Updated assessment of inherent risks of money laundering and terrorist financing in Canada - March 2023
Executive Summary
Canada has a robust and comprehensive Anti-Money Laundering and Anti-Terrorist Financing (AML/ATF) Regime, which promotes the integrity of the financial system and the safety and security of Canadians. It supports combating transnational organized crime and is a key element of Canada’s counter-terrorism strategy.
The Government of Canada first conducted an assessment to identify inherent money laundering and terrorist financing risks in Canada in 2015 when it published the Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada Footnote
1 (the 2015 Report). Since 2015, the government has been monitoring and assessing new risks on a continual basis and developed internal analysis to ensure that its understanding of these risks remains current and up-to-date. In conjunction with this, various government partners and agencies such as the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), have also published strategic intelligence reports to promote the awareness of new emerging trends in risks by reporting entities and the public. This report consolidates the work conducted before the release of the 2015 report and between 2015 and 2020 to provide a systematic and comprehensive update of all the areas assessed in 2015 using a similar approach and methodology. Furthermore, it also extends Canada’s assessment to other new areas not assessed in 2015.
It is important to note that this report provides an overview of the risks of money laundering and terrorist financing before the application of any mitigation measures. Those measures include a range of legislative, regulatory and operational actions that prevent, detect and disrupt money laundering and terrorist financing. Sectors confronted with higher inherent money laundering and terrorist financing risks assessed in this report typically also have strong mitigation measures in place to limit those risks. The report presents overall vulnerabilities and risks, such as for sectors or products as a whole. Risks and risk mitigation practices will vary, and so in practice, should be considered on a case-by-case basis. This report is a tool to support that assessment.
Canada’s AML/ATF Regime provides a coordinated approach to mitigating the inherent risks identified in this assessment and in combating money laundering and terrorist financing more broadly. The AML/ATF Regime is operated by 13 federal Regime partners, which all contributed to the development of the report, coordinated by the Department of Finance Canada (Finance Canada). The inherent risks identified are being addressed through a strong regime that focuses on policy coordination, both domestically and internationally; the prevention and detection of money laundering and terrorist financing in Canada; disruption activities, including investigation and prosecution and the seizure of illicit assets; and the implementation of measures to continually enhance the AML/ATF Regime.
This report provides critical risk information to the public and, in particular, to over 24,000 regulated entities across the countryFootnote
2 that have reporting obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), whose understanding of inherent, foundational money laundering and terrorist financing risks is vital in applying the preventive measures and controls required to effectively mitigate these risks. Building off of the 2015 Report, the Government of Canada encourages these entities to use the findings in this report to continue to inform their efforts in assessing and mitigating risks. Having an up-to-date understanding of Canada’s risk context and the intrinsic properties that expose sectors and products to inherent money laundering and terrorist financing risks in Canada is important in being able to apply measures to effectively mitigate them.
This updated report also responds to the Financial Action Task Force’s (FATF) global AML/ATF standards calling on all members to assess money laundering and terrorist financing risks on an ongoing basis. This report will be considered as part of the next FATF Mutual Evaluation of Canada, which will assess Canada against these global standards.
The inherent risk assessment consists of an assessment of the money laundering and terrorist financing threats and inherent money laundering and terrorist financing vulnerabilities in Canada as a whole (e.g., economy, geography, demographics) and the country’s key economic sectors and financial products, while taking into account the consequences of money laundering and terrorist financing. The overall inherent money laundering and terrorist financing risks were assessed by matching the threats with the inherently vulnerable sectors and products through the money laundering and terrorist financing methods and techniques that are used by money launderers, terrorist financiers and their facilitators, to exploit these sectors and products. By establishing a relationship between the threats and vulnerabilities, a series of inherent risk scenarios were constructed, allowing one to identify the sectors and products that are exposed to the highest money laundering and terrorist financing risks.
The money laundering threat assessment examined 23 criminal activities in Canada that are most associated with generating proceeds of crime that may be laundered. It also examined the money laundering threat emanating from third-party money laundering, which includes the use of money mules, nominees and professional money launderers. The money laundering threat was rated very high for illicit drug trafficking, certain types of fraud, illegal gambling, corruption, collusion and bribery, and third-party money laundering. Transnational organized crime groups (OCGs) and professional money launderers are the key money laundering threat actors in the Canadian context. Many of these threats are similar to those faced by several other countries.
