Federal beneficial ownership registry announced: Canada proposes new legislation to combat ‎money laundering and terrorism financing

The Canadian Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne,  proposed legislation on March 22, 2023 to implement a free and publicly accessible beneficial ownership registry of all corporations incorporated under the Canada Business Corporations Act (CBCA).

Background

Over the last decade, Canada has developed a reputation as a country where it is easy to engage in money laundering. The risk of money laundering has become so acute that a special term has been coined to describe money-laundering in Canada: “snow-washing”. Canada’s lack of efforts to remedy the problem has resulted in warnings and criticism from inter-governmental organizations, such as global money laundering and terrorist financing “watchdog”, the Financial Action Task Force,a.

In recent years, the Government of Canada has introduced various amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTF Act), the Income Tax Act, and the Access to Information Act to demonstrate its commitment to the fight against money laundering.

The proposed legislation evolved from public consultations held by Corporations Canada (the federal regulator responsible for administering the CBCA and other federal corporate laws) with a range of public and private stakeholders, such as banks, industry associations, law enforcement agencies and the Canada Revenue Agency. The consultations demonstrated significant support for a public and accessible beneficial ownership registry.

Bill C-42

On March 22, 2023, Bill C-42 received its first reading in Parliament.

Bill C-42  seeks to create a Canadian ownership registry which contains details on the beneficial owners of federal corporations. By mandating transparency through a public registry, those engaged in financial crimes such as money laundering, corruption, and tax evasion will be deterred. The need for public registries has become more urgent as transnational criminal networks and foreign state actors seek to exploit Canada’s financial sector.

Transparency International, a non-profit organization which had previously criticized Canada’s response to money-laundering, characterized Bill C-42 as “a massive blow to money launderers.” Bill C-42 is also said to bring Canada in line with its strategic partners, such as G7 and Five Eyes countries.

In addition to creating a registry system for CBCA governed corporations, Bill C-42 introduces some modifications to the PCMLTF Act, Canada’s primary legislation to report and combat money-laundering and terrorism financing. The Bill proposes to allow the Minister of Finance to create new regulations on beneficial ownership including requiring the reporting to government institutions or agencies of any discrepancies FINTRAC observes when conducting a beneficial ownership assessment of clients.

What should businesses operating in Canada expect?

If Bill C-42 receives royal assent, it is expected that corporations incorporated under the CBCA will receive a grace period to learn about the new federal registry and comply with its requirements. Once the regime is in full effect, federal corporations will need to submit information on their beneficial owners annually, or when a change in control occurs. Corporations Canada will share certain information received from corporations with the CRA, FINTRAC, and other investigative bodies to ensure accuracy and completeness, and to facilitate enforcement. Non-compliance by corporations may be met with administrative sanctions and criminal penalties of up to $200,000 and six months imprisonment.