The Ecosystem Behind De-Risking in Canada
Why Muslim-led charities are being shut out of the financial system — and who’s responsible.
The Big Picture: A Web of Policies, Not a Single Order
De-risking isn’t caused by a single law or agency. It’s the result of a complex ecosystem where banks, regulators, intelligence agencies, and government departments interact — often with good intentions, but dangerous consequences. Muslim charities are disproportionately caught in this web. Here’s how the system works, who the key players are, and why change is urgently needed.
The Government Players
Department of Finance Canada
- Writes Canada’s anti-money laundering law: the PCMLTFA.
- Promotes a “risk-based approach,” but its focus on terrorism financing has made banks overly cautious.
- Its own risk assessments label Muslim charities as high risk — setting the tone for the entire system.
- In 2023, it acknowledged de-risking as a concern and launched consultations.
Finance Canada’s Advisory Committee on AML/ATF (ACMLTF)
- Brings banks, regulators, and law enforcement together to shape AML/ATF policies.
- Civil society has no seat — affected charities are excluded from the table.
- Without diverse voices, risk policies lean toward caution, not inclusion.
House of Commons Finance Committee (FINA)
- Oversees AML/ATF legislation and banking access.
- Raised alarms as early as 2015 about overreach and biased data collection.
- Can’t force change, but its public findings and recommendations shape national debates.
Office of the Superintendent of Financial Institutions (OSFI)
- Regulates Canada’s banks and how they manage risk.
- Tells banks to assess risk — but doesn’t stop them from overcorrecting by exiting entire sectors.
- Its high compliance expectations create pressure to drop high-risk clients, even without wrongdoing.
RCMP & CSIS
- Feed banks intelligence alerts and risk indicators — even without charges or listings.
- Banks react swiftly to this “pre-criminal” information.
- Case example: IRFAN-Canada was de-banked years before being officially listed as a terrorist entity.
FINTRAC – Financial Intelligence Unit
- Collects and analyzes reports from banks.
- Its strict rules and penalties create a “zero-tolerance” culture.
- Warns against blanket de-risking — but banks often overreact out of fear.
- Banks interpret ethnicity, religion, or geography as proxies for risk, contributing to profiling.
Canada Revenue Agency (CRA) – Charities Directorate & RAD
- Audits charities for possible terror financing.
- 85% of charities audited and revoked under RAD were Muslim-led.
- CRA’s red flags ripple across agencies and banks, even when no wrongdoing is found.
- Risk information spreads — but exoneration rarely does.
Department of Justice Canada
- Crafts legal interpretations of anti-terror laws.
- Broad definitions (e.g. pre-C-41 law) created legal risks for legitimate aid.
- Has the power to clarify that discriminatory de-risking violates Charter rights.
Financial Consumer Agency of Canada (FCAC)
- Protects individual consumers — not organizations.
- Can’t force a bank to explain or reverse account closures.
- Doesn’t collect public data on who’s being de-banked — major accountability gap.
Innovation, Science & Economic Development Canada (ISED)
- Oversees nonprofit transparency and corporate registries.
- Better data sharing from ISED could reduce banks’ uncertainty about charities.
- Supports fintechs — but banks still hold the final power to cut ties.
Global Affairs Canada (GAC)
- Administers sanctions and humanitarian exemptions.
- Can issue permits under Bill C-41 for charities operating in conflict zones.
- Tries to keep aid channels open — but banks often ignore or sidestep its exemptions.
The Legal and Regulatory Framework
PCMLTFA (Proceeds of Crime and Terrorist Financing Act)
- Canada’s main AML/ATF law.
- Enforces a risk-based approach — but vague guidance leads banks to err on the side of caution.
- Revisions in 2008 sharply expanded penalties and scrutiny, triggering sector-wide de-risking.
FATF Recommendation 8
- International standard labeling nonprofits as vulnerable to terror financing.
- “Soft law” — but enforced domestically as if it were binding.
- Canada’s interpretation is harsher than other G7 countries.
- Result: Muslim charities face stricter audits and banking restrictions.
National Inherent Risk Assessments (2015 & 2023)
- Government reports that labeled charities as “high-risk” without accounting for controls.
- Banks use these labels to justify account closures.
- Ignores residual risk — the actual risk after oversight, compliance, and controls are applied.
Bill C-41 (2023) – Humanitarian Exemption Reform
- Created legal paths for charities to work in terrorist-controlled areas.
- Provides automatic exemptions for life-saving aid, and permits for development work.
- Still leaves grey zones — banks often stay cautious, blocking wire transfers anyway.
Bank Act & Retail Payment Activities Act (RPAA)
- The Bank Act guarantees personal banking rights — but not for organizations.
- RPAA regulates fintechs — but doesn’t require banks to serve them.
- Both laws give banks wide leeway to cut ties based on risk appetite.
ACCS Report #4 – Inherent vs Residual Risk
- Recommends shifting Canada’s risk model to reflect real, mitigated risks.
- Highlights that compliance and audits reduce actual risk — and policy should reflect that.
- Aligns with global best practices and FATF’s updated position.
The Banking Sector’s Role
Canadian Bankers Association (CBA)
- Represents Canada’s major banks.
- Advocates for risk-sharing and clearer regulations — but doesn’t oppose de-risking.
- Defends banks’ discretion to exit clients based on internal policies.
Ombudsman for Banking Services and Investments (OBSI)
- Handles banking disputes — but can’t reverse account closures.
- Offers little recourse for de-risking victims beyond delay or notice extensions.
- Recommends affected individuals pursue human rights complaints.
AML/CFT Departments in Banks
- These internal teams manage risk based on compliance, not inclusion.
- Incentivized to avoid risk at all costs — even if that means dropping legitimate clients.
- Often staffed by ex-law enforcement or security professionals who act conservatively.
- Use secretive algorithms, internal scoring, and third-party data (e.g. World-Check) to flag clients.
A System That Protects Itself — But at What Cost?
De-risking is not accidental — it’s the outcome of a system optimized for risk avoidance, not fairness. Muslim-led charities — particularly those doing humanitarian work in conflict zones — bear the brunt of this design.