Dealing in virtual currencies subject to anti-money laundering safeguards in Canada

Out-Law News | 26 Jun 2014 | 9:58 am | 2 min. read

The act of dealing in virtual currencies is now subject to a number of anti-money laundering controls in Canada following the enactment of a new law in the country.

The new Act was passed earlier this month by the Canadian parliament and has now received Royal Assent. Among other things, it includes changes to the existing Proceeds of Crime (Money Laundering) and Terrorist Financing Act to bring the act of 'dealing in virtual currencies' within the scope of the existing legislation.

Both businesses dealing in virtual currencies from within Canada and those dealing in virtual currencies based from elsewhere but which provide those services to Canadian people are now subject to the anti-money laundering rules.

It brings those businesses in line with requirements that previously applied to companies engaged in "the business of foreign exchange dealing, of remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network, or of issuing or redeeming money orders".

Under the rules, businesses dealing in virtual currencies must be registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and are now required to verify the identity of individuals that transact with them. If unable to verify the identify of individuals, companies dealing in virtual currencies will be prohibited from opening an account for those clients.

In addition, subject to certain exemptions, the companies are also now obliged to report "every prescribed financial transaction that occurs in the course of their activities" to FINTRAC.

In cases where "there are reasonable grounds to suspect that the transaction is related to the commission or the attempted commission of a money laundering offence; or... to the commission or the attempted commission of a terrorist activity financing offence" then they must report those suspicions to FINTRAC.

Businesses dealing in virtual currencies in Canada will also be obliged to operate a compliance program that is intended to ensure they adhere to the anti-money laundering rules. The compliance program must include the setting and application of policies and procedures to assess, during the course of their activities, "the risk of a money laundering offence or a terrorist activity financing offence".

Business consulting firm MNP said that venture capitalists are set to invest almost $300 million by the end of this year in new companies dealing in the digital asset Bitcoin, with most of the funding being received by the US and then Canadian businesses.

In a statement, Christine Duhaime, a senior financial crime advisor with MNP, said that the new rules were intended to bring "external Bitcoin companies doing business in Canada" within the scope of the country's anti-money laundering regime.

"Part of the concern with such laws is whether they strike a balance between combating financial crime and supporting innovative technology development," Duhaime said. "The concern is that venture capital for Bitcoin start-ups may dry up if legislative obligations prove to be too onerous or expensive. But this legislation is an important step forward."

The legal status and treatment of virtual currencies has drawn the attention of major financial services bodies across the globe in recent months in light of the growing popularity of the trade in Bitcoin.