Predictive money laundering and damming orders – what are they?

By Christine Duhaime | July 10th, 2017


Last week, the US Treasury Department imposed sanctions against a bank in China for allegedly providing financial services to North Korean companies and said it was rolling out more sanctions in the weeks to come.

The bank, the Bank of Dandong, is alleged to have facilitated money laundering by allowing its bank to be used to move money connected indirectly with WMD. Selling, trading, financing or providing services in support of WMD is a predicate offense for money laundering and the proceeds of the offence is proceeds of crime, hence the money laundering allegation against the China Bank of Dandong which, if the allegations have merit, profited off the financial transactions and its revenues therefrom are proceeds of crime.

The bank is alleged to have provided banking services for the sale of coal, not directly for the sale of WMD. But North Korea is believed to use its proceeds from coal exports to fund its WMD program.

In May, the US DOJ had obtained what is called a “damming seizure” warrant.

A damming seizure is an unusual court order because it is granted on the basis of the predictability of criminal activity in the future and it covers the full scope of financial transactions going through a bank of the targets.

In essence, it forces banks to disclose all incoming financial transactions of the target and to block outgoing transactions, including correspondent banking transactions. The damming order was not for funds held in the US — it was for funds held offshore.

In that sense it is similar to a mareava injunction only with a wider scope and full disclosure. The constitutionality of an order based on the propensity of criminality is interesting and was litigated in the US.  A damming order is anticipatory – it is not based on existing probable cause – rather it is based on cause existing at execution, namely that funds are going to be laundered at the eight banks subject to the damming order and therefore the order should be installed in advance.

The US courts held, among other things, that damming orders based on future criminality were constitutional in the US based on 2006 precedent from the US Supreme Court.

Eight banks

The damming order was served on eight US banks for funds held in the US and elsewhere but that are tied to the US by virtue of the correspondent banking relationship. The US alleges that the eight banks processed over US$700 million in financial transactions that were illegal because they were sanctions under US sanctions law.

The eight banks are:

  1. Bank of America
  2. Bank of New York Mellon
  3. Citigroup
  4. Deutsche Bank
  5. HSBC
  6. JP Morgan Chase
  7. Standard Chartered
  8. Wells Fargo

Damming orders are not new – they are usually used for transnational criminal organizations, such as the Mafia, to monitor their financial transactions between countries to learn with whom they associate and where the movement of illicit goods and money is going to and from.

Predictive AI used to guess future criminals

Interestingly, there is a debate in financial crime and artificial intelligence circles about the use of predictive AI that predicts the propensity of criminality of a person based on, inter alia, their family, business and social media connections.

In financial crime, usually a person associated with organized crime will “infect” those people around him or her, and eventually a non-criminal will engage in criminal conduct, statistically speaking. What predictive AI does is identity those persons and in some pilot cases, analysts then enter such persons in a database for monitoring by law enforcement to protect society. Theoretically, this may violate the presumption of innocence and other rights but based on case law associated with this case’s damming orders, it would appear that in the US, courts have determined that the greater interest in protecting society against the dangers of financial crime outweigh certain personal potential rights violations of persons or companies. In a round-about-way, this case could be seen as a win for the use of predictive AI by law enforcement.

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Pope engages resources of Vatican to go after Mafia, corruption and money laundering to save humanity

By Christine Duhaime | June 15th, 2017

The Vatican is getting into the anti-money laundering enforcement business it seems,  to save humanity. And to legally excommunicate the Mafia and their families and associates.

The Vatican convened an anti-corruption conference with, inter alia, Scotland Yard, lawyers, Italy’s national Mafia prosecutor Franco Roberti, Rome’s Mafia prosecutor Michele Prestipino, Silvano Tomasi, the former Holy See observer to the UN and the United Nations itself, to address methods to eradicate corruption, curb laundering the proceeds of crime and pressuring the Mafia to become law abiding.

The Pope initiated the Vatican moving in this direction and called on everyone to denounce corruption and eradicate it. Referring to corruption as a “cancer“, the Pope said that organized crime and corruption are the worst scourge of our times. He noted that when a person becomes corrupt, they are decayed, contaminate others and are worse than the plague because their crimes impact all of us. He even went so far as to say that the corrupt have a bad odour.

Not mincing any words, the Pope said that the evils of the world from human trafficking, trafficking of drugs, exploitation of people, slavery, unemployment, neglect of the climate and the erosion of the fundamental rights of humans is the common language of the Mafia and other transnational criminal organizations. For the world to have a future, he said, for the young to have hope, the immense crisis of corruption must be faced by the Catholic Church which must not be afraid to purify itself of criminality. He called on all of us to speak about corruption, denounce its evils and join together as a movement to stop it.

Following the Conference, the Vatican said that it would engage public opinion for anti-corruption and develop laws to prevent corruption with the goal of inculcating a culture of justice.  And it is also drawing up laws for the excommunication of the Mafia from the Church.

Excommunication has been used as a form of punishment within the Catholic Church since at least the 4th century. Excommunicated Mafia are prevented from receiving sacraments, such as the Holy Communion, cannot get married in a Catholic Church and cannot receive a Catholic burial. The Pope already excommunicated the Mafia verbally in 2014 and this is seen as a more formal global excommunication that would be binding on all Catholic churches around the world.

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G7 to focus on transnational criminal organizations, aviation infrastructure security, terrorist financing

By Christine Duhaime | May 27th, 2017

The G7 released a special statement on financial crime, promising to re-double its efforts from the last 12 months on ending financial crime, in particular terrorist financing and international money laundering involving transnational criminal organizations. Every year there is a commitment to these goals but this time, the G7 has promised to turn their statements “into action” and to commence working with the private sector in these initiatives.

The G7 recognized the weaknesses in security of aviation infrastructure (arising from the privatization of airports that pose an international security risk because they are operated by fund asset managers without expertise in aviation or international security), and of aviation operators and called on companies and countries to improve security in aviation.

The commitment to require the improvement of aviation safety and those who own and manage the infrastructure, is mentioned in reference to the G7 commitment to enforce the UN Convention Against Transnational Organized Crime (UNTOC) once again. The aviation industry acts, or is supposed to act, as a gatekeeper to stop transnational organized crime from using the aviation system for the movement of illegal goods and proceeds of crime. The UNTOC was implemented to deny safe haven to people who engage in transnational organized crime by prosecuting those crime where they occur, including money laundering and corruption criminal activities.

The majority of the G7 statement was in respect of a renewed commitment to also address counter terrorist financing and in addition, to require social media companies to adopt a responsible approach to publishing by stopping the publication of terrorist propaganda and material online.

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2017 Worldwide threat assessment – the rule of law is at risk

By Christine Duhaime | May 12th, 2017

The Office of the Director of National Intelligence released its annual Worldwide Threat Assessment on May 11, 2017, from the US Intelligence Community and compared to last year, there are many more international threats to world security.

The Threat Assessment from the US is a summary of all of the threats facing the US, and the world and is a roadmap on where countries and companies should devote resources to mitigate those threats.

Last year’s Report focussed on the connection between the refugee crisis, international terrorism and global instability, as well as on Iran, Russia, China, and artificial intelligence.

