Beneficial ownership requirements
Beneficial ownership requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations
Financial entities, securities dealers, life insurance, and money services businesses have obligations related to beneficial ownership when confirming the existence of an entity, which include:
- obtaining information about the beneficial owners of an entity, including corporations;
- obtaining the names and addresses of all trustees and known beneficiaries and settlers of a trust;
- taking reasonable measures to confirm the accuracy of this information;
- keeping records of the information and the measures taken to confirm its accuracy; and
- in addition, if the entity is a not-for-profit organization (charity), determining if the entity is a registered charity under the Income Tax Act or if it is an unregistered charity that solicits charitable financial donations from the public.
Who are beneficial owners?
Beneficial owners are the actual persons who directly or indirectly own or control 25% or more of an entity, which includes corporations. Beneficial owners cannot be another corporation or entity, they must be the actual persons who are the equitable owners of an entity. In order to determine the beneficial owners, you must search through as many levels of information as necessary in order to determine the actual persons.
It is important to distinguish between the names found on legal documentation versus the actual owners of an entity. For example, the legal owners of a company or trust, may not be the actual persons who own or control a company or trust.
In the case of a corporation, you need to determine all the directors’ names. You also need to determine the names and addresses of the individuals who are the beneficial owners, for example directors or shareholders, i.e. any actual person who owns or controls, directly or indirectly, 25% or more of the corporation’s shares.
In the case of a trust, you need to determine the names and addresses of all the trustees and all known beneficiaries and settlors of the trust.
Why is identifying beneficial ownership important?
Removing anonymity and identifying the actual persons behind the transactions and account activities is a key component of Canada’s anti-money laundering and anti-terrorist financing regime. The concealment of the beneficial ownership information of accounts, businesses and transactions is a technique used in many money laundering and terrorist financing schemes. Collection and verification of this information by financial institutions and other entities is an important step which will aid in money laundering and terrorist financing investigations and ultimately protects the integrity of Canada’s financial system.
How do I obtain information about the beneficial owners?
To obtain beneficial ownership information, you can have the person in front of you provide it, either verbally or in writing. You could also refer to other sources of information, such as their board of director’s meeting minutes, open-source documentation or commercially available information.
You cannot use the same method to obtain beneficial ownership information and to confirm the accuracy of the information obtained. You must take steps to obtain beneficial ownership information and you must take reasonable measures to confirm it using another source.
To obtain information on a not-for-profit organization (charity), you can ask the client for the information and confirm its accuracy by consulting the charities listing on the Canada Revenue Agency website.
You must have your process to obtain beneficial ownership information documented in your policies and procedures. FINTRAC expects that you will be able to produce official documentation that confirms the beneficial ownership information during an examination.
How do I confirm the accuracy of the information about the beneficial owners?
You must take reasonable measures to confirm the accuracy of the beneficial ownership information; you can only do that by relying on official documentation.
For corporations, the accuracy of the information can be confirmed by verifying corporate records, such as
- articles of incorporation;
- share certificates;
- annual returns;
- certificate of corporate status; or
- shareholder agreements.
In the case of an entity (other than a corporation), the accuracy of the information can be confirmed by verifying the following records:
- articles of constitution;
- partnership agreements; or
- board of director’s meeting records of decisions.
In the case of a trust, the accuracy of the information can be confirmed by verifying the trust deed, which will provide information on the control and structure of the trust.
Other reasonable measures include:
- asking the client to provide supporting official documentation;
- conducting an open-source search; or
- consulting commercially available information.
You can confirm the accuracy of beneficial ownership information by relying on a signed certification, attestation or statement provided by a person authorized to act on behalf of the client only if no official documentation exists. This may be the case in the situation of a sole proprietorship.
If you asked a client to provide the information and the client refused, you could use other reasonable measures to obtain the information such as searching publicly available databases. If you are unable to obtain or confirm beneficial ownership information you must treat this client’s activities as high-risk.
Please see the end of this document for an example of how to determine beneficial ownership.
What if beneficial ownership information cannot be obtained or its accuracy cannot be confirmed?
If you are unable to obtain the beneficial ownership information, or if you obtain the beneficial ownership information but are unable to confirm its accuracy, you must:
- take reasonable measures to verify the identity of the most senior managing officer of the entity;
- treat the entity’s transactions and activities as high-risk; and
- apply the enhanced measures for high-risk clients, including enhanced ongoing monitoring.
The senior managing officer of a corporation or an entity may include but is not limited to a director, chief executive officer, chief operating officer, president, secretary, treasurer, controller, chief financial officer, chief accountant, chief auditor or chief actuary, or an individual who performs any of those functions. It also includes any other individual who reports directly to the entity's board of directors, chief executive officer or chief operating officer. In the case of a sole proprietor or a partnership, the senior managing officer can be the owner or the partner.
In the case of a trust, the senior managing officer of a trust is the trustee, that is, the person who is authorized to administer or execute on that trust.
How do you verify the identity of an entity’s most senior managing officer?
To verify the identity of the most senior managing officer, you could use one of the methods outlined in Methods to identify individuals and confirm the existence of entities. However, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) does not specify that you must verify the senior manager’s identity in accordance with the Regulations.
There is no record keeping obligation if you have successfully identified the senior managing officer. However, you may be asked to demonstrate the reasonable measures that were taken to identify the senior managing officer in the course of a FINTRAC exam.
If the reasonable measures you took to identify the senior managing officer are unsuccessful, you must record the measures taken, the date you took them and the reason they were unsuccessful.
What if there is no individual who owns or controls 25% or more of an entity?
