FINTRAC Working to Fully Restore AML System Post-Cyberattack

AML/ATF | Aug 13, 2024

Image: Pixabay/cliff1126

FINTRACs Cyberattack Exposes Vulnerabilities in Canada’s Anti-Money Laundering Efforts

With critical systems remaining down for several months after FINTRACs March 2, 2024 cyberattack, the incident is said to have exposed gaps in Canada’s anti-money laundering (AML) infrastructure sparking concerns about national security.  Specifically, the inability to detect financial flows that support criminal organizations and terrorist networks, potentially weakening the country’s standing in international efforts to combat financial crimes and collaborate with global intelligence partners.

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Key Insights

• On March 2, 2024, FINTRAC discovered a cybersecurity incident that resulted in the immediate shutdown of core platforms including its web reporting system for gathering suspicious transaction reports (STRs). To put this important system in perspective, last year approx. 36 million financial transaction reports were submitted (either suspicious or over $10k) by a wide range of reporting businesses, including banks, casinos, and real estate firms.  A report by Criminal Intelligence Service Canada estimates that between $45-113 billion is laundered across Canada annually.

• Although the cyberattack adversely impacted FINTRAC's web reporting system for more than five months, workarounds were used in its place to lesson the impact:
  • Companies were advised to use Canada Post's ePost system to prioritize their suspicious activity reports (SARs) and file the most urgent ones first. Following the complete restoration of the online platform, non-priority reports were required to be retained and filed.
  • In April 2024, FINTRAC introduced a new API system for businesses that manage large amounts of STRs (representing 96% of the yearly reporting). Major banks and other large financial organizations could continue filing their reports electronically thanks to this technology.
• However, according to some AML experts, FINTRAC may be losing out on thousands of reports of suspicious transactions. Kim Manchester, the creator of ManchesterCF, a financial intelligence training company, stated, "Our allies are paying attention to Canada's financial intelligence capabilities, which seem to be falling apart.", posing a threat to national security.

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• FINTRAC hasn't provided a firm date for when all systems will be fully functioning, despite efforts to minimize the hack and restore systems. It is anticipated that there would be a sizable backlog of incomplete reports, and removing this backlog will be a difficult task. As Dwayne King, a compliance officer at WFCU Credit Union for anti-money laundering was quoted in the Globe and Mail, "FINTRAC needs to provide some solid guidance on what is expected of you in order to clear the backlog in your organization."

Outlook

This cyberattack is a wake-up call of the need to invest in stronger cyber defences with robust back-up systems in place for organizations monitoring national security issues.  International community is looking for a dependable partner in the global battle against financial crime.

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