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The Damage of De-risking: How Canada’s Policies to Counter Terrorism Financing Drive Financial Exclusion

After months of work, we are honoured to publish our latest report today: “The Damage of De-risking: How Canada’s Policies to Counter Terrorism Financing Drive Financial Exclusion.”

Read the Executive summary below or in PDF format here

Read the full report here

Watch the recording of our launch event with ICLMG’s National Coordinator and report author, Tim McSorley, in conversation with Canada’s former Special Representative on Combatting Islamophobia, Amira Elghawaby

Acknowledgements

This report benefited greatly from a multitude of conversations, meetings, emails and discussions with members of the NPO sector, particularly those working in humanitarian aid and within Muslim communities. We are grateful for their insights, support and generosity of time and knowledge.

We are also very grateful for the support of The Muslim Fund, whose financial support made this project possible.

 

Executive Summary

  • The Policy Architecture Behind De-risking
  • Documented Patterns and Impacts
  • Recourse, Oversight, and Accountability Gaps
  • Summary of Case Studies
    • Case 1: Impact on Funding
    • Case 2: The Role of Implicit Bias in De-banking Decisions
    • Case 3: Disconnect Between De-risking and Government Sanctions Lists
    • Case 4: Collateral Damage to Families and Financial Ecosystems
    • Case 5: Opaque Internal Practices of AML/ATF Compliance Units
    • Case 6: Impact on Donors
  • Summary of Recommendations
    • For the Government of Canada
    • For Supervisory Bodies
    • For Financial Institutions and Payment Processors

De-risking refers to the practice whereby financial institutions terminate or restrict access to financial services for certain clients or sectors in order to avoid perceived regulatory, compliance, or reputational risk, rather than managing that risk through proportionate, individualized and evidence-based mitigation measures. This lack of individualized and evidence-based decision making has resulted in unjustified and discriminatory decisions that significantly impact both individual and organizational clients, including non-profits and charities. This report demonstrates that the de-risking of non-profit organizations (NPOs) in Canada, particularly those that are active in Muslim communities or carrying out humanitarian activities abroad, is not a series of isolated commercial decisions made by individual banks, but a predictable structural outcome of Canada’s anti-money laundering and anti-terrorist financing (AML/ATF) framework.

Severe penalties for non-compliance, ambiguous risk standards, overbroad sector-level risk signaling, and opaque decision-making incentives have created an environment where financial institutions either prioritize or are pushed toward risk avoidance rather than risk management. As a result, charities and civil society organizations, particularly Muslim-led organizations and those engaged in humanitarian or international assistance, are reporting de-risking incidents that appear to be based on risk avoidance rather than individualized assessment, raising serious questions of discrimination, profiling, disproportionate impact and unintended consequences.

The analysis is grounded primarily in publicly available sources, including Canadian legislation, national risk assessments, parliamentary studies, oversight body findings, and government strategy documents, supplemented by anonymized case material shared by affected organizations and individuals. While comprehensive quantitative data on de-risking in Canada does not exist, this absence is itself a critical finding: it reflects systemic opacity, commercial confidentiality, and the absence of regulatory requirements for transparency or reporting. The public record alone is sufficient to identify the policy design flaws that enable and sustain de-risking.

This report builds directly on ICLMG’s 2021 report, “The CRA’s Prejudiced Audits,” which documented the disproportionate national security scrutiny of Muslim charities and helped catalyze reviews by the Office of the Taxpayers’ Ombudsperson (OTO), the Senate of Canada, and the National Security and Intelligence Review Agency (NSIRA). De-risking is presented here as the downstream, private-sector manifestation of the same structural problems identified in that earlier work.

The Policy Architecture Behind De-risking

De-risking is produced by an interlocking policy ecosystem, not by decisions made in isolation within bank compliance departments. At its centre is the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which imposes severe financial and reputational penalties for compliance failures while offering no corresponding cost for wrongly de-risking a legitimate client. Combined with ambiguous “risk appetite” standards and a low regulatory tolerance for error, this creates a stark cost-benefit imbalance in which client exit becomes the rational business choice.

This architecture is reinforced across at least 13 federal departments and agencies, international standard-setters such as the Financial Action Task Force (FATF), and more than 38,000 private-sector reporting entities. A central driver has been Canada’s series of National Inherent Risk Assessments (NIRAs). The 2015 and 2023 assessments consistently framed registered charities as “high risk” for terrorist financing, despite acknowledging that the actual scope of the problem was limited, and despite FATF’s own guidance since 2016 warning against sector-wide de-risking. The 2025 report marks a meaningful shift in tone, renaming it the National Risk Assessment in recognition of mitigation measures NPOs and other sectors put in place, lowering the NPO sector’s classification and explicitly cautioning against bias and unintended consequences. However, this shift does not undo a decade of entrenched institutional risk models and compliance culture built on the earlier framing.

