A Primer on FINTRAC’s Current Stance on Businesses Involved with Bitcoin and the Cryptocurrency Ecosystem.
Money Services Businesses (“MSBs”) are defined in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (S.C. 2000, c. 17) and Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations SOR/2002-184 (collectively the “Legislation”), as:
Persons and entities engaged in the business of:
- Foreign exchange dealing;
- Remitting funds or transmitting funds by any means or through any person, entity or electronic funds transfer network; or
- Issuing or redeeming money orders, traveler’s cheques or other similar negotiable instruments except for cheques payable to a named person or entity.
Once designated as such, an MSB has certain registration and KYC (Know Your Client) & AML (Anti-Money Laundering) recording and reporting requirements to make to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). FINTRAC is the governing body that oversees compliance with the Legislation and maintains records prepared by MSBs in accordance with the Legislation. Under s. 71(1) of the Regulation, MSBs are required to appoint a compliance officer who is responsible for implementing the necessary compliance program as stipulated by the Legislation. These compliance officers do not necessarily have to be directly affiliated with the MSB, they can be outsourced third parties such as law firms and private compliance firms.
While there are currently no provisions in the Legislation that explicitly govern Bitcoin or other cryptocurrencies, s. 73(1)(a) of the Act reflects the Canadian government’s intention to include “dealing in virtual currencies” in what constitutes an MSB. However, this intention has yet to manifest itself into law.
Once the above proposed regulations are passed, many cryptocurrency businesses will need to register and report to FINTRAC. For now, FINTRAC has limited its regulatory ambit as it relates to businesses involved with Bitcoin and other cryptocurrencies, as follows:
- Cryptocurrency only: Not an MSB
- Fiat deposit to ultimately same fiat withdrawal (i.e. CAD –> BTC –> CAD): Not an MSB
- Fiat deposit to ultimately same or different fiat withdrawal (i.e. CAD –> BTC –> CAD/USD): An MSB
Cryptocurrency-backed/enabled Forex Business: An MSB
Cryptocurrency-backed/enabled Remittance Business: An MSB
Cryptocurrency ATM Business: Not an MSB
Cryptocurrency Online Payment Processor: Not an MSB
Business that Purchases/Sells Cryptocurrency: Not an MSB
The penalties for non-compliance with FINTRAC’s registration, recording and reporting requirements can be severe and include $2 million in fines and 5 years of imprisonment.
It is important to note that, unless your business has a “real and substantial” connection to Canada, it will not qualify as an MSB under the Act, regardless of whether its operations would otherwise render it so. However, there are similar regulations in place in many countries in the world. This should be kept in mind when jurisdiction shopping for your cryptocurrency business.
Contact us for further information on whether your business is an MSB and, if so, what compliance requirements it has.
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