On June 15, 2022, The Honourable Austin Cullen released the long-awaited Cullen Commission Report (Report). While there are a lot of observations and commentary that make for interesting reading, the purpose of this bulletin is to consider the recommendations made and the effect that they may have on organizations operating in British Columbia (B.C.) if implemented.
As a starting point, the Report concludes that the federal anti-money laundering regime in Canada is not effective. Accordingly, the Report recommends the creation of a dedicated provincial money laundering intelligence and investigation unit, and the appointment of an independent anti-money laundering (AML) commissioner in B.C. who would provide strategic oversight of the province’s response to money laundering.
Other recommendations that will affect those operating a business in B.C. include:
MONEY SERVICES BUSINESSES (MSBS)
The Report recommends that B.C. regulate MSBs on a provincial level to add “added scrutiny” to the regulation by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). In that respect, the Report recommends that MBSs be regulated by the B.C. Financial Services Authority (B.C. FSA) and that MSBs be audited on a more frequent basis, noting that FINTRAC generally does not examine an MSB until it has been operating for at least two years.
It is recommended that the B.C. regulatory scheme for MSBs should, at a minimum:
Define an MSB in a manner consistent with the definition in the PCMLTFA (except for dealers in virtual currency);
Have the capacity to identify unregistered MSBs and sanction them;
Have a registration process in which the suitability of applicants is assessed in a broader manner than is currently done under the PCMLTFA (with the ability to deny a registration for reasons other than a criminal conviction and to require disclosure of business relationships, similar to the regime in Quebec);
A compliance process that applies in the early years of a MSBs existence (prior to the two-year mark as is the case with FINTRAC);
Information sharing with FINTRAC and others; and
Administrative and monetary penalties.
This will create another level of regulation for MSBs in Canada, which, when coupled with the obligations forthcoming under the new Retail Payments Activities Act, will require more time and resources.
The Report, after consideration, did not recommend that ATM operators be subject to the MSB regime.
The Report recognizes that mortgage brokers obtain significant information in respect of their client’s financial position and have a first-hand view of client’s behaviours that may be suspicious. On that basis, the Report recommends that the B.C. Minister of Finance urge the federal Minister of Finance to make mortgage brokers subject to the PCMLTFA.
In addition, the Report recommends that private mortgage lenders be subject to a registration regime in B.C. and oversight and regulatory enforcement. In that regard, it is noteworthy that in the recent federal budget, the government noted that the PCMLTFA was going to be amended to include non-regulated mortgage lenders.
As such, it is clear that there will be more AML regulation of the real estate lending and real estate industry generally moving forward.
The Report reviews some of the AML expectations set out in Guideline B-8 of the Office of the Superintendent of Financial Institutions (OSFI) that applies to federally regulated financial institutions (which has been repealed). The Report recommends that the B.C. FSA come up with its own AML guidance applicable to credit unions operating in B.C. and that, in general, the B.C. FSA be provided with a clear, enduring AML mandate and sufficient resources to implement it. As such, an extra layer on AML regulation will now be placed on credit unions operating in B.C.
The Report defines “luxury goods” very broadly as including high-value goods and examined luxury goods in the context of not just as a means of laundering money, but also using the proceeds of crime to purchase luxury goods for use or enjoyment. Because of the difficulty in defining and regulating the luxury goods market, the Report recommends that the province implement a universal record keeping and reporting requirement for cash transactions of C$10,000 or more in a single or series of related transactions. In these circumstances, it is recommended that businesses that accept cash of C$10,000 or more be required to, among other things:
Verify the customer’s identity and collect their name, address and date of birth;
Inquire into the source of funds used for the purchase;
Determine if the purchase is being made on behalf of a third party and if so, collect the third party information; and
Report the transaction to the province.
This would be overseen by the AML Commissioner.
Whether B.C. implements some or all of the recommendations of the Report remains to be seen. If implemented, the province will require even more resources dedicated to compliance including in previously unregulated sectors.
For more information, please contact:
Jacqueline Shinfield +1-416-863-3290
or any other member of our Financial Services or Financial Services Regulatory group.
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