On July 31st, the federal Department of Finance released its initial assessment of the inherent money laundering and terrorist financing risks in Canada. The country assessment responds to a key recommendation of the Financial Action Task Force (FATF), the global standard setter for anti-money laundering and anti-terrorist financing efforts, 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 and other entities that 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.
With respect to money laundering, the assessment considered the potential for 21 different for-profit crimes taking place in Canada. Not surprisingly, as Canada is an economically advantaged country, the risk of these crimes taking place in Canada was considered to be either very high or high for 17 of the 21.
The report then 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 very high or high vulnerability rating with banks, trust and loan companies, insurance companies, securities dealers and money services business all receiving a very high or 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 , as well as securities dealers, were found to have a high or very high risk of exposure to money laundering for eight of the nine threat categories.
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 with foreign fighters, people who travel abroad to support and fight along side a terrorist group, were assessed. The report then considered the potential vulnerability of the economic sectors and products to terrorist financing activities. As was done for money laundering, the country assessment provides an assessment of the risk of exposure of the sectors and products to a terrorist financing threat.
In addition to providing an opinion on the extent to which the sectors and products are exposed to money laundering and terrorist financing risks, the country assessment attempts to provide some examples of specific money laundering and terrorist financing scenarios. While not complete, these scenarios do contribute some information about the specific types of transactions to which an institution might be exposed.
What should financial institutions do?
Although most of the information contained in the country assessment will not be surprising to financial institutions, there are some steps that should be taken to address the report. With respect to money laundering, financial institutions should ensure that their anti-money laundering and terrorist financing programs have considered all of the for profit crimes identified in the country assessment. Institutions should also compare their risk assessments to the sector assessments set out in report and reconcile any inconsistencies. In the event that there are any threats that are determined to have been underweighted in prior internal assessments, institutions 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.
For a copy of the government’s risk assessment report, click here.