Canada has dodged the economically devastating hit of landing on a global “grey list” of countries with weak money-laundering controls—but its bank supervision still needs significant improvement, an international review has found.
The Financial Action Task Force (FATF) downgraded Canada’s supervision of financial institutions to “partially compliant” from “largely compliant” in its first full assessment of the country since 2016. It found that the country falls short of international standards for enforcing anti-money-laundering controls at banks and for the independence and accountability of its banking regulator.
Talking Points
- Canada scored high enough on an international review of its money-laundering controls to avoid landing on a list of countries subject to increased scrutiny—and the severe economic consequences that would come with it
- Still, the Financial Action Task Force (FATF) found Canada falls short of international standards for enforcement of money-laundering controls at banks
FATF president Giles Thomson said in a release that Canada has improved corporate transparency and financial intelligence since its last review. “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 said. FATF did not respond to a request for an interview.
FATF audited Canada’s defences against money laundering and terrorist financing last year. In advance of the audit, compliance professionals expressed concern that Canada might join Haiti, Lebanon, Venezuela and others on FATF’s grey list, which subjects countries to increased scrutiny.
Canada has suffered a series of high-profile anti-money-laundering scandals, including TD Bank’s failure to prevent money laundering by drug cartels in the U.S., leading to a US$3-billion penalty in October 2024.
Grey listing carries more than reputational costs. A 2021 International Monetary Fund study found that it can slash a country’s capital inflows by 7.6 per cent of its GDP per year, as governments face greater difficulty borrowing money and attracting foreign investment. That would have been particularly devastating for Canada, which is trying to drive foreign investment in major nation-building projects in an effort to increase its autonomy from the U.S. amid an ongoing trade war.
Canada has avoided that fate, and improved its rating in three major categories compared to its last review: transparency and beneficial ownership, financial intelligence and financial sanctions. (The categories are not perfectly comparable, because FATF updated its methodology between the two reviews.)
But the review also identified specific weaknesses in the Financial Transactions and Reports Analysis Centre of Canada (Fintrac)’s supervision of banks. Fintrac isn’t focusing enough on high-risk business lines, products and services when it audits the big banks’ money-laundering controls, the report found. It noted that the number of businesses that must report to Fintrac has significantly expanded in recent years, but the resources of the staff tasked with supervising them haven’t increased in proportion.
Canada has taken steps to address its reputation for being soft on white-collar crime. In April, the House of Commons completed the first reading of legislation outlining the powers of the new Financial Crimes Agency (FCA), which will be tasked with fighting serious financial offences. Fintrac has smashed its own records for the value of financial penalties it levies against companies that fall short of its money-laundering control standards, after years of criticism that it wasn’t cracking down hard enough.
FATF says Fintrac should get even tougher. The agency says Canada should beef up its resources, especially for its teams supervising banks and crypto businesses.
The report also calls for Canada to strengthen its money-laundering controls for lawyers, saying law societies aren’t enforcing them as effectively as they should. It says Canada should consider creating a central registry of bank accounts to help identify the assets of people covered by sanctions; expanding tools to recover criminal assets without a conviction, or unexplained wealth orders, countrywide; and licensing precious-metals dealers to keep criminals from owning or running them.