Duhaime's Financial Crime and Anti-Money Laundering Law

Are realtors who merely post listings on MLS required to report to FINTRAC?

By Christine Duhaime | December 11th, 2010

On September 30, 2010 one of the landmark abuse of dominance cases in Canada was settled after approximately four years of investigation by the federal Competition Bureau and negotiations with The Canadian Real Estate Association, one of the largest single industry trade associations in Canada.

The Consent Agreement entered into between the Competition Bureau and CREA has, in addition to ending one of the few Canadian abuse of dominance cases in the past twenty-five years, also raised an interesting legal question on whether the mere posting of a listing on the MLS® system by a licensed REALTOR® imposes FINTRAC reporting obligations on the posting REALTOR®. The Consent Agreement is summarized here.

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Federal Court upholds Harkat’s security certificate because of links to terrorism

By Christine Duhaime | December 10th, 2010

The Federal Court of Canada has ruled that a security certificate declaring Mohammed Harkat inadmissible to Canada under the Immigration and Refugee Protection Act is valid because Mr. Harkat’s ties to terrorist organizations pose a danger to the security of Canada. Harkat’s security certificate is the first to be upheld in Canada.

The Court found that Mr. Harket had links to Islamic extremist groups before coming to Canada and maintained those ties when he immigrated to Canada, and that he provided terrorist financing to Islamic extremists in Canada by, among other things, paying or facilitating the payment of legal fees to a law firm to assist Al Shehre (whom the Court found to be a jihadist, terrorist and Islamic extremist with connections to Al-Qaeda or the Bin Laden network) in a Canadian immigration matter. Shehre arrived in Canada in 1996 and was deported to Saudi Arabia in 1997 because of ties to terrorism.

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Seven arrested in Calgary money laundering bust

By Christine Duhaime | December 8th, 2010

The RCMP have arrested seven Calgary-area residents in connection with what they are calling a massive money laundering scheme tied to illegal gambling and drug trafficking. The two-year investigation, dubbed “Operation Kwadrant,” was initiated from incidents of suspected money laundering at a local casino. During the raid, police seized two Lamborghinis, two Porsches and 4.5 kilograms of cocaine from 11 homes around Calgary. Casinos in Canada are required to file suspicious transaction reports with FINTRAC if a casino employee has reasonable grounds to suspect that a gambling transaction or attempted transaction is related to the commission or attempted commission of a money laundering or terrorist financing offence.

Operation Broken Trust indictees charged with money laundering

By Christine Duhaime | December 6th, 2010

Several of the people named in today’s nationwide crackdown in the U.S. known as “Operation Broken Trust” have been charged, and in some cases already convicted, of money laundering. Operation Broken Trust is the first national effort in the U.S. aimed at cracking down on investment fraud schemes. It involved enforcement actions against 343 criminal defendants and 189 civil defendants for fraud schemes involving more than 120,000 victims in the U.S. The criminal cases involved more than US$8.3 billion in estimated losses and the civil cases involved estimated losses of more than US$2.1 billion.

Some of the key indictments or convictions for, among other things, money laundering include:

Louis Borstelmann, from Oregon, who was charged with money laundering, mail fraud and wire fraud in connection with a Ponzi scheme that is alleged to have defrauded investors of more than US$18 million. Borstelmann is alleged to have offered hard-money loans to investors through his company, Sunburst Associates, Inc., that were purportedly secured by fraudulent real estate deeds of trust by falsely promising high rates of return.
Tamara and Kevin Sawyer, from Oregon, who were indicted on several charges, including money laundering and bank fraud, for allegedly using three companies to solicit investments of more than US$7 million in real estate. Investors were allegedly enticed with the false promise of high rates of return of up to 12% and security in the form of promissory notes. The defendants are alleged to have used investors’ money to build a vacation home in Mexico and to pay for personal luxury items.
Kevin Harris, from Ohio, who pleaded guilty to charges of money laundering, wire fraud and conspiracy. He and other associates started two companies called Complete Developments LLC (CDL) and Investments International Inc., to attract investors to foreign exchange and currency trading at promised rates of return of up to 12%. Harris and his associates collected approximately US$20 million in funds from investors and are alleged to have used the money to finance the costs of the businesses and to travel internationally and purchase luxury cars.
James Testa and Michael Rouse, from Texas. Testa pleaded guilty to money laundering in connection with raising US$2 million from an investment REIT that was not legitimate. According to a federal indictment, investors lost all of their money. Testa used part of the funds raised to purchase luxurious items, including a US$100,000 Mercedes Benz. Rouse is charged with money laundering, securities fraud and mail fraud, among other charges, and is scheduled for trial in April, 2011.
Jesse Alvin Cripps, from California, who was indicted on 27 counts of mail fraud and three counts of money laundering. Cripps allegedly told investors that he would put their money in a real estate investment trust that could earn more than 10% a month. Instead of investing the money, raised from 2001 to 2008, Cripps used it to pay business and personal expenses, the FBI said. Many investors lost their entire savings in the scheme according to the FBI.