These dynamics are compounded by findings from NSIRA’s 2025 review of the Canada Revenue Agency’s Review and Analysis Division, which found that charity audit decisions were often poorly documented, inconsistently applied, and based on outdated or weak intelligence, creating conditions in which bias could operate unchecked. If a government agency subject to statutory oversight can generate risk assessments of this quality, the report argues, the risks are magnified within banks, where internal decisions are shielded by commercial confidentiality and face no equivalent independent review.

Documented Patterns and Impacts

De-risking in Canada is shown to be a systemic, recurring practice rather than a marginal or theoretical concern. It affects humanitarian charities, faith-based organizations, advocacy groups, frontline aid workers, executives, board members, and their families. Recurring patterns include the treatment of unverified or debunked media allegations as credible risk indicators; the expansion of de-risking beyond banks into payment processors, donation platforms, and customer relationship manager (CRM) systems; and a persistent disconnect between evolving government sanctions or humanitarian exemptions and continued account freezes and other repercussions imposed by financial sector institutions.

The organizations most affected include Muslim-led charities, international humanitarian and development NGOs, and organizations connected to jurisdictions such as Syria, Palestine, or Pakistan. Documented impacts include abrupt account closures and service denials, exclusion from payment processors, operational disruption to humanitarian programs, individual de-risking of employees, board members and their families (including personal credit cards and RRSPs), and lasting reputational harm. These operational impacts translate into profound civil liberties concerns, impacting the right to equality and freedom from discrimination, freedom of association, freedom of expression, and the right to life and security of the person, particularly where de-risking impedes life-saving humanitarian assistance.

Recourse, Oversight, and Accountability Gaps

The report identifies a near-total absence of effective recourse for organizations and individuals subject to de-risking. Financial institutions are not legally required to provide a specific reason for closing an account, and vague references to “risk appetite” are standard practice. The Ombudsman for Banking Services and Investment (OBSI) explicitly excludes complaints relating to a firm’s risk-management practices from its mandate, and the Financial Consumer Agency of Canada (FCAC) cannot address de-risking absent stronger financial inclusion laws. No independent body in Canada has the mandate to review whether a de-risking decision was reasonable, non-discriminatory, or evidence-based, and no authority systematically collects data on the scale or nature of de-risking in Canada. The result is a system in which life-altering financial decisions are made behind closed doors, based on undisclosed criteria, without meaningful appeal.

The report concludes with 12 recommendations to the federal government, supervisory bodies and financial institutions and payment processors. Taken together, these recommendations offer a comprehensive reform agenda: one that recalibrates national ATF policies, strengthens oversight and documentation requirements, closes accountability gaps in the financial sector, and ensures that Canada’s counter-terrorism financing measures do not come at the expense of the civil liberties and financial inclusion of communities they were never meant to exclude.

Summary of Case Studies

The report includes six anonymized case studies, shared with permission, that illustrate how de-risking manifests in practice across the financial system.

Case 1: Impact on Funding

Unverified foreign misinformation leads to a donation processor abruptly de-platforming a charity, followed by a bank’s decision to close its account.

A donation-processing platform notified a large, established humanitarian organization operating in Syria and other countries that it would be off-boarded within fifteen to thirty days, after the platform’s new banking partner made a de-risking decision. No explanation of the underlying risk was given. Recurring donations, a significant funding source, were disrupted, and the charity was forced to diversify payment processors to continue operating, absorbing significant reputational and administrative costs in the process.

Case 2: The Role of Implicit Bias in De-banking Decisions

A Palestine solidarity organization, one of their directors and their[1] family are suddenly de-banked

An organization engaged in lawful advocacy for Palestinian human rights was suddenly de-banked in 2024. Shortly after, one of the organization’s directors, who had an account at the same financial institution, was also de-banked, along with thirteen family members. Neither the organization nor the de-banked director were provided with explanations despite repeated requests. The organization was forced to suspend its activities for several months. The director faced missed payments which went to collections, causing significant hardship for elderly parents. Two years later, after the director’s advocacy had ended, a second Canadian institution de-banked them, once again without a specific reason. The case illustrates restrictions on the right to free expression, the effects of guilt-by-association and the absence of any avenue to challenge a de-banking decision.

