Narrowly defined exceptions

FINTRAC Guideline 6(l) “Record Keeping and Client Identifications for Dealers in Precious Metals and Stones” provides additional interpretation of the exceptions identified in Section 39(1). You will note the exception is extremely focused and few companies will actually meet the requirements to be exempt from the act and regulations.

If you conduct manufacturing, mining, cutting or polishing and all or substantially all of your purchases and sales are related to these activities, you are not subject to these obligations unless you conduct a transaction of $10,000 or more with a consumer.

In this context “all or substantially all” means 90% or more of your purchases or sales are related to manufacturing, mining, cutting or polishing activities.

The term ‘consumer’ is not defined in the act or regulations and should be interpreted broadly. Consider anybody who purchases your goods to be a ‘consumer.’ As one FINTRAC investigator put it to me, unless all you do is repair watches, you will fall under the jurisdiction of this legislation. The consequences for non-compliance can be severe, even in the form of criminal charges, affecting your bottom line and reputation, since the names of companies found not to be in compliance are published on FINTRAC’s website. In this regard, compliance ought to be seen as a standard business practice, much like bookkeeping, advertising, and paying taxes.

What is expected of a reporting entity to be compliant?

The act and regulations are very specific about what activities a DPMS reporting entity is required to complete and how, the records that need to be kept and how, and how compliance is to be documented. To be compliant, all DPMS reporting entities are required to do the following:

1. Register their business as a DPMS reporting entity with FINTRAC.
2. “¨Have in place a five-part compliance regime that includes the following elements:   
   • The appointment of a compliance officer; 
   • The assessment and documentation of the risks of money laundering and terrorist financing to the DPMS and measures to mitigate that risk (i.e. risk-based assessment);
    • The development and application of written compliance policies and procedures;
   • The implementation and documentation of an ongoing training program; and
   • A documented review of the effectiveness of the risk assessment, policies and procedures, and ongoing training program. This review is to be conducted every two years.
3. Submit three types of reports to FINTRAC:
   • Suspicious transaction reports;
   • Large cash reports; and
   • Terrorist property reports.
4. Recognize when the DPMS has entered into a business relationship. In this context, business relationship should be interpreted as a ‘high-risk relationship’ and obliges the DPMS to conduct enhanced due diligence and record keeping. For more, see the article on page 70.
5. Make a determination whether a third party is involved in the transaction and respond pursuant to the act and regulations.
6. Keep four types of records on file for a period of at least five years:
   • Records of suspicious transactions;
   • Records of large cash transactions;
   • Records of business relationships (i.e. high-risk customers); and
   • Records of third parties involved in transactions.
7. Ascertain identity.
8. Obtain and use personal information lawfully.

As you can see, there is a great deal that you, as a DPMS reporting entity, must do to be compliant.