Anti-Money Laundering Training Program

H&R Block Canada, Inc.

 Objectives

Define money laundering and terrorist financing.

Identify Canadian government organizations involved in anti-money laundering

(AML) and counter-terrorist financing (CTF).

Identify the client requirements and records required to open a DC Bank account.

Recognize and understand the importance of “Know Your Client” (KYC) rules.

Recognize and identify suspicious transactions (attempted and completed).

Understand the various penalties for non-compliance.

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 About the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The objective of the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (PCMLTFA) is to help detect and deter money laundering and the financing of
terrorist activities.

Your Responsibilities as an H&R Block Canada Inc. (H&R Block) associate:

You must understand and implement requirements for:
• Record-keeping
• Client identification
• Reporting of suspicious transactions
You must comply with the PCMLTFA and its supporting regulations

Non-compliance with the PCMLTFA can result in criminal charges or administrative

fines.
DC Bank’s Compliance Program establishes a mandate that H&R Block associates are
able to demonstrate an understanding of money laundering and terrorist financing
through the practice of their organization’s policies and procedures.

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 Compliance Regime
DC Bank supports the fight against money laundering and terrorist financing and has
adopted a compliance regime to prevent its financial services from being used in
promoting criminal activity.
DC Bank complies with all laws and regulations relating to money laundering and
terrorist financing.
Audits and reviews are conducted to ensure anti-money laundering (AML) and
counter-terrorist financing processes and documents are compliant and meet
regulatory requirements.
The DC Bank compliance regime includes:
A compliance officer (DC Bank Compliance Department).
Written and up-to-date AML/CTF policies and procedures.
Risk assessment, as well as the documentation and implementation of mitigation
measures to address risks.
AML compliance training.
Regular review all AML/CTF compliance policies and procedures.

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 Government Organizations
There are two main Canadian Government organizations involved in detecting and
deterring money laundering and terrorist financing in Canada:
FINTRAC – The Financial Transactions and Reports Analysis Centre of Canada
Canada’s financial intelligence unit (FIU) was created in 2000 as an independent
agency reporting to the Minister of Finance. Its mission is to contribute to the public
safety of Canadians and help protect the integrity of Canada’s financial system
through the detection and deterrence of money laundering and terrorist financing.
FINTRAC ensures compliance of reporting entities with the legislation and
regulations including record keeping and client identification requirements.
OSFI – Office of the Superintendent of Financial Institutions
Created to contribute to public confidence in the Canadian financial system.
OSFI performs regulatory audits on financial institutions.
OSFI also requires that federally regulated financial institutions are compliant with
their guidelines.

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 Accountabilities
Criminal Penalties include:
Failure to report suspicious transactions or submit a terrorist property report: up
to $2 million and/or 5 years imprisonment.
Failure to meet record keeping requirements: up to $500,000 and/or 5 years
imprisonment.
Failure to provide assistance or provide information during a FINTRAC compliance
examination: up to $500,000 and/or 5 years imprisonment.
Disclosing the fact that a suspicious transaction report was made (tipping off), or
disclosing the contents of such a report, with the intent to prejudice a criminal
investigation: up to 2 years imprisonment.
Civil Penalties: Each violation is classified as a minor, serious or very serious violation.
The history of compliance by the associate with the PCMLTFA will be taken into
account in determining the amount of a penalty.
Subject to the PCMLTFA, the range of penalties in respect of a violation is:
(a) $1 to $1,000 in the case of a ‘minor’ violation;
(b) $1 to $100,000 in the case of a ‘serious’ violation; and
(c) $1 to $500,000 in the case of a ‘very serious’ violation.

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 What is Money Laundering?
Money laundering is the process of transforming the proceeds of crime (dirty money)
into “clean” money or other assets. This is done by moving the money through
legitimate businesses. Once complete, the money cannot be easily traced to its origin.