Here is a summary of the the most interesting parts of the 2017 Report:

Food Security – Rule of Law at Risk

The Report notes that there is a significant risk of large-scale, violent or regime-threatening instability and atrocities will remain elevated In 2017. Poor governance, weak national political institutions, economic inequality, and the rise of violent non-state actors will undermine countries’ abilities to uphold  their authority. In other words, the rule of law is at risk and in 2017, that will be evidenced by weak state capacity that will heighten the risk for atrocities, including arbitrary arrests, extrajudicial killings, rape and torture.

The scale of human displacement in 2017 will continue to strain the response capacity of the international community and drive record requests for humanitarian funding.

Host and transit countries will struggle to develop effective policies and manage domestic concerns of terrorists exploiting migrant flows, particularly after attacks in 2016 by foreigners in Belgium, France, Germany, and Turkey. In Yemen, for example, 82% of the population in need of humanitarian aid. Temporary cease-fires have allowed for some increased access for humanitarian organizations, but relief.operations are hindered by lack of security, bureaucratic constraints, and funding shortages. More than half the population is experiencing crisis or emergency levels of food insecurity. The Report noted throughout the link between international security and food insecurity.

Transnational Criminal Organizations 

Transnational criminal organizations continue to pose a threat to the US and its allies, including Canada. The threat arises from the fact that they control parts of countries or a sector of the economy using violence and corruption of public officials. They facilitate terrorism by providing money and services to terrorist organizations, and are well-integrated in extortion and cyber-activities, as well as facilitators of illegal drug trafficking. Execution-style killing and general murder are part of the package. Well-known TCOs include the Mafia, Triads, Yakuza and Fuk Ching. Paying corrupt officials or cyber criminality is a function of money laundering.

The Report notes the growing concern of deaths from fentanyl that is trafficked by TCOs that has increased 73% compared to 2015. The Report notes the growing threat from China as the source country for synthetic drugs and the concern that such drugs are sold on the Internet.

TCOs are also of concern because they facilitate terrorism and engage in cyberattacks.

According to the Report, TCOs use home and other 24/7 surveillance systems and other means to hide and avoid detection. A typology of identifying a person who is in a TCO, therefore, is hyper-surveillance and security, as well as hyper-privacy.

One of the biggest threats from TCOs is the trafficking of drugs in the US.

The Danger of Technology

The Report identifies increased use of artificial intelligence (“AI”) as introducing new threats, in particular, enabling new military capabilities for adversaries of the US.

The Report notes that although the US leads in AI research globally, foreign countries research is growing. The risks of other countries surpassing the US in AI include making the US vulnerable to cyber attacks, difficulty in ascertaining attribution, facilitation of weapon and intelligence systems, risks of accidents and mass unemployment.

The Report notes that the development of genome-editing technologies can be used to fix medical, health, industrial, environmental and agricultural challenges and to revolutionize biological research. But the range of changes and its impact will be challenging it notes for us, as lawyers, and governments, to deal with ethics and the law to govern its uses.

Deploying smart devices into everything introduces vulnerabilities. There already has been cyber attacks using smart devices for DDoS attacks and that is expected to grow. The Report notes that there are vulnerabiities in self-driving cars and medical devices in respect of cybersecurity. And finally, the acquisition by China of US technology poses a risk. The Report noted that cybersecurity issues were growing in the medical sector with hacking undermining medical institutions.

The IoT connected to billions of new devices broadens the attack potential of bad cyber actors. Their deployment has also introduced vulnerabilities into both the infrastructure that they support and on which they rely, as well as the processes they guide. Cyber actors have used IoT devices for DDoS attacks, and will continue.

Genome Editing

Genome editing is also an international security risk. The low cost and growing availability of these powerful new techniques means untrained personnel will inevitably gain access to them, and lack of experience, disregard for codes of ethics, and ignorance of appropriate precautions all but guarantee dangerous outcomes. It also raises issues of biohacking of the technology and the potential for permanently and irreversibly altering the human genome without knowing what the full results might be. Subtle changes, for example, intended to affect only genetic diseases, could have unknown consequences, interfering with signaling pathways, altering immune responses, or even threatening the species itself.

Genome editing can be used for weaponization pathogens engineered for biological attacks could target individuals or groups; they could also be employed in large-scale attacks with devastating consequences. Additionally, they could be developed to strike the plants or animals that sustain our food supplies.

Gene editing techniques could produce new diseases, killing hundreds of thousands of people.


The Report discusses the threat of global terrorism from the Middle East and home grown terrorim as well from Sunni population, noting that homegrown terrorists will persist and happen with no warning. In 2016, there were 16 arrests for homegrown extreme terrorism and three deaths from such attacks in the US.

In respect of Syria, the Report believes that the Syrian government lacks the resources to defeat ISIS on its own. It notes the growing number of ISIS countries such as, through Boko Haram, Nigeria, Cameroon, Niger and Chad. ISIS is also a threat in Bangladesh, Afghanistan, Tunisia, Egypt, Lebanon and Yemen. In the latter country, the Report notes that 80% of the population needs humanitarian aid – a whopping 17 million people.

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Turning a blind eye to money laundering now costs you in Canada

By Christine Duhaime | May 8th, 2017

In a surprise decision for Canada, an appellate court has reversed a lenient sentence for Jacqueline Garnett, the girlfriend of a drug dealer who was convicted of possession of proceeds of crime, and instead imposed a two-year conditional sentence, partially to be served under house arrest. While the new sentence is still light by global standards, the lower court had given the accused three years probation.

In August 2016, Ms. Garnett, was sentenced in Nova Scotia for laundering money. She banked millions of dollars for her boyfriend’s drug business, and lived off the avails of the proceeds of crime without reporting the proceeds as income or paying taxes. In her capacity as the person who banked her boyfriend’s money, Ms. Garnett washed the proceeds of crime at Canadian financial institutions.

While noting that it is illegal to receive the benefit of proceeds of crime, the lower court sentenced her to probation because the judge believed she was not likely to re-offend.

The Crown appealed the light sentence and on appeal, the appellate court held that the lower court’s decision was not appropriate, in part because it suggested that partners have a license to launder proceeds of crime.

In the case of Ms. Garnett, the court held that she knew her boyfriend was involved in illegality and was also aware that associates of theirs had been murdered for that activity. Consequently, her sentence was increased to house arrest and two year condition sentence. In increasing the sentence, the court of appeal held that a message must be sent to business and relationship partners that if you’re going to be involved in holding, moving or laundering the proceeds of crime, you can expect serious consequences.

By way of comparison, in other countries, money laundering sentencing is taken more seriously by the judiciary. Money laundering constitutes a serious national and international problem, and other countries endorse a sentencing structure that imposes substantial penalties for financial transactions which promote drug trafficking or other serious criminal activity or which obscure the origins of illicit funds.

In the US, for example a drug trafficker who is a first-time offender may be incarcerated for a 121- to 151-month period if charged and sentenced only for drug trafficking. His girlfriend would be incarcerated  for 46 to 57 months if charged and sentenced only for laundering the money from such drug trafficking.

