Anti-money laundering laws to be updated with Bitcoin in mind

Jacqueline Shinfield,  Blake, Cassels & Graydon LLP

Jacqueline Shinfield, Blake, Cassels & Graydon LLP

Bitcoins have been all over the news as of late and clearly the federal government has taken note. Recent proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will ensure that virtual currencies are also covered under the act.

For virtual currencies like Bitcoin, says Jacqueline Shinfield, a partner at Blake, Cassels & Graydon LLP,

…the US has [equivalent] legislation, or took the view in any event that their money services business legislation applied to people who were involved in the exchange of Bitcoins. In Canada, when you reached out to the regulators in the past, [they] basically said that because of the way our legislation is drafted it doesn’t apply. So this was seen as a big hole.

Under the proposed amendments, as outlined in a Blakes Bulletin co-authored by Shinfield, persons dealing in virtual currencies will be required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and comply with the act.

The proposed amendments were  introduced in Bill C-31, the Economic Action Plan 2014 Act, No. 1which implements certain provisions of the federal budget tabled on February 22, 2014.

Other proposed changes extend the application of the act to money services businesses and persons trading in virtual currencies who do not have a place of business in Canada but provide services to residents of Canada.

The changes also propose new enhanced due diligence requirements for providing services to individuals who occupy certain prominent public functions within Canada, which Shinfield points out:

…is really meant to deal with corruption. The [anti-money laundering] legislation never addressed Canadian PEPs [politically exposed foreign persons], it only addressed foreign PEPs. I assume it was on the basis that if you were a Canadian PEP trying to hide your money you wouldn’t hide it in Canada. But it has always been recognized that Canadian officials are also subject to potential bribes, just as any others, so they have added provisions now that address Canadian PEPs.

There is also a provision that is meant to encourage information sharing for applicable institutions amongst their affiliates.

It really means you get a holistic view of customers and clients from a money laundering perspective. If you are trying to track a customer’s behaviour and figure out whether they are doing anything suspicious, it is not terribly helpful if the mortgage department monitors the mortgage beheviour, and the credit card department monitors the credit card behaviour, and the RSP department monitors the RSP behaviour and the private wealth department manages the private wealth behaviour and then your sub that does car leasing does that. There may be suspicious things that you wouldn’t know unless you looked at the relationship holistically.

Shinfield says she is waiting for the regulations before she decides whether any of the changes are problematic, but flags a few things as potentially onerous.

One of the new provisions says that if you are a bank or another regulated industry, you are in breach of the legislation if you basically bank someone who isn’t registered and should be. They basically push a little bit of the compliance to the banks. If it very hard for FINTRAC to know who everyone is, but the banks know who they open accounts for. They are pushing a bit to the banks.

The other thing I see as problematic is in general if you [are in] the money services business or someone who deals in virtual currency, it is really difficult to get a bank account in the first place, banks see you as high risk and don’t want to bank with you. Some players are bad apples, yes, but not all players in the industry are bad apples. So it just may be more difficult for those kinds of business to get banking relationships, it just may be one more hurdle.

Shinfield says  Canada’s approach is consistent with other countries like the US and UK, and “we are playing a big of catchup.” She also predicts that there will be more changes in the pipeline for anti-money laundering  and terrorist financing, including regulation of gift or “pre paid” cards.

One comment on “Anti-money laundering laws to be updated with Bitcoin in mind

  1. Joseph
    April 17, 2014 at 8:45 pm #

    Requiring exchanges to register at the federal level is reasonable. Still, my hopes are that this is not just a first step up a long uphill battle of future regulatory hurdles for cryptocurrency exchanges.

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