A FINTRAC MSB (money service business) must adhere to strict AML compliance requirements. Any company that fails to follow these rules and regulations will suffer penalties.
You can easily avoid fines and other consequences by understanding key AML red flags for a FINTRAC MSB. The good news is you don’t have to look far. Our guide will help you maintain compliance in Canada.
What Are FINTRAC Red Flags?
FINTRAC MSB red flags are indicators of suspicious transactions and criminal offences such as money laundering. The primary aim of these MSB red flags is to signal regulatory authorities of possible legal violations.
Identifying AML red flags within your MSB and dealing with them promptly is necessary.Â
FINTRAC MSB Red Flags In Canada
Knowing AML red flags is helpful because it can prevent you from violating FINTRAC regulations. Let’s look at the biggest red flags to help you maintain Canadian compliance:
- Suspicious Client Behavior
Every FINTRAC MSB must follow strict know your customer (KYC) requirements when operating in Canada. You can conduct assessments or use a risk-based approach cycle to determine suspicious client behavior.
AML red flags that can indicate illegal client behavior include:
- Statements by your client about involvement in various criminal offences
- Hesitance to provide you with complete transaction information
- Refusal by your client to identify their source of funds
These indicators are key AML red flags that must be addressed immediately. You can report your client’s suspicious behavior to FINTRAC to save your MSB from facing consequences for aiding illegal transactions.
- Dishonest Financial Transactions
Understanding the financial activity of your clients is necessary to avoid legal trouble. Your FINTRAC MSB team must follow transaction patterns and reports to avoid suspicious transfers. Money transfers that raise AML red flags include:
- Any transaction activity that’s inconsistent with your client’s financial standing
- Transactions exceeding the regional volume
- Large movement of funds in a short timespan
- Atypical total transferred sums
These FINTRAC MSB red flags can cause you to face penalties from regulatory authorities. Your employees must receive thorough compliance training to identify such criminal activity indicators.
A fintech law firm like ours can also help you perform internal compliance audits to identify and resolve problems before FINTRAC takes notice.
- Atypical Financial Transactions
FINTRAC red flags also include transactions that deviate from everyday money transfers. Such exchanges are called atypical financial transactions.
Assessing transactions for atypical activity is necessary for meeting reporting requirements. The key AML red flags related to such transfers are:
- Complicated transactions that intentionally hide the source of funds
- Transfers between entities that are not related in business
- Transactions that are consistent with criminal financing trends
- Odd use of amounts for personal purposes
A FINTRAC MSB must identify these AML red flags diligently to avoid financial penalties. If your business is found guilty of violating Canadian compliance regulations, your MSB license may be revoked.
- Evasion Of Reporting Thresholds
Every FINTRAC MSB is required to report transactions exceeding a specific amount. Many business owners are aware of reporting requirements, so they try to evade authorities by avoiding thresholds.
AML red flags that indicate a client trying to evade reporting thresholds include:
- A client structuring amounts in a way to prevent identification or reaching the threshold
- Your customer may be conducting multiple transactions with lower amounts in the same day to avoid reaching the maximum limit for reporting
- A client is making inquiries about reporting thresholds to evade AML audits and sanctions
These indicators will help you identify FINTRAC MSB red flags and report suspicious activity immediately. If you don’t assess your money service business transactions for such activities, you may suffer from license revocation later.
- High-Risk Non-Canadian Jurisdictions
AML red flags are not limited to local transactions only. If your FINTRAC MSB is performing transfers to accounts in high-risk jurisdictions, your business may be flagged for illegal activity.
The Canadian government has set specific laws for transactions involving foreign jurisdictions. If you notice the following AML red flags, be sure to report the transactions to the higher authority:
- Money transfers to jurisdictions known for criminal offences such as drug dealing
- Transactions to jurisdictions that are high-risk for money laundering and terrorist financing activities
- Transfers involving countries that are considered high-risk by the Financial Action Task Force
The trends related to high-risk non-Canadian jurisdictions change often. This is why it is recommended that FINTRAC MSBs stay up-to-date regarding new AML red flags surrounding foreign transactions.
Best Practices For MSBs To Strengthen FINTRAC Compliance
To mitigate AML risks and ensure FINTRAC compliance, MSBs should implement robust internal controls, training, and monitoring procedures. Here are some best practices:
- Develop a comprehensive, risk-based AML program tailored to the nature of your business
- Perform enhanced due diligence (EDD) for high-risk customers and transactions
- Use automated systems to identify MSB red flags and suspicious transaction patterns
- Train employees to recognize and report AML red flags to compliance officers promptly
- Engage legal and compliance experts to assess and enhance your AML framework
With the help of fintech lawyers, you can implement best practices to strengthen your money service business’s compliance.
FAQs
What Are FINTRAC Indicators Of Money Laundering?
FINTRAC MSB indicators of money laundering include secretive clients, jurisdictions risks, and efforts to hide fund sources.
What Are The Red Flags For Structuring Money Laundering?
Structuring transactions for money laundering involves a client ensuring a transfer doesn’t exceed reporting requirements. Noticing multiple transactions that are below the maximum limit in a single day is an AML red flag for structuring money laundering.
How To Identify AML Red Flags?
You can identify AML red flags easily by assessing transactions for criminal activity trends. Notice whether your client is structuring their transfers or inquiring often about FINTRAC compliance requirements plus penalties.
Renno & Co. Fintech: Meet Our FINTRAC MSB Expert For Advanced Guidance
A FINTRAC MSB can easily identify AML red flags with an effective compliance audit team. Your internal auditors or foreign staff may not have enough knowledge about legal consequences.
Hiring an experienced fintech law firm like ours will help you conduct an unbiased AML audit. Our trained lawyers will not only spot potential problems, but also offer solutions for them.
Connect with us today to learn how a FINTRAC MSB can detect AML red flags promptly.
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