On February 15, 2022, in response to the events related to the Canadian truckers’ convoy, the Canadian government issued a proclamation under the Emergencies Act and passed an Emergency Economic Measures Order (Order) thereunder. The Order impacts the financial services industry in several ways. The order came into effect on February 15, 2022.
Specifically, the Order provides a prohibition on financial institutions, securities dealers and money services businesses from dealing with “designated persons” and requires them to determine on a continuing basis if they are in possession or control of any property of a designated person.
There is also a new requirement that requires entities that provide a platform to raise funds or virtual currency through donations and payment service providers in certain circumstances, to register as money services businesses with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and submit reports to FINTRAC as required under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
The details of the Order are as follows:
1. Prohibition of Dealing with a Designated Person
The Order provides a definition of a “designated person” and, similar to Canadian sanctions legislation, provides that certain prescribed entities must, upon the commencement into force of the Order cease:
- dealing in any property, wherever situated, that is owned, held or controlled, directly or indirectly, by a designated person or a by a person acting on behalf of a designated person;
- facilitating any transaction relating to such property;
- making available any property (including funds or virtual currency) to or for the benefit of a designated person or to a person acting on behalf of or at the direction of a designated person; or
- providing any financial or other related services to or for the benefit of any designated person or acquire any such services from or for the benefit of any such person.
While the language above parrots the language used in Canadian sanctions legislation, its scope is much broader. It refers to property of a designated person “wherever situated” and includes property “held” by a designated person or a person acting on behalf of a designated person, as well as persons who are acting on the direction of a designated person. As such, the scope of the prohibition on dealing with property of a designated person extends beyond the traditional prohibitions on dealing with designated persons under Canadian sanctions laws.
In respect of who is a designated person, the Order defines a designated person as an individual or entity that is engaged, directly or indirectly, in any activity prohibited by sections two to five of the Emergency Measures Regulation. This activity includes participating in a public assembly that may reasonably be expected to lead to a breach of peace by certain methods, traveling to or within an area where any such assembly is taking place, or using, collecting, providing, making available or inviting a person to provide property to facilitate in any such public assembly for the purpose of benefitting any person who is facilitating or participating in such activity.
2. Duty to Determine
In addition to the prohibition on dealing with a designated person, the Order requires financial entities as defined under that are subject to the PCMLTFA, certain insurance companies, securities dealers (as defined in the PCMLTFA) and domestic and foreign money services businesses, to determine on a continuing basis, whether they are in possession or control of property that is owned, held or controlled by or on behalf of a designated person. Moreover, this duty to determine also extends to entities that provide a payment platform to raise funds or virtual currency through donations, and entities that perform certain payment functions.
The “payment functions” that are noted in the Order are almost identical to the payment functions defined in the Retail Payments Activities Act (RPAA) that cause a person to be a “payment service provider” under the RPAA. The payment functions defined in the Order are as follows:
- the provision or maintenance of an account that, in relation to an electronic funds transfer, is held on behalf of one or more end users;
- the holding of funds on behalf of end users until withdrawn or transferred by the end user or transferred to another individual or entity;
- the initiation of an electronic funds transfer at the request of an end user;
- the authorization of an electronic funds transfer or the transmission, reception or facilitation of an instruction related to an electronic funds transfer; or
- the provision of clearing and settlement services.
Accordingly, any entity that falls within the definition of a payment service provider under the RPAA and any fundraising platform (along with financial entities, securities dealers and money services businesses) are immediately required to continuously determine if they are in possession or control of property owned, held or controlled by a designated person.
In terms of what the requirement to “continuously determine” means, we note that for federally regulated financial institutions, the Office of the Superintendent of Financial Institutions (OSFI) in its instruction guide sets out OSFI’s expectations with respect to the screening obligation under Canadian sanctions legislation, including the frequency and scope of the required screening, which provides some context. Specifically, OSFI expects that screening be conducted weekly at a minimum, and more frequently where circumstances dictate. Larger federal financial institutions are expected to screen their records daily. OSFI also expects that federal financial institutions apply the foregoing search measures to recorded beneficial owners of clients and other third parties.
Entities that are in possession or control of the property of a designated person, or who have any information about a transaction or proposed transaction in respect of property of a designated person, are required to report to CSIS and to the RCMP. Regulated entities under the PCMLTFA should also consider the activity of designated persons for the purposes of filing suspicious transaction reports with FINTRAC.
3. Requirement to Register as a Money Services Business
The Order also requires payment service providers and fundraising platforms to register with FINTRAC as money services businesses if they are in possession and control of property that is owned or controlled by or on behalf of a designated person. As such, not every payment service provider or fundraising platform needs to register; the requirement only applies to those that actually have possession or control of the property of a designated person. As such, payment service providers and fundraising platforms are required at the outset to determine if they are in possession and control of the property of a designated person and, if they make that determination, they are they required to register with FINTRAC.
Once a payment service provider or fundraising platform registers with FINTRAC, they are required to file suspicious transaction reports, terrorist property reports, large cash transaction reports (C$10,000 plus in 24 hours), cross border electronic funds transfer reports (C$10,000 plus in 24 hours), and the receipt of large virtual currency transactions (C$10,000 plus in 24 hours).
While the Order and the invoking of the Emergencies Measures Act is significant for many reasons, from a financial services perspective, it signals an expansion of what types of entities will, going forward, likely be subject to the money services provisions of the PCMLTFA. FINTRAC has historically taken the view that those entities involved in payment processing are not subject to regulation under the PCMLTFA as money services businesses. It now appears that payment service providers will in fact be regulated as money services businesses; likely once the RPAA comes into effect.
Applicable entities would be well advised to consult with legal counsel regarding the application or effect of the legislation on their other obligations under applicable law or contract.
The proclamation expires after 30 days unless an extension is confirmed within specific timelines by both the House of Commons and the Senate.
