Canada’s anti-money laundering evaluation shows Canada is doing worse, not better, in combatting money laundering and terrorist financing

By Christine Duhaime | September 15th, 2016

Canada get 25% compliance grade from FATF

FATF notes the concern of proceeds of crime coming into real estate in Vancouver from China

The FATF Mutual Evaluation of Canada was released today and according to the Report, Canada achieved a grade of 25% compliance with international anti-money laundering and counter-terrorist financing standards. Out of 40 evaluation criteria, Canada was compliant in only 11 and was outright non-compliant in four categories. In the rest of the categories, Canada was partially or somewhat compliant with room to improve.

The 25% was derived from the number of areas of “compliance” in which there were 11 out of 40.

In a nutshell, here is a summary:

Where Canada failed

Areas where Canada failed include:

  • Beneficial ownership (Although I agree with this assessment, in fairness to Canada, the FATF clearly did not understand beneficial ownership (e.g.,corporate law) in Canada and the deficiencies it identified are not the actual deficiencies that exist in this area in Canada. For example, it referred to “professional trustees”, a concept that does not exist in Canada and it did not appreciate the fact that trusts and corporate records are maintained in law firms.
  • Lack of AML / CTF requirements for lawyers
  • Lack of AML / CTF requirements for online gambling. This failure is not accurate and repeats a mistake the FATF made of Canada in its last mutual evaluation wherein it failed to distinguish between online gambling undertaken by the public sector and that which is undertaken by the private sector from other countries that target Canadian consumers – the FATF lumped them together as one, which skewed the result.
  • Customer due diligence for FinTech, third parties and lawyers is inadequate.
  • FinTech not included as part of a risk assessment as required
  • Politically exposed persons – not compliant

Note worthy comment from FATF:

There are cases of Chinese officials laundering the proceeds of crime through the real estate sector, particularly in Vancouver and the Chinese government has listed Canada as a country that it wishes to target for recovering the proceeds of Chinese corruption. Canada may be particularly vulnerable to such money laundering as there is no extradition treaty with China.”

What this means for banks is that they are now going to have to add to their risk assessments, more protocols for money flowing into Canadian banks from China and particularly for real estate transactions, to ensure that they verify whether a person being on-boarded is a PEP and if so, to verify the PEP’s source of funds. Many banks ask PEPs to self-declare their PEP status, which is inconsistent with the law and not permissible, subjecting the banks to fines.

Where Canada scored so-so

The areas where Canada scored so-so include:

  • Employing risk based approach (I don’t fully agree with this one as our legislation is not risk-based)
  • Forfeiture of proceeds of crime (this is criminal legislation and not related to anti-money laundering law)
  • Terrorist financing offence – some criminalization absent from the Criminal Code
  • Oversight of terrorist financing – Canada does not have a body that monitors compliance with terrorist financing requirements (that is true and the same is true for sanctions)
  • Customer due diligence lacking in areas such as factoring, leasing and numbered companies
  • Record keeping requirements are not adequate in the law
  • Correspondent banking supervision lacking
  • Tipping off offence is not strong enough
  • Provincial inadequacies of monitoring listed companies
  • Lack of power to law enforcement for money laundering investigations
  • Cash couriers are not adequately reported by CBSA as cross border
  • Administrative fines are too low to be a deterrant
  • Lack of ability to engage in interception of communications of persons suspected of money laundering

Where Canada passed

The areas where Canada passed include:

  • Canada has a national coordinated approach to money laundering
  • The money laundering offence is adequate in the Criminal Code
  • The secrecy laws for banking are adequate
  • The regulation of money services businesses is adequate
  • Canada has a list of high risk countries as required
  • Canada’s supervisory powers are adequate
  • Law enforcement and investigations are fully met

You can read the full 200-page report here.

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