Criminals may launder money to evade taxes that would be imposed on earnings,
avoid seizure of their wealth and avoid prosecution

The main categories of money launderers include:

Organized Crime Groups
White Collar Professionals

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 Three Stages of Money Laundering

PLACEMENT: The entry of illegal funds into the financial system to relieve
the criminal of holding and guarding dirty money. Placement techniques
include structuring deposits in amounts to evade reporting requirements
or co-mingling currency deposits of legal and illegal enterprises.

LAYERING: Hiding the origin of the funds through multiple and or

complicated transactions. It is used to try and disguise any link with the
original crime that generated the dirty money.

INTEGRATION: Exit of laundered funds from the financial system without

attracting suspicion. The loading of illegal funds onto a prepaid card is an
example of integration.

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 Three Stages of Money Laundering - Examples

PLACEMENT
H&R Block Canada has very little direct involvement with placement. A possible scenario is the
customer requesting H&R Block make a Canada Revenue Agency payment, on their behalf, for
tax owing via cash payment.

LAYERING
Illegal income can be hidden at tax preparation time by declaring dirty money as clean
income. This can be evident from suspicious types of income statements, fraudulent T-4
slips or phony pay stubs. Other indicators can also include:
Large declared income for an individual who cannot explain source of funds.
Greater than normal number of income statements provided for the stated
occupation.
Sizeable income reported from tax haven countries.
INTEGRATION
Tax refunds could be viewed as receiving legitimate funds from the process of
laundering dirty income or taking advantage of illegal deductions. Suspicion of tax fraud
should be reported, this is why it is important to pay close attention to the
documentation used to prepare the customer’s tax return.

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 What is Terrorist Financing?

Terrorist financing (proceeds for crime) is the process by which Reporting suspicious
funds are provided for terrorist activity. behavior is very
Large amount of funding for terrorism activities comes from important, regardless
legitimate sources, this is why terrorist financing is sometimes of if it is for money
depicted as the reverse of money laundering. laundering or
terrorist financing
Terrorist financing involves moving legitimate funds into
terrorist hands.
Terrorist groups are monitored by OSFI (Canada) and the
United Nations. Terrorist names are posted publically on their
respective websites. DC Bank regularly consults these lists.

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 Know Your Client

In taking proactive measures to prevent money laundering or terrorist financing, it is

important to ensure information obtained from required identification documents,
reports and records is as accurate and effective as possible.
The Know Your Client (KYC) Policy refers to the documentation which sets out DC Bank’s
approach to ensure effective identification, verification and monitoring of clients.
The Principal Objectives of a KYC Policy include:
1. Ensuring that only legitimate clients are provided with DC Bank products.
2. Verifying the identity of clients through approved, reliable, and independent
documentation.
3. Ensuring that the risks posed by each client are understood.
4. Managing the risks posed by identifying the source of funds, occupation, intended
use of account, or suspicious behavior and transactions.

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 Know Your Client (KYC) Policy Elements

The point at which a new client is accepted or rejected is the easiest point
Acceptance
at which the risk of dealing with illegal money can be avoided.

Establishing the identity of clients is the easiest way to help protect H&R
Identification Block and DC Bank from unknowingly doing business with a terrorist or
criminal.

Verify that clients are who they say they are by verifying original
Verification government issued Identification or an original identification document
from a primary or secondary form of ID in the Acceptable ID Policy.

Behaviour Identify and report any suspicious behavior or unusual activities.

Risk Know where the money came from (source of funds).

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 Identifying Your Client – Proper ID
Identification of an individual is required at the time the account is being opened.
1. Identifying your Client:
Verify the clients identity by collecting two pieces of personal identification. At least
one must be from the Primary Identification List. It is preferred that the second
piece be government issued identification also.
ID must:
Be in the same name and image as the applicant. If the client cannot
Not be expired. provide ID, an account
Have a unique identifier. cannot be opened
Be an original; NO photo copies.
Not be substantially damaged or appear to be altered.

