Between $45 billion and $113 billion is laundered every year in Canada, according to a 2020 report by Criminal Intelligence Service Canada. The variance between the lower and upper estimates shows just how difficult it is to accurately establish the prevalence of money laundering and the damage it does to the Canadian financial system.
Businesses, especially those susceptible to exploitation by financial criminals, are at the forefront of the fight against money laundering. Their anti-money laundering (AML) obligations include monitoring transactions for signs of suspicious activity and filing suspicious transaction reports (STRs) with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
In the financial year 2021–22, Canadian businesses submitted nearly 586,000 suspicious transaction reports. These reports supply the data FINTRAC needs to provide money laundering and terrorist financing intelligence to Canadian law enforcement agencies. They play a vital role in Canada’s efforts to combat money laundering and associated predicate crimes, which include fraud, drug smuggling, human trafficking, and tax evasion.
In this article, we provide an overview of STRs, including:
- Who must submit STRs to FINTRAC?
- When and how should they be submitted?
- What are reasonable grounds to suspect money laundering?
- How Canadian businesses can use automation to reduce their regulatory reporting burden.
What Is a Suspicious Transaction Report?
A suspicious transaction report is a form that individuals and organizations classified as reporting entities must submit to FINTRAC if they have reasonable grounds to suspect a transaction is involved in money laundering offenses. STRs are the Canadian equivalent of the suspicious activity reports (SARs) U.S. businesses file with the Financial Crimes Enforcement Network (FinCEN).
We’ll explain some of these terms in more detail later, but the key point is that businesses must implement suspicious transaction reporting policies and procedures. They must also implement processes that facilitate reporting, including transaction monitoring to identify indicators of suspicion, the red flags that give rise to suspicion of money laundering activities.
The legal obligation to submit STRs was established in 2000 with the passing of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The act’s primary objectives were to require the reporting of suspicious transactions, to mandate record collection and identity verification so accurate reporting is possible, and to establish FINTRAC to receive and act on reports.
What Information Is Included in an STR?
STRs are lengthy forms that require the collection of a wide range of information related to a transaction, including:
- Reporting entity details: its name, FINTRAC reporting number, location, and business sector.
- Transaction details: the date, the amount, account information, and the individuals involved in the transaction.
- A description of the transaction and why it is suspicious: a narrative that includes the facts, context, and ML/TF indicators that provide grounds for suspicion.
- Action taken: what the reporting organization did in addition to sending the report (for example, whether the account was closed or the transaction was also reported to a law enforcement agency).
Who Should Submit STRs?
Organizations required to file STRs are called reporting entities. Reporting entities must identify, monitor, and report financial transactions that give rise to suspicion of money laundering. They include:
- Money services businesses
- Financial institutions, such as banks and credit unions
- Agents of the Crown
- British Columbia notaries
- Dealers in precious metals and precious stones
- Financial institutions
- Life insurance providers
- Real estate companies
- Securities dealers
These are broad categories, each of which can contain multiple types of business. For example, the money services business category includes businesses involved in:
- Foreign exchange dealing
- Remitting or transmitting funds
- Issuing or redeeming money orders, travelers’ cheques, or anything similar
- Dealing with virtual currency
The list changes over time, so businesses in adjacent sectors should monitor FINTRAC’s reporting requirement guidance. In 2024, two new sectors will be added: businesses that transport currency (armored car businesses) and mortgage administrators, brokers, and lenders.
It’s worth noting that although the STR process is primarily intended to be used by reporting entities, individual employees are encouraged to file if they suspect a transaction and their employer has not or will not submit a report (a situation that can result in civil and criminal penalties).
What Are Reasonable Grounds to Suspect?
In previous sections, we said an STR must be filed if an organization has reasonable grounds to suspect (RGS) money laundering or terrorist financing. RGS may seem like an ambiguous threshold, but it’s clearly defined in the FINTRAC guidance.
A company has RGS if there is “a possibility that an ML/TF offense has occurred.” Possibility is the key word here. Organizations do not have to prove an offense has occurred or even provide reasonable grounds to believe it.
