A warning last week from the Financial Transactions and Reports Analysis Centre (FINTRAC) cautioned regulators that offshore money launderers are using investment vehicles in Canada to obscure proceeds of crime.
The operational alert, titled “Updated Indicators: Laundering the proceeds of crime through underground banking schemes,” builds on a 2019 project dubbed “Project Athena.” Athena was an operation run in collaboration with the Combined Special Forces Enforcement Unit (B.C.) geared towards studying the threat of money-laundering which focused on casino-related activities in British Columbia linked mainly to China.
The project evolved and expanded its scope after it found that laundering was taking place well beyond the casino business. The report states that “as a result of temporary closures of Canadian casinos due to the Covid-19 pandemic, professional money launderers began to diversify their money-laundering methods.” The alert noted a resurgence of casino transactions after the reopening of casinos.
The financial crime agency sampled 48,000 transactions related to underground banking schemes, and determined that the activity related to money laundering “primarily involved incoming wire transfers from entities or individuals in China, notably in Hong Kong.”
The underground banking schemes are money transfer strategies that involve transfers of large bank drafts from unknown sources in China, which are then used to purchase legitimate investment vehicles such as Guaranteed Investment Certificates (GICs), which are then quickly redeemed so the funds can be redispersed. The report also found that other laundering activities included the use of “money mules,” real estate, and the auto and legal sector.
“Overall, electronic funds transfers, email money transfers, cash deposits, and bank drafts were the primary transaction types used,” it said. Commonly listed occupations for individuals linked to underground banking schemes included students, homemakers, business owners, and unemployed individuals.
The report lists a series of indicators that might identify illegal activity to be flagged, but cautions that “On their own, they may not be indicative of money
laundering or other suspicious activity.” It does say that together however they may reveal “unknown links” which “could lead to reasonable grounds to suspect that the transaction is related to the laundering of proceeds derived from underground banking schemes.”
The alert follows recent news that a Chinese institution named WealthONE Bank had been fined $676,500 by federal regulators for non-compliance in following anti-money laundering procedures. The penalty from FINTRAC imposed on February 16th followed suspicion that the founders of the bank may be susceptible to laundering the proceeds of crime. FINTRAC found WealthONE neglected to submit reports on suspicious transactions and activities "where there were reasonable grounds to suspect that transactions were related to a money laundering offence."
The bank was initially approved in 2016, during a period of time when donations to Justin Trudeau’s Papineau riding flooded in. An article in Le Journal De Montreal detailed that 83% of donations to the Papineau Liberal EDA originated outside of Quebec and that almost two-thirds of the donations came from around fifty donors of Chinese origin within 48 hours while approval of the bank was in the works.
The founder of WealthONE, Shenglin Xian, gained notoriety following his attendance at cash-for-access fundraisers in 2016 with Justin Trudeau. Finance Minister Chrystia Freeland raised national security concerns regarding WealthONE in February, ringing the alarm that the founders and shareholders may have engaged in money-laundering practices. A Globe and Mail story claimed that the bank was also under investigation by CSIS and federal finance officials.