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 has conducted an assessment to identify inherent money laundering and terrorist financing (ML/TF) risks in Canada. This report does not assess how effectively Canada responds to the challenges posed by money laundering and terrorist financing. Rather, it is meant to increase the situational awareness of Canada’s financial institutions and of all Canadians who, as participants in the global economy, may face challenges to the normal conduct of business. This report also includes a process to update this assessment over time. The 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.
Canada has a comprehensive AML/ATF regime that provides a coordinated approach to mitigating the inherent risks identified in this assessment and combating money laundering and terrorist financing more broadly. The AML/ATF regime is operated by 11 federal regime partners, eight of which receive dedicated funding totalling approximately $70 million annually. 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, prosecution and the seizure of illicit assets; and the implementation of measures to ensure the ongoing improvement of the AML/ATF regime.
This report is meant to provide critical risk information to the public and, in particular, to the approximately 31,000 entities that have reporting obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), whose understanding of inherent, foundational risks is vital in applying the preventive measures and controls required to effectively mitigate these risks. The Government of Canada encourages these entities to use the findings in this report to inform their efforts in assessing and mitigating risks. Understanding Canada’s risk context and the main characteristics that expose sectors and products to inherent ML/TF risks in Canada is important in being able to apply measures to effectively mitigate them.
This report also responds to the revised Financial Action Task Force’s (FATF) global AML/ATF standards calling on all members to undergo an assessment of ML/TF risks. This report will be considered as part of the upcoming FATF Mutual Evaluation of Canada, which will assess Canada against these global standards.
The inherent risk assessment consists of an assessment of the ML/TF threats and inherent ML/TF vulnerabilities of Canada as a whole (e.g., economy, geography, demographics) and its key economic sectors and financial products, while taking into account the consequences of money laundering and terrorist financing. The overall inherent ML/TF risks were assessed by matching the threats with the inherently vulnerable sectors and products through the ML/TF 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 ML/TF risks.
The ML threat assessment examined 21 criminal activities in Canada that are most associated with generating proceeds of crime that may be laundered. It also examined the ML threat emanating from third-party money laundering, which includes money mules, nominees and professional money launderers. The ML threat was rated very high for corruption and bribery, counterfeiting and piracy, certain types of fraud, illicit drug trafficking, illicit tobacco smuggling and trafficking, and third-party money laundering. Transnational organized crime groups (OCGs) and professional money launderers are the key ML threat actors in the Canadian context. Many of these threats are similar to those faced by several other developed and developing countries.
The TF threat was assessed for the groups and actors 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 terrorist groups. Despite these activities, the TF threat in Canada is not as pronounced as in other regions of the world, where weaker ATF regimes can be found and where terrorist groups have established a foothold, both in terms of operations and financing their activities.
The inherent ML/TF vulnerabilities are presented for 27 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 for-profit corporations), certain types of money services businesses and express trusts were rated the most vulnerable, or very high. The vulnerability was rated high for 16 sectors and products, medium for five sectors and products and low for one sector. Many of the sectors and products are highly accessible to individuals in Canada and internationally and are associated with a high volume, velocity 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 ML/TF 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 ML risks involving threat actors (e.g., OCGs and third-party money launderers) laundering illicit proceeds generated from 10 main types of profit-oriented crimes. The assessment also identified five very high inherent TF risk scenarios that involve five different sectors that have been assessed to be very highly vulnerable to terrorist financing, combined with one high TF threat group of actors.
This risk assessment is an analysis of Canada’s current situation and represents a key step forward in providing the basis for the AML/ATF regime to promote a greater shared understanding of inherent ML/TF risks in Canada on an ongoing basis. The assessment will help to continue to 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.