Offshore money launderers are using GICs and Canadian investment accounts to launder proceeds of crime, according to an analysis of “underground banking” schemes from FINTRAC.
The national anti-money laundering agency issued new guidance — updating a 2019 alert involving casino-related money laundering activity — that helps firms detect suspicious transactions with roots in underground banking that often originates in China.
The agency’s initial alert followed a probe into money laundering activity using casinos in British Columbia. But when casinos closed during the pandemic, “professional money launderers began to diversify their money laundering methods,” it said.
FINTRAC’s sample of nearly 48,000 transactions involving money laundering through underground banking schemes found that the activity “primarily involved incoming wire transfers from entities or individuals in China, notably in Hong Kong, followed by the movement of these funds through financial institutions” to be laundered through the real estate, securities, auto and legal sectors in Canada.
“Overall, electronic funds transfers, email money transfers, cash deposits, and bank drafts were the primary transaction types used,” it said, adding that it also “observed the frequent layering of funds between related accounts and the use of investment accounts to launder funds.”
The agency reported that investment firms, individual financial planners and investors “were often the recipient of large bank drafts ultimately funded from unknown sources in China.”
The recipients of these large inflows then often used the money to purchase short-term investments, such as a GICs, that were then quickly redeemed before maturity, incurring early redemption charges. The funds would then be transferred to other clients or used to purchase bank drafts.
Based on its latest analysis, FINTRAC lists a series of possible indicators of illicit activity originating with underground banking schemes — adding that these factors should not be considered in isolation.
“On their own, they may not be indicative of money laundering or other suspicious activity,” it said.
However, several indicators taken together “could lead to reasonable grounds to suspect that the transaction is related to the laundering of proceeds derived from underground banking schemes,” it said. “It is a constellation of factors that strengthen the determination of suspicion. These indicators aim to help reporting entities in their analysis and assessment of suspicious financial transactions.”