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Lessons from the Antonio Carbone / Dream Casinos case – stay away from the Dominican Republic

By Christine Duhaime | May 2nd, 2017

No due process for Canadian businessman

According to this story in a Dominican Republic newspaper dated May 2, 2017, a Canadian business executive from Ontario who majority owns the Dream Casinos, Antonio Carbone, who has been incarcerated in the Dominican Republic for over two years without a trial and without the benefit of due process, will remain incarcerated for what appears to be an indefinite period of time.

Mr. Carbone was arrested on January 25, 2015, in the Dominican Republic on an allegation of attempting to murder a Dominican foreign national, Fernando Baez Guerrero, by allegedly setting fire to Baez’ vehicle on December 1, 2014. As you’ll see from the below, Mr. Carbone was not in the Dominican Republic on December 1, 2014. As you’ll further see, below, Mr. Carbone was arrested on January 25, 2015, at the Punta Cana International Airport without a warrant for his arrest and “but for” that unauthorized arrest, he would be in Canada.

Further, according to interviews by award-winning Canadian journalists from The Fifth Estate (reported here), the allegations against Mr. Carbone in the Dominican Republic are based on what turned out to be unreliable evidence, namely inconsistent statements of alleged facts that were later contradicted.

Dominican Republic prosecutor handling Carbone case says her judicial system is “corrupt” and she is “ashamed” of it

The criminal complaint against Antonio Carbone seems to have been filed by a government employee, a prosecutor in the Dominican Republic named Yeni Berenice Reynoso. Shortly after filing the criminal complaint, she told the media in her capacity as representing the Government of the Dominican Republic, that in 90% of the organized criminal cases, their police or army are involved in and perform contract killings. If Ms. Reynoso is to be believed, what she effectively stated was that in some cases in the Dominican Republic, the police will outright kill you with a pay-off. On another occasion, she went to the media to say that she is ashamed to be part of her own judicial system in the Dominican Republic and that she knows that “it is corrupt because I live within it.” It would seem, according to the words of the Dominican Republic’s own prosecutor, there is corruption all around her and there is no likelihood or certainty of a fair trial or due process of the law.

Just who legally owns the Dream casinos?

According to corporate records filed in Canadian Courts, 85% of the shares in the casino chain referred to as Dream Casinos Corporation Inc. are beneficially owned by Antonio Carbone and his bother, Francesco Carbone. A third person, named Andrew Pajak, owns a 15% stake in the casino chain. Mr. Pajak gave sworn testimony in an Ontario proceeding corroborating that legal and beneficial ownership structure. Also according to evidence from a Court-appointed expert, a fourth person, named Edward Kremblewski holds no shares of the Corporation and has no interest in the casino assets but has exclusively managed the financial affairs of the Dream casinos since November 2011. According to a second Court-appointed expert, the person named Kremblewski has been the sole manager in charge of all of the affairs of the corporation in Canada and the Dominican Republic since late 2013. All four are from Toronto. The common denominator, from start to finish, appears to be the person named Kremblewski who controlled the direction of the finances of the enterprise on the ground in the Dominican Republic. Kremblewski is an employee of Mr. Carbone.

Although much of the Ontario testimony is at odd, there is agreement among everyone about share ownership and agreement that by mid-2013, the Carbone brothers were effectively forcibly exited from management of the casinos. There is consistency among all sides that the Carbone brothers did not sell their 85% stake in the company or its assets. The result is that the affairs of Dream casinos have been in legal and corporate limbo ever since mid-2013. The limbo state stems from a lawsuit commenced by a Toronto billionaire named Michael DeGroot against several parties over $110 million he advanced as a series of loans for Dream Casinos for which he obtained a security interest over the assets.

The gist of the facts that emerge from the lawsuit are that the Carbone brothers put sweat equity into building the business; Mr. DeGroot put in the financial equity; and somewhere in between those two pillars who founded the enterprise, the funds invested and the assets and property acquired with their joint efforts allegedly disappeared and allegedly no one, it seems, can say where either the money or the assets disappeared to. Which is odd because as noted above, the assets are frozen by Canadian Court Orders and have registered security interests over them, so no transfers could occur of any assets.  Because the Corporation’s shares are frozen, no votes of shareholders could occur to approve the dissipation of any assets in any event.

Cash moved from Dominican Republic to Canada

Kremblewski lives in the Dominican Republic, returning to Toronto regularly according to Court filed evidence in Ontario.

Mr. Pajak gave some interesting statements under oath in Ontario. He deposed that Kremblewski has taken thousands of dollars in cash from one or more casino in the Dominican Republic and imported it to Canada. With that cash he purchased, Mr. Pajak deposed, goods such as a toilet plunger at Canadian Tire and coffee at Walmart. According to Mr. Pajak’s testimony, it appears that Kremblewski authorized the payment to himself of a commission of 2.5% from the profits from the Dream Casinos in the Dominican Republic. Mr. Pajak’s evidence was that that amount was $195,000 in October 2013. Therefore, in addition to his salary and a paid condo, security staff, golf membership, if the numbers remained consistent, that would theoretically mean Kremblewski received upwards of approximately $14 million since 2011, pursuant to what Mr. Pajak deposed seems to be an alleged verbal agreement. Mr. Pajak further deposed that, with respect to the alleged agreement that Kremblewski receive 2.5% of the profits, the Carbone brothers are the ones who can confirm its existence or not. If they cannot so confirm, presumably the $14 million will have to be paid back to the Corporation. Mr. Pajak then provided evidence of a tax filing by Kremblewski to the effect that in 2011, Kremblewski disclosed receiving fees of $17,500. In a separate and earlier Court proceeding, Mr. Pajak testified before an Ontario judge that Antonio Carbone was “honest and hardworking” and so integral to his businesses that his [previous] business could not have grown to the extent it had without his work.

Witnesses that changed their stories

In the Dominican Republic, the gist of the criminal allegations against Mr. Carbone that have landed him in jail filed by Ms. Reynoso allegedly stem from evidence from the sworn statements of two men – one made by a Dominican person named Juan Isidro Infante Sepulveda and the other made by Fernando Baez. Mr. Baez was a junior employee of Mr. Carbone.

Ms. Reynoso’s theory of the case is that Antonio Carbono attempted to assassinate his employee, Baez, to take control of Dream Corporation. However, as Mr. Pajak deposed in Ontario, Mr. Carbone already owned 85% of Dream Corporation with his brother.  The corporate entity owned all of the assets in the Dominican Republic. It is hard to follow the logic that getting rid of an employee who owns no part of your company will yield you back your own company.

Witness #1 changes his story

According to Reynoso, Infante gave a sworn statement that he heard Mr. Carbone plotting to kill Baez and heard him say he had hired two hit men to do the job. He also allegedly gave a sworn statement that he was later with Mr. Carbone and heard him celebrating the burning of Baez’s car on the night of December 1, 2014, in the Dominican Republic.

Apparently, Infante has a criminal record and his credibility is suspect. A criminal record, even in the Dominican Republic, indicates a person whose evidence is not to be accepted quickly because experience has shown such people not to be reliable (R. v. Corbett, SCC), a legal concept presumably familiar to Ms. Reynoso.

And indeed, Infante was not reliable. He changed his story.

He told CBC’s The Fifth Estate that he never discussed a murder plot with Mr. Carbone at any time, and never heard any of the Carbone brothers discussing a murder plot against Baez. Infante also told The Fifth Estate that he is no longer sure on what date he is alleged to have seen and heard Mr. Carbone allegedly celebrating the car fire.

