Have you ever wondered why financial institutions require identification and ask for detailed information about your occupation and your relationships with ‘politically exposed persons’?

The answer lies in Canada’s anti-money laundering and anti-terrorist financing rules. These rules are intended to help reduce both crime and terrorism.

What is money laundering?

Money laundering is the process that transforms ’dirty’ money (proceeds of criminal activity) into ‘clean’ money. Typically, there are three stages:

1. Placement

The ’dirty’ money, often cash, is brought into the financial system.  Example: depositing cash into a bank account.

2. Layering

The criminal conducts a series of financial transactions designed to make it difficult to trace where the funds originated.  Example: transferring the money between various financial institutions in the same country or in different countries.

3. Integration

The money is put back into the economy, appearing to be legitimate.   Example: the criminal buys an expensive car.

What is terrorist financing?

Terrorist financing is when funds are directed to support terrorist activity of any kind – whether that’s causing property damage or harming individuals.  

What actions have governments taken?

To combat money laundering and terrorist financing, governments around the world have enacted legislation that ensures financial institutions take specific steps to identify their clients, monitor for suspicious transactions, and identify terrorist property.

In Canada, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act specifies the information that financial institutions, including insurance companies, and other organizations such as casinos and real estate brokers, must collect about their clients. 

The Act also provides for reporting of large cash transactions, electronic funds transfers and suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). FINTRAC is Canada’s financial intelligence unit, and has the mandate of facilitating the detection and deterrence of money laundering and terrorist financing. FINTRAC reviews the reports and provides actionable information to law enforcement authorities and other relevant organizations such as Canada Revenue Agency and Canada Border Services Agency.

Where can I find more information?

For more information about the prevention of money laundering and terrorist financing, you can visit FINTRAC’s website:  http://www.fintrac-canafe.gc.ca