FINTRAC Issues Guidance on Reporting Financial Transactions Related to Sanctions Evasion

Effective August 19, 2024, businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) must report transactions suspected to be related to sanctions evasion to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). FINTRAC recently issued guidance on when and how to report such transactions.

Background

Canada’s 2023 Fall Economic Statement announced the government’s intention to introduce legislative measures aimed at combatting sanctions evasion. Canadian sanctions place restrictions on the activities permissible between persons in Canada or Canadians outside Canada and foreign states, individuals, or entities. Canadian sanctions are imposed under the United Nations Act, the Special Economic Measures Act, or the Justice for Victims of Corrupt Foreign Officials Act.

Effective August 19, 2024, reporting entities under the PCMLTFA will have expanded obligations to report to FINTRAC financial transactions related to suspected sanctions evasions where there are reasonable grounds to suspect sanctions evasion by someone acting on behalf of a sanctioned person.

FINTRAC Guidance

FINTRAC recently published the following guidance to support reporting entities in meeting their sanctions-related reporting obligations: Report suspected sanctions evasion.

FINTRAC also developed a Special Bulletin on financial activity associated with suspected sanctions evasion to support reporting entities in identifying and assessing sanctions evasion risks, applying controls and measures to mitigate these risks, and effectively detecting and reporting suspicious transactions to FINTRAC by submitting a Suspicious Transaction Report.

In the Special Bulletin, FINTRAC sets out common techniques and channels used by individuals and entities to circumvent sanctions. Among these are the use of intermediary jurisdictions to set up complex networks of shell and front companies (often registered to addresses in offshore financial centres or tax havens), and the use of non-resident bank accounts (generally located in “secrecy jurisdictions” or those known to cater to customers in sanctions jurisdictions). FINTRAC also notes that alternative financial channels, including the use of crytpocurrencies and other emerging financial technologies, have played a role in sanctions circumvention activities. The Special Bulletin expands on the particular use of these techniques.

Looking Forward

Notably, reporting entities have additional obligations under Canada’s sanctions laws regarding business activity connected with sanctioned individuals and entities. Goodmans is keeping apprised of developments in this area and will continue to provide updates.

For further information concerning reporting entity obligations to report suspicious transactions to FINTRAC, or concerning sanctions-related obligations more generally, contact any member of our Financial Services Regulatory Group.

The author would like to thank  Cathy Costa-Faria, Associate, for her assistance in writing this Update.