A primer on human trafficking, human smuggling and money laundering

By Christine Duhaime | December 4th, 2010

Human Trafficking & Money Laundering

Human trafficking is the second largest illicit business in the world, after drug trafficking, generating as much as US$40 million annually in proceeds of crime that are laundered through the legitimate financial system.

It is a modern form of slavery, defined as any act that involves the transport, harbouring, or sale of persons through coercion, force, kidnapping, deception or fraud, for the purposes of placing them in a situation of the forced provision of services that may include one or more of prostitution, non-prostitution sexual services, domestic servitude, debt bondage or other slavery-like practice.

All human trafficking activities involve money laundering. The proceeds collected from the criminal activity are transformed by criminals into apparently legitimate money or other assets. In North America and the EU, traffickers tend to use the proceeds of their criminal activities to invest in cash intensive businesses, such as nightclubs or strip bars, and later, in real estate. To avoid detection, they tend to wire funds through money services businesses and send money across the border using international courier services.

Until recently, money laundering activities have not been used frequently enough to flush out human trafficking by law enforcement agencies but that is slowly changing as reliable money laundering and human trafficking typologies are developed.

Money laundering may also occur in human smuggling operations and they include the use of funds paid to smugglers, the use of funds paid to procure supplies or boats for smuggling, or the use of funds from terrorists or terrorist organizations.

With respect to Canada, like the U.S., it is a source, transit and destination country for human trafficking. Aboriginal women and girls are found in conditions of commercial sexual exploitation across the country. Canada has the unfortunate distinction of being a significant source country for child sex tourists – those are Canadian men who leave Canada to holiday abroad to engage in illegal sex with children.

Difference between Human Smuggling & Human Trafficking

Human smuggling and human trafficking are not the same:

Human smuggling involves the illegal movement of people across borders and is by definition, international. Unlike trafficked persons, the smuggled person usually consents to being smuggled and pays large sums of money to the smugglers;
Human trafficking, on the other hand, can be local, national or international; a person may be trafficked from a small town to a large city within the same country, or trafficked to another country;
People who are smuggled are not deprived of liberty when they arrive at their destination, whereas those who are trafficked are deprived of their liberty in one of several ways; they may be coerced, threatened or physically abused and are usually forced to provide free labour or services, forced into the sex trade, or forced to pay substantial sums to the traffickers for long periods of time;
The destruction of identification or travel documents is a sign of human trafficking, not usually smuggling. Trafficked persons are usually ordered to destroy their travel documents to protect the traffickers. Often the traffickers will destroy the travel documents of the persons they are trafficking as a means of controlling them; and
A smuggling operation can become a trafficking operation. Migrants may agree to be smuggled on a migrant ship and once on board, become victims of trafficking. This can happen if the smugglers force migrants to provide services (often sexual), labour, or payments of some kind on the vessel or after arrival in the destination country under circumstances where the migrants fear for their safety or that of someone known to them if they refuse to provide that service, labour or payment.

FinCEN releases final rule on SAR confidentiality

By Christine Duhaime | November 23rd, 2010

FinCEN released its final rule regarding the confidentiality of suspicious activity reports and has determined that financial institutions must keep quiet about investigations of suspicious account activity, even when transactional reports are not required to be filed, the U.S. Treasury Department said Tuesday.

