FINTRAC Advisory: FATF confirms high-risk jurisdictions and jurisdictions under increased monitoring in recent statement
On July 17, 2023, the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) released an Advisory discussing certain jurisdictions identified by the Financial Action Task Force (“FATF”), the global money laundering and terrorist financing watchdog, as high-risk or which are under increased monitoring. The FATF has called on its members to conduct enhanced due diligence on financial transactions involving high-risk jurisdictions and, in the most serious cases, apply counter measures against money laundering and terrorist financing.
FINTRAC urges businesses to consider the information within the Advisory when determining whether they are required to submit a suspicious transaction report to FINTRAC.
This Finance Alert highlights the guidance and direction proposed by FINTRAC for reporting entities when participating in transactions with other countries.
High risk jurisdictions that are subject to a call for action by the FATF
Special measures applying to high risk countries
In response to the FATF’s call on its members to apply countermeasures to protect from the risk of money laundering or terrorist financing, the Minister of Finance has issued directives requiring reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”) to treat all transactions involving certain jurisdictions as high-risk. Transactions determined to be high-risk are subject to certain special measures pursuant to Subsection 9.6(3) of the Act, including enhanced identity verification and monitoring of business relationships.
Democratic People’s Republic of Korea
On December 9, 2017, the Minister of Finance issued a directive advising all reporting entities to treat all transactions involving the Democratic People’s Republic of Korea as high risk under Subsection 9.6(3) of the Act. FINTRAC has provided relevant guidance and an operational alert to inform Canadian reporting entities of the patterns, indicators, and risk areas of the Democratic People’s Republic of Korea regarding money laundering and terrorist financing.
Republic of Iran
The Minister of Finance issued another directive on July 25, 2020, advising banks, credit unions, financial services cooperatives and money services businesses to treat every financial transaction originating from or bound for Iran as high risk for the purposes of Subsection 9.6(3) of the Act. The directive further instructs that these reporting entities must: (1) verify the identity of any individual or entity requesting or benefiting from the transaction; (2) exercise due diligence with every transaction, including ascertaining the source of funds and the purpose of the transaction; (3) keep and retain a record of any transaction; and (4) report all such transactions to FINTRAC. FINTRAC has also released guidance on this Ministerial directive.
Enhanced due diligence with regard to Myanmar
The FATF has called on its members and other jurisdictions to apply enhanced due diligence measures proportional to the risks associated with engaging in financial transactions with Myanmar. Accordingly, FINTRAC is reminding reporting entities to be aware of the risks associated with doing business with individuals and entities connected to Myanmar, especially when determining whether to file a suspicious transaction report regarding one or more financial transaction(s) or attempted financial transaction(s) from or going to Myanmar. FINTRAC encourages reporting entities to undertake mitigation measures as applicable and enhanced due diligence with these financial transactions, such as inquiring into the reasons behind intended financial transactions, with respect to the clients and beneficiaries involved.
Jurisdictions under increased monitoring
In its most recent statement for jurisdictions under increased monitoring, the FATF recognized many jurisdictions that currently have strategic anti-money laundering and anti-terrorist activity financing deficiencies. The FATF places jurisdictions under increased monitoring when the country has committed to resolving the identified defects within a particular timeframe.
This “grey list” includes the following jurisdictions that are currently under increased monitoring: Albania, Barbados, Burkina Faso, Cameroon, Cayman Islands, Democratic Republic of the Congo, Croatia, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Türkiye, Uganda, United Arab Emirates, Vietnam, and Yemen. The FATF has identified Cameroon, Croatia, and Vietnam as new additions to the grey list in its recent statement.
Jurisdictions controlled by known terrorist entities
The Islamic State and the Taliban are currently listed as terrorist entities in Canada pursuant to the Criminal Code. Reporting entities have an obligation to promptly submit a terrorist property report to FINTRAC if they know or have reason to believe that they have in their possession or control property owned, held or controlled by or on behalf of a terrorist group pursuant to the Criminal Code or the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism. In this context, “property” is defined as all types of real or personal property, including any deed or instrument giving title or right to property or the right to recover or receive property. Further guidance from FINTRAC on Terrorist Property reports can be found here.
Reporting entities should consider the above information when determining whether to file a suspicious transaction report to FINTRAC in respect of any financial transactions emanating from, or destined to, Afghanistan or a jurisdiction under Islamic State control or a surrounding jurisdiction when there are reasonable grounds to suspect the transaction is related to the commission of a money laundering or terrorist financing offence. FINTRAC further recommends that enhanced customer due diligence with clients and beneficiaries should also be adopted with these transactions.
The situation in Ukraine and the Russian Federation
In response to the invasion of Ukraine, the Government of Canada has imposed sanctions on Russia, Belarus, and certain regions and entities in Ukraine. Reporting entities are required to file a suspicious transaction report when there are reasonable grounds to suspect a transaction emanating to or from Russia or other sanctioned jurisdictions is related to the commission of a money laundering or a terrorist financing offence. FINTRAC recommends that reporting entities consider the FATF’s statement regarding the Russian Federation (available here) when determining whether to file a suspicious transaction report. It is recommended that reporting entities undertake enhanced customer due diligence with clients and beneficiaries where transactions involve sanctioned jurisdictions.
This Advisory follows a similar FINTRAC Advisory from March 2023, which can be viewed here.
For further information on this Advisory, sanctions imposed by Canada or your reporting requirements, please speak with one of our Financial Services group team members.