Canada’s AML Controls Sufficient to Bypass Global Financial Watchdog’s “Grey List”
Canada is poised to avoid being “grey listed” globally after the completion of a closely watched review of its efforts to combat financial crime, according to two people familiar with the matter.
A team of assessors from the Financial Action Task Force (FATF), a 40-member global body that sets standards to combat money laundering and terrorist financing, is conducting an in-depth evaluation of Canada’s measures to detect, deter and disrupt the flow of dirty money. The Asia/Pacific Group on Money Laundering, a related regional body with 42 members, is also participating in the evaluation. Canada belongs to both organizations.
Canada’s review has not yet concluded, and any preliminary findings remain subject to change over the coming days and months. The FATF will publish a final report this fall.
But Canada’s provisional ratings, which were assigned by the evaluation team ahead of this week’s FATF plenary in Paris, are likely sufficient to prevent it from being added to the global body’s “grey list” of countries that have weaker financial-crime controls, the sources said. The Globe and Mail is not identifying the individuals because they were not authorized to discuss the matter with the media.
The FATF reviews a number of jurisdictions every year. Those with serious deficiencies are considered high risk and put on what is known as the black list, while those with lesser inadequacies are put on what is referred to as the grey list. Many countries pass the reviews and are not included on either list.
There had been concern that Canada faced an outside chance of landing on the FATF’s grey list after this evaluation because of various factors. They include Canadian regulatory failings related to Toronto-Dominion Bank’s criminal case in the United States and Canada’s weak track record on enforcement, including convictions for criminals who abuse the financial system.
Grey-listed jurisdictions – there are more than 20 of them, including Kuwait, Monaco, British Virgin Islands and Venezuela – are subjected to increased monitoring by the FATF.
Consequently, grey-listed jurisdictions also face heightened scrutiny from other countries regarding the integrity of their banks, legal systems and supply chains. That, in turn, potentially harms foreign investment, trade and a designated country’s sovereign credit rating.
There are only a few black-listed countries, including Iran, North Korea and Myanmar.
When asked to comment on Canada’s evaluation, the FATF and the Department of Finance issued similar statements stressing that the review process is not yet over.
“The FATF mutual evaluation process is a robust and iterative process in order to ensure a complete picture. To ensure the accuracy and integrity of mutual evaluations, conclusions should therefore not be drawn until that process is complete,” FATF spokesperson Stefanie Mair wrote in an e-mail to The Globe on Monday.
Marie-France Faucher, deputy spokesperson for the Department of Finance, said Canada is prevented from discussing or disclosing any further information at this time. “FATF plenary meetings, like mutual evaluations, are confidential, to ensure the FATF is able to provide a technical and accurate report.”
Both the FATF and the Department of Finance noted that all evaluations undergo a “global network quality and consistency review” per the body’s published procedures.
The FATF’s report is strictly confidential until it’s published, Ms. Mair said, noting that’s expected around September or October.
Officials at the Department of Finance were provided with a confidential draft report of the assessment’s initial findings, according to the confidential sources.
The draft evaluation, which appraises both the effectiveness of Canada’s anti-money laundering and anti-terrorist financing regime and the country’s technical compliance with FATF standards, includes various preliminary ratings.
Canadian officials and members of the assessment team are expected to hold in-person discussions before a final draft is shared with all FATF delegations later this week.
As part of those closed-door meetings, Canadian officials are expected to advocate for some of the provisional ratings to be upgraded, the sources said.
One potential area of weakness is supervision by Canadian regulators owing to TD Bank’s money-laundering failings in the U.S., according to one of the sources.
In 2024, TD pleaded guilty to conspiracy to commit money laundering and failing to maintain an anti-money-laundering program that complies with U.S. regulations. The Toronto-based bank paid more than US$3-billion in fines, and U.S. regulators imposed a slew of other non-monetary penalties.
The Federal Reserve Board also required TD to relocate to the U.S. parts of its anti-money-laundering compliance program that are responsible for complying with U.S. law. “This program will be subject to oversight by U.S. regulators,” the board stated at the time.
That change was interpreted as a rebuke of the bank’s home-country regulators, one of the sources said.
Another potential deficiency is Canada’s enforcement statistics, the other source said.
Enforcement results, which include the number of investigations, charges, prosecutions, convictions and asset forfeitures, actually declined between 2010 and 2020, according to a 2023 report by the Department of Finance.
Depending on the combination of its final ratings, Canada could face the possibility of enhanced follow-up by the FATF once its evaluation is completed, the sources added.
Most industrialized countries receive final ratings that are above grey-listing thresholds. They are then either subject to regular reviews, which is the optimal outcome, or an enhanced review process, which is less desirable because it involves additional assessments of a country’s remedial actions.
Although enhanced reviews would require a country to demonstrate more frequent progress, they may not have a discernible impact on its banks or financial system.
Nonetheless, securing regular reviews is considered a point of pride for major countries. Thus, Department of Finance officials are expected to counter any suggestion of enhanced reviews for Canada, the sources said.
Canada was previously subject to the FATF’s enhanced follow-up process after its last evaluation in 2016. After enacting new measures to address identified deficiencies, Canada was rerated by the FATF and reverted to regular reviews in 2021.
A senior government official, who The Globe has also agreed not to identify because they are not authorized to speak publicly about the issue, said Friday the Finance Department is currently in talks with FATF officials ahead of the publication of the organization’s report.
Canada’s message to the FATF is that Ottawa recently announced plans to boost its efforts to counter financial crimes, including through the creation of a Financial Crimes Agency, a proposed ban on crypto ATMs and the development of a national anti-fraud strategy, the official added.
The FATF is expected to discuss Canada’s evaluation during its plenary that runs from June 17 to 19 in Paris. The findings will then be discussed at a meeting of the Asia/Pacific Group on Money Laundering in July.
With a report from Bill Curry
This article was first repoorted by The Globe and Mail