The terrorist financing threat was assessed for the groups and actors listed by the United Nations and Canada that are of greatest concern to Canada. The assessment indicates that there are networks operating in Canada that are suspected of raising, collecting and transmitting funds abroad to various errorist groups. However, based in part on the existing strengths of the regime, the terrorist financing threat in Canada is not as pronounced as in other regions of the world, where weaker anti-terrorist financing regimes can be found and where terrorist groups have established a foothold, both in terms of operations but also in financing their activities.
The inherent money laundering and terrorist financing vulnerabilities are presented for 33 economic sectors and financial products. The assessment indicates that there are many sectors and products that are highly vulnerable to money laundering and terrorist financing. Of the assessed areas, domestic banks, corporations (especially, private corporations), certain types of money services businesses and express trusts were rated the most vulnerable, or very high. In addition, 18 sectors and products had a vulnerability rating of high, nine sectors and products had a vulnerability rating of medium and one sector had a vulnerability rating of low. Many of the sectors and products are highly accessible to individuals in Canada and internationally and are associated with a high volume, speed and frequency of transactions. Many conduct a significant amount of transactional business with high-risk clients and are exposed to high-risk jurisdictions that have weak AML/ATF regimes and significant money laundering and terrorist financing threats. There are also opportunities in many sectors to undertake transactions with varying degrees of anonymity and to structure transactions in a complex manner.
By connecting the threats with the inherently vulnerable sectors or products, the assessment revealed that a variety of them are exposed to very high inherent money laundering risks involving threat actors (e.g., OCGs and third-party money launderers) laundering illicit proceeds generated from ten groups of profit-oriented crimes. The assessment also identified four very high inherent terrorist financing risk scenarios that involve six different sectors that have been assessed to be very highly vulnerable to terrorist financing, combined with one high terrorist financing threat group of actors.
This update to Canada’s risk assessment highlights the importance of maintaining a shared understanding of inherent money laundering and terrorist financing risks in Canada on an ongoing basis. Criminal threats can evolve over time as criminals continuously look for new methods and techniques to obfuscate the source of illicit funds, for example by leveraging technological innovation. In addition, it is important to retain an awareness that many money laundering and terrorist financing vulnerabilities, threats and methods can remain the same or consistent over time. As such, this report provides a comprehensive overview of the money laundering and terrorist financing threats, vulnerabilities and risks that have persisted since the 2015 report, as well as of new trends identified in the risk landscape’s evolution.
Based on additional evidence from this updated assessment, the threat levels for tax evasion, illegal gambling, and wildlife trafficking have increased since the 2015 report, while they decreased for illegal tobacco smuggling and trafficking. This was often a reflection of changes in the average sophistication and capability exhibited by the threat actors involved. For example, concerns around tax evasion have increased following growing trends around the usage of complex offshore corporate structures and accounts and the leveraging of expertise from facilitators such as lawyers, accountants and financial advisors.
Some threat levels remained the same but were marked by new dynamics and trends that push government and private sectors to adapt. New typologies of threats and vulnerabilities have notably emerged from the fentanyl trade, new types of online mass-marketing fraud, capital market fraud and extortion schemes. Growing vulnerabilities in the real estate market partly a result of rapid price increases in some regions of Canada and constant technological developments around virtual assets were other notable trends.
This update to Canada’s risk assessment also broadens the scope of the risks assessed in 2015. New issues assessed in this update include, among others, potential money laundering threats generated by illegal fishing activities, as well as inherent vulnerabilities faced by the armoured car sector, partnerships, unregulated mortgage lenders, import/export companies, freight forwarders and custom brokers. Canada also conducted a preliminary terrorist financing threat assessment of ideologically motivated violent extremists.
Finally, the COVID-19 pandemic has helped demonstrate how adaptable the Canadian financial sector is, with more and more consumers adopting digital channels as well as new financial services and products being made available by emerging technologies. The pandemic has also shown that criminal actors are adapting in the current context by leveraging online schemes and COVID-related fraud to generate funds. The shift to digital platforms and financial products may also present new opportunities for criminals and terrorist organizations to move funds. Furthermore, border closures disrupted traditional cash-courier techniques and affected trade-based fraud methodologies, while regional lockdowns of non-essential businesses such as casinos led to reports of increased underground illegal gambling and related money laundering activities.
New experiences from the COVID-19 pandemic reinforce the importance of national authorities and the private sector monitoring and understanding of evolving risks on an ongoing basis. The updated assessment has and will continue to help enhance Canada’s AML/ATF Regime, further strengthening the comprehensive approach it already takes to risk mitigation and control domestically, including with the private sector and with international partners. It also complements and completes the various information and documents published by the government since 2015 around new risks and typologies observed in relation to certain sectors or specific issues as they were unfolding.