It is also alleged that Infante acquired from Dream Corporation, title to 30% of a $4 million condo building in the Dominican Republic shortly after he gave his statement in 2015, deposing to the facts above. This too is unusual because of the existence of Ontario Court Orders that froze all of the assets of Dream Corporation wherever situated and prohibited the dealing in them absent shareholder approval.

Mr. Carbone claims that he was in Canada on December 1, 2014, the day the car bomb that allegedly exploded the vehicle of Baez  took place that allegedly was an attempt to murder him. According to records from the Canadian government, Mr. Carbone’s version of events is borne out.

Mr. Carbone was in Canada on the day of the alleged car bomb

In February 2016, the Canadian government through the CBSA, released records in respect of Antonio Carbone for his international travel that show that Mr. Carbone arrived at Pearson International Airport and entered Canada on the evening of November 29, 2014. They also show the airline on which he traveled, as well as the immigration officer who processed him through customs. Canada does not create exit records but Mr. Carbone has a WestJet boarding pass showing that he departed from Canada on December 2, 2014, and entered the Dominican Republic on December 2, 2014, the day after there was an alleged attempt on the life of Baez.

$1 million of assets given to witness #1

The government of the Dominican Republic, and in particular, Ms. Reynoso have declined to accept the veracity of evidence from the government of Canada, in particular the CBSA.

Witness #2 changes his story

The Fifth Estate also discovered problems with the sworn statements of Baez which calls into question his credibility as well.

He swore that on December 1, 2014, as he climbed out of his car after work, a bomb exploded in his car. In this newspaper story, Baez is quoted as saying that as he was exiting his car, there was an explosion in his car and then boom – “flames”. Apparently, despite exiting a car violently exploding by a bomb, Baez suffered no personal injuries and did not require medical attention (see this brochure from the CDC on the extent of incapacitating injuries that occur to a human hit by a car bomb).

This picture, taken minutes after the explosion of a home-made car bomb in Pakistan, is what a car bombing looks like. As a simple matter of physics, a person in the position of Baez could not have walked away injury-free from a car bombing, if a car bombing even occurred.

And indeed, Baez, like Infante, too changed his story.

He spoke with CBC’s The Fifth Estate in the Dominican Republic and effectively admitted that he was not in the car when it exploded by a bomb, and did not narrowly escaped with his life, as he alleged. His new version of events is that he was not in the car. He hadn’t even driven that car that day. In fact, he was in a penthouse, many floors above when the car allegedly blew up by a bomb. That explains how come he suffered no injuries from the car bombing – he seems to have made up the story of narrowly escaping death because the reality, he later said, is that he was nowhere near the car when it blew up.

$500,000 paid to witness #2 

The CBC’s The Fifth Estate says they obtained a copy of an audio recording wherein Baez discusses being paid $500,000 by Mr. Pajak to act against the Carbone brothers that was recorded prior to the arrest of Mr. Carbone. Baez told The Fifth Estate that he did indeed receive that exact sum of money. The concern with the exchange of a significant amount of money to Baez is that it raises the issue of whether evidence was purchased – the National Post noted that there was allegedly a plan to acquire evidence to harm the Carbone brothers and land them in jail, and the offered price was, coincidentally, $500,000. The concern is heightened because two people involved in executing the incarceration of Antonio Carbone are alleged to have sold justice (see below).

Prosecutor changes the facts too

Despite the complete lack of credible evidence and the existence of evidence from Canada that Mr. Carbone was not in the Dominican Republic on December 1, 2014, at the time of the alleged car bomb, Ms. Reynoso is nonetheless pursuing the case of attempted murder against Mr. Carbone.

If you read here, you’ll see that the prosecution story changed too – now the alleged car bombing happened in the early morning of December 1, 2014 (as opposed to late at night as first alleged when Baez was allegedly returning from work) and that the entire car was destroyed. And here, the prosector is alleging that Antonio Carbone threw an explosive device into the car just as Baez was leaving it – a fact which is contradicted by Baez later saying he was not even in the car. If Mr. Carbone threw the bomb into the car as Baez was exiting in at his home, that means that Mr. Carbone was standing right beside the car, close enough to throw in a bomb.

The facts from the prosecutor defy belief. It would mean that this was the sequence of events:

  • Baez parked his car;
  • Baez saw Antonio Carbone standing beside his parking spot;
  • Antonio Carbone was holding a lit (as in live) bomb that was ready to explode;
  • Baez left his car windows open;
  • Baez commenced to exit his car;
  • Mr. Carbone threw the lit bomb into the open window of the car;
  • The bomb then exploded on impact as Baez was exiting;
  • Neither Baez or Mr. Carbone were injured one iota;
  • Baez said nothing to Mr. Carbone; and
  • Baez did not have Mr. Carbone arrested even though he was allegedly right beside him.

On January 28, 2015, on the basis of the above facts, the Dominican Republic sought and obtained a pre-trial order to have Mr. Carbone incarcerated in the Dominican Republic for a term of one year because he was allegedly a “flight risk.” Ms. Reynoso informed the Court that on December 1, 2014, Mr. Carbone followed Baez from the casino after work and then threw a bomb in his car, hence allegedly attempting to murder him even though he was not in the country. There are issues with respect to the rule of law, right to counsel and due process related to that hearing that could, and no doubt will, be the subject of an entire law journal article.

The prosecution obtained a pre-trial incarceration order for Mr. Carbone for one year from a judge named Margarita Cristo Cristo. Ms. Reynoso alleged in the media that Judge Cristo Cristo was corrupt and that she allegedly had evidence that the Judge’s rulings were allegedly for sale for payments of US cash – in one case allegedly for US$2 million. The prosecutor obtained the order from Judge Cristo Cristo after, not before, she suggested that the Judge’s decisions could be bought. 

No arrest warrant to detain Mr. Carbone at international airport

According to documents filed in the Dominican Republic courts, Mr. Carbone has been held in the Dominican Republic unlawfully. That is because he was arrested at the Punta Cana International Airport after passing through security at 7:30pm, waiting to board a 9:00pm Air Canada flight to Toronto but there was no warrant for that arrest at 7:30pm. A warrant for his arrest was only applied for at 10:30pm and issued at 10:51pm. It appears that they detained him without legal authority so that he would miss his flight. Ergo under international law, he seems to be illegally incarcerated in a foreign country.

According to Court documents filed in the Dominican Republic, the arrest warrant was obtained by a prosecutor named Ysidro Vasquez Pena, who was arrested months later for corruption in connection with allegations that he too took bribes and engaged in extortion to mete out justice, namely that allegedly he demanded upwards of US$250,000 from people to avoid being prosecuted by him for serious crimes or to make sure people got put in jail. He is the second judicial person involved in the incarceration of Mr. Carbone who allegedly sold justice.

In International law, the defective arrest of Mr. Carbone on January 25, 2015, at the Punta Cana International Airport amounts to an arbitrary and unlawful detention and means that everything from that point onwards is unauthorized because Mr. Carbone would have taken his 9:00pm flight and would be in Canada “but for” that unauthorized detention. The proper route would have been for government officials to have applied for extradition of Mr. Carbone from Canada.

