Introduction

On July 31 2015 the Department of Finance Canada released its initial country assessment of the inherent money laundering and terrorist financing risks in Canada. The country assessment is a response to a key recommendation of the Financial Action Task Force (FATF) that countries identify, assess and understand their money laundering and terrorist financing risks. According to FATF, countries should use their assessments to ensure that the measures they are taking to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. The risk assessment is also intended to assist financial institutions, which are required to report suspicious transactions under Canada's anti-money laundering and anti-terrorist financing laws, to understand the risks that are present in Canada and their potential exposure to these risks.

Money laundering vulnerability

With respect to money laundering, the assessment considered the potential for 21 different for-profit crimes taking place in Canada. Unsurprisingly, as Canada is an economically advantaged country, the risk of these crimes taking place in Canada was considered to be either high or very high for 17 of the 21.

The report next looked at the economic sectors and financial products that were most vulnerable to being used to facilitate money laundering. In all, 21 sectors or products were considered to have a high or very high vulnerability rating. Banks, trust and loan companies and money services business all received a high or very high vulnerability rating.

The report then grouped the list of for-profit crimes into nine categories based on their inherent risk ratings from low to high and compared them to the vulnerable sectors. Using this approach, the country assessment found that banks, trust and loan companies, credit unions and caisse populaires have a high or very high risk of exposure to money laundering for eight of the nine threat categories.

Terrorist financing vulnerability

A similar approach was taken in respect of terrorist financing. Through a review of both public and non-public information, the terrorist financing threat associated with 10 terrorist groups and foreign fighters (people who travel abroad to support and fight alongside terrorist groups) was assessed. The report further assessed the potential vulnerability of the banking sector and products to terrorist financing activities.

Comment

Although most of the information contained in the country assessment will be of no surprise to financial institutions, certain steps should be taken to address the report. With respect to money laundering, financial institutions should ensure that their anti-money laundering and terrorist financing programmes have considered all of the for-profit crimes identified in the country assessment. They should also compare their risk assessments to the sector assessments set out in the report and reconcile any inconsistencies. In the event that any threats are determined to have been underweighted in prior internal assessments, they may need to consider the extent to which further risk mitigation steps are required in respect of these threats.

Similarly, any inconsistencies between internal ratings for terrorist financing risk and the ratings set out in the assessment should be reconciled. Again, further risk mitigation steps might have to be considered in areas where the risk was previously underweighted.

John Jason

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