April 28, 2020 – FINTRAC Advisory: Financial transactions related to countries identified by the Financial Action Task Force (FATF)

On February 21, 2020, the Financial Action Task Force (FATF) issued a statement on high-risk jurisdictions subject to a call for action and a statement on jurisdictions under increased monitoring. These statements are updated and released following every Plenary.

The statement on high-risk jurisdictions subject to a call for action identifies jurisdictions for which the FATF has called on its members to apply countermeasures or enhanced due diligence. The statement on jurisdictions under increased monitoring 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 statement on high-risk jurisdictions subject to a call for action dated 21 February 2020, 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

*Please note that further direction will be forthcoming.

As communicated in the statement on high-risk jurisdictions subject to a call for action dated  21 February 2020, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies in June 2016. However:

“In June 2016, Iran committed to address its strategic deficiencies. Iran’s action plan expired in January 2018. In February 2020, the FATF noted Iran has not completed the action plan.[1]

In October 2019, the FATF called upon its members and urged all jurisdictions to: require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran; 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.

Now, given Iran’s failure to enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, the FATF fully lifts the suspension of counter-measures and calls on its members and urges all jurisdictions to apply effective counter-measures, in line with Recommendation 19.[2]

Iran will remain on the FATF statement on [High Risk Jurisdictions Subject to a Call for Action] until the full Action Plan has been completed. If Iran ratifies the Palermo and Terrorist Financing Conventions, in line with the FATF standards, the FATF will decide on next steps, including whether to suspend countermeasures. 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.

[1] In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Since 2016, Iran established a cash declaration regime, enacted amendments to its Counter-Terrorist Financing Act and its Anti-Money Laundering Act, and adopted an AML by-law.

In February 2020, 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) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (5) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (6) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

[2] Countries should be able to apply appropriate countermeasures when called upon to do so by the FATF. Countries should also be able to apply countermeasures independently of any call by the FATF to do so. Such countermeasures should be effective and proportionate to the risks.”

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 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 guidance related to suspicious transaction reports can be found on its website.

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 statement on jurisdictions under increased monitoring dated 21 February 2020, 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: Albania, The Bahamas, Barbados, Botswana, Cambodia, Ghana, Iceland, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Pakistan, Panama, Syria, Uganda, Yemen, and Zimbabwe.

Trinidad and Tobago no longer subject to FATF monitoring process

FATF welcomed the significant progress of Trinidad and Tobago in improving its AML/CFT regime. Trinidad and Tobago has addressed technical deficiencies and met its action plan regarding strategic deficiencies that the FATF had identified. Trinidad and Tobago is therefore no longer subject to the FATF’s monitoring process, and will continue to work with its respective FATF-style regional body to further improve its AML/CFT regime.

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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