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Countering threats to the world’s financial system: the case for Canadian leadership

Through training and new partnerships, Canada
can help combat money laundering and terrorist financing activities.

By: /
30 March, 2016
A U.S. Securities and Exchange Commission workspace for investigators with the Office of Market Intelligence. The more systematic approach by the SEC and FBI to white collar crime comes in response to the growth and complexity of financial crimes in recent years. June 24, 2011. REUTERS/Jonathan Ernst
By: Michael Tierney

Researcher, anti-terrorism policies

In March, the Financial Action Task Force (FATF) – the inter-governmental body that works to promote effective implementation of measures for combating threats to the international financial system like money laundering and terrorist financing – released its annual 2014-2015 reportUnsurprisingly, the document heavily centred on terrorist financing and the Islamic State, as well as the need to strengthen the global anti-money laundering and terrorist financing (AML/TF) network, including actors in the private sector. 

Historically, the global network on AML/TF has been relatively weak and fragmented as various countries lack the capacity to effectively investigate and prosecute financial crimes. Further, centralized Financial Intelligence Units (FIUs) have had difficulty sharing information with one another to successfully combat money laundering and terrorist financing on a global scale. 

As a matter of Canadian foreign policy however, these gaps give Canada an opportunity to lead on the international stage.  Indeed, Canada has the perfect opening to play a much larger role in global anti-money laundering and terrorist financing efforts moving into the future. 

Canada has long been a member of the FATF (joining in 1990, one year after the group’s establishment in 1989) and has consistently worked to improve its own AML/TF regime over the last two and a half decades. Moreover, it is a member of the Egmont Group, which focuses broadly on improving global AML/TF efforts and on strengthening the capacity of FIUs to share information and engage in training exercises. As a member of the G20, Canada has also recently called on the FATF to promote the effective use of AML/TF measures and to improve the international community’s ability to share information on money laundering and terrorist financing. In this way, Canada has placed an emphasis on combating money laundering and terrorist financing alongside several international partners since at least the early 1990s. 

While Canada’s own AML/TF regime no doubt has room for improvement, it has also made significant efforts to strengthen its financial intelligence capabilities in the post-9/11 era and currently has “an effective AML/TF system in force” as rated by the FATF in 2014. In this manner, Canada’s system for financial intelligence investigations could become a model for countries struggling to build capacity with their own AML/TF regimes. Outside of public sector efforts however, Canada’s leading financial institutions (FIs) could also act as an agent for foreign policy leadership on this issue. 

Canada is no stranger to using private sector partners as advocates of its foreign policy. In the post-Soviet breakup, Canadian business advisors were deployed to Eastern Europe to assist private industry efforts across the former bloc states and to make Canadian business investments in the region. The Canadian government also established Team Canada trade missions in the 1990s, which were comprised of members from Canada’s political and business communities.  These individuals were tasked with promoting Canadian industry across global markets, especially in emerging economies. 

More recently, countries struggling with post-recession financial sector regulations have studied Canada’s financial services sector model to help prevent economic and social turmoil in the future. As concerns grow on issues related to money laundering and terrorist financing, Canada’s banks and other FIs could assist global counterparts with the formation and maintenance of relatively strong AML/TF programs. 

In Canada, the centralized FIU is known as FINTRAC. Yet much of FINTRAC’s information comes through private sector sources prior to being assessed and shared with relevant public sector agencies. Law enforcement and intelligence services also rely directly on commercial FIUs for the collection and analysis of financial intelligence to assist with their investigations. In this manner, strong private sector AML/TF and compliance regimes are necessary to effectively mitigate the threats and risks associated with terrorism and financial crime.

Canada’s leading financial institutions could aid the country’s international AML/TF leadership role in several ways. 

First, Canadian FIs could partner with private sector institutions in countries with weak capacity to investigate and report on money laundering and terrorist financing to strengthen their capabilities in those fields. Representatives from Canadian FIs could either travel to locations with weak AML/TF capabilities or host counterparts in Canada in order to train them on effective measures for investigating and reporting terrorists and financial criminals to centralized FIUs. Moreover, compliance professionals could enhance these efforts by helping FIs in weak-capacity states strengthen their own governance and compliance regimes, which would likely also improve the relationship between private and public sector financial intelligence units. As a whole, the global AML/TF network, including private sector partnerships, would be fortified to meet several of the FATF’s 2014-2015 goals. 

FIs headquartered in Canada but with branches and subsidiaries in other jurisdictions could also begin to harmonize internal AML/TF policies and apply lessons learned from their Canadian experience across their enterprises to improve AML/TF programs, and also the global AML/TF network. While it would almost certainly be impossible to consolidate AML/TF policies and practices across jurisdictions, Canadian FIs operating worldwide would be able to use their strong Canadian compliance regimes to bolster AML/TF efforts across the world. In concert, the Canadian government could work within diplomatic channels to assist countries needing further development on their AML/TF regimes in both the public and private sectors. 

The government could also put pressure on countries with severe corruption problems to help global AML/TF efforts by helping to ensure that officials who allow money laundering or terrorist financing activities to thrive in their jurisdictions are effectively prosecuted. Particular focus should be given to countries with the weakest AML/TF regimes in order to create the largest impact on anti-money laundering and terrorist financing operations. With these measures, the global AML/TF network would once again be strengthened as per the FATF’s 2014-2015 goals and commercial FIUs located in Canada could act as a model for international private sector counterparts. These private sector entities could then more effectively investigate financial crimes, share intelligence with their respective centralized public sector FIUs, and more successfully combat the global scale of money laundering and terrorist financing in the 21st century. 

As per the FATF’s 2014-2015 annual report, the global AML/TF network needs to be strengthened, including partnerships with the private sector, to effectively combat worldwide money laundering and terrorist financing activities. In this regard, Canada has a unique opportunity to lead from a foreign policy perspective. 

Canada has a relatively strong AML/TF regime and has consistently sought to improve its efforts in this field. The government of Canada also has experience partnering with private industry to make a positive impact on international affairs. By acting as a model for public sector financial intelligence efforts worldwide, and by encouraging and working with Canadian FIs who have fairly well-established FIUs and AML/TF compliance regimes, the government of Canada can have a significant and long lasting impact on international anti-money laundering and terrorist financing efforts in the years to come. 

As evidenced by recent calls for improved anti-financing measures to counter groups such as the Islamic State, the world needs a country like Canada to lead it forward in this policy area. In kind, Canada should take the opportunity to lead on global AML/TF initiatives moving forward.  

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