CANADA
Summary

Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

US Dept of State Money Laundering Assessment

Not on EU White list equivalent jurisdictions

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Canada is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Canada was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Canada was deemed Compliant for 11 and Largely Compliant for 18 of the FATF 40 Recommendations.

Key Findings

The Canadian authorities have a good understanding of most of Canada’s money laundering and terrorist financing (ML/TF) risks. The 2015 Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada (the NRA) is of good quality. AML/CFT cooperation and coordination are generally good at the policy and operational levels.

All high-risk areas are covered by AML/CFT measures, except legal counsels, legal firms and Quebec notaries. This constitutes a significant loophole in Canada’s AML/CFT framework.

Financial intelligence and other relevant information are accessed by Canada’s financial intelligence unit, FINTRAC, to some extent and by law enforcement agencies (LEAs) to a greater extent but through a much lengthier process. They are used to some extent to investigate predicate crimes and TF activities, and, to a much more limited extent, to pursue ML.

FINTRAC receives a wide range of information, which it uses adequately, but some factors, in particular the fact that it is not authorized to request additional information from any reporting entity (RE), limit the scope and depth of the analysis that it is authorized to conduct.

Law enforcement results are not commensurate with the ML risk and asset recovery is low.

Canada accords priority to pursing TF activities. TF-related targeted financial sanctions (TFS) are adequately implemented by financial institutions (FIs) but not by designated non-financial business and professions (DNFBPs). Charities (i.e. registered NPOs) are monitored on a risk basis.

Canada’s Iran and Democratic People’s Republic of Korea (DPRK) sanction regime is comprehensive, and some success has been achieved in freezing funds of designated individuals, there is no mechanism to monitor compliance with proliferation financing (PF)- related TFS.

FIs, including the six domestic systemically important banks, have a good understanding of their risks and obligations, and generally apply adequate mitigating measures. The same is not true for DNFBPs. REs have gradually increased their reporting of suspicious transactions, but reporting by DNFBPs other than casinos is very low.

FIs and DNFBPs are generally subject to appropriate risk-sensitive AML/CFT supervision, but supervision of the real estate and dealers in precious metals and stones (DPMS) sectors is not entirely commensurate to the risks in those sectors. A range of supervisory tools are used effectively especially in the financial sector. There is some duplication of effort between FINTRAC and the Office of the Superintendent of Financial Institutions (OSFI) in the supervisory coverage of federally regulated financial institutions (FRFIs) and a need to coordinate resources and expertise more effectively.

Legal persons and arrangements are at a high risk of misuse, and that risk is not mitigated.

Canada generally provides useful mutual legal assistance and extradition. The authorities solicit other countries’ assistance to fight TF and, to a somewhat lesser extent, ML. Informal cooperation is generally effective and frequently used.

Risks and General Situation

Canada has a strong framework to fight ML and TF, which relies on a comprehensive set of laws and regulations, as well as a range of competent authorities.

It faces an important domestic and foreign ML threat, and lower TF threat. As acknowledged in the public version of the authorities’ 2015 assessment of Canada’s inherent ML and TF risks (the NRA), the main domestic sources of proceeds of crime (POC) are fraud, corruption and bribery, counterfeiting and piracy, illicit drug trafficking, tobacco smuggling and trafficking, as well as (to a slightly higher level than assess) tax evasion. Canada’s open and stable economy and accessible financial system also make it vulnerable to significant foreign ML threats, especially originating from the neighbouring United States of America (US), but also from other jurisdictions. The main channels to launder the POC appear to be the financial institutions (FIs), in particular the six domestic systemically important banks (D-SIBs) due to their size and exposure, as well as money service businesses (MSBs). While not insignificant, the TF threat to Canada appears lower than the ML threat. A number of TF methods have been used in Canada and have involved both financial and material support to terrorism, including the payment of travel expenses of individuals and the procurement of goods.

 

US Department of State Money Laundering assessment (INCSR)

Canada is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

Money laundering activities in Canada primarily involve the proceeds of illegal drug trafficking, fraud, corruption, counterfeiting and piracy, tobacco smuggling and trafficking, and tax evasion. Cannabis production in the province of British Columbia is estimated to be worth CAD4-6 billion (approximately $3-4.4 billion) annually. Significant amounts of foreign-generated proceeds of crime are laundered in Canada, and professional, third-party money laundering has increased. Local organized crime groups launder the proceeds of drug trafficking within Canada. Canada does not have a significant black market.

 

Legislation does not allow law enforcement to have direct access to Canada’s FIU databases, but legislation will go into effect in June 2017 that strengthens information sharing.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

Money is laundered in Canada via smuggling, MSBs/currency exchanges, casinos, real estate, wire transfers, offshore corporations, credit cards, foreign accounts, and the use of digital currency.

