Legal & Compliance

ANTI-MONEY LAUNDERING AND COMBATING TERRORIST FINANCING POLICY AND PROCEDURES OF SPARK TECH HUB LIMITED.

AML Email: compliance@sparktechs.ca

Website: https://sparktechs.ca

Last Updated: 1 April 2024

Next Review Date: 1 April 2025

Introduction

The objective of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (hereinafter: the AML/CTF Act) is to help detect and deter money laundering and the financing of terrorist activities. The following Policy and Procedures outlines the minimum regulatory requirements applicable to SPARK TECH HUB LIMITED. (hereinafter SPARK TECH HUB) business operations. SPARK TECH HUB has responsibilities to ensure that the company complies with requisite AML/CTF legislation, consisting of but not limited to, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its relevant by-laws and Guidelines. All employees of the company, including Senior Management have individual obligations in respect of the prevention of money laundering and terrorist financing. These are taken seriously at all levels and robust measures are taken to ensure that any efforts to launder the proceeds of criminal activity through company operations are prevented and reported. When suspicion of money laundering or terrorist financing arises, the company will ensure that it is dealt with appropriately, with regards to individual circumstances and the requirements of the relevant legislation. The company recognizes that failure to comply with the AML/CTF Act, on its part or any individual employed by the company, may result in sanctions being imposed against the company and that these sanctions may include prosecution, loss of license, fines, confiscation and could affect the ability of the company to operate in the future.

In order to ensure that the company and its employees are not in breach of AML/CTF Act the company will:

Establish and implement a program intended to ensure their compliance with the provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Appoint an AML/CTF Compliance Officer, who is part of the senior management, and a corresponding AML/CFT support team.
Deliver staff training at all levels on topics such as, but not limited to, the obligations prescribed by the AML/CTF Act, the types of money laundering and terrorist financing risks that face the company, and the processes and procedures prescribed by the AML/CTF Program.
Operate an independent audit process that validates the undertaken measures and ensures they are in compliance with the AML/CTF Act and other applicable regulations whilst also identifying any points of difficulty or uncertainty.
Conduct a risk assessment of the organization, while ensuring that clients and businesses deemed high risk are given extra examination.
Maintain reports, records of anti-money laundering, and counter terrorist financing activities for inspection by the supervisory authority.
Provide a source of communication for all enquiries or questions regarding The Policy and create a reporting procedure that directs information to the AML/CTF Compliance Officer.
Ensures that all suspicious matters, including risks related to money laundering, terrorist financing or other crimes, are quickly reported to FINTRAC.
Ensure that all regulatory reporting, such as transaction and compliance reports, are done in a timely and comprehensive manner.
Examine actions committed by employees that are in breach of company policies and procedures and take corrective action such as disciplinary action or summary dismissal.
Undertake appropriate measures to ensure that Know Your Customer Procedures are applied to all customers.
Implement a Sanctions Program that utilizes information from all applicable Sanctions lists. 13. Undertake activities to keep records at least five years from the date record was created.

This policy will be updated according to new legislation and regulations. Additionally, the company’s entire compliance procedures will undergo a two-year effectiveness review. The goal of which is to identify the success of the program, and undertake any measures to improve procedures.

Definitions

AML/CTF Act: Proceeds of Crime (Money Laundering) and Terrorist Financing Act
AML/CTF Regulations
a. The Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations
b. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations
c. The Cross-Border Currency and Monetary Instruments Reporting Regulations • The Proceeds of Crime (Money Laundering) and Terrorist Financing Registration Regulations
d. The Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations
FINTRAC: Financial Transactions and Reports Analysis Centre of Canada
The Company: SPARK TECH HUB LIMITED.
Funds: Assets, economic resources or properties of any value or type, however acquired, whether material or immaterial, movable or immovable, tangible or intangible, along with documents, deeds, transfers, letter of credits and instruments of any form, including digital currencies or electronic or digital systems and bank credits that evidence ownership or interest therein, also all types of commercial papers, securities, or any interest, profit or other income generated from such funds.
Financial Institution (FI): Any conduct as a business one or more of the financial activities or operations, including but not limited to a bank, building society, credit union
Customer: The person whose digital currency or money is exchanged. The company accepts only individuals as customers.
Beneficial Owner: Individual that is entitled any individual who is entitled (either directly or indirectly) to exercise 25% or more of the voting rights, including a power of veto, or holds the position of senior managing official (or equivalent); any individual who holds the power to appoint or remove the trustees of the trust; any individual that would be entitled on dissolution to 25% or more of the property of the association or registered co-operative
PEP: Politically Exposed Person
Business relationship: Relationship with a continuing nature, which is established between the company and its customers
Shell Bank: A bank that is incorporated or licensed in a country in which it has no physical presence and that is unaffiliated with a regulated financial group that is subject to regulation and supervision
Transaction: Disposition of funds, including depositing, withdrawing, transferring, selling, purchasing, exchanging digital currency for fiat currency or fiat currency for digital currency
KYC Procedure: Know Your Customer Procedure
Due Diligence Measures: The process of obtaining or verifying information on a customer or beneficial owner to enable the company to assess the extent to which the customer exposes it to a range of risks
CDD: Customer Due Diligence
EDD: Enhanced Due Diligence
SDD: Simplified Due Diligence

