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Financial
Money Laundering
Overview of Criminal Activity
“In Canada, money laundering is a multibillion-dollar problem. It is an integral element of organized criminal activity, and is the proven method by which organized crime groups seek to transform the proceeds of drug trafficking, contraband goods and people smuggling, extortion, fraud and other activities into apparently legitimately earned funds.” (FINTRAC's Guideline 1: March 24, 2003). |
According to the International Monetary Fund (IMF), global estimates of money laundering ranges from between US$590 billion and $1.5 trillion. In Canada, organized crime groups are involved in a myriad of illicit activities, which generate huge amounts of profit annually. It is paramount for organized crime groups to continue to carry out their various ventures while remaining under the radar of law enforcement.As a result, innovative methods are utilized by criminal organizations to hide the source of their income in order to avoid the suspicion and scrutiny of law enforcement, as well as provide the means to reinvest into both legitimate and illegitimate enterprises. Money laundering, therefore, is a type of financial crime that is crucial to enabling a criminal organization to continue its activities, as well as increase its strength and capability.
Despite the numerous ways in which criminal proceeds are laundered, there are typically three main stages to the process.The first stage involves methods to separate the money from the crime, thus placement refers to the initial movement of the funds; the next step is the layering process, which helps to disguise the origin of the money, for instance the use of wire transfers between numerous accounts in several countries over a short period of time; and finally, the integration phase allows the money to remain accessible because it appears legitimate, so that it can be used by the criminal organization without fear that the origin of the funds will have been perceived to have come from an illicit source.
“Money laundering is about criminals hiding money that is connected to a long list of activities that are abhorrent and destructive to our society and our free and open way of life.” Horst Intscher |
There are numerous techniques employed to carry out money laundering, particularly at the placement and layering stages, however, these techniques will differ in their scope and level of sophistication. Organized crime groups employ smurfs8 and nominees9 to facilitate the laundering process because they help to layer financial transactions. Structuring the financial transactions ultimately help to distance the criminal organization from the source of the illicit proceeds.The degree of structuring in transactions and in money laundering schemes is becoming increasingly complex.A number of different avenues will often be used in a money laundering scheme, such as deposit institutions, international wire transfers, and the purchase of real estate, which help to further insulate the criminal organization from the proceeds of crime.
Despite the increasing sophistication of money laundering, organized crime’s involvement can range from a relatively low-level of sophistication to very complex schemes.At a lower end of the scale, money is stored at a residence or place of business, and large purchases are made in cash. However, recent law enforcement projects in B.C. have discovered organized crime groups capable of laundering proceeds of crime derived from the cross-border smuggling of cocaine and marihuana, totaling approximately C$200 million.
Techniques used to facilitate the money laundering process are usually referred to as typologies by law enforcement.They generally evolve and adapt over time due to law enforcement action, government legislation and changes in regulatory requirements within the financial services sector.The Financial Action Task Force on Money Laundering10, an international-based organization, has recently identified the following worldwide trends in money laundering typologies also evident in Canada: these include the use of wire transfers, and organized crime’s utilization of gatekeepers11, as they act as intermediaries with financial institutions in addition to providing an appearance of legitimacy. In addition, casinos, including on-line casinos, white-label Automated Teller Machines (ATMs), and money service businesses, such as currency exchanges are increasingly employed by organized crime groups to launder their money in Canada.
While organized crime groups based in Canada are laundering money here and abroad, Canada is also used by foreign-based groups for the purposes of laundering the proceeds of crime due to the stability of the economy and the soundness of its financial sector.There are individual facilitators and criminal organizations who specialize in providing money laundering services to a number of other organized crime groups.These individuals and criminal groups are not necessarily involved in other types of criminal activity but they do provide an essential component to the successful operation of criminal networks even though they may not be core members of the organization. Some marihuana brokers, for instance, have tasked individuals outside of their criminal organizations with converting the U.S. cash into Canadian currency through currency exchanges on their behalf.
Negative Socio-economic Effects
The process involved in money laundering parallels legitimate financial activity, and by its very nature, exploits loopholes and weaknesses in the legitimate economy.A key element to tapping into this legitimate sphere, is the use of gatekeepers.These specialized legal and financial professionals are targeted by organized crime and are either knowingly or unaware that they are facilitating criminal activity.The co-optation of professionals can also involve corruption, bribery and influence used for the purpose of criminal exploitation.
“Using strategies aimed at laundering the proceeds of crime, organized crime victimizes many types of people in the general population, including individuals who are subject to unfair competition in the area of goods and services, as well as investors who incur losses due to stock market manipulation, for the primary purpose of legitimizing criminal proceeds.” Normand Proulx, Director General, |
As a result, the effects of money laundering are not necessarily visible to the public. Nevertheless, organized crime’s ability to successfully launder the proceeds of crime helps to strengthen its capabilities, thereby becoming more of a threat to the financial integrity of the Canadian economy. Laundered proceeds of crime also enable organized crime to invest in additional criminal ventures and insulate their investment into legitimate enterprises.Taken to an extreme, it can help criminal organizations to infiltrate the legitimate economy to such an extent that they evolve to become solely legitimate enterprises, despite the fact that the capital behind the company was originally supported by criminal activities.
Ultimately, money laundering undermines the legitimate economy, especially investor confidence in important Canadian markets.This can occur when, for instance, the public finds out that a publicly-traded company has been criminally exploited for the purpose of laundering the proceeds of crime; the company’s tarnished image thus undermines shareholder and public confidence in it. Lastly, the proceeds of crime being laundered in Canada are income that is not taxed, which as a consequence places a disproportionate burden on the general public and its contribution to the social safety net, like health care.
8 Smurfing refers to an individual (or smurf) who is used to deposit cash in different banks, bank branches and/or deposit institutions in amounts that will not alert attention.
9 Nominees are often used to register legal title to an asset because they are either not connected to the criminal activity or do not have a criminal record.
10 The Financial Action Task Force on Money Laundering (FATF) an international organization based in Paris, France, holds an annual typologies exercise at a meeting of financial experts.The findings from the latest report stem from the meeting held in Mexico from 17-18 November 2003.There were 35 countries and jurisdictions present at this meeting , including Canada.
11 According to the FATF, gatekeepers refers to the involvement of legal and financial experts, some of whom are unwitting participants, in money laundering schemes, which could include solicitors, notaries, accountants, amongst others that carry out important functions in helping their clients organize and manage their financial affairs.