 

Canada does not have a significant black market for illicit goods. The most commonly smuggled goods are cigarettes, counterfeit items, and software. Underground financial systems exist within some immigrant communities. Human trafficking organizations also engage in money laundering activities.

 

KEY AML LAWS AND REGULATIONS

 

Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) which strengthen Canada’s AML regime and improve international compliance come into force June 17, 2017. These amendments will strengthen and expand the Financial Transactions and Reports Analysis Centre’s (FINTRAC) ability to disclose information to police, the Canada Border Services Agency, and provincial securities regulators. They also mandate AML measures for provincially-operated online casinos.

 

Entities subject to KYC and STR requirements include banks and credit unions; life insurance companies, brokers, and agents; securities dealers; casinos; real estate brokers and agents; agents of the Crown (certain government agencies); MSBs; accountants and firms; lawyers; precious metals and stones dealers; and notaries in Quebec and British Columbia. A second package of amendments is under development that would close other gaps in Canada’s AML regime, such as the lack of AML compliance measures for foreign MSBs and virtual currency dealers.

 

Canada has records exchange mechanisms with the United States and other governments.

 

Canada is a member of the FATF and of the APG, a FATF-style regional body.

 

AML DEFICIENCIES

 

AML regulation of attorneys was overturned by the Canadian Supreme Court as an unconstitutional breach of attorney-client privilege. Trust and company service providers, with the exception of trust companies, are also not subject to preventative measures.

 

Canada’s legislative framework does not allow law enforcement agencies access to FINTRAC’s databases. However, FINTRAC may disclose intelligence to assist with money laundering investigations or national security threats and is required to share information when information is deemed relevant to an investigation or prosecution. Information may be sent to multiple authorities if links to parallel investigations are suspected.

 

As of July 2016, the PEP provisions of the PCMLTFA were amended to include domestic persons and heads of international organizations (HIO). The PCMLTFA now requires reporting entities to determine whether a client is a foreign PEP, a domestic PEP, an HIO, or an associate or family member of any such person.

 

Canada published its national AML inherent risk assessment in July 2015. Canada is not subject to U.S. or international sanctions or penalties.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

Canada has a rigorous detection and monitoring process in place but should further enhance its enforcement and conviction capability. Canada adopted the Security of Canada Information Sharing Act in 2015 to facilitate information sharing among government agencies regarding activity that undermines national security, including terrorism.

 

Investigators regularly make large cash seizures of Canadian and U.S. currency and seize assets purchased with cash. Bulk cash smuggling is widespread. In addition to the offense of laundering the proceeds of crime, the possession of proceeds of crime (PPOC) is a criminal offense. The same penalties apply to both laundering and PPOC convictions involving more than $5,000. Of PPOC charges brought in 2014 (most recent data available), 17,191 resulted in a conviction of at least one charge and 4,812 resulted in a PPOC conviction. Money laundering convictions under the criminal code hover around 100 per year.

 

Canada implemented legislation regulating virtual currencies in 2014, subjecting exchangers to the same reporting requirements as MSBs. Digital currency exchanges must register with FINTRAC. The legislation also covers foreign companies with a place of business in Canada and those directing services at Canadians. Financial institutions are prohibited from establishing and maintaining accounts for virtual currency businesses not registered with FINTRAC.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

82

World Governance Indicator – Control of Corruption

94

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada's strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. The United States accounts for 52 percent of Canada’s total stock of foreign direct investment. U.S. stock of foreign direct investment in Canada reached $351 billion in 2012, while Canada’s foreign direct investment stock in the United States totaled more than $261 billion. The stock of global foreign direct investment in Canada stood at $637 billion in 2012, an increase of 8.5 percent from 2011.

U.S. foreign direct investment in Canada is subject to the provisions of the Investment Canada Act (ICA), the WTO, and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt American investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. Fewer than 10 percent of foreign acquisitions are subject to ICA review, and the Canadian government has only blocked investments on three occasions.

Canada announced in December 2012 that future acquisitions of Canadian oil sands businesses by a state-owned enterprise (SOE) will only be of net benefit to Canada in “exceptional circumstances” as part of the government’s new SOE guidelines. Canada’s 2013 Budget Implementation Bill brought into force other previously announced SOE measures including a separate monetary review threshold for SOE investments and a broader and clarified definition of an SOE. The rules were developed in response to a substantial increase in SOE investment in Canada since 2008, and followed Canada’s approval of two Asian-SOE acquisitions of Canadian oil sands businesses.

Although foreign investment is a key component of Canada’s economic development, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecomm services provider. Canada amended the Telecommunications Act in June 2012 to exempt foreign carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. Canada limits foreign ownership of Canadian air carriers to 25 percent of voting equity. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of net benefit to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

 

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FURTHER REPORTS

Extract from 2013 Asia Pacific Group on Money Laundering Yearly Typologies Report: -


Trends:

Based on a review of cases disclosed by Canada’s FIU (FINTRAC), the methods or techniques used to launder money in Canada have remained relatively consistent over the past four years.