Scope of the Policy and Procedures

The Policy is applicable to all employees of the company, including Senior Management.

The AML/CTF Compliance Officer is responsible for overseeing the regulations stipulated in The Policy and is responsible to implement regular updates when necessary. The Policy is to be updated upon any changes in the AML/CTF legislation or in the event of any significant changes in the business model of the company.

Senior Management is responsible for ensuring adequate resources are in place so that the company is able to comply with all applicable legislation. This includes, but is not limited to, providing an adequate number of high-qualified staff, adequate training budgets, and providing direct contact between the AML/CTF Compliance Officer and Senior Management.

All employees are obligated to cooperate with the AML/CTF Compliance Officer and must report any activity that may arise from their daily activities and are related to the implementation of the AML/CTF legislation.

Risk Based Approach

The RBA ensures that before offering a new product, the company will undergo a risk assessment to identify the potential for the product to be used for the purposes of money laundering and terrorist financing.

The Risk Assessment should provide the company with all necessary information to identify any risks of money laundering and terrorist financing the company faces. The Risk Assessment is tailored specific to the company insofar that the volume is appropriate to the size of the company, the type of business the company conducts, the geographic area where business is conducted, the profile of its customers, and regulatory requirements, are all considered. The Risk Assessment should provide the company with information regarding any residual risk.

The RBA identifies two types of risks: inherent and residual. Inherent risks are the risks that exist before control measures are implemented, on the other hand, residual risks are the risks that exist after controls have been put into place. When risks are identified through the RBA, each risk is classified into one of these two categories.

The next component of the RBA is mitigation of the risks identified in the Risk Assessment. The mitigation of these risks is done on three levels.

The first line of defense is the employee that interacts with the customer. Communicating properly designed Know Your Customer (hereinafter “KYC”) processes to all the employees that interact with customers is a key element in establishing the first line of defense. The Customer Due Diligence (CDD) process intends to identify where enhanced due diligence and simplified due diligence needs to be performed.

The second line of defense are the AML specific employees. AML specific employees have relevant anti money laundering training. This includes, but is not limited to, thorough training of this Policy, FINTRAC specific training, PCMLTFA legislation and regulations training, and general anti-fraud training.

Moreover, AML employees are required to train the rest of the employees in the company, including the senior management, in regard to AML procedures.

The third line of defense in the company is the Internal Audit. Independent audits of the AML system will assess all activities that are performed by the AML dedicated employees, including but not limited to, the internal regulations, reporting, training, record keeping, transaction monitoring, and software used.

Risk Based Approach Cycle

SPARK TECH HUB follow the RBA cycle that has been laid out by FINTRAC. The company engages in the following to meet the cycle’s requirements.

SPARK TECH HUB begins by assessing the organization for any risks that exist related to products, delivery channels, geographical issues, new technologies, certain clients and business relationships, the activities of foreign affiliates, and any other relevant factors.

This risk assessment begins by SPARK TECH HUB introspectively looking at the entire business operation. When a risk is identified, the organization will record such risk, label the severity of the risk, the reason why the risk is concerning, and an action plan to minimize the risk.

During this process the company is also determining and managing its risk tolerance. SPARK TECH HUB operates with a risk tolerance that is more sensitive to risks than a traditional company.

