The Financial Action Task Force logo during a news conference after a plenary session at the OECD Headquarters in Paris, on Oct. 18, 2019.CHARLES PLATIAU/Reuters
Canada will be one of the first countries whose ability to tackle financial crime will be evaluated under the new, more stringent criteria from the Financial Action Task Force, an intergovernmental body that sets standards to combat money laundering and terrorist financing.
That means there are no case studies for the country to look to as it prepares for the international review set to kick off early next year, experts and government officials say.
“We’re kind of a guinea pig,” Safeena Alarakhia, a Department of Finance official, said at a conference hosted by the Association of Certified Anti-Money Laundering Specialists in Toronto last month.
The task force, also known as the FATF, is an international, intergovernmental organization whose main objective is to set standards for combatting money laundering and terrorist financing, and to ensure that those standards are effectively implemented through a process of mutual country evaluations.
Countries that are found to be deficient in managing financial crime risks are added to the FATF’s grey list and subjected to increased monitoring. The FATF also maintains a blacklist of countries deemed high risk owing to what the organization calls “serious strategic deficiencies.”
Being grey-listed or blacklisted can have serious negative consequences for a country, for instance by curtailing foreign investment.
The upcoming round of evaluations will be completed under recently modified criteria that are more risk-based and place additional emphasis on the effectiveness of a country’s anti-financial-crime regime, rather than on technical compliance.
During Transparency International Canada’s annual Day of Dialogue event last week, Jeremy Weil, vice-president of the FATF, rattled off a number of recommendations that have been modified, including rules around beneficial ownership, asset recovery, cryptocurrencies and non-profit organizations.
“That’s why you’re seeing so many legislative amendments and that’s why you’ve been seeing such an active Department of Finance Canada, because we know that ... we have to raise up our game,” said Mr. Weil, who is also senior director of international financial crimes policy and sanctions at the Department of Finance.
“But that’s only on technical compliance. We also have to demonstrate that the laws and regulations are translating into results on the street corner,” he added.
Canada is the sixth country slated for evaluation under the revised criteria. The only Group of Seven country whose review will begin before Canada is Italy. Ms. Alarakhia said preparations are already under way for Canada’s evaluation, which will begin with written submissions. An on-site visit is scheduled for next December.
Canada’s last evaluation by the FATF occurred in 2016. At that time, the country’s framework for combatting financial crime was deemed to be strong, although a number of gaps were identified. For instance, the report flagged low levels of asset recovery and noted that the fact that lawyers are not required to report to Canada’s anti-money-laundering watchdog constitutes a “significant loophole.”
Law enforcement results were deemed “not commensurate with the money-laundering risk.” According to Criminal Intelligence Service Canada, an estimated $45-billion to $113-billion of illicit funds is laundered through Canada annually.
“While Canada has committed to strengthening oversight in response to FATF’s previous recommendations, the 2025 review will likely assess the effectiveness of these newly implemented measures to ensure progress,” said Samar Pratt, global financial crime compliance advisory leader at Paris-based consultancy Capgemini.
“It will be interesting to see how Canada fares in the 2025 evaluation given the very large-scale money-laundering scandal involving one of its major financial institutions,” Ms. Pratt added.
Earlier this year, Toronto-Dominion Bank became the first lender in U.S. history to plead guilty to conspiracy to commit money laundering, after a decade of moving money for criminal organizations and ignoring employees’ concerns.
Jessica Davis, president and principal consultant of advisory firm Insight Threat Intelligence, said there are a number of areas in which Canada may struggle to demonstrate that it has made improvements. Progress has been slow on key initiatives such as the creation of a national financial crime agency and increasing transparency around corporate ownership, she said.
Canada’s prosecutions for crimes such as sanctions evasion, terrorist financing and money laundering are “incredibly low, in some cases almost non-existent,” she added.
Ms. Davis said it’s not likely that Canada will land on the grey list, but there is a “non-zero chance.”
“There are some serious areas of partial compliance and, in some cases, non-compliance already for Canada going into this, and we haven’t made a lot of progress since the last time we had our follow-up” in 2021, she said.
Geopolitical tensions could also factor in, Ms. Davis said. “The FATF process is meant to be apolitical, but I think it would be naïve to ignore geopolitical realities.”
For example, she noted, if Canada were to be evaluated by assessors from the United States, they may factor in comments from president-elect Donald Trump, who has been pressuring Canada to crack down on the flow of drugs and illegal immigrants across the U.S. border.
Asked whether Canada could be grey-listed, Marie-France Faucher, deputy spokesperson for the Department of Finance, said in a statement that “the federal government has been investing to meet the evolving and complex nature of financial crime.”
“Canada expects the FATF will recognize the significant progress made in areas such as beneficial ownership, targeted financial sanctions and risk assessment and understanding,” Ms. Faucher said.
And Teresa Donnelly, president of the Federation of Law Societies of Canada, noted that although lawyers are not required to report to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), they are governed by law societies.
“Simply because FinTRAC is not the regulator does not mean there is no regulation. On the contrary, law societies across Canada are empowered through legislative authority to effectively oversee the legal profession and counter the risks to money laundering in the profession,” Ms. Donnelly said.