The final rule, which takes effect in December, requires compliance departments to limit the disclosure of investigations that might lead to suspicious activity reports to those persons who need to know. Reviews of the suspicious activity reports should be held in a designated restricted area and each time an employee accesses a report should be logged.

Moreover, any document that indicates that a suspicious activity report has been filed with FinCEN must be shielded by a cover sheet to ensure confidentiality of the filing. These measures must be in place even when a compliance department ultimately decides not to file a suspicious activity report.

You can read more here.

FINTRAC issues annual report

By Christine Duhaime | November 18th, 2010

FINTRAC issued its 2010 Annual Report to Parliament today and among the highlights in this year’s report are the following:

FINTRAC made 579 disclosures of information that it suspected may be relevant for investigating threats to Canada’s national security, terrorist financing or money laundering;
Approximately 63% of the disclosures of information were made to the RCMP. The Canada Revenue Agency received 22% of the disclosures; CSIS received 13% and the Canada Border Services Agency received 7%. Other disclosures were made to Ontario and Quebec police forces, and international law enforcement agencies;
By far, the most number of disclosures were for money laundering suspected activities;
FINTRAC increased its compliance audits by 52% in the past year, and conducted a total of 691 compliance audits of reporting entities; and
Only seven administrative monetary penalties were assessed against reporting entities.

The FINTRAC 2010 Annual Report is available here.

Canadian officials agree to share cross-border currency reports with U.S.

By Christine Duhaime | November 10th, 2010

Officials from Canada’s Border Services Agency (CBSA), U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection have signed an agreement that requires the countries to notify one another when more than $10,000 in currency is seized at the border.

The Memorandum of Understanding for the Sharing of Currency Seizure Information is based on an action plan announced in July by U.S. Department of Homeland Security Secretary and Public Safety Minister that is designed to improve information sharing among Canada and the U.S. to monitor and protect against national security threats affecting both countries from terrorist financing and money laundering.

Quebec introduces anti-money laundering law

By Christine Duhaime | November 10th, 2010

The Quebec government has introduced new legislation to fight money laundering at the provincial level in the Assemble nationale. Bill 128, an Act to Enact the Money Services Businesses Act, will require that persons operating ATMs or providing currency, exchange, funds transfer, travellers cheque issuing and cashing, bank drat issuance or cheque cashing services, be registered by Quebec’s financial markets authority, the Authority des Marche financiers, before providing those services.

To be registered, the directors, officers and associates of prospective money services businesses in Quebec must be vetted and approved.

The AMF will also be responsible for the administration and enforcement of the new legislation. Once enacted, money services businesses have six months to apply for a license under the Money Services Businesses Act.

The Bill also amends Quebec’s Securities Act to make it an offence to engage in fraudulent trading in securities and to provide for protection from civil liability for whistleblowers.

G20 Summit to confirm commitment to enforcing anti-money laundering convention

By Christine Duhaime | November 9th, 2010

At this week’s G20 Summit in Seoul, leaders of the top twenty economies are expected to confirm their commitment to implementing the United Nations Convention Against Corruption. The Convention deals in large part with measures to prevent money laundering and requires signatory countries to:

Implement a comprehensive regulatory regime for banks and other entities to deter and detect all forms of money laundering.
Ensure that domestic laws allow enforcement agencies to cooperate and exchange information with national and international counterparts.
Implement measures to detect and monitor the movement of cash and negotiable instruments across borders without impeding the capital market system.
Require financial institutions to record meaningful information for all electronic funds transfers throughout the payment chain.
Promote global cooperation to combat money laundering.
Designate as a criminal offence, the possession of proceeds of crime, the attempt to commit, aid or abet money laundering, and the conversion or transfer of property knowing it is proceeds of crime.
Ensure that domestic criminal laws allow the knowledge, intent or purpose required to establish the elements of the offence of money laundering be capable of being inferred from facts.
Ensure that the limitation period to prosecute money laundering offences is long or suspended.
Facilitate the extradition of citizens or foreign nationals from signatory states to face money laundering charges or convictions abroad.

Several G20 nations, such as Germany, India, Japan and Saudi Arabia, are not Convention signatories and the discussion on enforcement mechanisms under the Convention may prove elusive.