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Washington will not hesitate to use the FATF’s findings as a cudgel against our banks and other businesses as part of its trade war, Rita Trichur writes.Charles Platiau/Reuters
Canada’s financial-crime watchdogs require remedial action of their own.
The Financial Action Task Force (FATF), a global body that sets standards to combat money laundering and terrorist financing, gave Canadian regulators a tepid evaluation of their oversight of banks and other businesses at high risk of being tainted by dirty money.
Rating the overall effectiveness of domestic regulators as “moderate” in its report published Tuesday, the FATF found Canada’s efforts to fight financial crime had numerous supervisory shortcomings. Many involve the lead federal agency tasked with detecting, deterring and disrupting illicit funds: the Financial Transactions and Reports Analysis Centre of Canada or FinTRAC.
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Although the FATF has cited issues with Canadian supervision in past reviews, this evaluation was the first since a series of high-profile money laundering scandals sharpened international scrutiny of domestic regulatory failings.
Chief among them, Toronto-Dominion Bank pleaded guilty in a criminal case in the United States two years ago and continues to overhaul its anti-money laundering compliance to appease U.S. regulators and law enforcement. That historic legal action prompted embarrassing questions about how Canadian regulators fumbled their oversight of a major bank.
Canadian regulators and their political masters in Ottawa deserved to get their knuckles rapped by the FATF. One might argue they still got off easy. Ottawa has three years to report back to the FATF on the progress it’s made on the report’s key recommendations.
It is imperative that the federal government finally correct these regulatory lapses because Washington will not hesitate to use the FATF’s findings as a cudgel against our banks and other businesses as part of its trade war. U.S. President Donald Trump does not treat trade as a discrete issue and has already used pretexts, such as fentanyl trafficking, to impose punitive tariffs against Canada.
The FATF report clearly states that money laundering in Canada is “mainly linked” to illicit proceeds from drug trafficking, fraud, commercial trade fraud and tax crimes perpetrated in large part by “transnational criminal activity.” It also points out that illicit funds flow across borders because organized criminals exploit “the openness and integration” of our financial, commercial and economic systems.
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Regulators play a crucial role in thwarting the flow of illicit funds that compromise businesses, including those with cross-border operations such as banks.
Among its key findings, the FATF found that FinTRAC’s supervision risk model, an oversight framework adopted by the regulator in 2024, “lacks sufficient sophistication and granularity to adequately reflect the inherent risk profiles of larger, more complex” banks and securities firms.
Underscoring that concern, the report says that 31 per cent of virtual asset service providers, 27 per cent of banks and 19 per cent of credit unions were assessed as “deficient” in their efforts to flag suspicious transaction reports to FinTRAC.
The FATF also criticized the frequency of FinTRAC’s on-site examinations and the intensity of its other supervisory activities, including those focused on large domestic banks, stressing they were “not commensurate with risks.”
What’s more, it found that most FinTRAC examinations of companies “do not provide specific recommendations” to address the regulator’s findings or their root cause.
“More than half of the FINTRAC examinations were concluded as having minor deficiencies addressed through guidance given during the examination,” states the FATF’s report.
When FinTRAC detects more serious problems and subsequently requires companies to implement action plans, nearly half of its follow-up exams found that deficiencies were not satisfactorily remediated, the report said. It added that the “overall improvement rate” for banks, money services businesses and virtual asset service providers was “less than satisfactory.”
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It seems companies do not fear the regulator. Why would they?
FinTRAC has been beset by problems in recent years, including a debilitating cyberattack and the abrupt departure of its former deputy director of intelligence.
Heck, the federal government has let FinTRAC operate without a permanent leader since mid-May.
While Ottawa has taken legislative actions to shore up FinTRAC’s regulatory authority, some key initiatives were not in place in time for this review.
The FATF found that FinTRAC has insufficient resources and its penalties “are not sufficiently dissuasive.”
(I note that FinTRAC’s own website states that administrative monetary penalties are meant to “encourage compliance, not to punish.”)
That was certainly the case for TD, which paid FinTRAC less than $9.2-million for having faulty money-laundering controls in 2024.
Later that same year, TD pleaded guilty to conspiracy to commit money laundering and failing to maintain an anti-money-laundering program that complies with U.S. regulations.
As a result, it 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 responsible for complying with U.S. law. “This program will be subject to oversight by U.S. regulators,” the board stated at the time.
Yes, that was the U.S. chiding TD’s Canadian regulators.
To be clear, the answer is not forcing banks and other businesses to absorb ever-increasing compliance costs. The true measure of effective regulation is the successful prosecution of financial crimes.
The FATF was stinting in its praise of Canadian regulators for good reason. It’s time for Ottawa to get serious about setting them up for success.