Justice delayed is justice denied

Mr. Carbone has been incarcerated for over 830 days on evidence that has been contradicted without a trial, in violation of his rights under the United Nations Declaration of Human Rights to due process, life, liberty and security of the person and in circumstances where the rule of law is absent and according to the prosecutor, where the judicial corruption is so bad that she is ashamed to be part of it.

In Canada, the rule of law would prevent lawyers or prosecutors from advancing a prosecution on the basis of such contradicted evidence – presumably not in the Dominican Republic.

His detention for over 830 days is also a violation of his constitutional right to a speedy trial and is presumptively unreasonable, given that it exceeds the 18 month ceiling set out in R. v Jordan and is a violation of his rights under §11 of the Charter of Rights and Freedoms

Why does it matter? 

All lawyers in Canada take an oath to uphold the rule of law and the rights and freedoms of all persons, including Canadians, wherever they may be in the world. We are fortunate in Canada to live in a country were we are judged by the content of our character and where the rule of law prevails. It is our duty to defend the rights of Canadians who are not protected and to equally speak out when we see Canadians whose rights are denied. ”It is not possible”, wrote Martin Luther King, “to be in favor of justice for some people and not be in favor of justice for all people.”

And indeed, it is not possible to be in favor of justice for some Canadians and not in favor of justice for all Canadians.

The UN Declaration of Human Rights I refer to above was drafted after the Second World War to make sure that we, the people, never again go down the path of committing or acquiescing in the violation of individual human rights in which the rule of law was suspended and millions of people were wrongfully incarcerated, and millions more killed. The Declaration of Human Rights was also materially written by a Canadian lawyer.

As a nation, we must be the ones to hold it up the highest of all and live by its words and not acquiesce in the violation of the human rights of one of our own.




Second trial for shares

There is a second lawsuit in the Dominican Republic – Mr. Pajak is suing Mr. Carbone, among others, for allegedly fraudulently trying to take over Dream casinos – an odd litigation since Mr. Pajak deposed in Ontario that he is a mere 15% shareholder of Dream Corporation – the remainder of which he deposed, is held by the Carbone brothers. And given that there are Ontario Court Orders that froze all of the corporations in Ontario and the assets, there would be nothing available for Mr. Carbone to take over.

Third trial for alleged B&E

And there is a third litigation as well in which several people from the Dominican Republic are charged with allegedly breaking and entering the Dream casinos head office in the Dominican Republic, some allegedly with weapons, in December 2013. A hearing for that case took place on April 26, 2017, or was supposed to have taken place, based on complaints filed by what the Dominican Court referred to as two “victims” – Kremblewski and a person named Gianpietro Tiberio. The latter is a Canadian who is alleged to be a member of the Montreal Mafia and alleged to be part of the Vito Rizzuto clan. The Quebec Charbonneau Commission also noted Tiberio’s alleged Mafia affiliation, noting he was one of their soldiers. According to an article in the Globe & Mail, Kremblewski informed The Fifth Estate that Mr. Tiberio worked with him in the Dominican Republic at Dream casinos in 2013. The government of the Dominican Republic, in its Notice of Hearing for this case, listed Mr. Tiberio as a person who would be testifying in Court in this third trial on behalf of Dream casinos. To the extent there was a victim it this case, it was the corporate defendant, Dream Corporation, and could not be a person. The timeline seems to suggest that Mr. Tiberio is still in the picture, given that his name appears as a person to testify for the corporation as a victim of a corporate act.

Ontario civil litigation

These three cases in the Dominican Republic are a sub-set of a civil litigation in Ontario that has some bizarre features:

  • Dream Corporation was lent $110 million by Canadian billionaire Michael DeGroot to build a casino chain in the Dominican Republic and the money allegedly disappeared under the watch of a registered CPA whom a Court appointed expert stated had issues preparing balance sheets;
  • After the money allegedly disappeared, Kremblewski acknowledged to The Fifth Estate that the Mafia from the Montreal Rizzuto clan were working with him at the Dream casinos in the Dominican Republic. The CBC broadcast video footage of both Vito Rizzuto, the former godfather of Montreal Mafia at one of the casinos and of Mr. Tiberio milling around the Dream casino properties;
  • Most the parties involved in the original loan are suing each other in Ontario on various charges related to the $110 million loan and the litigation has been protracted yet the original claimant, Mr. DeGroot, seems to have taken no further action to recover funds allegedly lost or to install competent financial advisors or casino managers, as recommended by a Court appointed casino expert, to oversee the operations in the Dominican Republic to recover his loan. The loans are secured yet Mr. DeGroot has taken no action either to realize recovery of his security interests to recover the money he is alleged to have lost;
  • The Globe & Mail article about the case referred to a Court-appointed receiver report that evidenced millions of dollars of corporate funds that were used by one casino manager to pay for personal expenses like dental work, lingerie, designer clothing, hair cuts, private club membership, luxury cars, travel for a girlfriend to foreign countries, vacations and the like. Why would Mr. DeGroot not be moving to recover millions of dollars of those non-corporate expenses in what would be a super easy win?; and
  • The casino chain founded by the Carbone brothers continues to earn $2-3 million per month according to an Ontario Court appointed expert report and such money apparently is not being sent to all the shareholders of the Corporation or back to the Corporation. No Canadians Court filings exist to evidence where the $2 –  $3 million is going and nor is there a Court order that permits the lack of financial transparency to the shareholders.

In no other place in the world that I am aware of, are casinos operated in this way with issues of integrity, as that term is used in the gambling sector, affecting the gambling industry as in the Dominican Republic.

Stay away for your own safety

To illustrate, there are voluminous public posts like the one below on the most popular travel website in the world from 2014 to today that describe the ways in which UK, American and Canadian tourists to the Dominican Republic say they are ripped off at the Dream casino in Punta Cana. One of them describes being extorted at gunpoint to pay gambling debts they didn’t incur. Others describe how there were illegally detained and intimidated for hours while the extortions took place. It is unfortunate for many reasons but also because this is a Canadian-run company and it harms the Canada brand that we (me included) try so hard to build in Canada and abroad.

For your own personal safety, if you’re going on vacation, you may want to listen to the advice below that is on a prominent international travel review site and stay away from the Dominican Republic. You now know that if you get arrested and thrown in jail, you likely aren’t ever getting out.

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Bank of China money laundering case in British Columbia seems to set new reverse onus precedent

By Christine Duhaime | April 30th, 2017

As part of the protracted litigation involving several defendants from China that we wrote about here, in which $480 million was stolen by the Bank of China by low level managers and parked in banks and real estate in Vancouver and spent at casinos in Las Vegas, the Bank of China has obtained a judgment for over $600 million against the mother and wife of Chao Fan Xu, one of the men who stole from the Bank. The case is very James Bond-like and for background, you can read about it here.

The two defendants were Fang Kuang, the wife of Chao Fan Xu, one of the bank managers, and Wen Jing Tan, the mother of Mr. Xu.

