11/2/18 - Promontory Currents: Canada Updates Guidance on Beneficial Ownership
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11/2/18 - Promontory Currents: Canada Updates Guidance on Beneficial Ownership

By Carlos Alves and Osayi Lasisi

On Aug. 20, the Financial Transactions and Reports Analysis Centre of Canada updated its guidance on beneficial-ownership requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations. This guidance update reflects FINTRAC’s amended position regarding the methods financial institutions use to confirm the accuracy of beneficial-ownership information.

Beneficial owners, according to FINTRAC, directly or indirectly own or control 25% or more of a corporation or an entity, and the beneficial ownership information provides FINTRAC with essential information for fighting money laundering, corruption, and terrorist financing. Prior to this amended guidance, FINTRAC accepted only “official documentation” as the method to confirm the accuracy of beneficial-ownership information.

While there are benefits to requiring “official documentation” only, the challenges include obstacles in information sharing due to data protection and privacy laws and lack of accessibility to such documents.

FINTRAC’s new approach is to accept “various reasonable measures” to confirm the accuracy of the beneficial-ownership information. The reasonable measures used to ascertain beneficial ownership must be commensurate with the assessed risk of money laundering or terrorist activity for that entity. Therefore, high-risk entities require further assessment to understand and confirm beneficial ownership.

Once a compliance team obtains information describing the ownership, control, and structure of the entity, then the financial institution must take “reasonable measures” to confirm the accuracy of the information, as well as keep records of the information obtained and the measures taken to confirm its accuracy.

According to the new guidance, the accuracy of beneficial ownership for a corporation or entity may be confirmed via minute book, securities register, shareholders register, articles of incorporation, annual returns, certificates of corporate status, shareholder agreements, partnership agreements, and board of directors’ meeting records of decisions, for example.

To confirm the accuracy of the documents provided by the client, the financial institution will take reasonable measures, such as asking the client to provide supporting official documentation, conducting an open-source search, and consulting commercially available information.

However, when beneficial ownership information cannot be obtained, or its accuracy confirmed, financial institutions must take reasonable measures to verify the identity of the most senior managing officer of the entity; the entity should be treated as high-risk; and firms must apply enhanced measures for high-risk clients and conduct ongoing monitoring.

Financial Institutions should still prioritize official documentation as the primary source of reliable information for organizations, but in cases where this official documentation is unavailable, financial institutions may use the other secondary sources of information referenced above.

Authors

Carlos Alves is a team lead and Osayi Lasisi is an analyst at Promontory Financial Group Canada.