New rules make ‘knowing your client’ even more important for CPAs
Learning the new rules will naturally take some time, but is very important (Getty Images/FreshSplash)
Knowing your clients has never been more important for CPAs, now that new anti-money laundering and anti-terrorist financing (AML/ATF) requirements have come into force. As of June 1, 2021, CPAs engaged in activities covered by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) have to comply with new rules designed to ensure they know who they are dealing with, and why. (There are also new rules affecting compliance programs, record-keeping and reporting.)
“These new requirements are really intended to strengthen the regime and level the playing field in Canada,” says Michele Wood-Tweel, FCPA, FCA, vice-president, regulatory affairs at CPA Canada. “Now, accountants and accounting firms will be taking required steps that other sectors such as financial institutions as well as accountants and accounting firms in other jurisdictions must take.”
Under the rules, accountants and accounting firms that are involved in certain triggering activities (such as receiving or paying funds on behalf of a person or entity) are required to verify the identity of the persons and entities with whom they're dealing in certain circumstances:
- Large cash transactions ($10,000 or more within a 24-hour period, as defined by the 24-hour rule)
- Large virtual currency transactions (again, $10,000 or more within a 24-hour period)
- Suspicious transactions, regardless of the amount
- Receipt of funds of $3,000 or more
There are, of course, details to know about triggering activities, as well as exceptions to the requirements. [See New “know your client” AML/ATF rules for CPAs.]
VERY SPECIFIC CIRCUMSTANCES
It’s important to emphasize that the PCMLTFA requirements are specific in scope. As Wood-Tweel puts it, “This does not apply to every CPA and what every CPA is doing every day. It generally applies to CPAs in public practice, who are engaged in triggering activities—for example, if they’re receiving or paying funds on behalf of another person, if they’re buying or selling assets for an entity, or if they’re making security trades on behalf of another person—it’s those sorts of circumstances. There’s much of the work that we do as CPAs that would never veer into that. But if CPAs do veer into it, they have to know there are requirements and the requirements have been enhanced.”
Given the extent of the changes, and the fact that they will require accounting firms to develop or amend their compliance programs, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has published guidance as well as placing notices on its website on how it will manage the transition.
While adapting to the new rules will take some effort, CPAs welcome the changes. CPA Marc Tassé, a professor who teaches anti-corruption at the MBA level at the University of Ottawa, puts it this way: “As accountants, we don’t want to be seen as enablers of money laundering or any type of non-ethical financial behaviour. So we want to make sure that whatever we do, we do it correctly."
KNOW YOUR CLIENT (KYC)
The key obligations in knowing your client under the PCMLTFA are:
- Verify your client’s identity (person or entity)
- Determine whether a third party is giving the client instructions
- Determine business relationships and conduct ongoing monitoring
- Obtain beneficial ownership information
- Determine if you are dealing with politically exposed persons or heads of international organizations, their family members or close associates.
When it comes to deciding how to gather the information, FINTRAC has issued extensive guidance. It details, for example, what forms of identification are acceptable, how to evaluate them and what records must be kept.
“The challenge with KYC is first to get the right information in time, and to keep it updated,” says CPA Éric Lachapelle, partner, forensic and national leader in financial crime, at KPMG in Canada. “[It’s easier to do this] for individuals than for corporations. As you can imagine, firms like KPMG tend to deal with corporations or non-individuals. They may be trusts, they may be corporations.”
CPA Jennifer Fiddian-Green, partner, forensic accounting and investigative services at Grant Thornton LLP in Canada, agrees. “The biggest challenge is to really lean in, even for the smaller assignments, to make sure we know the client,” she says. “It’s hard to manage due diligence with budgets and the pace of client expectations for our services. [But] our clients are great and they understand. I would say that we have [only] encountered pushback and issues from organizations that we decide not to work with for various reasons.”
BENEFICIAL OWNERS AND SPECIFIC CATEGORIES OF INDIVIDUALS
As Wood-Tweel points out, there are newly applicable requirements to consider as well. “The rules for beneficial ownership have been expanded to include accountants and accounting firms. And they need to incorporate this into their firm’s compliance program and training.”
Canada doesn’t have a registry of beneficial ownership as some other countries do, she explains, so if you are required to maintain and confirm beneficial ownership, you have to obtain that information or get it from the client and satisfy yourself that you know who is ultimately controlling, for example, a private company. And that may or may not be the shareholders on record. There may be a party behind the shareholders that ultimately has control.
“If you are already undertaking triggering activities or contemplating them, you’ve really got to think about how you’re going to get accurate beneficial ownership from corporate and other entities,” says Wood-Tweel.
Another challenge will be around what FINTRAC calls politically exposed persons and heads of international organizations. “They tend to be people that can be targeted by those with illicit objectives,” Wood-Tweel says. Given the higher risk attached to these individuals, accountants have new requirements to be aware of and comply with.
A PROFESSIONAL NECESSITY
Learning the new rules will naturally take some time, but is very important. As Fiddian-Green puts it, “Make sure you know your clients, do the research. If you need help understanding the rules, don’t hesitate to reach out.”
Lachapelle agrees. “For me, training is the most important element in any compliance program, whatever the type of segment,” he explains. “But just for CPAs today: training, training, training. Because in the end, when something bad happens, it hurts the entire profession.”
GETTING TO KNOW THE NEW AML RULES
CPA Canada has extensive resources that can help you familiarize yourself with the new AML requirements, including KYC. Plus, stay up to date on other top developments in AML and learn how Canada compares to other jurisdictions around the world.
Plus, advance your knowledge with our on-demand course, Anti-money laundering and ethics: A Canadian and global perspective, to get a high-level view of of the relevant information, tools and strategies you need to know to understand better the stakes and ethical challenges involved in addressing money laundering and terrorism financing risk.