The decision is unusual in that according to the Reasons for Decision, the Bank of China, rather than establishing any of its own evidence in respect of money laundering of funds from China that went through Hong Kong to Vancouver, relied upon re-cycled evidence by US prosecutors from other proceeding in Nevada who prosecuted the relatives of the defendants for, inter alia, money laundering and pursuant to which Ms. Kuang was sentenced to 96 months incarceration and Mr. Xu to 300 months. In that US prosecution, the US government obtained a restitution order against them for US$7.8 million in favour of the Bank. But only $20 million of the $482 million stolen by multiple defendants from the Bank of China was part of the US proceedings, so at maximum only $20 million was capable of piggy-backing upon US proceedings in Canada for evidentiary purposes. In other words, the US evidence that was solely replied upon to claim against the defendants here only covered $7.8 million yet a claim from $600 million was alleged in British Columbia.

The decision is also unusual in that an expert reviewed the bank records of the defendants (but not it seems, of the financial institutions involved in the moving of money), and rather than finding evidence of actual money laundering, such an expert opined that there were mere “patterns of money laundering”, and while the Court admitted evidence from foreign proceedings, it rejected the most competent evidence of all by anti-money laundering experts in the US who deposed as to the matters in the US criminal proceeding.

The Court found, based on the US conviction (even though it rejected the evidence from American experts that led to the US conviction), that Ms. Xu assisted those who stole from the Bank to launder the funds from the Bank and was therefore liable to the Bank.

With respect to the mother, Ms. Tan, because she was not a party to US prosecution, the Bank had to rely on making its own case for money laundering in British Columbia, rather than rely on the US government evidence in the US prosecution. In that respect, it relied upon the opinion of evidence of a pattern of financial transactions that it believed were indicative of money laundering (rather than evidence of actual money laundering). There really is no such thing as “patterns of money laundering” except when we are talking about risk patterns that computer systems pick up and detect as indicative of high risk for a certain activity.

In any event, the Court made interesting observations about money laundering, namely that the “very objective” of money laundering is to make it impossible to trace funds back to its illegitimate source.

But the objective of money laundering is to convert it from its original source so that the next organization involved in the layer in the movement of that money does not suspect its source, and ergo report it. Take for example, washing money by refining at a casino – if its money laundering then there is a predicate offence from whence the funds were tied and so there is no secret as to the source of the funds and neither is there a secret that the funds in this example were laundered at casino because the casino, as with all reporting entities, record and report the transaction.

The person, after refining, obtains a casino cheque which they then take to a bank for deposit. The bank in the example is not suspicious as to the source of funds because they see that, on its face, it is from a casino and involved winnings. Unless we are dealing with cash, it is not difficult to trace funds.

In any event, Ms. Tan was found liable to the Bank because she could not explain or prove that the money in her possession was not proceeds of crime, so a reverse onus was imposed upon her.

As a result, the two defendants were ordered to pay the Bank over $600 million collectively.

In terms of a precedent, the Supreme Court of British Columbia seems to have set precedent that it is permissible to rely solely upon evidence in foreign proceedings for cases of money laundering in the civil context to reclaim assets and secondly, that a reverse onus applies whereby a defendant must prove that money is their possession is not proceeds of crime.

It is not known whether the defendants appealed the case on the ground that it established new law in Canada in respect of the reverse onus, and its constitutionality.

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Winnipeg man on welfare charged with importing Fentanyl with Bitcoin

By Christine Duhaime | April 18th, 2017

A cannabis activist has been charged with illegally importing Fentanyl from China to Canada, through Vancouver, and paying for it with Bitcoin. The Manitoba government is seeking to forfeit his assets as proceeds of crime. The defendant, Raymond Csincsa, is allegedly on welfare and alleges that the $4,780 in cash located at his home was from welfare cheques and gambling winnings. The Fentanyl was worth $14,000.

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Four indicted in US cannabis tech pump & dump scheme that allegedly scammed investors and used Canadian promoters

By Christine Duhaime | April 18th, 2017

Four people connected with a company called BioCube Inc., with connections to Canada were indicted on Friday for securities fraud and two for money laundering. They are alleged to have defrauded the public securities market by making untrue statements, omitting to make material statements and intentionally deceiving investors  - in essence, for engaging in a pump & dump scheme to rip off shareholders through what they marketed as a cannabis tech company. One of the defendants held himself out to be a “professional anti-money laundering consultant” in Cyprus.

BioCube filed statements with securities regulators that it was in the business of importing wood from Brazil, and then pivoted and filed a statement that it made batteries, then pivoted again and filed a statement in 2016 that it was now a tech company focused on infrastructure with a plan to distribute a machine to detect cannabis.

A pump & dump scheme is one whereby a group of people inflate the share price by doing things such as making false and untrue statements, not filing statements with a securities commission, obtaining shares and not reporting it, receiving finders fees and not reporting it, or failing to file press releases. In a pump & dump scheme promoters who have shares in a junior company go out and promote it illegally until the price rises and then they sell their shares. The shares usually later drop since they were held up with false information and do not recover. According to the indictment, part of the pump & dump involved concealing the beneficial owners of the shareholders of BioCube. Pump and dumps are common in Vancouver among promoters and so-called finders – which are guys who go get investments from the same players for a startup and take a finders fee, often paid under the table. Such finders used to be in mining but have ventured into tech companies. Finders are often people in securities who are not licensed or qualified as a broker and because they are not licensed or qualified, they become finders. They are required to disclose that they act as finders and are paid part of the proceeds of a financing.

Pursuant to securities law, persons who are beneficial owners of shares (who directly or indirectly have voting power or investment power of 5% or more), are required to file a registration statement to disclose their shareholdings or interests therein. The FBI alleges that BioCube structured its transactions so that the beneficial owners of the shares were hidden in order to deceive the investing public.

We use Canadian stock promoters because US promoters follow the law

During conversations that were taped by the FBI, one of the defendants recommended using Canadian stock promoters for pump and dumps  for US listed companies essentially because US promoters follow the regulations (as opposed to Canadian promoters that one assumes do not),  and that Canadian stock promoters take 30% commission on pump & dump sales of securities (without, it would appear, disclosing it). According to other recorded calls, the indicted persons allegedly used shady connections in the Dominican Republic and Panama.

We can use a Canadian website because they don’t allow the government to break in

The defendants also discussed obtaining a Canadian domain because they believed that Canadian websites prevent governments from hacking them or obtaining emails. They subsequently are alleged to have discussed laundering the proceeds of BioCube share sales by opening bank accounts in foreign countries under corporate names that were untraceable to them and then getting debit and credit cards and spending the proceeds to avoid ant-money laundering reporting and FATCA reporting.

The defendants are charged with laundering $2 million through offshore bank accounts. The four are Chris Messalas, a former securities broker previously barred from the industry by the Securities and Exchange Commission; Boris Rubizhevsky, BioCube’s former chief executive officer; attorney Michael Garnick; and Dimitros Argyros, described as an “anti-money laundering consultant.” Messalas, Rubizhevsky and Garnick were charged with securities fraud conspiracy. Messalas and Argyros were charged with money laundering conspiracy.

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Canada’s New Cannabis Act – Harsh New Offences; Money Laundering; Why Cannabis Stores Can’t Get Bank Accounts; Role of Organized Crime

By Christine Duhaime | April 17th, 2017

Canada introduced a new Cannabis law, Bill C-45, the Cannabis Act, expected to come into force in July 2018. Skip to Part 2, below, if you just want to review the new law.

