on-site exam, the letter FINTRAC sends you will ask that you send your compliance documents to their offices, and reference other documents relating to client identification and transaction you conducted which they will examine on-site. Typically, they will be assessing some 1 to 3 month period, and ask for the documents from that time. The deadline to respond is about three weeks later, and the on-site visit is typically planned for a few weeks after that. The on-site exam will begin and end with comments about the results of the examination. Those results will be confirmed in a letter sent a few weeks later. If there are deficiencies, FINTRAC will typically ask you take no more than 30 days to make and send them a plan to address the deficiencies. If FINTRAC decides to issue a penalty as a consequence of those deficiencies, you will likely hear about it between 4 to 6 months later. You have 30 days from a notice of penalty to either pay it, or file an appeal with the Director of FINTRAC, who can take up to 90 days to respond to that appeal. If you’re unsuccessful with that appeal, you’ll have 30 days from that point to file an appeal to Federal Court.
How should I prepare for the examination?
There are four important steps to take to prepare for your examination:
- Assemble all the documents FINTRAC has requested, and keep copies for later reference.
- Send the documents FINTRAC requested, on time, and have the other documents ready for examination if you’re having an on-site visit.
- Assess your risk of a penalty by reviewing the documentation you’re sending to FINTRAC – The FEDs can help you with this. High risk situations often require a different strategy, and the early involvement of a lawyer. The FEDs can assess this need when building a team of experts to help defend your organization.
- Make sure that your designated compliance officer (Chief Anti-Money Laundering Officer) is going to be available for the examination and debrief sessions.
What could go wrong?
The examination is the point at which the factual grounds for a penalty or criminal charge are established. Penalties can range in severity from $1,000 per violation to $500,000 per violation. A violation can be something as simple as forgetting to collect identification from a client, to something as complex has not properly assessing and documenting your company’s risk of money laundering. The biggest FINTRAC penalty reported by the press to-date involved a near $700,000 notice served to the British Columbia Lottery and Gaming Corporation. FINTRAC can publish the penalties it assesses (once they are paid, or all appeal avenues have been exhausted). The negative attention of those penalties can impair your relationships with clients and financial services providers (particularly if you’re a money services business). Read more about Penalties. FINTRAC has referred over 30 cases of non-compliance to prosecutors to proceed criminally – where they can seek jail terms of up to 5 years, and fines of up to $2 million. The law permits criminal charges to be brought against employees, officers and directors of a company. Read more about Criminal Charges
How can the FEDs help?
We know that you are not in the business of dealing with FINTRAC. The FEDs are. We are in your corner to fight on your behalf and get you the best outcome possible.
Before you receive a notice of examination
Assessing the state of your compliance regime: They law requires that you conduct a compliance effectiveness review at least once every two years. A compliance effectiveness review is a great tool to understand your compliance risks. The FEDS can provide an independent compliance effectiveness review. A more risk-targeted review by the FEDs might be helpful if your reviews are conducted internally.
After you receive a notice of examination
- Assessing the state of the compliance documents you’re sending to FINTRAC: Together with your recent compliance effectiveness review, the FEDs can help you understand the state of your compliance program, and the potential for FINTRAC penalties.
- Formulating a strategy: The state of your compliance program can impact your strategy and actions before, during, and after the FINTRAC examination. By way of example, a poor compliance situation may require the initiation of early discussions about compliance agreements with FINTRAC, which can reduce your potential penalties by up to half.
- Attending the examination: An informed observer can help you navigate the examination, and keep detailed records about the deficiencies cited by FINTRAC, which can help in the formulation of your defence.
- Developing an action plan: Action plans provide FINTRAC with a view into the way you are dealing with the deficiencies they’ve reported, a place for you to explain things that have been misunderstood, and can be used to set out the basis for a reduction in potential penalties. Unfortunately, FINTRAC can also use action plans as a basis to issue a penalty. The FEDs experience with regulatory processes can be put to use in drafting an appropriate action plan… and even in deciding whether one should be sent at all.
- Fixing deficiencies: Action plans are only effective if they are actioned! The professionals at the FEDs can help you to develop your risk assessment, policies and procedures, training program, and conduct a compliance effectiveness review. They can also help you to fix historical transactions – such as when FINTRAC suggests that years worth of transactions should be reviewed for possible reporting.