Case 3: Disconnect Between De-risking and Government Sanctions Lists

A payment processor freezes nearly $1 million after Canada amends its Syria sanctions to permit humanitarian aid.

After Canada’s February 2025 sanctions amendment authorized humanitarian aid to Syria, a charity’s payment processor froze close to $1 million in funds, citing risk concerns and eventually admitting it was unaware of the exemption. Despite being shown evidence of the change, the freeze persisted for nearly a year, and the charity was required to pause its Syria operations as a condition of continued service, only resuming after a Ministerial clarifying statement in April 2026.

Case 4: Collateral Damage to Families and Financial Ecosystems

A domestically operating Muslim-led charity and its executives are de-banked following a since-retracted news article.

A Canadian charity with no international operations lost its banking relationships after a news article falsely linked it to terrorist entities. Despite the article’s later retraction, multiple banks also closed the personal accounts, RRSPs, and credit cards of a charity executive and their spouse, with no explanation offered until an informal disclosure two years later. Recourse to bank ombudspeople and a third-party risk-screening company produced no answer or remedy, and residual impacts, including further card cancellations, continue today.

Case 5: Opaque Internal Practices of AML/ATF Compliance Units

A charity is de-banked by a credit card company a week after enthusiastic onboarding, and no executive can explain why.

A charity’s application for credit card services was welcomed and expedited by account managers, only for the account, and associated donation processing, to be suspended without warning a week later. Even a senior C-level executive, sympathetic to the charity’s situation, was not authorized to access or override the reasoning of the company’s AML/ATF compliance unit, illustrating how such units function as a sealed “black box” beyond internal executive oversight.

Case 6: Impact on Donors

Intrusive scrutiny of a $400,000 donation leads a donor to withdraw funding entirely.

A Muslim-led humanitarian organization operating in Syria and Palestine had a $400,000 private donation flagged by its bank nearly six months after receipt, despite the charity’s history of comparable donations. A roughly fifty-question inquiry into the donor’s financial affairs, with no explanation of the underlying concern, led the donor to question the charity’s legitimacy and withdraw the gift. The charity has since stopped accepting international donations to avoid a repeat occurrence. 

Summary of Recommendations

The report sets out twelve recommendations directed at three groups of stakeholders: the Government of Canada, supervisory bodies, and financial institutions and payment processors.

Government of Canada

Recommendation 1: Integrate civil liberties and financial inclusion impact analyses into National Risk Assessments (NRA). (Department of Finance)

Recommendation 2: Issue policy guidance to relevant departments and bodies on de-risking and financial inclusion, including reporting requirements. (Department of Finance, Public Safety Canada, Global Affairs Canada, Minister of National Revenue)

Recommendation 3: Amend the PCMLTFA to require reporting entities to report annually on de-risking, including volumes and rationale. (Department of Finance)

Recommendation 4: Amend the PCMLTFA to clarify that failing to safeguard against disproportionate de-risking constitutes a compliance failure. (Department of Finance)

Recommendation 5: Integrate the non-profit sector into AML/ATF policy-making, particularly the NRA drafting process, through a clear, resourced consultation strategy. (Department of Finance)

Recommendation 6: Develop guidance to help the private sector correctly interpret and apply changes in sanctions and counter-terrorism financing policy. (Department of Finance, Public Safety Canada, Global Affairs Canada)

Recommendation 7: Strengthen government consultation with NPOs and cross-sector exchange between NPOs and the financial sector, including through the ACMLTF. (Department of Finance)

Supervisory Bodies

Recommendation 8: Issue coordinated guidance emphasizing risk mitigation over client exit, including practical examples and treatment of sector-wide de-risking as a compliance deficiency. (FINTRAC, FCAC, OSFI)

Recommendation 9: Require minimum documentation standards for risk-based decision-making. (FINTRAC, OSFI)

Recommendation 10: Develop training on risk-based decision-making regarding the NPO sector, including systemic bias and discrimination. (FINTRAC, Department of Finance)

Recommendation 11: Allow independent review of financial institutions’ risk-based decision-making in complaint investigations. (OBSI)

Financial Institutions and Payment Processors

Recommendation 12: Adopt due process standards for account closures, including clear reasons, a formal opportunity to respond, and an independent internal review mechanism separate from the original decision-maker. (Private sector)

[1] We are using “they/their” to help safeguard the individual’s identity.

The Damage of De-risking: Watch ICLMG’s report launch

Thank you to everyone who were able to attend, we had a great turn-out!

