Alert: Changes to Canadian AML Regime Affecting Cheque Cashing, Factoring and Financing and Leasing Businesses in Effect April 1, 2025 | Stikeman Elliott LLP

Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations are being amended to introduce anti-money laundering and anti-terrorist financing obligations for factoring, financing and leasing, and cheque cashing businesses. These amendments (“Regulatory Amendments”) were initially scheduled to come into force on October 1, 2025 but have been accelerated by six months. They are now coming into force on April 1, 2025.

The Regulatory Amendments also introduce obligations with respect to import and export of goods and reporting of material discrepancies with beneficial ownership registries, as well as information sharing between reporting entities.

What to expect on April 1, 2025

The following Regulatory Amendments are coming into force on April 1:

• Factoring companies and financing and leasing companies will be prescribed as reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations (the “PCMLTFA”) and must establish and maintain compliance programs;
• Cheque Cashing Businesses must register as Money Services Businesses (“MSBs”) and comply with a full suite of MSB obligations; and
• Traders importing and exporting goods will now be required to report on the importation and exportation of goods to the Canada Border Services Agency (“CBSA”).

In light of the accelerated timeframe, the regulators have indicated they will ease the implementation process by emphasizing engagement and outreach for the first year.

Additional new requirements

The following requirements will come into force at different times:

• Requirements for reporting entities to report discrepancies in beneficial ownership information will come into force on October 1, 2025; and
• A voluntary information sharing regime to allow reporting entities to share certain types of compliance information with each other will come into force immediately upon publication in the Canada Gazette, which is scheduled for March 26, 2025.

Background

The PCMLTFA is a key statute in Canada’s anti-money laundering and anti-terrorist financing regime (the “AML/ATF Regime”). The AML/ATF Regime seeks to detect, deter, and disrupt money laundering and terrorist financing, and discourage related criminal offences, such as drug trafficking, that generate proceeds of crime. The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) is a key regulator and financial intelligence unit responsible for implementation of the AML/ATF Regime. The AML/ATF Regime obligates “reporting entities” to develop and implement compliance programs to, among other things, verify identity of their clients, monitor business relationships, keep records, and report certain types of financial transactions to FINTRAC.

The Regulatory Amendments were pre-published in the Canada Gazette on November 30, 2024, followed by a 30-day comment period that ended on December 30, 2024. On February 4, 2025, the Prime Minister issued the Directive on Transnational Crime and Border Security (the “Directive”), which acknowledged the urgent threats that international and domestic drug trade and drug trafficking posed to Canadian and U.S. efforts to disrupt transnational criminal activity and drug trafficking in North America.

The Regulatory Amendments were identified as key measures to support the Directive and address the urgency of disrupting transnational organized crime groups, who have accelerated the fentanyl crisis. This is why the Regulatory Amendments are coming into force on an accelerated basis.

