AML/ATF Update

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

Jan 2025 Charity & NFP Law Update
Published on January 30, 2025

 

   
 

12.1. Proposed Revisions to FATF Recommendations Aim to Promote Financial Inclusion

The Financial Action Task Force (FATF) is undertaking revisions to its Recommendations as part of its ongoing efforts to address unintended consequences of anti-money laundering and counter-terrorist financing (AML/CFT) measures. These changes are designed to better align FATF standards with measures that promote financial inclusion.

Central to the proposed revisions are updates to Recommendation 1 and its Interpretive Note, with corresponding adjustments to Recommendations 10 and 15 and relevant Glossary definitions. The revisions aim to strengthen the application of the risk-based approach by emphasizing proportionality and simplified measures. By doing so, FATF seeks to provide governments, financial institutions, and supervisors with clearer guidance and greater confidence when implementing simplified measures in low-risk scenarios. The key areas of proposed revisions are as follows:

  1. Clarification of Proportionality in the Risk-Based Approach

A significant aspect of the proposed revisions involves replacing the term “commensurate” with “proportionate” in Recommendation 1. This change aims to provide clearer guidance on the application of measures corresponding to the level of identified risk. The proposed definition of “proportionate” in this context is:

“A proportionate or commensurate measure or action is one that appropriately corresponds to the level of identified risk and effectively mitigates the risks.”

By aligning its language with financial inclusion stakeholders and frameworks, FATF seeks to enhance understanding and implementation of proportionality. This adjustment is intended to ensure AML/CFT measures are applied in a manner that does not overburden financial institutions or create barriers to financial access.

  1. Supervisory Role in Risk Mitigation

FATF proposes amendments requiring supervisors to “review and take into account the risk mitigation measures undertaken by financial institutions/DNFBPs [Designated Non-Financial Businesses and Professions]”. This aims to address overcompliance arising from a partial understanding of risks.

  1. Encouragement of Simplified Measures

In recognition of the importance of simplified measures in fostering financial inclusion, FATF suggests replacing the phrase “countries may decide to allow simplified measures” with “countries should allow and encourage simplified measures.” This change introduces an explicit requirement for countries to create environments that actively facilitate the implementation of simplified measures for lower-risk situations.

  1. Technological Advancements in Customer Identification

FATF is considering updates to reflect advancements in digital identity systems. Specifically, the revisions propose adding a qualification to the reference to “non-face-to-face customer-identification and transactions” as higher-risk situations. The addition of “unless appropriate risk mitigation measures have been implemented” acknowledges that technological innovations can effectively address risks traditionally associated with remote customer identification.

Implications of the Revisions

The proposed revisions are designed to strike a balance between effective risk management and the promotion of financial inclusion. By refining language, emphasizing proportionality, and encouraging simplified measures, FATF seeks to mitigate overcompliance and enable broader access to financial services. These changes also reflect an acknowledgment of technological advancements that have reshaped the financial landscape, ensuring that the FATF Recommendations remain relevant and effective in the digital age.

12.2.  Proposed Amendments to Canada’s AML/ATF Regulations Aim to Enhance Compliance and Address Emerging Risks

Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) regime is undergoing significant regulatory updates to address evolving risks and align with international standards. The amendments, published in the Canada Gazette (Part I, Volume 158, Number 48) on November 30, 2024, state that they aim to strengthen the integrity of the financial system, protect national security, and respond to criticisms and recommendations from various reviews and inquiries, including the 2022 Commission of Inquiry into Money Laundering in British Columbia and Canada’s 2018 Parliamentary Review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). These changes also implement commitments made in federal budgets from 2022 to 2024 and state that they are intended to prepare Canada for its 2025–26 mutual evaluation by the Financial Action Task Force (FATF), the global AML/ATF standard-setting body.

The proposed amendments target six key areas. First, they introduce a requirement for traders to report the importation and exportation of goods to the Canada Border Services Agency (CBSA) under the PCMLTFA. This measure seeks to detect, deter, and disrupt trade-based financial crime—a growing risk in international commerce.

Second, the amendments enhance the ability of regulated entities to share information among themselves to detect money laundering, terrorist financing, and sanctions evasion. While this measure increases collaboration, privacy protections remain a priority, with oversight by the Office of the Privacy Commissioner of Canada. 

