Canada urged to improve prosecution of complex financial-crime cases, global review says

Canada’s anti-financial crime regime received a passing grade from the Financial Action Task Force, but the country needs to step up its investigation and prosecution of complex money laundering cases, according to a highly anticipated report from the global financial watchdog.

The evaluation of Canada’s ability to tackle financial crime took place over 14 months, culminating with a three week on-site visit last November. The assessors, a team made up of individuals from other jurisdictions including Britain, Italy, Australia and China, interviewed more than 700 representatives from the federal and provincial governments, the private sector and non-profit organizations.

The review placed Canada in the regular follow-up category, rather than the enhanced review process that requires additional assessments of a country’s remedial actions. That represents an improvement from the last mutual evaluation of Canada’s financial crime controls in 2016, when the country was placed on enhanced follow-up.

However, the report from the FATF and the Asia/Pacific Group on Money Laundering, or APG, says Canada needs to secure more money-laundering convictions and take a more risk-based approach to supervision, including by beefing up oversight of non-financial sectors such as real estate and precious metals and stones dealers. (The APG is a regional body with 42 members that also participated in the evaluation. Canada belongs to both organizations.)

The assessors also found that provinces and territories vary in their implementation of corporate beneficial ownership registers and their efforts to seize proceeds of crime.

The Globe and Mail reported in June that Canada would likely avoid being put on the FATF’s grey list of countries found to be deficient in managing financial crime risks. Some industry experts had raised concerns about that possibility after Toronto-Dominion Bank became the first lender in U.S. history to plead guilty to conspiracy to commit money laundering following a decade of moving money for criminal organizations.

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The task force also maintains a blacklist of countries deemed high risk owing to what the organization calls “serious strategic deficiencies.” Being grey-listed or blacklisted can have serious negative consequences for a country’s economy, for instance by curtailing foreign investment.

The report, published Tuesday, is Canada’s first assessment under new, more stringent criteria that place more emphasis on risk and on the effectiveness of a country’s anti-financial-crime regime, rather than on technical compliance.

Its publication comes during escalating tensions between Canada and its largest trading partner. U.S. President Donald Trump has designated fentanyl as a “weapon of mass destruction” and has previously used allegations about the flow of the drug into the United States to justify the imposition of tariffs.

“As a major global economy, 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,” Giles Thomson, president of the FATF, said in a statement.

“However, with the threats posed by fraudsters, organized 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,” he added.

The FATF found that Canada faces what it called “persistent challenges” in prosecuting professional money laundering. Prosecutors often withdraw money laundering charges in order to secure convictions for predicate offences, such as drug trafficking or fraud, that carry higher maximum penalties through resolution agreements.

For example, during the five-year period assessed, which spans from fiscal 2019-20 to fiscal 2023-24, nearly half of the 703 cases involving a charge of laundering the proceeds of crime resulted in a finding of guilt, on either the money-laundering charge or the predicate offence. However, only 10 per cent of the actual money laundering charges resulted in a guilty decision. In 86 per cent of the cases, the money laundering charge was withdrawn, dismissed, discharged or stayed.

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“This is despite money laundering being the key enabler for organized crime in Canada and reinforces the findings … that the Canadian system lacks a strong appreciation of social and economic harms caused by money laundering,” the report notes.

The FATF lauded Canada’s “sophisticated capability” in seizing cryptocurrency assets, and noted that civil forfeiture was strong in British Columbia, Alberta, Manitoba and Saskatchewan. However, it found that other regions of the country have been taking a more conservative approach to the practice. Ontario is currently mulling the adoption of unexplained wealth orders, a legal tool that would make it easier to seize assets believed to have been obtained with the proceeds of crime.

Federal Finance Minister François-Philippe Champagne said the government has taken action to strengthen Canada’s anti-money-laundering regime over the past year, including banning crypto ATMs, introducing legislation to establish a new federal law enforcement agency focused on financial crimes and taking steps to crack down on extortion.

“This outcome represents not only an improvement of Canada’s last evaluation in 2016 but a validation of the work the government is undertaking with agencies and provinces together to better protect Canadians against fraud and the financial system against nefarious activity,” Mr. Champagne said in a statement.

He added that the report identifies opportunities to “strengthen Canada’s regulatory supervision, beneficial ownership transparency, investigations, prosecutions and asset recovery processes.”

Mr. Champagne said the government will review and act on the recommendations made in the report.