6 December, 2019 – FINTRAC Advisory: Financial transactions related to countries identified by the Financial Action Task Force (FATF)

On October 18, 2019, the Financial Action Task Force (FATF) issued a Public Statement and a statement on Improving Global Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Compliance. These statements are updated and released following every Plenary.

The Public Statement identifies jurisdictions for which the FATF has called on its members to apply countermeasures or enhanced due diligence. The Improving Global AML/CFT Compliance statement identifies those jurisdictions which have developed an action plan with the FATF to address their strategic AML/CFT deficiencies.

Financial transactions related to countries identified by the FATF

Democratic People’s Republic of Korea (DPRK)

As communicated in the Public Statement dated 18 October 2019, the FATF:

Remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combatting the financing of terrorism (AML/CFT) regime and the serious threats they pose to the integrity of the international financial system. Further, the FATF has serious concerns with the threat posed by the DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing.

The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to 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 further 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, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC resolutions.

Ministerial directive on the DPRK

Accordingly, in order to safeguard the integrity of Canada’s financial system, and in accordance with section 11.42 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)Footnote 1, the Minister of Finance has issued the following directive as published in the Canada Gazette on December 9, 2017:

Every person or entity referred to in section 5 of the PCMLTFA shall treat all transactions originating from, or destined to, North Korea (Democratic People’s Republic of Korea) as high risk for the purposes of subsection 9.6(3) of the Act.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued guidance related to the Ministerial Directive which can be found on its website. FINTRAC will assess compliance with the Ministerial Directive.

In addition, on December 12, 2017, FINTRAC published an Operational Alert on the DPRK’s use of the international financial system for money laundering and terrorist activity financing. The purpose of this Operational Alert is to inform Canadian reporting entities of the patterns and risk areas related to the DPRK’s suspected money laundering and terrorist activity financing.

Iran

As communicated in the Public Statement dated 18 October 2019, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies in June 2016. However:

Iran’s action plan expired in January 2018. In October 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalizing terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

The FATF decided in June 2019 to call upon its members and urge all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. In line with the June 2019 Public Statement, the FATF decided this week to call upon its members and urge all jurisdictions to introduce enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and require increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran.

If before February 2020, Iran does not enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, then the FATF will fully lift the suspension of counter-measures and call on its members and urge all jurisdictions to apply effective counter-measures, in line with recommendation 19.

While acknowledging that Iran has recently adopted the AML-CFT bylaw, which the FATF has not yet reviewed, the FATF expresses its disappointment that the Action Plan remains outstanding. The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.

Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

Accordingly, FINTRAC is reiterating to all reporting entities subject to the requirements of the PCMLTFA, the risks of doing business with individuals and entities based in, or connected to, Iran.

FINTRAC is advising that reporting entities should consider the above in determining whether they are required to file a suspicious transaction reportFootnote 2 (STR) in respect of one or more financial transaction(s) or attempted financial transaction(s) emanating from, or destined to, Iran, 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.

FINTRAC uses the reports it receives to assess and analyze financial transactions to create a picture that serves to uncover financial relationships and networks. Suspicious transaction reports provide invaluable financial intelligence for FINTRAC's analysis such as individuals’ or entities' names, accounts, locations and relationships that may ultimately be disclosed to law enforcement, intelligence agencies, and/or other disclosure recipients. As such, suspicious transaction reports assist in FINTRAC’s ability to detect, prevent and deter ML/TF and to aid in the protection of Canada's national security.

FINTRAC has recently published new STR guidance on its website. This STR guidance provides a detailed explanation of requirements and all three should be read in conjunction:

In addition, reporting entities are required to consider the geographic location of a person’s or entity’s activities as part of their risk assessment under their Compliance ProgramFootnote 3 and to undertake mitigating measures, as applicable. Reporting entities are encouraged to undertake enhanced customer due diligence, including obtaining information on the reasons for intended transactions, with respect to clients and beneficiaries involved in financial transactions, completed or attempted, emanating from, or destined to, Iran.

Other jurisdictions

In its compliance document dated 18 October 2019, the FATF brought to the attention of its members several jurisdictions that have strategic AML/CFT deficiencies. The following jurisdictions have developed an action plan with the FATF to address identified deficiencies and have demonstrated some progress with the execution of their plans: the Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen and Zimbabwe.

Ethiopia, Sri Lanka, Tunisia no longer subject to FATF monitoring process

FATF welcomed the significant progress of these jurisdictions in improving their AML/CFT regimes. These jurisdictions have addressed technical deficiencies and met their respective action plans regarding strategic deficiencies that the FATF had identified. These jurisdictions are therefore no longer subject to FATF’s monitoring process, and will continue to work with their respective FATF-style regional bodies to further improve their AML/CFT regimes.

FATF action on the terrorist group Islamic StateFootnote 4

On September 22, 2014, the Government of Canada updated the Criminal Code list of terrorist entities to include the Islamic State (IS), which was previously listed as Al Qaeda in Iraq.

FINTRAC would like to reiterate previous statements issued by the FATF, expressing its deep concern with the financing generated by, and provided to, the terrorist group known as the Islamic State.

Accordingly, FINTRAC is reminding all reporting entities subject to the requirements of the PCMLTFA of their obligationFootnote 5 to submit a terrorist property report (TPR) to FINTRAC without delay, once they have met the threshold to disclose under the Criminal Code or the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (RIUNRST). Guidance related to TPRs can be found on FINTRAC’s website.Footnote 6

In this context, property includes any type of real or personal property. This also includes any deed or instrument giving title or right to property, or giving a right to recover or receive money or goods. A terrorist property report includes information about the property as well as any transaction or attempted transaction relating to that property.

FINTRAC is advising that reporting entities should consider the above in determining whether to file a suspicious transaction report in respect of one or more financial transaction(s) emanating from, or destined to, a jurisdiction under IS control or a surrounding jurisdiction 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.

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.Footnote 7

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