The Financial Action Task Force (FATF) monitors each country’s compliance with the FATF Recommendations on a periodic basis and issues a report on compliance with the expectation that the country will fix any reported deficiencies.
The FATF has completed its 3rd round of mutual evaluations and is preparing for the 4th round.
The most recent mutual evaluation of Canada, completed in February 2008, is illustrative of the process. Evaluations are conducted by persons who are not from the country being evaluated on the assumption that they are better able to understand the laws of the target country in a neutral fashion. In the case of Canada, the third mutual evaluation was conducted by persons from Jamaica, France, Hong Kong, New Zealand, Belgium, and U.S. The evaluation was comprehensive but was incorrect in a number of respects.
The mutual evaluation of Canada found, among other things, that:
- The Canadian law that requires an intent mental element to prove the money laundering offence was inconsistent with the FATF Recommendations.
- Canada did not have a sufficient number of prosecutions for money laundering offences.
- Canada did not have a sufficient number of prosecutions for terrorist financing offences.
- Canada’s and the UN’s lists of terrorists and terrorist organizations was not well communicated in Canada.
- There were serious issues with respect to the effectiveness of FINTRAC because the number of staff is low, and law enforcement agencies had negative feedback on the value of disclosures by FINTRAC.
- Police forces in Canada had financial and other constraints that limited their ability to investigate money laundering and terrorist financing activities. In the case of the RCMP, it focuses its efforts mainly on large, complex money laundering cases related to organized crime due to constraints on resources. The mutual evaluation recommended that judges and the courts be instructed on money laundering and terrorist financing generally.
- Several entities that provided financing services were not caught by the anti-money laundering legislation, such as factoring arrangements, finance leasing services, businesses that issue credit cards, equipment financiers and providers of e-money and Internet services.
- The required methods for reporting entities to ascertain identity were inadequate.
- Canada had no legislative provisions to deal with politically exposed persons or correspondent banking relationships.
- Canada did not have legislation to prevent bank secrecy.
- Canada did not have legislation to record, monitor and report wire funds transfers above a certain threshold.
- Canada had no requirement that complex large transactions be monitored by financial institutions.
- FINTRAC performed an insufficient number of examinations of reporting entities except for banks.
- The securities industry was minimally (if at all) supervised by provincial securities regulators. The same was found in connection with life insurance companies.
- FINTRAC had not yet criminally charged reporting entities of their directors and officers.
- Although illegal, Internet casinos were not caught by the anti-money laundering legislation in Canada (such casinos are only illegal if not conducted and managed by a provincial government under the Criminal Code).
- Internet servers that provide services to illegal Internet casinos should be shut down by Canada.
- The legislation applicable to casinos, real estate agents and accountants was not compliant with the FATF Recommendations.
- FINTRAC could not effectively monitor the application of the legislation of non-financial reporting entities because of limited resources.
- Casinos should be supervised more closely with on-site examinations.
- Corporate registry systems do not permit persons to find out beneficial information.
- Trust information should be made available to law enforcement agencies.
At the conclusion of the mutual evaluation, Canada determined that the FATF mutual evaluation had failed to consider, or refer to, several key legislative provisions in force in Canada, including for example, the application of the Bank Act and the constitutional impediment to FINTRAC having investigative powers and requesting information for investigations.
With respect to the casino industry in Canada, the mutual evaluation failed to understand how gambling activities are authorized under the Criminal Code, and the distinction between legal and illegal Internet gambling.