Anticipating the Effects of 2021’s AML Changes

By Jean-François Lefebvre

Sixteen months into the pandemic and finally some hope emerges for life going back to a new normal amid the challenges posed by COVID-19.

Happily, jurisdictions that offer iGaming activities have seen a spike in the level of play by their online patrons. What will the next months look like in the gaming industry? If there are still lots of uncertainties, one thing remains for sure: the new AML requirements  that came into force on June 1, 2021 bring new challenges for casino organizations.

Indeed, since FINTRAC was created back in 2000, there may have never been so many new requirements implemented on one specific day. What does this mean for land-based casinos and iGaming? There’s certainly food for thought for the road ahead.

On November 16, 2020, FINTRAC issued its Notice on forthcoming regulatory amendments and flexibility (the “Notice”), stating that it “understands that many may face challenges in meeting these new and changing obligations because of pandemic-related stresses on their businesses”. For context, the Notice was meant to give further guidance on the expectations of the federal agency towards Reporting Entities, including casinos. On January 22, 2021, FINTRAC’s Implementation of Regulatory Amendments was posted on its website and included a roll-out plan.

Despite the new requirements coming into effect on June 1, 2021, the application of some of these new obligations, mostly reporting, is postponed to either March 1, 2023 for new Large Cash Transactions (“LCTRs”) and Suspicious Transactions (“STRs”) reporting forms, and March 1, 2024 for new Casino Disbursements (“CDRs”) and Electronic Funds Transfers (“EFTRs”) reporting forms.

To say the least, the road ahead will remain bumpy and drawn out for many Canadian organizations trying to comply with the new regulations.

In short, both FINTRAC and Canadian organizations will benefit from an extension of the implementation period. Despite the notices mentioned above, there has been confusion about what would be applicable in June and what would be postponed. Casino organizations are expected to be compliant with many new record-keeping obligations by now. FINTRAC mentioned in its Notice that the flexibility measures would apply to certain new record-keeping and reporting requirements. For instance, application of the new 24-hour rule is postponed and casino organizations are expected to continue using the current 24-hour rule up to March 1, 2023 for LCTRs and March 1, 2024 for CDRs (and EFTRs).

To complicate things even further, as of June 2021, casino organizations must be compliant with the changes in reporting international EFTs of $10,000 or more. The reporting rule was changed, requiring the first entity to “touch” the outgoing electronic funds transfer to be responsible for reporting it; previously, reporting it was the responsibility of the last entity to touch the EFT before it went out of Canada. In other words, prior to June of this year, if a client of Casino A wanted to wire $10,000 to his account in the U.S. and Casino A went to Bank B to request such a wire transfer, Bank B would have had to file an EFTR with FINTRAC. As of June 1, it is Casino A’s responsibility to file this report. Although historically not a lot of EFTRs have been filed by Canadian casinos, this change will certainly have an impact for those who are involved in such transactions.

Another tricky area in the Notice pertains to the application of reasonable measures to obtain reporting information that is marked as non-mandatory in LCTRs, EFTRs, STRs, and CDRs.

FINTRAC stated it would “be flexible when:

  • Assessing whether a [casino] reporting entity took reasonable measures to obtain non-mandatory information, and
  • Assessing whether non-mandatory information related to certain fields in the amended Schedules were reported and kept in a record, as long as three criteria were met: Information related to fields that are not marked with an asterisk (“*”) in the amended Schedules [the new reporting forms that will be available either in March 2023 or 2024], information that cannot be entered into the current reporting forms, and information that does not have a corresponding record keeping obligation in the amended Regulations.”

In other words, casino organizations must ensure to collect the information for the fields in the new reporting forms that are mandatory and for the non-mandatory fields that do not meet these three criteria.

In assessing whether reasonable measures were taken, FINTRAC will verify what measures were established in the compliance policies and procedures of the casino organizations and then check if these were in fact taken when trying to obtain the required information. Also, the federal agency made it clear that once a piece of information is available, either on paper or in an electronic format, it must be included in the reporting forms, no matter if it is a mandatory field or not. In fact, once it is available, a non-mandatory piece of information becomes mandatory for reporting purposes.

FINTRAC issued new guidance over the last few months. These should be helpful in better understanding the expectations regarding the new requirements. There will be more to come over the next three years as FINTRAC rolls out its new reporting forms, including consultation periods, development of batch specifications, and implementation of these by casino organizations followed by a certification period.

As mentioned earlier, many regulations changes have an impact on casino organizations. To mention a few, casino organizations must comply with new obligations such as:

  • Receipt of funds record for $3,000 and above and the obligation to identify the patron
  • Politically Exposed Persons and Head of International Organizations determination (for account holders or for some prescribed transactions of $100 000 or more)
  • Virtual Currency reporting, record-keeping, and patron-identification requirements
  • New information required for CDRs and STRs, such as the type of device used by the patron who makes the request online, the number that identifies the device, the username, the Internet Protocol (IP) address used by the device, and date and time of the online session in which the request is made.

That said, considering the business model of most casino organizations, certain new requirements will have less impact, as they will rarely, if at all, be applicable.

Now, knowing this whole context, how will FINTRAC assess these new requirements? Will it conduct compliance examinations on new requirements starting in June 2021?

The short answer is no. In a recent meeting held by FINTRAC, it was made clear that the emphasis up to April 1, 2022 will remain on the requirements in force before June 1, 2021. One may think this gives extra time to comply with the new rules, which is partly true. However, it should also be seen as an opportunity to address any non-compliance with current rules as this extension also means that FINTRAC will keep looking at the “old” requirements until next year. Observations on the new requirements could also be made by FINTRAC during this period (June 1, 2021 – March 31, 2022) but these will not be formal recommendations for which a penalty may be considered.

These new requirements will mean additional training is required at different levels of the organization. Both land-based and iGaming activities will most likely require more resources to comply with these new obligations and there will certainly be a learning curve for all counterparts, including FINTRAC. The extra time given to casino organizations should not be seen as a break in implementing the new requirements over the coming years but rather as an opportunity to develop better policies, procedures, processes, and controls in order to maintain a high level of compliance.

Jean-François Lefebvre is an Anti-Money Laundering Expert who has been advising clients in the gaming industry for over 17 years. He has gained an extended knowledge of AML Compliance and best practices within the industry. His in-depth expertise allows him to give highly valuable practical advice. He can be reached at (514) 608-0684 or [email protected].

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