By PAUL O’DONOGHUE, Senior Correspondent
CANADA continues to face major challenges in prosecuting professional money laundering, the FATF (Financial Action Task Force) has found.
In its latest MER (Mutual Evaluation Report), the global AML watchdog broadly praised the country’s technical compliance with AML measures.
However, it identified multiple issues with Canada’s efforts to prevent money laundering. The FATF rated the effectiveness of 20 measures in this area as only ‘moderate’, which means that major improvement is needed.
It specificallly pointed to problems in how it fights professional money laundering (PML). It said: “PML is a major ML typology in Canada and is identified in almost all large-scale proceeds generating crime in Canada. Canada has implemented several legislative reforms to address these challenges, but they are recent and remain untested.”
Despite this, the FATF said that Canada is still placed in ‘regular follow-up’. Countries which have more serious AML issues are placed in ‘enhanced follow-up’. Canada received this designation in 2016, before it was removed in 2021.
The findings will come as a major relief to Canada, where some officials had feared that the country risked being ‘grey-listed’. The concerns came after TD Bank, one of Canada’s biggest lenders, pleaded guilty in the United States in 2024 to conspiracy to commit money laundering and failing to maintain an effective anti-money laundering programme. The bank paid more than US$3 billion in penalties.
In its latest MER, the FATF said that Canada has a “mature and nuanced understanding of its illicit finance risks”.
It praised multiple initiatives, including how the country improved corporate transparency with increased collection of beneficial ownership data.
However, the new MER also also highlighted shortcomings in supervision, particularly with regard to oversight of the legal sector.
The assessment was adopted by the FATF Plenary in June and is the first full mutual evaluation of Canada since 2016. Under FATF’s fifth round of evaluations, the assessment places a greater emphasis on the effectiveness of countries’ AML/CFT systems, rather than solely on whether the necessary laws and regulations are in place.
Professional money laundering
The report’s most significant enforcement concern was Canada’s response to professional money laundering (PML).
Assessors said Canada faced “persistent challenges in prosecuting professional money laundering (PML), particularly in standalone ML cases where predicate offences cannot be prosecuted”.
The report said professional money laundering cases were often difficult for Canadian authorities to bring successfully, describing them as “high value and sophisticated, but difficult to prove”.
It also concluded that PML prosecutions “remain limited and do not yet reflect the scale of PML activity identified in national risk assessments”.
“ML in Canada is mainly linked to proceeds from drug trafficking, fraud, commercial trade fraud and tax crimes, often involving organised crime groups and professional money laundering intermediaries,” the FATF said.
While it did not mention TD Bank, the assesment comes against the backdrop of the major money-laundering cases involving Canadian financial institution.
Since the fine against the lender in 2024, multiple ex-TD Bank employees have been jailed for their roles in major money laundering networks. In most of these instances, US prosecutors took the cases.
Many of these cases involve laundering the proceeds of drug trafficking on behalf of major gangs and cartels. Analysts have previously criticised Canada for low prosecution rates in financial crime cases.
FATF praises stronger AML framework in Canada
The findings come against a backdrop of substantial improvements to Canada’s AML/CFT framework.
Canada was previously placed in enhanced follow-up after its 2016 evaluation. It subsequently made progress on a number of technical-compliance requirements and was moved to regular follow-up in 2021. That process addressed technical compliance rather than the effectiveness of Canada’s AML/CFT system.
The new evaluation found that Canada now has significant strengths in its financial intelligence and wider AML/CFT infrastructure.
FINTRAC, Canada’s FIU (Financial Intelligence Unit), was singled out for its analytical capabilities. The report said it has “a strong capability in terms of strategic intelligence, research and analytics”.
However, the FATF also said that FINRAC’s supervisory “frequency and intensity” are “not always aligned with the assessed risk of some sectors”.
“A significant proportion of FIs [financial instiutions] and VASPs not subject to an entity-level risk assessment,” it said.
The assessors also found that “the inherent risk profile of about 79% of FIs and VASPs is not assessed in SRM”.
The report also said examination periods for very-high-risk institutions “are not sufficiently frequent and not commensurate with risks”.
Canada is set to overhaul its approach to AML supervision, as the country is creating a new Financial Crimes Agency (FCA). At present FINTRAC does not carry out arrests or prosecutions. Instead, it passes intelligence to law enforcement bodies such as the RCMP (Royal Canadian Mounted Police).
Under the new framework, FINTRAC will continue to serve as Canada’s financial intelligence unit, receiving and analyzing financial transaction reports and disclosing actionable intelligence to law enforcement. The FCA, by contrast, will be a dedicated law-enforcement agency that uses intelligence from FINTRAC and other sources to investigate serious and complex financial crime.
Beneficial ownership and legal profession
Beneficial ownership was another mixed area.
The MER found that Canada made “substantial progress to advance corporate transparency”.
It cited the introducing corporate beneficial ownership registers at the federal level and in Québec. Additionally, it praised new disclosure requirements for companies and land ownership transparency mechanisms in British Columbia.
However, the report identified weaknesses in the availability and use of beneficial ownership information. It pointed to “uneven implementation” across provinces and territories, which it said is “impacting effectiveness”.
The legal profession was also highlighted as a continuing gap in Canada’s AML framework. The assessors noted that lawyers “remain outside” the country’s main AML/CFT framework.
This exclusion has implications for Canada’s ability to identify and disrupt illicit finance involving legal services, particularly where lawyers or legal structures are used in transactions involving companies, trusts, real estate or other assets.
“Lawyers are not required to submit suspicious transaction reports, which limits FINTRAC’s visibility over certain higher risk financial activities,” the FATF said.
Overall outcome
The report nevertheless found substantial strengths across Canada’s AML/CFT system.
Canada received six “substantial” effectiveness ratings and five “moderate” ratings, with no effectiveness outcome rated low.
The FATF assessment gives Canada a three-year roadmap of key recommended actions aimed at strengthening the effectiveness of its AML/CFT defences.
Giles Thomson, the FATF presdent, said: “Canada has a strong understanding of the illicit finance risks it is facing, and has taken significant steps to strengthen corporate transparency and the use of financial intelligence since its last mutual evaluation.
“However, with the threats posed by fraudsters, organised crime networks and professional money launderers, Canada must step up efforts to investigate and prosecute complex money laundering cases, and strengthen oversight in the sectors most vulnerable to abuse.”
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