Canada Publishes Updated National Risk Assessment for Money Laundering and Terrorist Financing

The Government of Canada has published an updated assessment of the country’s inherent risks of money laundering (ML) and terrorist financing (TF), replacing the previous assessment conducted in 2015. The updated report analyzes various ML and TF threats from 2015 to 2020 and considers which economic sectors and financial products have inherent vulnerabilities related to Canada’s geography, demographics, and economy. 

Published on the same day as Canada’s 2023 Federal Budget, which proposed changes to Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) laws, the government plans to use the assessment to further “enhance the country’s AML/ATF regime.” Additionally, the report notes that the evaluation should be used by financial institutions (FIs) and other reporting entities to increase their understanding of how and where they may be most vulnerable and exposed to ML/TF risks. 

Money Laundering Threats

The following crime types were categorized in light of their sophistication, capability, scope, and proceeds of crime. None of the 23 profit-oriented crimes were rated as a ‘low threat.’ 

This threat analysis corroborates the findings from our 2023 State of Financial Crime report, which surveyed 800 C-suite and senior compliance professionals worldwide – 200 of whom were located in the US and Canada. When asked which typologies were of the greatest concern when submitting suspicious activity reports (SARs), 30 percent said illegal gambling (rated a ‘very high threat’), 28 percent said human trafficking (rated a ‘high threat’), and 22 percent said wildlife trafficking (rated a ‘medium threat’). 

Sectors and Financial Products with Inherent ML/TF Vulnerabilities

The report also analyzes the inherent vulnerabilities of 33 economic sectors and financial products. When conducting this analysis, several factors were considered, including:

• Inherent characteristics – such as the sector’s economic significance and operational complexity
• Nature of products and services – specifically looking at the volume and frequency of transactions
• Nature of business relationships – analyzing the sector’s exposure to high-risk clients and businesses
• Geographic reach – considering the sector’s/product’s exposure to high-risk jurisdictions 
• Nature of the delivery channels – reviewing whether the delivery of products and services can be conducted with anonymity

Only life insurance intermediary entities and agencies were rated as  ‘low vulnerability’. The remaining areas were rated on a medium to very high vulnerability scale. 

Terrorist Financing Threats

In chapter four of the report, Canada’s terrorist financing threats are assessed. While the report notes that several terrorist financing methods have been used in the country, ideologically motivated violent extremism (IMVE) is specifically highlighted as an emerging risk that “the Government of Canada is seeking to address.” 

In 2022, approximately 50 percent of the Canadian Security Intelligence Service’s resources were dedicated to investigating IMVE. The report notes that recent attacks consisted of low-sophistication, high-impact tactics that did not involve or require a broader network of resources. 

According to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), IMVE-related transaction reporting has shown that organized IMVE groups in Canada use both personal and business accounts to conduct their financial activities. Compliance staff should also take note of the behavioral patterns identified by FINTRAC and stay up-to-date with the country’s ‘listed entities’ as an understanding of IMVE organizations grow. 

Indicators of Terrorist Financing Activity

In December 2022, FINTRAC published an Operational Alert listing terrorist activity financing indicators related to domestic and international terrorist groups. Aimed explicitly at firms subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), FINTRAC issued the indicators to help compliance staff identify and report suspicious transactions and terrorist property. These include:

• Adverse media or law enforcement information that link individuals to violent extremist group(s), sentiments, or violent extremist activity.
• Transactions that involve certain high-risk jurisdictions.
• Excessive email money transfers followed by the depletion of funds through third parties or cash withdrawals.
• Transactions that involve persons or entities identified by media and/or sanctions lists as being linked to a terrorist group or terrorist activities.
• The use of crowdfunding, fintech platforms, and/or cryptocurrencies to finance individuals or groups associated with violent extremism.

Key Takeaways

Compliance staff should review the commentary provided about each high ML/TF threat in detail, especially those working in a sector deemed vulnerable and exposed to certain risks. Firms should review FINTRAC’s guidance and resources for reporting entities for sector-specific guidance.

Additionally, while the report notes that, in many cases, the threat levels remained constant, new trends that involved the leveraging of new technologies were noted. These include internet scams, prepaid card fraud, and the use of virtual currencies to launder illicit funds. To combat the rise of these financial crime types, compliance teams should ensure their AML and fraud solutions provide a holistic view of transactions. This can be done cost-effectively and efficiently by implementing an AI overlay to existing tools. In addition to not requiring a total system overhaul, AI overlays allow organizations to customize their rule sets and identify anomalous behavior in real-time. 

For more risk management best practices for Canadian fintechs, download our infographic.