The following, presented in no order of importance, are the main methods or techniques used to carry out money laundering in Canada:

Use of International EFTs

In Canada, EFTs are used after the money generated from criminal activities is placed in the financial system, or when terrorist financiers send or receive funds related to terrorism.

Individuals often use EFTs to complicate the money trail or to conceal the funding of terrorism. They may send or receive EFTs in Canada or in foreign countries, offshore locations, and tax haven countries with weaker anti-money laundering laws. Domestic EFTs are also used to move illicit proceeds between various bank accounts in Canada.

Individuals involved in the drug trade normally introduce their illicit funds into the financial system through various methods, including large cash deposits into business accounts, which are often followed by purchases of EFTs. In many fraud cases, illicit funds are already in the financial system and are moved to foreign bank accounts, either in a bank secrecy country or offshore location.

Based on an analysis conducted by Canada’s FIU from 2007 to 2011, fraud-related cases involved four times the number of EFTs than drug-related cases, which suggests that the use of EFTs is a common method employed in fraud schemes.

According to the same analysis, many of the jurisdictions where international EFTs in case disclosures were most commonly sent or received had the following characteristics:

• Many sending or receiving jurisdictions had previously or currently been declared deficient in their AML/AFT regimes by the FATF.

• Many were known as offshore financial centres and had strong bank secrecy laws.

• Some were known for their drug supply and smuggling routes.

• Others were popular financial or transhipment hubs in Europe, Asia, and the Middle East. Countries with strong trade and financial ties with Canada, notably the USA and the UK, were also prevalent.

Use of Money Service Bureaus and Currency Exchange Businesses

MSBs and currency exchange businesses continue to play a role in money laundering activities in relation to all predicate offences. Of note, drug traffickers are particularly frequent users of these institutions, in order to conduct US and Canadian dollar cash conversions to assist in illicit
cross-border activities.

Cash purchases of EFTs are also a common technique used by individuals laundering illicit funds through MSBs and currency exchange businesses.

Use of Casinos

Individuals use casinos to launder money in Canada and they employ various techniques to do so, including converting smaller denominations of currency to larger ones (known as ‘refining’), exchanging currencies and purchasing casino chips. One commonly used technique is for money launderers to purchase casino chips with cash, conduct minimal play, and then redeem the chips for either cash or cheque.

Use of Businesses

Businesses that handle a high volume of cash transactions are attractive to launderers of drug proceeds and often include convenience stores, gas stations, bars, restaurants and food-related wholesalers and retailers. These businesses allow for the commingling of illegitimate and legitimate cash funds. In cases of investment fraud, front companies are registered in foreign jurisdictions and the proceeds of fraud are sent to the foreign accounts of these companies.

Based on an analysis conducted by Canada’s FIU from 2007 to 2011, 68% of drug-related cases consistently involved at least one business. Examples of businesses and sectors observed in drug-related cases were MSBs, construction, shipping or freight, import or export, travel, real estate, electronics, pharmaceuticals, convenience or grocery stores, food and entertainment, automobiles, hydroponics/indoor gardening, trucking and gas stations.

According to the analysis, fraud cases involved corporate entities more often than in other types of cases, particularly when the fraud involved purported securities. For example, it has been observed that businesses can act as conduits to receive investments from victims that can then
be easily transferred to accounts held in offshore banking centres. Other types of fraud, such as debit/credit card fraud, can utilize the services of collusive merchants to perpetrate the fraud.

From 2007 to 2011, 84% of fraud-related cases involved at least one business. Examples of businesses and sectors observed in fraud-related cases are holding companies, financial services companies, investment or securities companies, real estate development, consulting firms, energy sector, precious metals, life insurance, technology (e.g. aviation, computers, etc.), medical supplies, food and entertainment and the auto industry.

Bulk Cash Smuggling

This is a prominent method used by criminal organizations to move the proceeds of crime from Canada to foreign destinations, particularly the US, Mexico, and Colombia. Canadian authorities have recently seen a large increase in seizures and investigations resulting from bulk cash
smuggling.

It should also be noted that there has been an increase in trade-based and real estate-related money laundering schemes in recent years in Canada.

Emerging trend

The new payment methods that have been adopted in recent years (e.g., prepaid cards, internet payment methods) and the innovations that are being further developed and adopted in this space (e.g., mobile banking) are a particular focus.

Evidence suggests, however, that money laundering carried out using new payment methods, such as prepaid cards and internet payments systems, is still small in Canada. For example, Canada’s FIU reports that, during the last three years, only 2-5 per cent of cases disclosed to law enforcement and other agencies involved these payment methods. It is suspected that one or more terrorist groups in Canada are using an international trade-based money laundering scheme to send funds overseas in support of terrorist groups.

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