Third, the regulations strengthen corporate beneficial ownership transparency. Reporting entities would be required to notify the federal beneficial ownership registry of material discrepancies between their records and a company’s filings if a high risk of money laundering or terrorist financing is suspected.

The remaining updates expand AML/ATF requirements to new financial service providers, including factoring companies, cheque-cashing businesses, and financing or leasing entities. This extension addresses gaps in the regulatory framework, mitigates risks posed by these sectors, and ensures compliance with FATF standards, creating a more level playing field across financial services providers in Canada.

The information-sharing provisions in the proposed amendments to Canada’s AML/ATF regulations are particularly noteworthy for charities and not-for-profits as they are frequently subject to complex regulatory environments and cross-border activities, and may face unique challenges as they navigate the balance between compliance and privacy obligations. While the measures aim to enhance the detection of financial crimes, the practical implications for charities and not-for-profits remain to be seen, particularly regarding the oversight of privacy protections and the potential administrative burden of increased reporting requirements.

12.3.  US Department of Justice Proposes Significant Updates to FARA Regulations

On December 20, 2024, the U.S. Department of Justice (DOJ) published a Notice of Proposed Rulemaking (NPRM) aimed at updating and clarifying the regulations under the Foreign Agents Registration Act (FARA). These proposed changes address longstanding ambiguities, particularly in the application of key exemptions and the handling of informational materials, while also modernizing compliance processes to reflect technological advancements. Canadian charities, not-for-profit organizations, and activists engaging in U.S. policy work should be aware that they might need to register under FARA if acting on behalf of a “foreign principal,” as the U.S. Justice Department has increased enforcement of this broad-reaching law. For more background information on FARA, please see our September 2022 Charity & NFP Law Update.

Among the most significant updates are revisions to FARA’s exemptions, particularly the commercial and legal exemptions. The commercial exemption applies to nonpolitical activities that further “bona fide trade or commerce” or “activities not serving predominantly a foreign interest.” The NPRM introduces substantial changes to clarify the application of this exemption, including an explicit acknowledgment that it applies to both commercial entities and nonprofits. It also proposes regulatory exclusions that would bar reliance on the exemption in cases where the activities are influenced by, or primarily benefit, foreign governments or political parties, or involve entities directed by such foreign actors.

To further guide compliance, the DOJ proposes a “totality-of-the-circumstances” test to determine whether activities predominantly serve foreign or domestic interests, considering factors such as the degree of foreign influence and public knowledge of the agent’s relationship with the foreign principal.

The NPRM also seeks to clarify the legal exemption, which allows attorneys to represent foreign principals in legal proceedings without registering under FARA. However, activities that constitute political advocacy, such as lobbying for policy changes, remain outside its scope.

Another major area of focus is the modernization of regulations regarding informational materials. Currently, FARA requires agents distributing informational materials to include conspicuous disclosure statements and file copies with the DOJ. The NPRM proposes a definition of “informational materials” tied to activities intended to influence U.S. policies or public opinion, aligning the regulations with the statute’s intent. The proposed changes also reflect the adoption of the FARA eFile system, simplifying compliance by making registrant information easier to access and search. Disclosure requirements for informational materials would also be updated to include the name of the country or territory of the foreign principal, with specific rules depending on the distribution medium. Additionally, all requests for information or advice would require conspicuous disclosure of the agent’s relationship with the foreign principal, extending transparency requirements to routine communications.

The NPRM includes broader updates aimed at streamlining compliance and improving administrative processes. For example, all registration fees would now need to be paid electronically through the eFile system, eliminating manual submissions. Requests for advisory opinions would require detailed information about an entity’s leadership and affiliations with foreign governments.

These proposed changes represent a significant step toward modernizing FARA and addressing long-standing compliance challenges. While the revisions aim to provide greater clarity, particularly regarding exemptions, the inclusion of new regulatory exclusions and expanded definitions may introduce additional compliance burdens and legal risks for practitioners. As the NPRM progresses, stakeholders should closely assess its implications and prepare for potential adjustments to their compliance strategies. The DOJ’s efforts underscore the importance of transparency in activities involving foreign principals while seeking to balance regulatory clarity with enforcement adaptability in an evolving global landscape.

   
 

Read the January 2025 Charity & NFP Law Update