Part 1 – Background on Current Law, Illegal Dispensing; Denial of Bank Accounts

Illegality of Cannabis Sales Except for Medical Purposes

Until the Cannabis Act comes into force, it is illegal to sell or have cannabis except as authorized for narrow medical purposes.  Cannabis is a prohibited drug under the Controlled Drugs and Substances Act similar to cocaine or opium (the latter are Schedule I and the former is Schedule II). Possessing cannabis illegally is an indictable offence which carries a term of incarceration of up to five years. To obtain cannabis for medical purposes involves a person receiving authorization from a doctor to buy a small amount for personal use from one of 42 federally licensed sellers, or to grow it themselves.

Stores known as “dispensaries” or “compassion clubs” in Canada are illegal, meaning they are not authorized to sell cannabis for medical or any other purposes. There is no so-called “grey” area in respect of the legality of dispensaries, cannabis stores or compassion clubs. Having a license from a City, or municipality, such as Vancouver, does not make a cannabis store or a dispensary “legal”, as municipal law does trump federal law.

Moreover, the cannabis products sold in stores, dispensaries and such are illegally supplied, and unregulated. The law in Canada does not permit stores, dispensaries and cannabis clubs to acquire cannabis supplies.

Until the Cannabis Act is brought into force, the only legal way to obtain cannabis is from one of the 42 licensed providers and only for legitimate medical purposes.

Except for the 42 licensed producers, it is illegal to advertise or promote the sale of cannabis. Promoting cannabis that is not authorized contravenes the Competition Act, among others.

Difficulty in Obtaining Bank Accounts

Cannabis storefront businesses often cannot get bank accounts and the reason is because only cannabis sold for medical purposes by one of 42 federally licensed providers is legal.

The indictable offence provisions that govern cannabis sales and distribution mean that the proceeds of sales that are illegal (occur at venues not federally licensed or regulated) are proceeds of crime, as that term is used in global money laundering law. Because they are proceeds of crime, financial transactions associated with those businesses, irrespective of the amount, are reportable to FINTRAC under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act as suspicious transactions by banks, credit unions, casinos, money services businesses, accounting firms, notaries, stock brokers and insurance companies.

It is very expensive for financial institutions to monitor, report, record and generally implement systems to comply with anti-money laundering law if they were to bank cannabis stores.

In addition, the Criminal Code of Canada makes it an offence for anyone, including banks, credit unions, directors, officers, law firms, or any entity to transfer, send, deliver, transport or deal with money that they know or believe is from the illegal sale of drugs (such as may occur if a cannabis transaction is not a licensed one). As a result, no law firm (and ergo no compliance officer at a bank) can reasonably sign off on an opinion to a bank that it can provide banking services to a cannabis store, dispensary, or compassion club that is not federally licensed.

Cannabis stores operate as all-cash businesses because they cannot get bank accounts and a typology for anti-money laundering compliance officers is large volumes of cash that cannabis dispensaries try to deposit at casinos, banks, money services businesses and such.

In this story on VICE, a person who owns a number of cannabis dispensaries alleges that a credit union called CCEC provides banking service to cannabis stores in Vancouver, despite the Criminal Code, Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the Controlled Drugs and Substances Act and that the only way to accept credit cards as a merchant is to lie to an issuing financial institution (a criminal offence and an indictable offence under the Criminal Code). Lying to an issuing financial institution to obtain financial services involves lying to obtain an incorrectly coded merchant number (for example, coded as flower sales rather than drug sales) and is not recommended. In the US, officers and directors of Canadian companies who have lied to obtain merchant codes (usually in the online gambling business) have been prosecuted for money laundering and bank fraud and faced hundreds of years in jail.

It is not impossible to get a bank account in Canada for a cannabis business but it is difficult.

Filing Suspicious Transaction Reports on Cannabis Stores etc. 

People, including lawyers, cannabis entrepreneurs and others seem to be under a misapprehension that there are no suspicious transaction reports being filed to Fintrac in Canada or FinCEN in the US in respect of cannabis operations. There are numerous such filings taking place daily because, as mentioned above, the proceeds of sales from an unlicensed cannabis business is proceeds of the commission of a crime and must be reported by reporting entities. According to DSA (here), in the US, for example, between 2014 and 2015, 84% of American states filed cannabis related suspicious activity reports to FinCEN. And interestingly, there were 374 financial entities that filed including banks, credit unions, mortgage companies, stock brokers and casinos. Instances where a bank filed a suspicious transaction report include when it terminates a banking relationship with a cannabis company for anti-money laundering law purposes.

Money Muling to Vancouver

Because cannabis stores cannot get bank accounts, they move money across the country and from Canada to the US, and vice versa. In this story, the government arrested what is called a “money mule”, a person who moves money. In this case, the money was being muled allegedly for a cannabis chain called Canna Clinic. The alleged money mule was arrested with $590,000 cash (in $20 bills) being muled to Vancouver. The owner of the cannabis store allegedly informed CRA that $590,000 was being moved to Vancouver to pay its GST. The person with the money, however, told the police the money was his and he earned it selling videos. The $590,000 is subject to an action by the government for forfeiture as proceeds of crime allegedly tied to sales from the cannabis store – the cannabis store owners appear to corroborate that story by taking the position that it is for the payment allegedly of GST they owe. For the GST owed to be $590,000, as the cannabis store allegedly informed CRA, it means that the cannabis store’s gross sales in one store in Ottawa are $11.8 million every two weeks. That is not likely.

Online Prescriptions; Sale to Minors

Vancouver has stories of minors who attend at dispensaries and are sold cannabis, and of other stories of people “consulting” doctors online in a back room of a dispensary who write an online prescription for a person to buy cannabis for purported medical purposes. According to studies by the US, 11% of children aged 15 years old and older in Canada use cannabis, and for those between the ages of 15 – 24, in Canada the rate is 24%. Canada holds the record as the country with the highest percentage of minors who use cannabis.

According to this story, a former physician, Rob Kamermans, wrote over 15 prescriptions per day for cannabis over a one year period (4,000) to strangers he met on Skype across Canada. Physicians are licensed provincially, not nationally, and cannot practice medicine beyond provincial borders. He was charged with money laundering, fraud and forgery in connection with cannabis prescriptions and his medical license was revoked for incompetence.

Associations with Criminality 

Dispensaries that are not federally authorized exist in many parts of Canada pursuant to which there appears to be little municipal enforcement to shut them down until recently when the federal government appears to have mandated a national plan to raid numerous cannabis dispensaries. Those raids are continuing, resulting in some decrease in the number of cannabis stores operating. As well, judges are being asked to ensure that employees, managers and owners of cannabis stores that are arrested and prosecuted are given criminal records. Having a criminal record will mean that those people cannot enter the cannabis business under the Cannabis Act.

This story describes how in Canada a person with a criminal record who was incarcerated, is operating cannabis stores across the country. In 2015, Canada’s Criminal Intelligence Service reported that over 50% of the 657 organized criminal groups in Canada are known or suspected to be involved illegally in the cannabis trade. A Canadian government member of Parliament said that “the decision to sell or not to sell to a child is often made by a gangster.”

