The federal government has introduced regulatory amendments which extend Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) legislative framework to crowd-funding platforms and certain payment service providers (“Emerging Funding and Payment Services”) that had previously not been covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations, in a fulfillment of one of the proposed AML/ATF measures mentioned in Budget 2022. Regulations Amending the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations SOR/2022-76, (the “Regulations”) were published in the Canada Gazette on April 27, 2022, but came into force on April 5, 2022. Charities and not-for-profits that receive donations from or otherwise engage with Emerging Funding and Payment Services should be aware that personal identifying information about the sender and recipient, and even intended purposes of the crowdfunded donations (“Personal Identifying Information”), will be recorded and transmitted to FINTRAC if it meets certain monetary thresholds.
The Regulations in the Canada Gazette were accompanied by a Regulatory Impact Analysis Statement (the Statement), which referred to a need for Canada’s AML/ATF regime to adapt and address issues that had been raised in February 2022 when protests occurred in Ottawa and throughout Canada, funded, in part, through crowdfunding platforms. As reported in greater detail in the February 2022 Charity & NFP Law Update, on February 15, 2022 the federal government filed an Emergency Economic Measures Order (the Order) which – for the period of just over a week – temporarily extended Canada’s AML/ATF regime to apply to crowdfunding platforms, as well as payment processors. In its Statement, the federal government highlighted its concerns that “[a]llowing these gaps [in the AML/ATF regime] to continue represents a risk to the integrity and stability of the financial sector and the broader economy, as well as a reputational risk for Canada.” The amendments introduced by the Regulations are therefore intended to “help prevent the financing of illegal activities through these types of financial services.”
The Statement further noted that Canada is obligated to implement the standards set by the Financial Action Task Force (FATF), an intergovernmental body that promotes the effective implementation of measures to combat money laundering and terrorist activity financing. FATF Recommendation 15 requires countries to identify and assess the money laundering and terrorist financing risks that may arise in relation to new products and practices. As an example, crowdfunding platforms had been identified by the FATF as “an emerging area of risk for terrorist financing”.
Under the Regulations, a crowdfunding platform is defined broadly as “a website or an application or other software that is used to raise funds or virtual currency through donations”, while crowdfunding platform services are defined as “the provision and maintenance of a crowdfunding platform for use by other persons or entities to raise funds or virtual currency for themselves or for persons or entities specified by them.”
The Regulations now characterize any person or entity providing crowdfunding platform services as a money services business (MSB).
As FINTRAC sets out on its website, MSBs have the following obligations:
- register with FINTRAC,
- develop and maintain a compliance program,
- verify the identity of persons and entities for certain activities and transactions,
- keep certain records, including records related to transactions and client identification, and
- report certain transactions to FINTRAC.
In addition to the obligations imposed on MSBs generally, the Regulations require crowdfunding platforms:
- to keep records of the person / entity to which they provide crowdfunding platform services,
- to keep records of the purpose for which the funds or virtual currency are being raised, and
- if the ultimate intended beneficiary is different than the person / entity receiving funds,
- to keep records of the name of the beneficiary, and
- to take reasonable measures to obtain the beneficiary’s address, the nature of their principal business / occupation, and (if a person) their date of birth and to keep records of such information.
Further, the Regulations require MSBs to verify the identity of any person, corporation, or entity other than a corporation which donates more than $1000 in funds or virtual currency using a crowdfunding platform maintained by the MSB (subject to exceptions found in subsections 95(2) and (5) of Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations SOR/2002-184).
FINTRAC has indicated that it understands there will be challenges in meeting certain obligations and that it “will be reasonable in its assessment and enforcement approach”. Nevertheless, the Regulations mark a significant change in Canada’s AML/ATF regime.
Charities and not-for-profits in particular should take note of the fact that Personal Identifying Information regarding donations via Emerging Funding and Payment Services will now be provided to FINTRAC just as if the donation had occurred through the traditional banking system. In addition, due to the ever-expanding information sharing regime in Canada, it needs to be understood that Personal Identifying Information that is provided to FINTRAC (including transaction via the Emerging Funding and Payments Services) may be shared with different agencies within the federal government, including CRA, along with other nations and their law enforcement agencies.
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