FINTRAC Advisory Concerning Financial Transactions Related to High-Risk Countries Identified by FATF

On March 20, 2023, the Financial Transactions and Reports Analysis Centre (FINTRAC) issued an advisory (the “Advisory”) concerning financial transactions related to countries identified by the Financial Action Task Force (FATF) as high-risk jurisdictions and under increased monitoring. FINTRAC issued a similar advisory in November 2022. See our November 28 Update.

Background

The Advisory follows two statements recently issued by the FATF:

• a statement on high-risk jurisdictions subject to a call for action, which identifies jurisdictions for which the FATF has called on countries to apply countermeasures or enhanced due diligence given significant strategic deficiencies noted in those jurisdictions’ regimes to counter money laundering, terrorist financings, and financing of proliferation; and
  
• a statement on jurisdictions under increased monitoring, which identifies jurisdictions that have developed an action plan with the FATF to address deficiencies in their anti-money laundering and counter-terrorist financing (AML/CFT) strategies.

The Advisory also references earlier statements issued by the FATF in respect of various matters concerning high-risk jurisdictions as set out below.

Highlights of the Advisory

The Advisory focuses on key aspects of various FATF statements and sets out FINTRAC expectations. In particular, the Advisory notes the following:

• While the FATF has paused the review process it began for Iran and the Democratic People’s Republic of Korea (DPRK), the FATF continues to call on other countries to apply countermeasures on these high-risk jurisdictions.
• The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its AML/CFT regime, and the serious threats such deficiencies pose to the integrity of the international financial system. The FATF also expresses serious concern for the threat posed by the DPRK’s illicit activities related to the proliferation of weapons of mass destruction and the financing of same.
• The FATF reaffirms its earlier call on its members and urges all jurisdictions to increase scrutiny regarding business relationships and transactions with the DPRK, including DPRK companies, financial institutions, and those acting on their behalf. In addition to enhanced scrutiny, the FATF calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions.
• FINTRAC will be assessing compliance with the Minister of Finance’s directive, as published in the Canada Gazette on December 9, 2017, concerning North Korea. FINTRAC notes it issued guidance related to the Ministerial Directive and published an Operational Alert on the DPRK’s use of the international financial system for money laundering and terrorist activity financing.
• Items continue to remain outstanding with respect to Iran’s action plan. Accordingly, countries should apply appropriate countermeasures. The Minister of Finance issued a directive, as published in the Canada Gazette on July 25, 2020, requiring, among other due diligence and reporting actions, that every financial transaction originating from, or bound for, Iran, regardless of its amount, be treated as a high-risk transaction for purposes of determining whether special measures are required. FINTRAC will be assessing compliance with the directive and issued guidance related to the Ministerial Directive.
• Myanmar continues to remain subject to a FATF call on countries to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction. In light of this, FINTRAC urges reporting entities to consider whether they are required to file a suspicious transaction report (STR) in respect of one or more financial transaction(s) or attempted financial transaction(s) emanating from, or destined to, Myanmar. Reporting entities are required to consider the geographic location of a person’s or entity’s activities as part of their risk assessment and to undertake mitigating measures, as applicable, and are encouraged to undertake enhanced customer due diligence with respect to clients and beneficiaries involved in such financial transactions or attempted financial transactions.
• The FATF notes several other jurisdictions that have strategic AML/CFT deficiencies and appear on the ‘grey list’: Albania, Barbados, Burkina Faso, Cayman Islands, Democratic Republic of the Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Nigeria, Panama, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Türkiye, Uganda, United Arab Emirates, and Yemen. 
• Cambodia and Morocco are no longer subject to the FATF’s increased monitoring process.
• The FATF previously issued statements expressing concerns with the financing generated by, and provided to, the terrorist group known as the Islamic State (IS). FINTRAC reminds all reporting entities of their obligation to submit a terrorist property report (TPR) to FINTRAC without delay, once the threshold under the Criminal Code or the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (RIUNRST) has been met. FINTRAC also urges reporting entities to consider whether to file a STR in respect of one or more financial transactions emanating from, or destined to, a jurisdiction under IS control or a surrounding jurisdiction where there are reasonable grounds to suspect the transactions or attempted transactions are related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence.
  Reporting entities are also encouraged to undertake enhanced customer due diligence with respect to clients and beneficiaries involved in such financial transactions or attempted financial transactions.
• The FATF previously expressed concern about the money laundering and terrorist financing risk environment in Afghanistan. FINTRAC reminds reporting entities of their obligation to submit a TPR to FINTRAC without delay once they have made a disclosure under the Criminal Code or the RIUNRST. FINTRAC urges reporting entities to consider whether to file a STR in respect of one or more financial transaction(s) emanating from, or destined to Afghanistan where there are reasonable grounds to suspect that the transactions or attempted transactions are related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence.
• Owing to the Russian Federation’s actions, which run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system, the FATF suspended the FATF membership of the Russian Federation. In light of this, FINTRAC urges reporting entities to consider whether to file a STR where there are reasonable grounds to suspect that the transactions or attempted transactions emanating from, or destined to Russia are related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence.
  
  Reporting entities are also encouraged to undertake enhanced customer due diligence with respect to clients and beneficiaries involved in such financial transactions or attempted financial transactions. FINTRAC notes that Canada has imposed a significant number of new sanctions measures in response to Russia’s invasion of Ukraine, details of which can be accessed at the following sites – Sanctions – Russian invasion of Ukraine webpage, Canadian sanctions website, FINTRAC Special Bulletin and the Global Advisory on Russian Sanctions Evasion Issued Jointly by the Multilateral REPO Task Force.

For further information concerning the matters referenced in the Advisory and what they might mean from a compliance perspective, please contact any member of our Financial Services Regulatory Group.

The author would like to thank Cathy Costa-Faria, Associate for her assistance in writing this Update.