The company will then evaluate the residual risks that have been mitigated. If the residual risks exceed the risk tolerance for the company, a new action plan will need to be implemented to further mitigate the risk.

This process will be continuously audited and reviewed by SPARK TECH HUB to ensure that new risks are identified, action items are continuing to mitigate risks, and the overall system is working.

Money Laundering and Terrorist Financing

Definitions of Money Laundering and Terrorist Financing Money laundering is the process of converting the proceeds of illegal activities into funds that originate from seemingly legal sources without identifying their true source, nature or ownership. Money Laundering involves the process of legalizing assets that originated from criminal activities by incorporating them into legitimate channels of the financial system. Terrorist financing includes providing or collecting funds or other assets by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used in full or in part, to carry out a terrorist act, to be used by a terrorist organization, or by an individual terrorist. The purpose of financing terrorism is to arouse fear or fulfill certain political goals. Terrorism financing may include financing from legitimate sources, such as loans, salaries, profit from business, donations from or to Non-Profit Organizations, personal donations, humanitarian organizations. Individuals may also use funds that are illegally obtained from criminal activities.

Differences between Money Laundering and Terrorist Financing The main differences between money laundering and terrorist financing are presented in the table below:

Money Laundering Terrorist Financing

Motivation	Profit	Ideology
Source of funds	From criminal activity	From criminal activity From external sponsors
Channels	Formal financial system	Non-formal financial system
Focus on detection	Suspicious transactions, not typical for the financial status of the customer or the expected activity	Suspicious connections, seemingly non connected transactions that can lead to connected person
Amounts	Huge amounts, usually structured to avoid the reporting limits	Small amounts, under the reporting threshold

Stages of Money Laundering

For the offense of money laundering to happen, a predicate offense that generates funds is required. The money laundering process includes three stages: placement, layering and integration.

Predicate offense Predicate offense includes all types of crimes where illegal funds are generated.

Placement In this stage the purpose is to enter the “dirty” funds into the financial system, through either financial institutions or non-financial institutions that carry out certain financial activities.

This phase can involve a series of transactions such as:

Purchase of gambling chips or placing bets;
Scattering large sums of cash in small quantities;
Purchasing foreign money with the funds;
Repayment of loans or credit cards;
Co-mingling dirty funds with a legitimate cash in a business; and
Buying valuable items.

Layering

Layering includes numerous financial transactions in order to separate illegally obtained funds from their source. In this stage the money launderer will send the funds across numerous different channel and entities. The goal of this stage is to cover any trace, source, or ownership of the assets. Essentially, try to conceal the funds from the original crime.

This stage includes:

Frequent transactions and frequent use of wire transfers;
Depositing funds that are quickly withdrawn;
Purchase and sale of valuable assets, monetary instruments, and ;
Rapid exchange of currencies, where the deposit and outflow appear to be similar in aggregate value and timeframe.

Integration

The last stage of the money laundering process is integration, where the illegal funds are integrated into the financial system as legal. The third phase places funds into the traditional economy, which appears to have derived from legal economic activity. At this stage of the money laundering process it is very difficult to distinguish illegal from legal assets. Money launderers can invest these funds into real estate, luxury goods, or any type of business that they want.

Measures for Preventing Money Laundering and Terrorist Financing

AML/CTF Compliance Officer

The company acknowledges the risk of being used in the process of money laundering and terrorist financing. Therefore, the Manager appoints an AML/CTF Compliance Officer, who is responsible for identifying, assessing, and mitigating the risk that arises from money laundering and terrorist financing.

The AML/CTF Compliance Officer is responsible for ensuring that The Policy is implemented. All company matters involving money laundering will be referred to the AML/CTF Compliance Officer for consideration and investigation. This also includes such matters as consent to trade, the procedures for dealing with customers who may fall into the category of politically exposed person (PEP), individuals subject to sanctions, individuals in which a business relationship will increase the risk of money laundering and/or terrorist financing, or may even expose the company to the risk of regulatory fines.

The company has a clearly laid down structure for reporting any suspicious activity regarding AML/CTF. It is the AML/CTF Compliance Officer’s responsibility to consider, investigate, and report such matters in a timely and prescribed manner.

