1. Canada a Major Money Laundering Country
The 2016 International Narcotics Control Strategy Report (“INCSR“) published in March 2016 by the U.S. Department of State identifies Canada as a “major money laundering country” along with, among others, Afghanistan, Brazil, BVI, Cayman Islands, Cambodia, Cyprus, Dominican Republic, Guernsey, Jersey, Hong Kong, Iran, Iraq, Libya, Mexico, Macau and Somalia.
A “major money laundering country” is one whose banks and financial institutions engage in currency transactions involving “significant amounts of proceeds from international narcotics trafficking.” For several years in a row, Canada has been identified as such (see our other annual reviews here and here).
2. What’s New in the 2016 INCSR for Canada
Bulk Cash Smuggling Widespread; Shadow Banking Developing in Canada
The 2016 INCSR identifies lawyers and professional services firms as a key money laundering threat. It also reports for the first time that Canada has developed an underground financial system (shadow banking and lending) among the immigrant community and bulk cash smuggling into Canada is “widespread.”
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.
Substantial Amount Laundered from China in Vancouver, Sydney, London, New York
According to the Report, “a substantial amount of money is laundered through the purchase of overseas properties in places such as Vancouver” as well as Sydney, London, San Diego, and New York from Chinese foreign nationals.
Chinese foreign exchange rules cap the maximum amount of yuan individuals are allowed to convert into other currencies at approximately $50,000 each year and restrict them from transferring yuan abroad directly without prior approval from the State Administration of Foreign Exchange. A variety of money laundering techniques are used to circumvent the restrictions, including structuring, using networks of family and friends, transferring value with the help of family emigrating abroad, overseas cash withdrawals using credit cards, underground remittance systems such as fei-qian or “flying money,” and organized junkets to Macau, some of which involves Chinese organized crime.
3. Key Findings
The key findings of Volume 1 on the drug trade vis a vis Canada are:
- Canada is a major producer of precursor chemicals used in the production of illicit narcotics, along with Afghanistan, Brazil, Columbia, Egypt, Iraq, Mexico and several other countries.
- Canada is a significant supplier of estasy and marijuana to the US, and Canada is a supplier to places like Thailand of estasy that arrives via commercial flights.
- Illegal drugs are produced mostly in British Columbia, Quebec and Ontario.
- Canada is a primary source country of high potency marijuana and estasy to the US, Asia and Australia.
- Cocaine continues to enter Canada from South America and Mexico, some of which is transited through the United States.
- Canada is the 2nd largest per capita consumer of prescription opiates in the world.
The key findings in respect of money laundering and financial crimes in Volume 2 for Canada are:
- Money laundering activities in Canada are still primarily from illegal drug trafficking and financial crimes from capital markets, payments fraud and mass marketing fraud.
- Canada has both domestic laundering of funds occurring and foreign laundering.
- Laundered methods in Canada have remained constant and involve using money services businesses, casinos, purchasing real estate, wire transfers, setting up offshore companies, digital currencies like Bitcoin, use of nominees, use of foreign bank accounts, and the use of lawyers.
- This years report noted that the use of professional services (lawyers) is a key money laundering threat.
- Underground financial systems (shadow banking and lending) among immigrants was noted as a threat for Canada.
- Also noted was that bulk cash smuggling into Canada is “widespread”.
- The report noted that Canada has human trafficking organizations that use Canada’s banking system.