AML/ATF Update
January 2021 Charity & NFP Law Update
Published on January 28, 2021

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

FATF’s “Update: COVID-19-Related Money Laundering and Terrorist Financing”

On December 16, 2020, the Financial Action Task Force (“FATF”), an inter-governmental body established to set standards and measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system, released its Update: COVID-19-Related Money Laundering and Terrorist Financing (the “COVID-19 Report”). The COVID-19 Report was first published in May 2020, highlighting an increase in COVID-19-related crimes, including fraud, cybercrime, misdirection or exploitation of government funds or international financial assistance, as well as online fundraising scams for fake charities.

The COVID-19 Report provides a selection of case studies showing how the money laundering and terrorist financing risks have changed throughout the pandemic and the measures taken by authorities in response. The sources of concern resulting from the pandemic, as expressed by the FATF, include significant increases in online purchases due to widespread lockdowns with bank services transitioning online, as well as the losses of millions of jobs and closures of thousands of businesses.

In this regard, the updated COVID-19 Report states that fundraising for fake charities has continued throughout the pandemic, with victims being asked to provide credit card information or transfer funds to the bad actors’ secure digital wallets. In some cases the bad actors pretend to raise funds on behalf of well-known global charities. The fundraising scams often rely on social media platforms and other technologies, such as QR codes to fraudulently appeal for funds.

The COVID-19 Report recommends that authorities and the private sector take a risk-based approach to respond to the crisis, as required by the FATF Standards. The COVID-19 Report states that that the aim of the FATF Standards is to ensure that financial transactions with jurisdictions where there may be high risks of money laundering and terrorist financing are not driven towards unregulated service providers but are instead completed through legitimate and transparent channels so that the funds reach the legitimate intended recipients. The COVID-19 Report further states that the FATF Standards do not require that all charities and non-profit organizations (“NPOs”) be considered high-risk. Most NPOs play a vital role in the public health emergency response to the pandemic and carry little or no terrorist financing risk. As such, a risk-based approach must be applied to ensure that legitimate NPO activity is not unnecessarily delayed, disrupted or discouraged.

FINTRAC Guidance on Suspicious Virtual Currency Transactions

The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), published its guidance on suspicious transactions, “Money laundering and terrorist financing indicators – Virtual currency transactions” (the “FINTRAC Guidance”) on December 2, 2020. The FINTRAC Guidance is applicable to all reporting entities that are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) and associated Regulations. Charities and not-for-profits would not generally fall within the definition of a reporting entity under the PCMLTFA. However, the FINTRAC Guidance is a useful tool for charities and not-for-profits to stay alert regarding virtual currency transactions and avoid becoming unknowing participants in a money laundering or terrorist financing scheme.

The FINTRAC Guidance provides a number of potential red flag indicators for money laundering and terrorist financing in the context of virtual currency transactions. These red flag indicators are intended to, depending on the specific circumstances of each case, initiate suspicion or indicate that something may be unusual in the absence of a reasonable explanation.

As such, the red flag indicators in the FINTRAC Guidance include, for example: i) transactions involving “privacy coins” such as Monero, Dash and Zcash; ii) transactions involving a virtual currency wallet or address that is linked to fraudulent activity in media reports and/or cyber security bulletins; iii) publicized initial coin offerings (ICOs) by way of advertisements, celebrity endorsements, social media ads that could potentially be a “pump and dump” scheme; iv) transactions involving a smart contract to which there is no access to the code or to relevant technical information; or v) transactions involving a series of complicated transfers of funds to multiple addresses or wallets seemingly attempting to hide the source and intended use of the funds.

The FINTRAC Guidance follows the FATF’s Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing, released on September 14, 2020.

Read the January 2021 Charity & NFP Law Update