The AML/CTF Compliance Officer will produce a monthly and annual report, together with reports commissioned by senior management, to ensure they are informed of matters, issues, and risks that may be suspected or identified concerning money laundering.

The roles and responsibilities of the AML/CTF Compliance Officer are as follows:

Identifies and monitors alerts generated on customers’ transactions;
Reporting of suspicious activity to FINTRAC.
Identifying trends and system weaknesses which may expose the company or its operators to risk of abuse by criminals.
Conducting training awareness programs for all company employees, including senior management.
Manage, monitor, and audit the effectiveness of all AML/CTF policies and procedures.
Be aware of all current and relevant AML/CTF Legislation, processes, and guidance.
Ensure that all guidance and information from the Regulatory Authorities is received, understood, and implemented within the company’s procedures.
Manage the processes used to identify individuals affected by sanctions.
Prepare and present periodic reports, which show changes to the AML/CTF processes or legislation, and the typologies of cases considered and reported by staff.
Manages and coordinates regulatory examinations.
To communicate with the Board of Directors of any risks that have been identified.
Act as a liaison with 3rd-Party Suppliers.

In any case, if the necessary preventive measures are delegated to another financial institution, the AML/CTF Compliance Officer will oversee that system to ensure that all measures are considered by that financial institution. This includes, but is not limited to, sanctions, due diligence, identification and verification of the customers, identifying the purpose and nature of business relationship, and monitoring of transactions. The Manager of the company has the authority to delegate these processes, after being provided with the opinion of the AML/CTF Compliance Officer.

However, the company should be confident in the third-party provider’s ability to meet compliance standards, especially if the third party carries out CDD. The AML/CTF Compliance Officer and the Board of Directors retain the ultimate responsibility for meeting the anti-money laundering and counter terrorist financing obligations.

For efficient operations of the AML/CTF Compliance Officer, the company ensures at least the following conditions:

independence of the AML/CTF Compliance Officer;
direct access to electronic databases and timely access to all information;
establishing direct communication with the Board of Directors;
resources for training.

For a person to be appointed as AML/CTF Compliance Officer, the company ensures that the person appointed meets high professional and ethical standards such as:

has not been convicted of offenses against property, public finances, payment operations, public office, public order, or against humanity and international law;
has relevant education, professional knowledge, and experience in the field of money laundering and terrorism financing;
has good knowledge of the entity’s business and business processes;
has the necessary authority and access to resources in order to implement an effective compliance program and make any desired changes;
understands the business sector’s requirements under the PCMLTFA and associated Regulations.

The appointed AML/CTF Compliance Officer is a member of the Senior Management of the company.

Employee Due Diligence Procedure

The Employee Due Diligence Procedure sets the principles for adequate screening of potential employee candidates.

The AML/CTF Compliance Officer is responsible for overseeing the process of employing individuals that may misuse company services for money laundering and/or terrorist financing activities.

Employees that are involved in monetary transactions, the onboarding of clients, and all employees on managerial level in the company, are subject to appropriate screening before signing employment agreements.

The social media presence of employees will also be checked on a regular basis to confirm that the employee is not living beyond their means, or engaging in activity that may facilitate money laundering or terrorist financing. This procedure is also applied when employees are promoted, in particular when that promotion could allow the employee to facilitate money laundering or terrorist financing.

An employee that breaches the provisions of The Policy may be subject to one or more of the following activities:

Retraining of the company’s AML training program, with specific attention to the area of the breach;
Reassignment to a working position that does not present a risk of money laundering or terrorist financing;
Dismissal and termination of the employment agreement.

The Manager of the company has the right to decide which action shall be undertaken if an employee breaches the provisions of this Policy and Procedures.

AML/CTF Training Procedure

The company provides training to all its employees including the members of Senior Management. All employees are trained on anti-money laundering and terrorist financing procedures and regulations. The training is used to increase all employees’ knowledge and raise awareness of the subject. Training is performed at least on an annual basis and is conducted by the AML/CTF Compliance Officer or third parties, with relevant knowledge of the prevention of money laundering and terrorist financing, that have been approved by the AML/CTF Compliance Officer.

The training may be conducted in-class or online. The vast majority of SPARK TECH HUB employees operate remotely, thus this training is likely to be performed online.