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 Identifying Your Client – Third Party Accounts

2. Ensure client is NOT a third party

Always ask the client if they are opening an account for themselves or on behalf of
someone else (Third Party).
What is a Third Party?
A Third Party is an individual or entity, other than the account holder who directs
what happens with the account.
If only one individual is present but that person is acting on someone else’s
instructions, there is a third party involved.
Note: A person conducting a transaction on behalf of an elderly or disabled person
is considered to be a third party.
DC Bank does not accept Third Party accounts; If you determine this is a Third
Party account DO NOT OPEN THE ACCOUNT.

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 Identifying Your Client – PEFPs and PEPs
3. Ensure client is not a Politically Exposed Foreign Person (PEFP) or a Politically
Exposed Person (domestic) PEP.
A PEFP or PEP is defined as a person who holds or has held one of the following
offices or positions in or on behalf of a foreign country or domestically:
Head of state of government
Member of the executive council of government or member of a legislature
Deputy minister or equivalent risk
Ambassador or an ambassador’s attaché or counsellor
A military general (or higher rank)
President of a state-owned company or a state-owned bank
Head of a government agency
A Judge
Leader of president of a political party represented in a legislature
A prescribed family member of a person listed above
Due to their political position, these individuals may be susceptible to corruption
and/or bribery.

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 Identifying Your Client – PEFPs and PEPs con’t

You must take reasonable measures to determine if the client is a PEFP or PEP and
check the correct box on the Deposit Account Agreement. You must read the PEFP or
PEP description to the customer or give the customer the Deposit Account
Agreement to read the description and then ask the customer directly, “Does this
description apply to you?”

If the client says “Yes” they are a PEFP/PEP, record the information but DO NOT OPEN
THE ACCOUNT

DC Bank does not accept PEFPs or Domestic PEPs

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 Identifying Your Client – Occupation

Occupational Information:
You are required to ask where an applicant works and his/her occupation or principal
business and then choose the corresponding occupation from the drop-down menu.
If the drop down menu option does not specifically describe the occupation, choose one
that best applies and then manually write additional information on the DC Bank
Agreement form.
It is a requirement that occupation information be as descriptive and specific as possible.
For example, “contractor”, “owner”, “self-employed” are not specific enough as they do
not indicate the type of business the client is in. If the customer is retired, the customer’s
previous occupation such as “retired teacher”, “retired book keeper on CPP”;
“unemployed on social assistance”, or “unemployed on disability pension”, etc., should
be written on the form.
The field “occupation” is very important because it assists in determining source of
income.

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 Completing an Application

If a client refuses to provide all information required, a bank account CANNOT be

opened. An associate CANNOT issue a prepaid card, load a card or process any
transaction without the client providing all information required.
Place a copy of the signed Agreement/Terms and Conditions in a separate file and
store in a secure environment. All records must be kept in this file. Files must be
kept for a minimum of seven years.
Please ensure that the customer receives a copy of the Agreement/Terms and
Conditions.
If proper identification information is not collected and recorded, large fines can
be levied against H&R Block, you personally as an H&R Block associate, and/or DC
Bank.

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 Suspicious Activity

There are two types of suspicious transactions:

A completed suspicious transaction: a transaction that has occurred and is finalized
A suspicious attempted transaction: an incomplete transaction where after the
process was started the DC Bank employee or H&R Block associate decides to cancel
for a specific reason.

Both suspicious transactions and suspicious attempted transactions must be

reported and escalated to your compliance department. Failure to report a
suspicious transaction when you have reasonable grounds may result in criminal
penalties or fines to H&R Block, you personally as an H&R Block associate and/or DC
Bank
http://www.fintrac.gc.ca/publications/guide/guide2/2-eng.asp#s7

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 Examples of Suspicious Activity
FINTRAC has provided a list of suspicious transaction common indicators. These
indicators include:
Client admits or makes statements about involvement in criminal activities.
Client is accompanied and watched.
Client uses aliases and a variety of similar but different addresses.
Client indicates he/she has been to two or more locations on the same day.
Client states he/she does not have a local address but you suspect they reside
locally.
Client tries to use a post office box or General Delivery address or other type of
mail drop address instead of a street address when this is not the norm for that
area.
A client starts the process for a Pay With Refund but then leaves the branch when
asked for identification.
Client provides false information or information that you believe is unreliable.
Stated occupation of the client or the client’s financial standing is not in keeping
with the level or type of activity (for example a student or an unemployed
individual who undertakes a large-value transaction).

