Canadian Government Alert Highlights Financial Sanctions Evasion Risks
Canada issued a special bulletin this month about the risks posed to companies and financial institutions by sanctions evaders, especially those looking to buy dual-use items or send money to fund terrorism. The 10-page bulletin outlines the Canadian laws that prohibit sanctions evasion, a set of evasion “indicators,” how companies should be complying with sanctions laws, and more.
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Sanctions evaders often use “well-established money laundering methods and channels” to circumvent restrictions, Canada said, including by disguising transactions as legitimate trades, exploiting markets with “permissive export controls and free trade zones,” and using business relationships to illegally buy goods and information. Canada also said evaders are increasingly using complex corporate structures, such as shell and front companies, to hide their dealings, adding that “Canada’s positive international reputation may also make it an attractive jurisdiction for proliferators who may wish to use Canadian financial and commercial entities to legitimize proliferation-related financial transactions between other international jurisdictions.”
Canada said transaction monitoring, sanctions screening and “thorough” customer due diligence are “crucial tools” to countering sanctions evasion. Businesses subject to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act must screen new clients and continually monitor “existing client relationships,” the country said.
The bulletin includes a set of red flags that may be a signal of sanctions evasion for Canadian banks and other companies, including:
- transactions involving people identified in open sources as the spouse, relative or agent of a sanctioned person
- transactions with entities that are physically co-located with or have shared ownership with a sanctioned entity
- transactions or financial relationships, including correspondent banking relationships, between businesses and entities located in regions with proliferation or diversion concerns, or located near areas controlled by terrorist groups
- transactions with incoming funds from a suspicious region that are “quickly offset by outgoing funds of a similar amount within a short period, directed to an individual or entity involved in a field of proliferation interest”
- transactions with people known to work in a sensitive technological sector with ties to proliferation-related goods or technologies
- transactions with people who have an “educational background in a field of proliferation interest" or have "engaged in research or publications on proliferation topics with academic institutions in jurisdictions of proliferation concern.”
The bulletin also includes red flags that may indicate a customer is using front companies to evade sanctions, is illegally shipping military or dual-use goods, is using trade financing to hide their illegal activities, and more.