The topics that should be presented for all employees during the training sessions are as follows:

Introduction to the concepts of money laundering and terrorist financing;
Legislation, guidelines, and international standards used for the prevention of money laundering and terrorist financing; The stages of money laundering;
Money laundering schemes; How to prevent nefarious actors from using the company for money laundering and terrorist financing;
Information regarding the companies KYC and verification measure for establishing a business relationship;
Risk types of customers, countries of payment, and products;
Activities related to money laundering and terrorist financing;
Example of cases for money laundering and terrorist financing.

This list is non exhaustive and can be changed from time to time as needed. The topics for training are subject to change as new information and typologies for misusing the company for money laundering and terrorist financing come to light. Also, since one of the training’s purposes is for employees to implement these regulations into their daily work processes, the training is updated upon changes in the relevant regulations.

The training for the Senior Management includes, but is not limited to:

Introduction to the concepts of money laundering and terrorist financing;
Legislation, guidelines, and international standards used for the prevention of money laundering and terrorist financing;
How to prevent nefarious actors from using the company for money laundering and terrorist financing;
Risk types of customers, countries, and products;
Activities related to money laundering and terrorist financing;
Example of cases for money laundering and terrorist financing.

The list is non exhaustive and can be changed from time to time as needed. The topics for the training are subject to change as new information and typologies for misusing the company for money laundering and terrorist financing come to light.

Records for all training events will be held by the AML/CTF Compliance Officer, through a list of attendees, dates of the training, and topics included

Independent Audit

The company performs audits on the AML system, to monitor the processes, procedures, policies, and overall activities undertaken to comply with the AML/CTF legislation. Accordingly, the AML audit is performed on an annual basis.

The company elects an independent audit function to test the effectiveness and adequacy of the measures undertaken to comply with the relevant legislation. The audit function reports directly to the Manager of the company.

At a minimum the annual audit includes the following:

Evaluation of internal policies and procedures related to AML/CTF, to determine compliance with the applicable legislation;
Review of the internal controls, related to money laundering and terrorist financing prevention, that are performed by the company;
A review of the adequacy of the AML/CTF Risk Assessment;
Transaction testing, with particular emphasis on high-risk transactions;
Review the action prescribed by The Policy (ex. Training, regular reporting, filed STRs, KYC, reporting to the Senior Management, etc.);
Review of the sanctions program;
Tracking of previously identified deficiencies and corrective measures taken.

For all findings that arise from the regular annual audit, a report is issued that contains the deficiencies. The report is presented to the Manager of the company.

The AML/CTF Compliance Officer is responsible for preparing an Action Plan, which includes all the findings of the audit and the implementation deadlines for measures to improve processes, controls, policies, and procedures in the company. The company should keep all records related to the performed audits.

Know Your Customer Procedure

Know Your Customer (KYC) procedures are the processes used to obtain and verify customer identities. SPARK TECH HUB performs KYC verification on all individuals that create an account.

The primary goal of KYC Procedures is to prevent the company from being used in the process of money laundering, terrorist financing, or other illegal activities. SPARK TECH HUB’s KYC procedures have been created in accordance with the requirement of Money Service Businesses as laid out by FINTRAC.

For every individual that creates an account with SPARK TECH HUB, the following information is collected:

A current government issued photo identification that indicates the person’s legal name as well as a include a unique identifying number;
Utility bill or bank statement, in the name of the government issued ID, that confirms residential address;

SPARK TECH HUB only accepts individuals (natural persons) as customers. All customers are subject to appropriate levels of due diligence, using the risk-based approach that the company has established.

Prior to establishing a business relationship with a customer, SPARK TECH HUB identifies the customers that represent an unacceptable risk related to money laundering and terrorist financing. The following categories of customers are deemed high risk and a business relationship will not be established:

Individuals with expired personal identification documents;
Customers that are listed on the Consolidated Canadian Autonomous Sanctions List, including customers listed on OFAC, European Union, FATF, and UN Security Council sanction lists;
Customers whose identity cannot be verified;
Customers that request anonymity and refuse to provide identification information;
Customers that derive from the List of Non-Acceptable Countries;
Customers whose beneficiary cannot be identified.

All customers, before entering into business relationships with the company, are screened against all available Sanctions lists. An example of KYC Questionnaire is set in Appendix 4 and may be amended from time to time.