SUSPICIOUS TRANSACTION REPORTS: WHAT THEY ARE AND WHY THEY ARE IMPORTANT
Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) has authority to produce strategic intelligence on the nature and scope of money laundering, terrorist activity financing, and sanctions evasion. FINTRAC requires financial entities such as banks and credit unions to report suspicious transactions by way of a Suspicious Transaction Report to FINTRAC. Service providers can submit Suspicious Transactions Reports on behalf of financial entities. Legal professionals that provide services relating to financial activities are able and should complete Suspicious Transactions Reports as many professional money laundering schemes likely will need the involvement of a legal professional, to confuse or disguise links between offenders and the proceeds of their illegal actions.
A Suspicious Transaction Report outlines when a financial transaction occurs or is attempted, and when there are reasonable grounds to suspect that the transaction is related to money laundering or terrorist activity. Reasonable grounds to suspect are a step above simple suspicion, and that the facts and context have been considered leading to a possibility that a money laundering or terrorist activity financing offence has occurred. Facts about a transaction includes the date, time, location, amount, type of transaction, account details, client’s financial history or information about a person or entity. Context is information that clarifies the circumstances or explains a situation or transaction, which includes your knowledge of the typical financial activities found within your business, awareness of events occurring in the business environment or community, and the financial background, behaviour and actions of clients.
The Suspicious Transaction Report must include information on:
- Who are the parties to the transaction
- When the transaction was completed / attempted
- What are the financial instruments or mechanisms used to conduct the transaction
- When the transaction took place
- Why the transaction is related to the commission / attempted commission of a money laundering, terrorist activity financing or sanctions evasion offence
- How the transaction took place
- All transactions and account information relevant to suspicion
While solicitor-client privilege must and should still be considered, the context of transactions can still be used to accurately identify suspicious transaction reports. Examples of red flags that can be seen without going into specifics that violate solicitor-client privilege are situations such as the transaction is requested to be completed with unusually quick speed, the involvement of bank accounts in high-risk or offshore jurisdictions, or the client using a legal professional located at a significant distance from the client / transaction without a legitimate or economic reason. Common money laundering sanctions evasion methods include investing proceeds of crime into real estate, or concealing ownership through purchase through a company / trust.
What is reasonable grounds to suspect would also depend on whether another individual with similar knowledge, experience or training would likely reach the same conclusion based on a review of the same information. Note that reasonable grounds to believe, which considers probability and not just possibility of an offence occurring, is a higher standard than reasonable grounds to suspect, and is not required for a Suspicious Transaction Report.
FINTRAC reviews and assesses every Suspicious Transaction report it receives, and expedites the process in appropriate situations such as if there is a threat to Canada’s security, to disclose financial intelligence to law enforcement within 24 hours. A Suspicious Transaction Report must be submitted to FINTRAC as soon as practicable – as soon as the facts and context are considered leading to a conclusion that there are reasonable grounds to suspect. There is no monetary threshold associated with a Suspicious Transaction Report, and subsequent suspicious transactions must also be reported as long as the suspicion remains. No reporting party will be prosecuted for sending a suspicious transaction report in good faith.
It is in the interest of lawyers to report suspicious transactions as trust accounts may be used in converting the proceeds of crime from cash into other less suspicious assets. It is also in the interest of the financial entities that Suspicious Transactions Reports are completed so that they avoid being caught up in money laundering and other illegal activities.