Since 2013, the government has been concerned over the involvement of organized crime in the supply, distribution and sales of cannabis, recently noting that transnational criminal organizations, including the Hells Angels, are “behind most of the [illegal unlicensed] dispensaries.” And according to this story, a well-known Toronto man with alleged links to organized crime was involved in the cannabis business and even formed an association of cannabis dispensers.

In addition, Canada is the primary source of cannabis sales to the US originating from BC, Ontario and Quebec.

Because cannabis is illegal in all but one country over the globe, organized crime tends to run drug and cannabis operations. In Italy, typically this is the Mafia but  there is also Chinese Mafia in Italy taking over cannabis cultivation and trafficking. The Italian authorities are also concerned with the increased evidence of terrorists, namely ISIS (the Islamic State), trafficking cannabis through North Africa and Italy, and funding terrorist activities using the financial system. In Mexico, drug cartels are adjusting to changes in historic cannabis sales. And here, the Nigerian Mafia traffic cannabis through the Ivory Coast, laundering the proceeds in bars and running prostitution services.

And now it would appear that foreigners, including Canadians, attempting to enter the US with any connection to cannabis, are apparently being denied entry to the US permanently, or deported.

US Enforcement

Several states in the US authorize medical and recreational cannabis use, although federal law prohibits it. The Trump administration has said that it will leave medical cannabis use alone but will go after recreational uses that contravene federal law.

Both Colorado and Alaska recently backed away from plans for cannabis social clubs over concern with federal enforcement. 16 people last month in Colorado were indicted for money laundering and drug trafficking of cannabis, and their bank accounts seized. Banks are concerned with indictments because they invite AML compliance reviews and often AML fines for failures to report money laundering activities.

Last week, the new US AG, Jeff Sessions, sent a memo to members of a task force focused on crime reduction and public safety asking for a review of existing policies of the enforcement of cannabis to reduce violent crime. The new Drug Czar, Tom Marino, is not in favour of medical or recreational cannabis. All signs seem to be pointing towards federal enforcement of recreational uses of cannabis, and consistent with the Executive Orders of January calling for the prosecution of members of organized crime and foreign nationals (Canadians and Mexicans in particular), engaged in the drug trade.

Bitcoin in the picture

The focus on Canada makes sense – in addition to Canada being a major source country to the US of cannabis, Canada is also a source country of fentanyl to the US, which is imported from China and paid for with Bitcoin (this US criminal complaint describes how fentanyl is imported to the US from Hong Kong and paid for with Bitcoin; here is another similar story of fentanyl being imported using Bitcoin). Here is a story of one of many Canadians, ironically a cannabis activist on welfare, who was arrested for importing $14,000 worth of fentanyl illegally into Canada from China and paid for with Bitcoin. Apparently, US law enforcement has been to Vancouver numerous times over the issue of Bitcoin and drug importations.

Part 2 –  New Cannabis Law


Clearly the existing cannabis system in Canada seems to have significant issues that need remediation.

Against the backdrop of the above, the purposes of the Cannabis Act are clear and they include more harsh measures to protect minors and to remove organized crime from Canada’s legitimate cannabis system.

The Cannabis Act is also designed to act as a world model, meaning that Canada’s goal is to show that legalizing drugs for recreational consumption can be done in such a way as to promote and protect the integrity of the system and respect the rule of law. There have been statements that the government will allow existing cannabis dispensaries to be registered even though they operated in violation of the law. There are parallels here as well to the gambling industry which faced a similar issue. In the gambling industry in Canada (particularly British Columbia), there was zero tolerance for previous criminality to preserve integrity of Canada’s reputation in gambling but in the UK, it was handled differently. The issue is if, and how to on-board companies and persons with a history of non-compliance with federal law into a new legal regime that is designed for compliance with the law. In other words, can a non-law abiding person or company become law abiding? Even if they can, are those the people the federal government will or should reward with a licence to operate or should the rewards go to those who have no record of breaking the law? These decisions may be left to provincial governments at the end of the day. As noted above, we have been though this process in the past in the gambling industry.

The purposes of the Cannabis Act are to:

  • make it a serious criminal offence to sale cannabis to minors;
  • make it a serious criminal offence to possess, sell, distribute, export cannabis without legal permission;
  • make it a serious criminal offence to promote, advertise, label or package cannabis to appeal to minors;
  • establish regulations and a registration system for cannabis that will determine who can enter the sector; and
  • to increase the penalties for drug-related offenses connected to cannabis.

Registration to Sell, Distribute

Under the Cannabis Act, the government will establish classes of registration including for selling, transporting, distributing, delivering, testing, producing and advertising of cannabis.

Disclosure of beneficial owners

In order to be registered, a legal person must disclosure its shareholders and controlling persons, whether indirect or direct – so beneficial shareholders, investors, those who hold pledges of shares and such will be relevant.


In order to address integrity issues affecting the market, a person will not be registered or licensed if they are associated with criminality, such that there is a risk of cannabis under their control being diverted to organized crime or illicit markets; they make false statements or omitted material information; they contravened the Controlled Dugs & Substances Act; or there are reasonable grounds to believe they contravened an order under the Controlled Drugs and Substances Act.

Other grounds for refusal include not getting a security clearance and circumstances when it is not in the public interest to register a person. Whether formerly operating a cannabis store in violation of federal law will disqualify a company or a person from being registered (because breaking the law is not in the public interest or rewarding a company or a person for years of breaking the law), has yet to be determined by the government. But that is the key issue.

Provincial control

The Cannabis Act allows the provinces to regulate the selling and distribution of cannabis if provincial regulation is consistent with the Cannabis Act. However, like gaming control legislation, the authority to operate a cannabis business will only be provincial – a company will not be able to operate across provincial boundaries absent the provinces entering into inter-provincial agreements. Unless the regulations say something different, companies will need to register in each province to operate there.

Distribution of Cannabis

Under the Cannabis Act, it is prohibited to distribute illegal cannabis, to distribute cannabis to a person under 18-years-old or to distribute cannabis to any person above a certain amount without being registered and authorized to do so.

Possession of Cannabis

Under the Cannabis Act, it is prohibited to possess cannabis above a certain amount, or to possess illegal cannabis.

Advertising of Cannabis

Under the Cannabis Act, it is prohibited to promote cannabis, or an accessory of it, or any service associated with it by communicate information about its price, in a way that would appeal to minors, to have testimonials, or to depict people or animals, or that includes emotions, glamour, excitement, vitality or daring.

It is also prohibited to include false or misleading advertising or comments in respect of cannabis.

And it is prohibited to advertise or promote cannabis outside of Canada or to sponsor events, or name a facility after cannabis – like a hockey arena or a one-off event, like a concert.

Selling to Minors

Under the Cannabis Act, it is prohibited to sell cannabis to a minor and it is also prohibited to sell cannabis or an accessory with an appearance that is appealing to minors.

Importing / Exporting

Under the Cannabis Act, it is prohibited to import or export cannabis without authorization.


Selling, distributing, importing or exporting cannabis to a person without being registered to do so, or selling to a minor, is an indictable offence (relevant for money laundering legislation) and carries a term of incarceration of up to 14 years.

The term of incarceration for possession is up to 5 years.


The majority of the legislation refers key provisions to regulations, which because it is delegated legislation, means that they will be drafted without parliamentary review and/or approval. The material parts of the regulations will include the registration requirements.

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