You may obtain information confirming that there is no actual person who owns or controls 25% or more of an entity. This is not the same as being unable to determine if there is an individual who owns or controls 25% or more of an entity.
If you determine that there is no individual who directly or indirectly owns or controls 25% or more of an entity, you must keep a record of the measures you took and the information you obtained in order to reach that conclusion.
In this situation, you do not need to verify the identity of the most senior managing officer. However, as a best practice, you may decide to record the names of individuals you feel have a managing role or control over a percentage of shares that you determine to be significant, even if it is less than 25%.
How do you keep beneficial ownership information up to date?
Beneficial ownership information must be kept up to date as part of your ongoing monitoring of business relationships requirements. You may have a documented process where you ask clients to confirm the information you have on record through your regular interactions with them.
Beneficial ownership information will be updated based on your risk assessment of each client. For clients assessed as being high-risk, you must apply enhanced measures. Enhanced measures mean that you must take extra steps in addition to what is required by the Regulations. This includes taking additional measures for client identification, conducting enhanced ongoing monitoring, and taking any other enhanced measure you identify as appropriate.
Beneficial ownership record keeping requirements
You must keep a record of the information obtained and the measures you took to confirm the accuracy of that information.
If an entity is a corporation, you must record:
- the names of all directors of the corporation;
- the names and addresses of all actual persons who directly or indirectly own or control 25% or more of the corporations shares; and,
- information on the ownership, control and structure of the corporation.
If an entity is a trust, you must record:
- the names and addresses of all trustees, known beneficiaries and settlors of the trust; and,
- information on the ownership, control and structure of the trust.
If an entity is a business other than a corporation or trust, you must record:
- the names and addresses of all individuals who directly or indirectly own or control 25% or more of the entity; and,
- information on the ownership, control and structure of the entity.
If an entity is a not-for-profit organization, you need to keep a record that indicates whether the entity is a registered charity under the Income Tax Act or an unregistered organization that solicits charitable financial donations from the public.
You must also keep a record of the measures taken to confirm the accuracy of the above information.
In a situation where no individual owns or controls 25% or more of an entity, you must keep a record of the measures you took to verify that information, the date it was done as well as the information obtained in order to reach your conclusion.
Retention: You must keep beneficial ownership records on an account held by an entity for five years from the day the last business transaction was conducted. However, you must keep trust records related to beneficial ownership for accounts and transactions for five years from the day the last business transaction was conducted.
Exceptions to beneficial ownership determination
Life insurance companies, brokers and agents: If you deal in reinsurance, the beneficial ownership requirements do not apply to you for those dealings.
Financial entities and securities dealers: You do not need to confirm the existence of a corporation, trust or other entity for the opening of a group plan account held within a dividend or a distribution reinvestment plan, if the sponsor of the plan is an entity:
- whose shares or units are traded on a Canadian stock exchange; and
- who operates in a country that is a member of the Financial Action Task Force (FATF).
In addition, beneficial ownership record requirements do not apply if you are carrying out activities as a credit card acquiring business.
Example of a record for ownership, control and structure of a corporation:
ABC Canada Inc. is a for-profit corporation with 100 privately traded shares in circulation. It is incorporated pursuant to the Canada Business Corporations Act. John Brown owns 15 of the shares and Green Company Ltd. owns the other 85 shares. James Smith is President of ABC's board of directors; his wife, Jane Smith, is ABC's Chief Financial Officer; and their three children make up the other members of the board.
In this example, you must record:
- the ownership of the corporation is shared by John Brown (15% of the shares) and Green Company Ltd. (85% of the shares);
- the ownership structure of the entity; ABC Canada Inc. is a privately traded, for-profit corporation incorporated pursuant to the Canada Business Corporations Act;
- the names of all five members of the Smith family as directors of the corporation;
- the names and addresses of all of the individuals who own or control, directly or indirectly, 25% or more of the shares of ABC Canada Inc. Since Green Company Ltd. owns 85% of the corporation's shares, it also exercises control. However, in a case like this, you must research further to determine whether any individual owns enough shares of Green Company Ltd. that would constitute 25% of ABC Canada Inc., or until you determine that there is no such individual;
- how you obtained this information; and
- the measures you took to confirm its accuracy.
Example of record for ownership, control and structure of an entity that is neither a corporation nor a trust:
Rainbow Money Services is a money services business (MSB) in Vancouver owned by Howard and Betty. Howard and Betty paid a lawyer to draft a partnership agreement for the business, which they both signed. According to the agreement, Howard will invest $100,000 in the partnership to buy equipment and rent space for the MSB, and Betty will be solely responsible for operating the MSB and performing its business. All decisions related to the partnership must be unanimous; in case of a disagreement, either partner can decide to end the partnership. Howard and Betty will split the income from the MSB 50/50. If they decide to end the partnership, Howard will get 85% of the proceeds of the sale of the business assets, while Betty will get 15%.
In this example you must record:
- the ownership structure of the entity, including the details of the partnership between Howard and Betty;
- Howard and Betty’s names and addresses as both control the partnership;
- how you obtained this information; and
- the measures you took to confirm its accuracy.
Note: The business structure is important in this example as the ownership and control of the MSB is shared between Howard and Betty despite an uneven split of proceeds in the case the business is sold. You would need to retain a copy of the partnership agreement to meet your record keeping requirements as well as confirm the accuracy of the beneficial ownership information you obtained.
Records on how you obtained this information may be grouped under your policies and procedures. The measures you took to confirm its accuracy could be demonstrated by having a copy of the partnership agreement.
- Date Modified: