Canada - FATF-GAFI.ORG

1 September 2016 anti - money laundering and counter-terrorist financing measuresCanadaMutual evaluation report 2016 fatf and APG. All rights reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the fatf Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: coverphoto: ThinkstockphotoCiting reference:The Financial Action Task Force ( fatf ) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering , terrorist financing and the financing of proliferation of weapons of mass destruction. The fatf Recommendations are recognised as the global anti - money laundering (AML) and counter-terrorist financing (CTF) more information about the fatf , please visit the website: Asia/Pacific Group on money laundering (APG) is an autonomous and collaborative international organisation, whose members and observers are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism, in particular the fatf more information about the APG, please visit the website: document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.)

2 This assessment was conducted under the responsibility of the International Monetary Fund, adopted by the fatf at its June 2016 Plenary ( 2016 ), anti - money laundering and counter-terrorist financing measures - Canada , Fourth Round mutual evaluation report , fatf , Paris anti - money laundering and counter-terrorist financing measures in Canada - 2016 fatf and APG 2016 1 CONTENTS EXECUTIVE SUMMARY .. 3 Key Findings .. 3 Risks and General Situation .. 4 Overall Level of Effectiveness and Technical Compliance .. 4 Priority Actions .. 9 Effectiveness & Technical Compliance Ratings .. 10 mutual evaluation report .. 11 Preface .. 11 CHAPTER 1. ML/TF RISKS AND CONTEXT .. 13 ML/TF Risks and Scoping of Higher-Risk Issues .. 13 Materiality .. 19 Structural Elements .. 20 Background and other Contextual Factors .. 23 CHAPTER 2. NATIONAL AML/CFT POLICIES AND 31 Key Findings and Recommended Actions.

3 31 Immediate Outcome 1 (Risk, Policy and Coordination) .. 32 CHAPTER 3. LEGAL SYSTEM AND OPERATIONAL ISSUES .. 35 Key Findings and Recommended Actions .. 35 Immediate Outcome 6 (Financial intelligence ML/TF) .. 37 Immediate Outcome 7 (ML investigation and prosecution) .. 45 Immediate Outcome 8 (Confiscation) .. 55 CHAPTER 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION .. 61 Key Findings and Recommended Actions .. 61 Immediate Outcome 9 (TF investigation and prosecution).. 62 Immediate Outcome 10 (TF preventive measures and financial sanctions) .. 68 Immediate Outcome 11 (PF financial sanctions) .. 73 CHAPTER 5. PREVENTIVE MEASURES .. 77 Key Findings and Recommended Actions .. 77 Immediate Outcome 4 (Preventive Measures) .. 78 CHAPTER 6. SUPERVISION .. 87 Key Findings and Recommended Actions .. 87 Immediate Outcome 3 (Supervision) .. 88 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS .. 101 Key Findings and Recommended Actions.

4 101 Immediate Outcome 5 (Legal Persons and Arrangements) .. 102 CHAPTER 8. INTERNATIONAL COOPERATION .. 107 Key Findings and Recommended Actions .. 107 2 anti - money laundering and counter-terrorist financing measures in Canada - 2016 fatf and APG 2016 Immediate Outcome 2 (International Cooperation) .. 108 TECHNICAL COMPLIANCE 115 Recommendation 1 - Assessing Risks and applying a Risk-Based Approach .. 115 Recommendation 2 - National Cooperation and Coordination .. 119 Recommendation 3 - money laundering offense .. 121 Recommendation 4 - Confiscation and provisional measures .. 123 Recommendation 5 - Terrorist financing offence .. 125 Recommendation 6 - Targeted financial sanctions related to terrorism and terrorist financing .. 127 Recommendation 7 Targeted financial sanctions related to 132 Recommendation 8 Non-profit organisations .. 134 Recommendation 9 Financial institution secrecy laws.

5 137 Recommendation 10 Customer due diligence .. 138 Recommendation 11 Record-keeping .. 145 Recommendation 12 Politically exposed persons .. 145 Recommendation 13 Correspondent banking .. 147 Recommendation 14 money or value transfer services .. 148 Recommendation 15 New technologies .. 149 Recommendation 16 Wire transfers .. 150 Recommendation 17 Reliance on third parties .. 152 Recommendation 18 Internal controls and foreign branches and subsidiaries .. 154 Recommendation 19 Higher-risk countries .. 156 Recommendation 20 Reporting of suspicious transaction .. 157 Recommendation 21 Tipping-off and confidentiality .. 157 Recommendation 22 DNFBPs: Customer due diligence .. 159 Recommendation 23 DNFBPs: Other measures .. 161 Recommendation 24 Transparency and beneficial ownership of legal persons .. 162 Recommendation 25 Transparency and beneficial ownership of legal arrangements.

6 168 Recommendation 26 Regulation and supervision of financial institutions .. 170 Recommendation 27 Powers of supervisors .. 176 Recommendation 28 Regulation and supervision of DNFBPs .. 177 Recommendation 29 - Financial intelligence units .. 183 Recommendation 30 Responsibilities of law enforcement and investigative authorities .. 186 Recommendation 31 - Powers of law enforcement and investigative authorities .. 187 Recommendation 32 Cash Couriers .. 189 Recommendation 33 Statistics .. 191 Recommendation 34 Guidance and feedback .. 192 Recommendation 35 Sanctions .. 194 Recommendation 36 International instruments .. 195 Recommendation 37 - mutual legal assistance .. 196 Recommendation 38 mutual legal assistance: freezing and confiscation .. 197 Recommendation 39 Extradition .. 198 Recommendation 40 Other forms of international cooperation .. 200 Summary of Technical Compliance Key Deficiencies.

7 205 TABLE OF ACRONYMS .. 210 anti - money laundering and counter-terrorist financing measures in Canada - 2016 fatf and APG 2016 3 Executive Summary EXECUTIVE SUMMARY This report provides a summary of the anti - money laundering and combating the financing of terrorism (AML/CFT) measures in place in Canada as at the date of the on-site visit (3-20 November 2015). It analyses the level of compliance with the fatf 40 Recommendations and the level of effectiveness of Canada s AML/CFT system, and provides recommendations on how the system could be strengthened. Key Findings 1. 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.

8 AML/CFT cooperation and coordination are generally good at the policy and operational levels. 2. 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. 3. 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. 4. 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.

9 5. Law enforcement results are not commensurate with the ML risk and asset recovery is low. 6. 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 ( registered NPOs) are monitored on a risk basis. 7. 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. 4 anti - money laundering and counter-terrorist financing measures in Canada - 2016 fatf and APG 2016 EXECUTIVE SUMMARY 8. FIs, including the six domestic systemically important banks, have a good understanding of their risks and obligations, and generally apply adequate mitigating measures.

10 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. 9. 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. 10. Legal persons and arrangements are at a high risk of misuse, and that risk is not mitigated.