Are you ready for a FINTRAC examination?

For most of us, audits and examinations are as much fun as they sound, but both serve a useful purpose—other than raising our blood pressure. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s anti-money laundering (AML) regulator and financial intelligence unit (FIU) has been examining dealers in precious metals and stones (DPMSs) for compliance with Canada’s AML requirements since 2008. It may come as a surprise then that recent FINTRAC statistics for DPMSs examined in the last year indicated 40 per cent did not have policies and procedures, 58 per cent did not have a risk assessment or training, and 83 per cent had not completed an effectiveness review, which is similar to an audit for compliance.

Before the call: It’s never too early

The best time to get ready for a FINTRAC examination is long before the regulator calls to let you know you’ll be examined. This is because once you receive a call or letter, FINTRAC will only consider pre-existing documents and materials. If you’re feeling overwhelmed just thinking about a compliance program, remember it doesn’t have to be perfect; compliance is always
a work in progress.

Your compliance program should have five key elements:

• Appoint a compliance officer: A person who oversees and acts as point person for the AML and Canadian Tax Foundation (CTF) compliance program.
• Develop policies and procedures: A document or set of documents outlining what you do to comply with the law.
• Complete your risk assessment: A document describing risks or vulnerabilities that would allow your business to be used to launder money or finance terrorism, and the controls/preventative measures in place.
• Train your employees: All staff who interact with customers or transactions must be trained at least once per year.
• Effectiveness reviews: A compliance audit testing your program (what you’ve documented) and operations (what you’re doing) must be completed at least once every two years.

Each of these elements need to be documented. It is not enough to know or do something; you have to be able to show you have processes in place, and have followed them. A dusty binder on a shelf is not enough as your program needs to grow and change with your business.

When the call comes: Get organized

After an introductory phone call to confirm your examination date, which can be moved if you have prior commitments like travel, a marriage, a medical procedure, or the like. If this is necessary, do let FINTRAC know you need to change the date as soon as you can. After your call, FINTRAC will send you a letter detailing:

• How they will examine you e.g. in person or by phone.
• What documents and data they will need in advance and on the date of the examination.
• The deadlines for each part of your submission.

Generally, you will have 30 days to pull everything together, and it can be tempting to put this aside until the last minute. This would be a mistake, as it can be challenging to pull together the many records FINTRAC requires.

You should also consider whether or not your materials need explanatory notes. It is often recommended, clients include a brief description of their business model in their introductory notes. This can help the examiner understand what they’re looking at. Remember, an examiner conducts many examinations in a year, and DPMSs can be very different from one another. A simple introduction to your business operations and the accompanying documentation will go a long way, as well as save time during the examination process.

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During the examination: Focus on the prize

You’re a businessperson and you see the big picture. You understand your whole business and how it all fits together, so it can be off-putting to be interviewed by someone only wanting to hear about a small slice of your business operations—your AML procedures. Don’t take it personally, this is FINTRAC’s one and only mandate as far as your business is concerned, and your interviews will go more smoothly if you stay focused on AML. It can be tempting to talk about other related concepts e.g. theft and fraud prevention, for instance, but these can be confusing for an examiner who is asking specific questions to test your understanding of AML-related concepts.

Have a copy of your AML compliance program with you, either on your computer screen or printed, and refer to it if need be. Examinations are always ‘open book’ rather than a memory test. It’s also acceptable to ask the examiner for clarification if you aren’t sure what information they’re asking for. Doing so is much better than going off on a tangent about something unrelated. It is important, however, to remember the examiner is there to assess your compliance. They have a job to do, and while they may be friendly, they are not your friends. Treat your examiners with professional courtesy.

Make sure you are answering the questions you are asked. It can be helpful if you tend to get nervous or veer off-track to have more than one person present, so you can be re-directed if need be. Your answers should describe your compliance program, as well as the things you are doing in order to comply. This will often seem redundant because most of this information was submitted before the examination, but there is a method to the madness.

Remember how it’s not enough to have a dusty binder on the shelf? These redundant questions are asked by examiners to figure our whether or not you actually understand and are following your policies and procedures. They will also look for evidence in your data and documents.

After the examination: It’s not too late

If the examination doesn’t go well, FINTRAC will often ask if you have any other data or documents to provide. There is a limited timeframe—usually five business days—to submit these to FINTRAC, if such documents or data exist.

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Again, procrastination is your enemy. If you have materials to submit, it’s time to get organized and get those materials to FINTRAC.

There is a disclosure statement FINTRAC almost always reads at the beginning and end of an examination. The fact the examiner reads this statement does not indicate there will be a penalty. If you aren’t sure whether or not a penalty is being considered, ask. The examiner will usually be able to give you some indication of the next steps.

If the FINTRAC examiner has indicated a penalty is being considered, this is the right time to reach out to a lawyer.

If a penalty is assessed and you choose to appeal it, you will want to start building your case as early as possible. This is because each submission you make has an effect on the next steps in the process.

When you receive your findings letter: Follow the roadmap

In most cases, FINTRAC will not be assessing penalties, but they will be providing a ‘findings letter.’ This letter summarizes any issues discovered during the examination. While being on the receiving end of criticism may not feel great, it is useful. The findings letter is a roadmap describing the improvements you will need to make to your AML compliance program. This free advice should be used to make updates to your documents and processes.

Though not required, it is best practice to document your response to each finding e.g. what you’re doing to fix the issue. This can be done in the form of a simple log, which can also be used to keep track of the updates you’ve made for other reasons. This type of log is useful if you are asked about the improvements you’ve made to your program by an auditor, supplier, or even FINTRAC at the time of your next examination.

What to do in the event of a penalty

In the event you receive a ‘Notice of Violation,’ this is a document describing a penalty, and it is important you understand your options. A qualified lawyer who has experience in FINTRAC-related appeals can help you to understand the courses of action available to you. Since your lawyer’s ability to be effective will depend on their being able to understand and assess all of the information, and they will have a limited time to respond, it is vital to engage them as early as possible in this process.

An ounce of prevention

The best way to prevent penalties is to have a strong AML compliance program tailored to your business and kept up to date regularly. It doesn’t have to be perfect, but it should describe what you actually do, and how you do it. The program can be in plain language—it doesn’t need to be complicated or in legal terms—and if you’re one of the many jewellers who’ve been putting it off, there are online tools available to help make it easier.

An easy examination can never be promised, but they are manageable with the right preparation. If you’re savvy enough to run a successful business, you can handle this, too.

Amber D. Scott (MBA, CIPPC, CBP, CAMS), is the founder and chief anti-money laundering (AML) ninja at Outlier Solutions Inc. As a compliance professional who has worked with anti-money laundering (AML) and counter terrorist financing (CTF) legislation for over a decade, Scott is passionate about making compliance simple for Canadian businesses. She launched Outlier Solutions Inc., a compliance consulting firm, in 2013.

Soon after, she entered into a partnership with the Canadian Jewellers Association (CJA) and Jewellers Vigilance Canada (JVC) to update the compliance kit materials for dealers in precious metals and stones (DPMSs). These materials are available free to CJA and JVC members, and for a fee to non-members.

She works closely with the Canadian jewellery industry to ensure the online materials and consulting solutions available are meeting its needs. Scott believes good compliance can enable good business. Find out how at www.outliercanada.com or reach out to her directly at amber@outliercanada.com.

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