Risk Management and Crisis Response Blog

Federal government tables long-awaited legislation for a corporate beneficial ownership registry

May 4, 2023 5 MIN READ
Authors
Sarah Firestone

Associate, Disputes, Toronto

Malcolm Aboud

Counsel, Disputes, Toronto

safe filled with money

On March 22, 2023, the Government of Canada tabled legislation that would create a corporate beneficial ownership registry under the Canada Business Corporations Act (CBCA).[1] The proposed registry is a significant development from an anti-money laundering (AML) perspective, aimed at assisting both enforcement authorities and regulated entities with anti-money laundering obligations in identifying those who seek to misuse complex corporate structures to facilitate financial crime.

Background

Following data leaks such as the Panama Papers and FinCEN Files, corporate transparency has been increasingly front of mind for governments based on revelations of privately held numbered corporations being used as vehicles for money laundering and illicit activities (see our previous blog post, “Canada’s budget introduces long-awaited beneficial ownership registry to combat money laundering”).

Revelations of corporate vehicles being abused to facilitate economic crime were also among the findings of the Commission of Inquiry into Money Laundering in British Columbia (the Cullen Commission) (see our Legal Year in Review article and blog post, “Cullen Commission releases final report on money laundering in British Columbia,” for further details). These and other developments have resulted in a number of jurisdictions, such as the U.K. and U.S., implementing beneficial ownership transparency legislation.

As part of that trend, in 2021 the Government of Canada announced funding to build and implement a publicly accessible corporate beneficial ownership registry by 2025. This timeline was expedited in March 2022,[2] moving the anticipated implementation of the proposal up to 2023.

The legislation

Companies incorporated under the CBCA are currently required to collect and maintain a register of individuals with significant control over the corporation. Individuals with significant control include an individual who owns, controls or has direction over direct a significant number of shares (generally 25% or greater), has significant influence over the corporation, has a combination of any of these factors, or owns or controls a significant number of shares with one or more individuals.

The information required to be collected includes each individual’s name, address for service, residential address, the day on which they acquired or ceased to have significant control, a description of how they are an individual with significant control (i.e., interests and rights in the corporation) and any other prescribed information.

The proposed amendments would require beneficial ownership information — which is currently required to be disclosed only in specific circumstances, such as on request or disclosure to investigative bodies — to be reported to the government on an ongoing basis, and for certain of that information to be made publicly available by the government.

 Other changes in the proposed legislation include

  • the introduction of protections for whistleblowers
  • bolstering of the powers of Corporations Canada to make enquiries
  • the introduction of an exemption regime for certain individuals who may face harm from public disclosure, including minors
  • criminal and monetary penalties to ensure compliance with the new regime
  • the facilitation of information-sharing and data validation

Directors, officers and shareholders who undermine the prospective new regime would be subject to fines of $200,000, six months in prison, or both. Corporations found not to be in compliance would be subject to fines of $5,000.

Implications under provincial legislation

The proposed registry would only apply to companies federally incorporated under the CBCA. As a result, companies incorporated under provincial legislation would not be subject to the new obligations or the proposed registry.

The proposed amendments do allow for the government to share information from the registry with provincial corporate registries and authorities. In addition, some provinces have implemented their own registries, though they are generally not public:

  • Privately held corporations in Ontario are required to keep beneficial ownership information (or “individuals with significant control”), similar to the current requirements under the CBCA, in an internal register (with certain limited disclosure when requested by law enforcement or regulatory and tax authorities).[3]
  • In British Columbia, companies must maintain a transparency register that current directors of the company, law enforcement, tax authorities and regulators may view. Following recommendations in the final report of the Cullen Commission for land owner transparency and improving real estate data collection, British Columbia also launched its Land Owner Registry in November 2020. The registry was opened to public search in April 2021.
  • In Québec, new obligations came into effect on March 31, 2023, requiring registration with the Québec Enterprise Registrar. This information is expected to be accessible to the public by March 2024.

The federal government has also indicated that the new registry will be scalable to include information held by provinces that decide to participate. However, companies incorporated under provincial legislation that does not include requirements for collection and disclosure of beneficial ownership information would not be subject to such obligations. It remains to be seen whether the provinces will follow to the lead of the federal registry.

Implications

In addition to facilitating enforcement, the proposed legislation may assist companies in complying with their existing AML obligations. Specifically, the registry may be an additional tool for regulated entities under the Proceeds of Crime (Money Laundering and Terrorist Financing Act (PCMLTFA) that are subject to beneficial ownership and know-your-client (KYC) obligations. For further discussion of the 2021 amendments to the PCMLTFA, including with respect to beneficial ownership reporting obligations for all reporting entities, see our Anti-money laundering in Canada guide.

It is still unclear how information from the registry will be made publicly accessible and what form this will take. Different jurisdictions are grappling with how best to balance legitimate business interests in confidentiality with the fight against money laundering and other financial or economic crimes.

Companies incorporated under the CBCA should be prepared to begin reporting this information to the government following passage and coming into force of the proposed legislation. The impact this will have on provincially incorporated companies remains to be seen.


[1] Bill C-42, An Act to amend the Canada Business Corporations Act and to make consequential and related amendments to other Acts.