1. Canada once again a “Major Money Laundering” country
The 2017 “International Narcotics Control Strategy Report” (INCSR) published in March 2017 by the U.S. Department of State identifies Canada once again as a “major money laundering country” along with a host of mostly risky countries for financial crime such as Afghanistan, Argentina, Brazil, BVI, Cayman Islands, Cambodia, China, Columbia, Cyprus, Dominican Republic, Guernsey, Jersey, Iran, Iraq, Libya, Mexico, Macau, Saudi Arabia, Somalia and the UK.
A “major money laundering country” is one whose banks and financial institutions allow financial transactions involving significant amounts of proceeds of crime. For several years in a row, Canada has been identified as such (see our other annual reviews here (2016), here (2014), here (2013) and here (2012)).
There is lots that is new in the 2017 INCSR for Canada, as described below, showing that the drug trade and consequently, the money laundering landscape, has changed in one year but one theme is that there are more concerns raised between Canada and China – in particular, fentanyl, proceeds of corruption landing in Canada and bulk cash smuggling.
Lots has been removed about Canada that isn’t completely justified in the sense that the needle has not moved over our record for battling, deterring and prosecuting financial crimes, and the risks identified in the earlier Reports are still relevant. However, one can get a complete view of the risks to banks and other reporting entities in a compliance sense from reading the summaries of 2012, 2013, 2014, 2016, linked above, and this 2017 summary, collectively, in preparation of a risk-assessement and on boarding purposes.
The good news though is that compared to previous INCSRs, Canada has improved and the weaknesses are more siloed.
2. What’s new in 2017 INCSR for Canada compared to 2016 report
Money laundering from tax evasion & corruption; lax conviction rate
According to the Report this year, money laundering in Canada is originating from tax evasion, corruption, as well as the usual drug trafficking, fraud, and such. And the main methods of money laundering have shifted to include Bitcoin, offshore corporations, bulk cash smuggling, money services businesses and real estate.
The Report mentions the exemption of lawyers as a deficiency in the anti-money laundering regime.
The Report says Canada should enhance enforcement and convictions for money laundering.
A lot was changed about China in relation to Canada this year in the Report, curiously. However, this year’s report says that the main source of proceeds of crime from China is from corruption involving state-owned enterprise and that criminals are laundering money mostly by bulk cash smuggling, fake large international trade invoices (trade-based money laundering), gambling and real estate.
Fentanyl entering Canada from China by mail
The Report states that fentanyl is originating in China and entering the US via Canada or Mexico, making Canada a source country. The fentanyl that enters Canada from China is by mail. Heroin is being altered with low-cost synthetic opioids, especially fentanyl, by drug dealers which can be 25 to 50 times more potent than heroin. Fentanyl is also pressed into pill form and sold as counterfeit prescription opioid pills. Drug takers are not aware of the large quantities of fentanyl, causing thousands of overdoes fatalities in Canada and the US.
Opium coming to Canada from Afghanistan
Afghanistan is the major supplier of opium derivatives to Canada and Europe. Insurgent groups in Afghanistan generate revenues by taxing drugs passing through regions they control [before the drugs reach Canada].
Meth produced in large quantities in Canada
Alpha-phenylacetoacetonitrile, the pre-cursor for methamphetamine, has been found in large quantitates in Canada.
Stay away from the Dominican Republic
Perhaps as a sobering thought for Canadians not to visit the Dominican Republic, the Report says that there is corruption in the Dominican Republic among the military and law enforcement agencies and it remains a significant impediment to law enforcement efforts, noting that the prosecution of corrupt officials rarely happens. Moreover, the judiciary is politicized and accused of corruption. According to the Report, the legal system offers little recourse to those who lack money or influence (e.g., can’t buy their way out). The FIU is not effective but if there is some good news, it is that the Report notes that the US has been effective in extracting criminals from the Dominican Republic to the US for prosecution.
Canada used for Laundering Funds for a Listed Terrorist Group and for Organized Criminal Gangs from China, Mexico & Columbia
Also noted was that a transnational organized crime group affiliated with Altaf Khanani from Pakistan uses Canada and other countries such as UAE and Australia, to launder billions of dollars in proceeds of crime every year for crime gangs from China, Columbia, Mexico and for the listed terrorist organization, Hezbollah. According to the Report, Altaf Khanani has also moved terrorist funds for the Taliban.
3. Key Findings
Volume 1 - The key findings of Volume 1 on the drug trade vis a vis Canada are:
- Large amounts of fentanyl from China enter Canada by mail.
- Canada is a major producer of precursor chemicals used in the production of illicit narcotics, along with Afghanistan, Bangladesh, Brazil, China, Columbia, Dominican Republic, Egypt, Iraq, Mexico and several other countries.
- Cannabis destined for the US is produced mostly in British Columbia, Quebec and Ontario.
- Canada is a primary source country of high potency marijuana and estasy to the US.
- Canadian synthetic drugs and amphetamine stimulants are exported to the US, Asia and Australia.
- Cocaine continues to enter Canada from South America and Mexico, some of which is transited through the US.
Volume 2 - The key findings in respect of money laundering in Volume 2 for Canada are:
- Money laundering activities in Canada are primarily from tax evasion, corruption, illegal drug trafficking, fraud, piracy and tobacco smuggling.
- Laundering methods in Canada have changed slightly and now involve smuggling, money services businesses, casinos, real estate, wire transfers, offshore companies, credit cards and digital currencies like Bitcoin.
- Also noted was that bulk cash smuggling into Canada is “widespread”.
- Gangs from Vietnam are a significant source of illicit funds.