By Terrance S. Carter, Sean S. Carter and Nancy E. Claridge

FINTRAC Publishes Operational Alert Regarding Financing Terrorism 

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) published an Operational Alert entitled “Terrorist Activity Financing” on December 15, 2022. The purpose of this new document is “to assist businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in identifying and reporting suspicious transactions and terrorist property to FINTRAC.”

The report warns business that funding for terrorism can come from laundered money, sourced from illegal activities like the arms and drug trade, but funding can also come from seemingly legitimate sources.

Analysis by FINTRAC determined three classifications of terrorist activity which were receiving funding from Canada: domestic terrorists, international terror groups, and Canadian extremist travelers (“CETs”), i.e. Canadian residents who travel in support of international terror. There are currently 77 terrorist entities listed under the Criminal Code. The motivations for these groups have been broken down into three categories – religious, political and ideological. FINTRAC cites ideological terrorism as the newest and most prominent form. It is distinguished from political terrorism by its decentralized nature, with little affiliation and communication between groups.

According to the report, most funding of international terrorism went to the Islamic State group and Hezbollah. Money sent to the Islamic State was primarily laundered through Turkey, especially to towns near the Turkish/Syrian border. Funds to Hezbollah were often laundered through the sale of automobiles to Lebanon. Other common destinations of these funds were Iraq, Pakistan, Syria, United Arab Emirates, and Yemen. Most transactions involved money service businesses.

The Operational Alert includes tips on identifying business relations which intend to become CETs. Individuals in the “pre-departure phase” are known to deplete their accounts before departing overseas. Accounts which have not been depleted often see the withdrawal of funds or spending on credit cards along “known travel corridors to a conflict zone or location of concern.” Accounts subsequently go dormant while the CET is “in-theater”. CETs often receive/give seemingly random transfers between themselves and third-parties. Some individuals who intended to become CETs but then decide against travel for extremism purposes have telltale transactions such as retuned airline tickets.

FINTRAC reminds Canadians that proof of terrorist activity financing is not required to make a report, though they ask that those considering making a report “must reach reasonable grounds to suspect that a transaction, or attempted transaction, is related to terrorist activity financing before they can submit a suspicious transaction report to FINTRAC.” A list of “red flags” for entities to be aware of can be found in the report.

Those who wish to submit a report about suspicious activity can do so by submitting a terrorist property report to FINTRAC. A disclosure is needed when the reporter knows of that property in their possession or control is “owned or controlled by or on behalf of a terrorist or a terrorist group” or when they are aware of a transaction or proposed transaction involving such property. Property can be tangible, intangible or any form of currency/currency like asset (cryptocurrency, casino chips, precious metals).

Standing Senate Committee on Human Rights Makes Recommendations Regarding Afghanistan

The Standing Senate Committee on Human Rights released a report, “Interim Report on Canada’s Restrictions on Humanitarian Aid to Afghanistan” (the “Report”), criticizing the federal government for failing to consider measures needed to exempt some Canadian organizations wishing to provide humanitarian aid in Afghanistan more than two months after agreeing that it should act immediately on that issue. The Report, released December 14, 2022, explains certain background information on the humanitarian situation in Afghanistan, international sanctions against the Taliban and humanitarian exceptions to those sanctions. It also highlighted the questions of various leaders of Canadian NGOs, including how allowing children to starve or freeze to death could be justified in any way.

One of the recommendations discussed in the Report was for the federal government to provide an assurance of non-prosecution to organizations seeking to provide vital humanitarian aid in good faith. A second recommendation was that the Attorney General of Canada “urgently consult with provincial counterparts” to seek guarantees that proceedings will not be commenced under section 83.03(b) of the Criminal Code in cases where legitimate humanitarian aid, absent any terrorist intent, results in an incidental benefit to a terrorist group. Other recommendations included that the Department of Justice should immediately publish its position on the scope of section 83.03(b) and introduce legislation to create an explicit humanitarian exemption to section 83.03(b). Finally, the Report concludes with a recommendation that the federal government “urgently increase its humanitarian assistance to Afghanistan and neighbouring countries, and continue to ensure that reasonable steps are taken to minimize the accrual of benefits to the Taliban.”

UNSC Adopts Resolution on Humanitarian Carve-Out

Various measures have been passed to ease the provision of humanitarian assistance and support for basic human needs. In response to the unintended “adverse humanitarian consequences for civilian populations [and] adverse consequences for humanitarian activities or those carrying them out” that can be brought about by sanctions regimes, the United Nations Security Council adopted Resolution 2664 (2002) on December 9, 2022. In providing relief, Resolution 2664 establishes a “humanitarian carve-out” (also known as a standing humanitarian exception or exemption) to UN sanctions regime-imposed asset freeze measures.

UN Member States are required to comply with the UN sanctions regime by freezing assets of designated individuals, groups, undertakings, and entities. However, Resolution 2664 carves out an exception to this general rule and states that:

the provision, processing or payment of funds, other financial assets, or economic resources, or the provision of goods and services necessary to ensure the timely delivery of humanitarian assistance or to support other activities that support basic human needs … are permitted and are not a violation of the asset freezes imposed by [the] Council or its Sanctions Committees.

Of particular note, the humanitarian carve-out applies to the UN sanctions regime against ISIL (Da’esh) and Al-Qaida for two years. Resolution 2664 also requests those relying on the humanitarian carve-out to “use reasonable efforts to minimize the accrual of any benefits prohibited by sanctions, whether as a result of direct or indirect provision or diversion” to sanctioned parties, by “strengthening risk management and due diligence strategies and processes”.

Shortly after, the United States Department of Treasury’s Office of Foreign Assets Control (OFAC) took steps to implement Resolution 2664 across the United States’ sanctions programs, according to an OFAC press release on December 20, 2022. In this regard, OFAC issued and amended general licenses (“GLs”) to “ease the delivery of humanitarian aid and ensure a baseline of authorizations for the provision of humanitarian support across many sanctions programs”. Issued and amended GLs include:

• the official business of the U.S. government;
• the official business of certain international organizations and entities, such as the United Nations or the International Red Cross;
• certain humanitarian transactions in support of nongovernmental organizations’ (NGOs’) activities, such as disaster relief, health services, and activities to support democracy, education, environmental protection, and peacebuilding; and
• the provision of agricultural commodities, medicine, and medical devices, as well as replacement parts and components and software updates for medical devices, for personal, non-commercial use.

For further guidance on OFAC’s implementation of Resolution 2664, including guidance for financial institutions facilitating activity for non-governmental organizations and OFAC’s due diligence expectations, OFAC also concurrently released a set of Frequently Asked Questions.

​Read the January 2023 Charity & NFP Law Update