New Anti-Money Laundering Measures – Are You Affected?

Written by Leilani Kagan, Partner, TDS Law

Many of your clients may not be aware of fairly recent amendments to the reporting requirements for certain Canadian corporations. What used to be somewhat minimal annual reporting obligations were bolstered within the last year and may have triggered more detailed information requests from your clients for information concerning their shareholdings and corporate documents. In some instances, the changes have caused clients to reconsider the jurisdiction under which they are incorporated.

Effective on June 13, 2019, all corporations governed by the Canada Business Corporations Act (the “CBCA”) (except public corporations) were required to maintain detailed securities registers identifying all “individuals with significant control” over the corporation. These measures were put in place to increase the transparency of Canadian corporate structures thereby discouraging money laundering in our country.

“Individuals with significant control” includes individuals who: (i) are registered holders; (ii) are beneficial owners;  (iii) have direct or indirect control or direction of 25% or more voting rights in the corporation; or (iv) have any number of shares that is equal to 25% or more of all of the corporation’s issued and outstanding shares measured by fair market value. In the case of shares held by a corporation or other legal entity, you will need to work through the chain of control until the ultimate individual(s) with significant control is identified. 

Identifying an individual with significant control may be a difficult process depending on the complexity of the structure of the corporation and may include a detailed review of not only the share structure, but also a review of documents such as unanimous shareholder agreements, option agreement, purchase agreements, share pledge agreements, warrants or debentures, as these documents may include options to purchase, veto rights, voting rights or contingent rights that ultimately affect the control of the corporation.

As a result of the new legislation, we recommend that each CBCA corporation (except public corporations) prepare and maintain a register that discloses the following information for each individual with significant control:

  • Name;
  • Date of birth;
  • Address;
  • Their residence for tax purposes;
  • The day each individual became or ceased to be an individual with significant control; and
  • A description of how each individual is an individual with significant control

In addition, the corporation must update the register within 15 days of becoming aware of any information required in the register. We recommend that the corporation update its register once each financial year and include a description of the steps taken by it to obtain this information. The law firm that maintains the minute book for the corporation should have a form of updated register, as well as advice for keeping track of this information to ensure it takes “reasonable steps” to obtain the information, as required under the CBCA.

There are significant fines and penalties for directors, officers and shareholders who contravene these new requirements, including fines not exceeding $200,000 or imprisonment for a term not exceeding six months, or both. 

Given these changes to the reporting requirements, clients who are not required to register under the CBCA may wish to incorporate under one or more provincial jurisdictions as an alternative.