FINTRAC outlines beneficial ownership and discrepancy reporting duties for reporting entities

FINTRAC published a training presentation and transcript, “Beneficial ownership: Understanding your requirements,” describing beneficial ownership requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations.

The presentation states the information is relevant to all reporting entity sectors except title insurers, and reflects requirements in force at the time of publication.

Under the requirements described, reporting entities must obtain beneficial ownership information when verifying the identity of an entity, including corporations, trusts and partnerships. The presentation states reporting entities must take “reasonable measures” to confirm the accuracy of beneficial ownership information when it is first obtained and during ongoing monitoring of business relationships.

For corporations, the presentation states reporting entities must obtain the names of all directors, and the names and addresses of all individuals who directly or indirectly own or control 25% or more of the corporation’s shares. For trusts, it states reporting entities must obtain names and addresses of all trustees, known beneficiaries and settlors. For widely held or publicly traded trusts, it states reporting entities must obtain the names of all trustees and the names and addresses of all persons who directly or indirectly own or control 25% or more of the units. For other entities, such as partnerships, it states reporting entities must obtain the names and addresses of all individuals who directly or indirectly own or control 25% or more of the entity. In all cases, it states reporting entities must obtain information establishing the ownership, control and structure of the entity.

The presentation states beneficial owners must be individuals and cannot be other corporations, trusts or entities.

It describes “reasonable measures” to confirm accuracy as including reviewing official documents (such as articles of incorporation or trust deeds), conducting open-source searches or using commercially available information, and having the client sign a document confirming the information’s accuracy.

For corporations incorporated under the Canada Business Corporations Act that have been assessed as high risk, the presentation states reporting entities are required to consult Corporations Canada’s database as part of reasonable measures to confirm beneficial ownership information.

If a reporting entity identifies a “material discrepancy” between the beneficial ownership information it obtained and the individuals with significant control listed in Corporations Canada’s database, the presentation states the reporting entity must report it to Corporations Canada within 30 days after the discrepancy is identified, unless it is resolved within 30 days. It also states the reporting entity must keep records, including retaining the acknowledgement notice for five years.

The presentation defines a material discrepancy as a meaningful inconsistency that could affect proper identification of individuals who own or control a corporation, or could conceal their identity. It states certain inconsistencies are not material discrepancies, including minor spelling or name/address variations, service versus residential addresses, and information not publicly available due to an exception or exemption that is clearly indicated in the database.

If reporting entities are unable to obtain beneficial ownership information or confirm its accuracy, the presentation states they must take reasonable measures to verify the identity of the entity’s chief executive officer (or equivalent) and apply special measures for high-risk clients, including enhanced ongoing monitoring. It also distinguishes cases where there is no individual who owns or controls 25% or more, stating reporting entities must keep a record of the measures taken and information obtained to reach that conclusion while still obtaining and confirming information about the entity’s ownership, control and structure.

The presentation also lists circumstances where beneficial ownership information does not need to be obtained and confirmed, including certain group plan accounts held within dividend or distribution reinvestment plans, certain payment processing activities by financial entities, reinsurance dealings by life insurance companies, brokers or agents, and situations where identity verification is not required under the regulations due to an exception.