An excessively high reporting threshold is one of the most common deficiencies in suspicious transaction reporting processes. A business must file a report if it is possible an offense occurred. It is non-compliant if it only reports transactions when an offense is probable or likely.
FINTRAC also explains how businesses should establish RSG. A person with appropriate knowledge and training must consider:
- The facts about a transaction: the date, location, type of transaction, and so on.
- The transaction’s context: such as the client’s background and information derived from risk assessments and KYC processes.
- ML/TF indicators: FINTRAC provides specific indicator guidance for each sector — for example, the indicators for money services businesses.
For additional information on FINTRAC, view our continuously updated blog overviewing FINTRAC guidance and advisories as they are released.
When Should You Submit an STR?
An STR should be filed as “soon as practicable” after you have taken measures to establish reasonable grounds to suspect a transaction. In practice, the filing process should take priority over other tasks. Any delays in filing have to be explained, and a business can be cited if FINTRAC finds there were grounds to suspect, but the business has not yet begun an assessment in advance of filing a report.
ML/TF Requirements Related to STRs
Reporting entities must implement anti-money laundering processes to facilitate the reporting of suspicious transactions. Requirements related to suspicious transaction reporting include the following.
Verifying the identity of individuals or entities involved in suspicious transactions is a critical step in the AML process. Businesses must take reasonable measures to confirm the parties’ identities in transactions that raise red flags. This necessitates comprehensive identity verification and Know Your Customer (KYC) processes.
Knowledge and Training
Personnel tasked with monitoring transactions must possess the appropriate level of knowledge and training. This ensures they are adequately equipped to discern transaction patterns and behaviors that may indicate ML or TF activities.
Compliance Program Assessment
Every two years, businesses are required to conduct a thorough review of their compliance programs. This includes assessing the effectiveness of their strategies and practices to identify and report suspicious. For best practices, view our blog overviewing the importance of AML audits and how to perform them
Continuous Monitoring and Reporting
Businesses are expected to regularly reassess clients and their transactions to make sure their suspicion level remains justified. This ongoing monitoring should be ingrained in the business’ risk assessment practices and compliance programs.
How to Submit an STR to FINTRAC
The preferred and most efficient submission method is the FINTRAC Web Reporting system. The FWR system allows reporting entities to file reports individually or in batches. Reporting via FWR ensures that information is transmitted securely and directly to FINTRAC, reducing the risk of errors and delays associated with paper submissions.
While electronic submission is strongly recommended and preferred for its efficiency and security, businesses can submit STRs paper forms. They can be downloaded and printed from the FINTRAC reporting forms page.
For additional information, view our blog on STR reporting.
Automating FINTRAC Reporting With Alessa
The PCMLTFA requires reporting entities to submit a unique STR for every suspicious transaction. Manual transaction monitoring and reporting can become an expensive burden for businesses that process large numbers of transactions.
The alternative to this manual process is automated regulatory reporting. Alessa is a modular AML software solution that can streamline all areas of compliance, including the FINTRAC regulatory reporting process. Alessa can automate 70%-100% of reporting requirements for a variety of FINTRAC reports, including:
- Large Cash Transaction Reports
- Suspicious Transaction Reports
- Casino Disbursement Reports
- Large Virtual Currency Transaction Reports
- Non-SWIFT Electronic Funds Transfer – Incoming
- SWIFT Electronic Funds Transfer – Outgoing
- SWIFT Electronic Funds Transfer – Incoming
With Alessa, you can reduce the cost of reporting while expediting the reporting process, and increasing accuracy of reports. Alessa supports a wide variety of U.S. and Canadian reporting requirements, as well as reporting requirements in the Caribbean, Europe and the Philippines. Visit our regulatory reporting software page for a full list of the reports Alessa is able to automate.
To learn more about how Alessa can help your organization accelerate regulatory reporting for STRs and a range of other FINTRAC reports, request a free demonstration.