By canadianmerchantservices July 31, 2025
Do only banks and big financial firms have to worry about money laundering? Think again. Even your small business — whether it’s a retail shop, consulting company, digital service provider — can be used, without you even knowing it, to move illicit money.
The primary goal of Anti-Money Laundering (AML) rules is to keep criminals from being able to disguise or “launder” money they earned from illegal activities. FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) is the national agency that oversees suspicious financial activity detection and reporting in Canada.
As digital wallets, crypto exchanges, payment processor integrations, and remote business models explode, small businesses are more in the scope of regulators. If your business accepts large in-cash payments, transects in virtual currency, or provides financial services — even incidentally — you could have anti-money laundering, or AML, obligations under Canadian legislation.
This guide breaks down the Canadian AML framework, to whom it applies, what you are expected to do about it, and some easy steps to stay compliant without going overboard.
What is Money Laundering?
Money laundering is the process of making illegally obtained money appear legitimate. It enables criminals to feed money gained from fraud, drug trafficking, terrorism or other crimes back into the financial system without attracting attention.
The money laundering process includes three main stages:
- Placement – The phase where criminals place the illegal money in the financial system through deposits, or transaction of money, or through small trading.
- Layering —Complicated layers of transactions to obscure the whereabouts of money. That could mean moving money through various bank accounts or shell companies, or transferring it through other countries.
- Integration — The laundered money is returned to the economy as if it were generated by some legal activity: like invested in property, in companies, in luxury goods.
Why does this concern small businesses? Your business could unknowingly be used at any point — especially placement or layering. A client who paying an unusually large amount of cash or who is asking for out-of-the-ordinary refunds could signal a problem.
Growing international pressure is mounting on Canada to toughen its anti-money laundering laws to cut off the flow of illicit money. That means more oversight, and more responsibility—even for small, seemingly low-risk businesses.
Overview of Canada’s AML Laws and Regulations
Canada’s core anti-money laundering legislation is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This federal law sets the groundwork for detecting, deterring, and reporting suspicious financial activity across a wide range of industries—not just banks.
The core of the enforcement is FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), the national financial intelligence unit. FINTRAC receives and reviews information from transactions that could be related to money laundering or terrorist financing.
Businesses in high-risk industries, like real estate, financial services, accountants, dealers in precious metals and stones, and some retail operations are already required, under PCMLTFA, to be compliant, including:
- Filing reports on major cash deposits (in excess of $10,000) and indications of suspicious behavior
- Keep accurate, detailed records of transactions with clients.
- Introducing Know Your Client (KYC) to validate identities
- Continuous risk assessments for the nature of your business and clients
Failure to comply with these regulations can have stiff penalties. Penalties may vary from fines, administrative sanctions, criminal charges to withdrawal of licenses or closings of businesses.
If you’re a small business and you deal with high-risk transactions, foreign clients or significant amounts of cash, anti-money laundering compliance isn’t a choice — it’s a matter of the law.
Key AML Requirements for Small Businesses
Small businesses are also required to adhere to stringent anti-money laundering (AML) regulations in Canada if they work in industries deemed vulnerable. Here’s a breakdown of what would be required:
Know Your Customer (KYC) Procedures
The foundation of AML compliance is KYC—understanding who you’re doing business with.
- Before conducting some transactions, Authenticate your customer. This could be in the form of identification, letters or business registration.
- Keep identification evidence to show how you are in compliance.
- Take a risk-based strategy. High-risk customers (for example, those who are not resident, pay in cash or politically exposed) may enhanced due diligence, while basic checks may suffice for low-risk individuals.
Recordkeeping Obligations
Canadian anti-money laundering rules also requires certain business documents to be retained for a minimum of five years. This includes:
- Cash deposits and withdrawals of $10,000 or more, even if broken into smaller amounts
- Suspicious transactions, completed or not
- Know Your Customer (KYC) records collected from the customer
There needs to be a system of records that can be easily produced at the time of an audit or when reviewed by FINTRAC.
Reporting Obligations
You might be legally obligated to file if you spot any suspicious or high-risk activity. These need to be reported directly to FINTRAC (through its secure online portal), and timing is important – many reports are due 24-30 days after detection.
Compliance Program
Every reporting business must develop a formal anti-money laundering compliance program, which includes:
- Written policies and procedures tailored to your operations
- A designated compliance officer to oversee AML responsibilities
- Training staff on recognizing suspicious behavior and following procedures
- Periodic reviews or audits to test the effectiveness of your program
Even for small businesses, building a compliance culture can protect against fines, fraud, and reputational damage.
Common AML Pitfalls for Small Businesses
Many small businesses unknowingly break anti-money laundering (AML) laws — not because anyone wants to be a criminal, but because of lack of attention or incorrect assumptions. Here are some common errors which can result in severe compliance problems:
1. Accepting Large Cash Payments Without ID Checks
Not verifying a customer’s identity after accepting $10,000 or more in cash can lead to a violation. In some cases, customers also may “structure” payments into smaller sums to evade detection — and that practice still must be reported.
2. Ignoring Suspicious Activity or “Red Flags”
Transactions that don’t match a customer’s profile, last-minute changes to beneficiaries, or clients who avoid questions about funding sources should raise alarms. Failing to report these can result in fines.
3. Not Screening for Politically Exposed Persons (PEPs)
There is a high risk of money laundering associated with PEPs. If your business fails to screen for PEPs, you may unknowingly be doing business with high risk individuals.
4. Outdated Records or Poor Documentation
Just like KYC, AML compliance requires accurate and current records. Papers forms or customer data not maintained can undermine your compliance program.
5. Assuming Size = Exemption
A common misconception is: ‘We’re too small to count.’ But FINTRAC regulations apply to all reporting entities, big and small. Failure to report even one of them could result in audits or penalties.
Being aware, training, and having a proactive attitude are keys to avoiding these pitfalls.
Conclusion
Anti-money laundering (AML) compliance is more than just a box to be checked — it’s a shield to protect your business from financial crime, reputational damage, and legal liability. No matter what type of business you operate, whether it’s a small retail shop, an accounting firm or a service-based company, being aware of AML risks is an important facet of operating a responsible business.
It’s too late to wait until FINTRAC audits you, or slams you with a fine. Instead, take small, proactive steps. Begin with a simple risk assessment, then establish customer ID checks, better record keeping and staff training about what to watch for.
The world of AML compliance can seem daunting, but it’s definitely doable — especially if you consider it an investment in the long-term integrity and safety of your business. And here’s the thing to keep in mind: criminals target small businesses on the basis that they think you’re not going to be paying attention. Show them you are.
Frequently Asked Questions
1. Does AML compliance apply to all small businesses in Canada?
No, only to businesses in specific sectors like financial services, real estate, accounting, and those dealing in large cash transactions. But it’s wise for all businesses to be aware of AML principles.
2. What is FINTRAC and what does it do?
FINTRAC is Canada’s financial intelligence unit. It collects and analyzes data on suspicious transactions and enforces AML regulations under the PCMLTFA.
3. What is considered a “suspicious transaction”?
Any transaction that doesn’t make logical sense or seems designed to avoid reporting rules — like splitting payments just under $10,000 — can be flagged as suspicious.
4. How do I report a suspicious transaction?
Use FINTRAC’s online portal to file a Suspicious Transaction Report (STR). You must submit it as soon as practicable, ideally within 30 days of detecting the suspicion.
5. Do I need a compliance officer if I’m a solo operator?
Yes. Even solo businesses must designate a compliance officer — it can be you — and have a basic compliance plan in place.