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 Suspicious Transactions: Things to Remember

When reporting a suspicious transaction (completed or attempted) or considering

making a report to the Compliance Department remember the following:
The more information you know about your customer, the better position you will be
in to determine whether the transaction is suspicious.

To report a suspected suspicious or attempted suspicious transaction, the Suspicious

Transaction Form must be immediately emailed to the H&R Block Compliance
Department at:

[email protected]

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 Where is the Form Located?
Path: CONTACT/Financial Services/Pay with Refund/Collateral Forms/Operational

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 Tax Evasion
Tax evasion is the term for the illegal nonpayment or underpayment of
tax.
On July 12, 2010 tax evasion became a money laundering offence;
because of this change you must now report any suspicious activity that
indicates your client may be involved in tax evasion.
Indicators of tax evasion include:
Transfer of large sums of money to foreign/low tax jurisdictions.
Transactions involving a country known for highly secretive banking
and corporate law.
Client and other parties to the transaction have no apparent ties to
Canada.
Client makes reference to transactions as ones being taken to try
and avoid taxes.
Tax avoidance is the legal usage of the tax regime in a single territory to
one's own advantage to reduce the amount of tax that is payable by
means that are within the law. As tax avoidance is legal, it does not
need to be reported as suspicious.

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 Reminder: Tipping Off

FINTRAC Guideline 2, Suspicious Transactions: states, You are not allowed to inform
anyone, including the client, about the contents of a suspicious transaction report or
even that you have made such a report, if your intent is to harm or impair a criminal
investigation. This applies whether or not such an investigation has begun.

Because it is important not to tip your client off that you

are making a suspicious transaction report, you should
not be requesting information from the individual
conducting or attempting the transaction that you
would not normally request during a transaction.

FINTRAC imposes monetary penalties on those who tip off anyone about a suspicious
transaction report if the intent is to harm or impair a criminal investigation.
NOTE: By reporting to FINTRAC, no criminal or civil proceedings may be brought against
you for making a report in good faith.

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 Exercise – Suspicious Transactions
Scenario:
A new client meets with you to have a tax return prepared. This client is not a
regular and you do not recognize him. You note the following things:
The client is abrupt and irritable and is overly impatient to have the process
completed, collect the ‘possible’ refund, and leave.
During the review of the customer’s tax documents, it is noted the individual has
generated a lot of revenue during the year and some of this revenue was generated
internationally.
When asked what the customer does for a living, the customer states they are a self-
employed consultant, providing no further information while citing privacy
regulations.
When asked for clarification on certain documents, the explanations do not always
make sense.
Hand written invoices and questionable supply and deduction receipts are submitted.
The customer appears overly thrilled with receiving a small return and is anxious to
leave.
Can you spot the suspicious indicators?

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 Exercise – Suspicious Transactions, Indicators
In this situation, the indicators of suspicious activity include:
The customer’s demeanor suggests their guard is up and that they might be hiding
something.
Some income statements provided were from international sources.
Customer provided limited information regarding their employment.
Customer puts up privacy regulatory walls to keep you in the dark
Some of the documentation appears questionable.
The customer is vague in explaining the relevance of certain documents.
The customer’s final response after receiving a return does not fit with the situation and
the customer’s behavior through the tax preparation process.

Remember: Any one indicator may not be suspicious, but you should consider all
indicators and the entire situation when considering if there are reasonable grounds to
suspect the client may be involved in a suspicious transaction like tax evasion. If you do
conclude that the transaction is suspicious, you should contact the H&R Block
Compliance Department as soon as possible at:

[email protected]

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 Questions?
Please contact the compliance department at:
[email protected]

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