Key Amendments

Coming into force on April 1, 2025

• Trade-based financial crime: The Regulatory Amendments will implement a new Part 2.1 to the PCMLTFA on the Reporting of Goods, which will require traders to declare whether goods are proceeds of crime or are related to money laundering, terrorist financing, or sanction evasion, attest that goods are being imported or exported to combat phantom shipments (i.e., shipments where no goods are shipped but payments are made to “settle” an invoice), keep records, and answer CBSA border services agents’ questions. The Regulatory Amendments will also provide CBSA with seizure and forfeiture powers.
• New reporting entities:
  • Factoring companies: The Regulatory Amendments define a factor as a person or entity that is engaged in the business of factoring, with or without recourse against the assignor. Factoring is described in the Regulatory Impact Analysis Statement (the “RIAS”) accompanying the Regulatory Amendments as an exclusively business to business financial activity where factoring companies supply liquidity to a client upfront in exchange for the cash value of a certain amount of the client’s accounts receivable (i.e., invoices) to be collected by the factor later, plus commission and fees These companies will be prescribed as reporting entities under the PCMLTFA and will be required to establish and maintain a compliance program, including record keeping, client due diligence, and transaction reporting requirements (including reporting requirements specific to factoring companies).
  • Financing and leasing companies: Financing or leasing entity is defined under the Regulatory Amendments as a person or entity that is engaged in the business of financing or leasing. The RIAS notes that businesses providing a range of financing and leasing services to individuals and businesses both directly and indirectly through a third-party financial intermediary will be brought under this definition. Under a direct leasing arrangement, a vendor offers leasing as a financing option and has an internal department that oversees the various aspects of the agreement. Under an indirect leasing arrangement, a financial intermediary purchases an asset from a vendor and allows the lessee to use the asset during the leasing term and after full payment. The lessee deals directly with the financial intermediary. Financing companies can offer a much wider range of services than leasing companies and can also operate directly or indirectly with the client. Like factoring companies, these companies will be prescribed as reporting entities under the PCMLTFA and will be required to establish and maintain a compliance program, including record keeping, client due diligence, and transaction reporting requirements. While the Regulatory Amendments will not bring into scope financing and leasing of low value consumer products (e.g., rent-to-own furniture, personal electronics), financing and leasing arrangements for business purposes, for all passenger motor vehicles and for consumer goods valued above $100,000 will be included in scope.
  • Cheque cashing businesses: Cheque cashing is described in the RIAS as a financial service that enables clients to immediately cash a cheque for a fee. Cheque cashing businesses will be subject to MSB registration and compliance obligations including requirements to establish a compliance program, keep prescribed records, conduct client due diligence, and report specified transactions.

Coming into force on October 1, 2025

• Beneficial ownership discrepancy reporting: Reporting entities are already required to obtain and confirm corporate beneficial ownership information when they verify the identity of an entity. The Regulatory Amendments will require reporting entities to report to Corporations Canada on material discrepancies between their records and a corporation’s registry filings to the federal beneficial ownership registry when the reporting entity identifies a high risk of a money laundering or terrorist financing offences. Reporting entities must report or resolve any material discrepancies (e.g., missing beneficial owners) between their records and a company’s registry filings (with Corporations Canada) within 30 days of identifying the discrepancy. Reporting entities that identify a material discrepancy in their regular course of business (unrelated to money laundering or terrorist financing) may also report this discrepancy to Corporations Canada, although they are not obligated to do so. Reporting entities will therefore be required to implement appropriate changes to their compliance procedures to address these new requirements.

Coming into force immediately when published in the Canada Gazette

• Information sharing: The Regulatory Amendments related to information sharing will come into force immediately on their publication in the Canada Gazette, which is scheduled for March 26, 2025. Unlike other measures, these Regulatory Amendments do not create new obligations, but create a voluntary information sharing framework. The Amendments will enhance the ability of reporting entities to voluntarily share information with each other to detect and deter money laundering, terrorist financing, and sanctions evasion, while maintaining privacy protections for personal information. Reporting entities that choose to rely on the information sharing provision under the PCMLTFA must develop Codes of Practice explaining how the provision will be applied. The Regulatory Amendments specify the mandatory elements that such Codes of Practice must contain. Reporting entities will be required to provide the Codes of Practice to the Office of the Privacy Commissioner (“OPC”) for approval and to FINTRAC for comment in advance of their use. FINTRAC and OPC will also oversee the reporting entities’ compliance with the information sharing provision.

Implementation and Enforcement

The Department of Finance, in partnership with the CBSA and FINTRAC, has informed impacted industries of the new “accelerated and exceptional” timeline (i.e., April 1, 2025) and has committed to working with reporting entities to ease the implementation process. FINTRAC indicated that it intends to emphasize engagement and outreach in the first calendar year to improve awareness and understanding of new reporting entities of their compliance obligations.

After this transitional period, FINTRAC will conduct ongoing supervisory activities, including assessments to ensure compliance. If non-compliance is identified, FINTRAC can impose administrative monetary penalties or take other enforcement actions, as necessary.

Text of the Amendments

The Government announcement of the implementation of Regulatory Amendments contains the proposed text of Regulatory Amendments, as pre-published on November 30, 2024. The final text of Regulatory Amendments is scheduled to be published in the Canada Gazette on March 26, 2025.

The authors would like to acknowledge the support and assistance of Jivan Maharaj, articling student at law.

[View source.]