If you missed it, you can watch the recording of the launch above, and read the report below:

“The Damage of De-risking: How Canada’s Policies to Counter Terrorism Financing Drive Financial Exclusion”

What is the report about?

A humanitarian organization providing aid to civilians in Syria and other populations in crisis is suddenly told that their online donation processor would be shutting their account in 30 days, with no explanation. An organization engaging in education and advocacy for solidarity with Palestine has its bank account suddenly shuttered; not long after, one of the organization’s directors and 13 members of their family also have their accounts shut. All with no explanation and no recourse.

This is the reality of de-risking: the practice whereby financial institutions terminate or restrict access to financial services for certain clients or sectors to avoid perceived regulatory, compliance, or reputational risk, rather than managing that risk through proportionate, individualized and evidence-based mitigation measures. This has resulted in unjustified and discriminatory decisions that significantly impact both individual and organizational clients, including non-profits and charities.

Our report shows that the de-risking of non-profit organizations in Canada, particularly those that are active in Muslim communities or carrying out humanitarian activities abroad, is not a series of isolated commercial decisions made by individual banks, but a predictable structural outcome of Canada’s anti-terrorist financing framework.

During the webinar, we presented our analysis of Canada’s anti-terrorist financing ecosystem and its impacts, shared case studies from individuals and organizations who have been impacted by de-risking, and outlined our recommendations to remedy the situation.

ICLMG’s National Coordinator and report author, Tim McSorley, was in conversation with former Special Representative on Combatting Islamophobia, Amira Elghawaby

Speakers:

Tim McSorley is the National Coordinator of the International Civil Liberties Monitoring Group. He joined the coalition in 2016. In 2021, he authored the report The CRA’s Prejudiced Audits: Counter-Terrorism and the Targeting of Muslim Charities in Canada, a precursor to this new report.

Amira Elghawaby is a journalist, human rights advocate, and the Founder and Executive Director of the Muslim Communities Research Observatory. She served as the first ever federal Special Representative on Combatting Islamophobia from 2023 to 2026.


We are very grateful for the support of
The Muslim Fund, whose funding made
this project possible.

Authoritarian Rise: Canada Is Not Immune!

Far from being a thing of the past, the war on terror has intensified over the years. It continues to fuel a power dynamic that erodes civil liberties in Canada, in the name of national security. Faced with this, the mobilizations of recent months, triggered by a flurry of bills proposed by the federal government, must intensify and rely on the strength of multi-sectoral coalitions.

by Tim McSorley (he), National Coordinator, ICLMG

and Xan Dagenais (they), Communications and Research Coordinator, ICLMG

This article first appeared in French in the 2026 Spring/Summer issue of Droits et libertés

Following the September 11, 2001, attacks in the United States, a wave of repression and curtailment of rights swept not just the US, but Canada as well. Authorities used this crisis and people’s fears to urgently pass laws that expanded surveillance, eroded due process and fair trial guarantees, and limited freedom of expression, shrinking civic space overall. Muslim and racialized communities were disproportionally impacted, facing a surge of racism and xenophobia. In Canada, the rushed passage of the Anti-terrorism Act of 2001 resulted in the targeting of peaceful activists, a chilling effect on international development NGOs and humanitarian assistance, and an increase in religious, racial and political profiling. Alarmed by this rapid erosion and wanting to protect civil liberties, a group of organizations came together to create the International Civil Liberties Monitoring Group (ICLMG). While the War on Terror is often viewed as a thing of the past, it was consistently built on over the years, culminating in what we see today. Around the world, repression of protest and free expression, tightening of borders, illegal military interventions in the name of fighting terrorism – such as the genocide in Gaza and the war on Iran, spilling into Lebanon – are on the rise.

It is easy to feel that Canada may have avoided the worst of this: In May 2025, the public elected a Liberal government that presented itself as a centrist party and the “grown-up in the room,” hinting at sensible policy changes that would benefit people in Canada. It has since become clear that they are instead governing from the right, and are both willing to sacrifice human rights and fundamental freedoms in the face of right-wing pressure, and use it to help push through regressive policies on climate, Indigenous sovereignty, immigration, security and defence, among other areas. Without opposition, the result will be less freedom of expression and association, even less protection and support for refugees and migrants, the gutting of international law, increased militarism, and an overall weakening of our democratic practices.

Increased surveillance and militarization

Three areas exemplify these concerns. First, the single largest example of the growth of surveillance and militarization in Canada over the past two years has been the push to “protect Canada’s borders,” through both greater securitization and crackdowns on migrants and refugees. In December 2024, the government announced $1.3 billion in spending for increased border surveillance and thousands of new RCMP and border security officers, and dedicated $80 billion in new defence spending in the 2025 budget, raising alarms around potential involvement in US imperial wars and “counter-terror” operations, from the Middle East to the Caribbean and beyond. Some of this is the result of long-term efforts by national security, defence and border agencies looking to bolster their powers, but the catalyst was the claims from US President Donald Trump that huge amounts of fentanyl, terrorists and ‘illegal’ migrants were crossing from Canada into the US, which both governments knew to be false, and that the US would no longer defend Canada if it didn’t reach NATO spending targets. These billions in spending come at the expense of human security due to cuts and lack of investment in housing, healthcare, environmental protections, foreign aid and peacebuilding efforts.

Legislative and repressive attacks

Furthermore, the government is reshaping the legal landscape. Since last May, the Liberals have introduced two dangerous border bills that are anti-privacy, anti-migrant and anti-refugee and will make people across Canada less safe. The first, Bill C-2, the Strong Borders Act, would grant unconstitutional powers to police and intelligence agencies to access our private information without a warrant, and demand that telecom companies modify their systems to facilitate government spying. The second, Bill C-12, the Strengthening Canada’s Immigration System and Borders Act, was adopted in late March 2026. Its provisions bring drastic changes to immigration and refugee laws, placing further undue restrictions on refugee claimants seeking protection in Canada, abandoning them to persecution and violence, and granting the government broad new powers to cancel or suspend immigration documents en masse (including based on country of origin) in the name of an undefined “public interest.” These changes make Canada less safe and less open, while failing to improve the lives of Canadian citizens. Despite the government claiming this is about ensuring the efficiency and maintaining the integrity of the immigration system, it is cutting 3,300 jobs and $100 million from Immigration, Refugees and Citizenship Canada.

Second, we have witnessed a proliferation of crackdowns on dissent and free expression. Provincially and municipally, this has taken the form of police repression and unjustified restrictions on protests, including Charter-violating bubble zone bylaws. At the federal level, the government has introduced Bill C-9, the Combatting Hate Act. While this legislation has been framed as addressing the real and urgent issue of increases in violent hate crimes in Canada, it will instead create a chill against protest and dissent, and risk the criminalization of free expression and free assembly in Canada.[1] The introduction of the bill followed months of pressure on the federal government to take action against the multitude of pro-Palestinian protests and encampments across the country, and civil liberties advocates have warned that the provisions are overly broad, unconstitutional, and could easily be used in discretionary ways.

Weakened democratic process

Third, underlying all these changes is an undermining of government accountability, democratic processes and public engagement. Under the guise of urgency, the government has introduced omnibus legislation (which it had promised it wouldn’t do), held minimal to no consultations (and those that do take place are rushed and skewed towards government’s preferred outcomes), and rammed complex legislation through parliament that will have important impacts on the lives of people across the country. For example, Bill C-2 was tabled without prior consultation, is 140 pages long and proposes significant changes to at least 10 existing laws as well as creating an entirely new act. It was only after significant opposition from civil society, along with opposition MPs, that the government responded. Unfortunately, it was only by introducing new legislation that repackaged parts of Bill C-2 into Bill C-12. The government then used procedural measures to limit time for debate of C-12, undermining the ability to fully study it or bring amendments. It used similar tools to push C-9 through as well. On top of it all, while increasing powers and budgets for security and defence agencies, the government is cutting funding for independent watchdogs, such as the National Security and Intelligence Committee of Parliamentarians and the National Security and Intelligence Review Agency. Already under-resourced, both agencies have said these cuts will “seriously hinder” their work.[2] These bodies are crucial defenses to ensure that laws are being followed and rights protected, but just as they are needed the most, they are being slashed.

Unite and organize

These are all significant challenges, but they can be overcome. Civil society organizing is already moving the needle on many of these issues. It is crucial to act now to reverse course as others are continuing to push the government – and public discourse – further to the right. This means organizing in coalition across sectors, as there is strength in numbers. For example, the summer 2025 campaign against C-2 brought together more than 300 organizations defending migrant and refugee rights, civil liberties and gender justice, leading to the bill being shelved. It also means not just focusing on the government, but also on the public, and finding ways to change the narrative from one of division and exclusion, towards one of solidarity and collective well-being. Together, we can make a difference.

[1] For more on Bill C-9, see Anne Pineault’s article, À Ottawa, un empilage inquiétant de projets de lois, in the last edition of Droits et Libertés

[2] Wesley Wark, “Down comes the budget guillotine on the review bodies”, in his newsletter on November 10, 2025 [online].

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