FINTRAC

APR 7TH     SINCE TIME BEGAN     2016

2. Money Laundering

2.1 What is money laundering?

The United Nations defines money laundering as “any act or attempted act to disguise the source of money or assets derived from criminal activity.” Essentially, money laundering is the process whereby “dirty money”— produced through criminal activity— is transformed into “clean money,” the criminal origin of which is difficult to trace. There are three recognized stages in the money laundering process.
  • Placement involves placing the proceeds of crime in the financial system.
  • Layering involves converting the proceeds of crime into another form and creating complex layers of financial transactions to disguise the audit trail and the source and ownership of funds. This stage may involve transactions such as the buying and selling of stocks, commodities or property.
  • Integration involves placing the laundered proceeds back in the economy to create the perception of legitimacy.
The money laundering process is continuous, with new dirty money constantly being introduced into the financial system.
Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property (such as money) knowing or believing that these were derived from the commission of a designated offence. In this context, a designated offence means most serious offences under the Criminal Code or any other federal Act. It includes, but is not limited to those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, tax evasion and copyright infringement.
A money laundering offence may also extend to property or proceeds derived from illegal activities that took place outside Canada.

2.2 Methods of money laundering

There are as many methods to launder money as the imagination allows, and the schemes being used are becoming increasingly sophisticated and complicated as technology advances. The following are some examples of common money laundering methods.
  • Nominees 
    This is one of the most common methods of laundering and hiding assets. A launderer uses family members, friends or associates who are trusted within the community, and who will not attract attention, to conduct transactions on their behalf. The use of nominees facilitates the concealment of the source and ownership of the funds involved.
  • Structuring or “smurfing” 
    Many inconspicuous individuals deposit cash or buy bank drafts at various institutions, or one individual carries out transactions for amounts less than the amount that must be reported to the government, and the cash is subsequently transferred to a central account. These individuals, commonly referred to as “smurfs,” normally do not attract attention as they deal in funds that are below reporting thresholds and they appear to be conducting ordinary transactions.
  • Asset purchases with bulk cash 
    Individuals purchase big-ticket items such as jewellery, cars, boats and real estate. In many cases, launderers use the assets but distance themselves from them by having them registered in a friend's or relative's name. The assets may also be resold to further launder the proceeds.
  • Exchange transactions 
    Individuals often use proceeds of crime to buy foreign currency that can then be transferred to offshore bank accounts anywhere in the world.
  • Currency smuggling 
    Funds are moved across borders to disguise their source and ownership, and to avoid being exposed to the law and systems that record money entering into the financial system. Funds are smuggled in various ways (such as by mail, courier and body-packing) often to countries with strict bank secrecy laws.
  • Gambling in casinos 
    Individuals bring cash to a casino and buy gambling chips. After gaming and placing just a few bets, the gambler redeems the remainder of the chips and requests a casino cheque.
  • Black-market peso exchange 
    An underground network of currency brokers with offices in North America, the Caribbean and South America allows drug traffickers to exchange pesos for U.S. dollars. The dollars stay in the United States and are bought by South American (mainly Colombian) companies, which use them to buy American goods for sale back home.

2.3 Importance of combating money laundering

The vast majority of criminals would not be in the “business” of crime if it were not for the tremendous profits to be made. There is a direct relationship between the profitability of most types of crime and their prevalence. A major objective of the battle against crime in Canada and elsewhere is, therefore, to deprive criminals of the profits from their efforts. Only by effectively laundering illegal assets can criminals use them and thereby benefit from their crimes.
The sheer magnitude of money laundering activities demonstrates the importance of implementing strong anti-money laundering regimes in countries throughout the world. 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.
Laundered proceeds of crime provide seemingly legitimate financial support to drug dealers, terrorist organizations, arms dealers and other criminals to amass wealth and operate and expand their criminal empires. Investigations have revealed that those involved in money laundering attempts manipulate financial systems in Canada and abroad to foster a wide range of illicit activities. The economic and political influence of criminal organizations can potentially weaken the social fabric, collective ethical standards and, ultimately, the democratic institutions of society.
Money laundering activities have the potential to distort economic data and to cause economic growth to suffer. International Monetary Fund studies on the relationship between gross domestic product growth and money laundering in industrial countries have found evidence that significant reductions in annual gross domestic product growth rates were associated with increases in money laundering activities.
These are some of the reasons why Canada is serious in its commitment to combat money laundering. The increasingly international character of business and the often multinational nature of money laundering activities have resulted in stepped up international efforts and co-operation in the fight against money laundering.

2.4 International efforts to combat money laundering

An important objective of money laundering activities is to remove the proceeds of crime from the jurisdiction in which they were obtained to help disguise their origins. This frequently involves the international movement of those proceeds, which is facilitated by the increasingly international character of business, financial and criminal activity. Although money laundering has become a large global problem that affects all countries in varying ways and degrees, jurisdictional boundaries have made international law enforcement difficult. International co-operation and co-ordination have become essential to the deterrence, detection and prosecution of money laundering, leading to the development of many international initiatives over the past decades to address this issue.
Perhaps the most well known of these initiatives is the Financial Action Task Force (FATF), established by the G-7 countries in 1989. FATF is an intergovernmental body, comprising 34 member jurisdictions and two regional organizations, and whose purpose is to develop and promote policies to combat money laundering and terrorist financing. Canada has been a member of FATF since it was established. FATF has set out 40+9 recommendations that outline the basic framework for anti-money laundering and terrorist financing efforts. These recommendations define international standards covering the criminal justice system and law enforcement, the financial system and its regulation, and international co-operation. More information about FATF and its 40+9 recommendations can be found at http://www.fatf-gafi.org.
In 1995, a group of Financial Intelligence Units (FIUs) met at the Arenberg Palace in Brussels and decided to establish an informal group whose goal would be to facilitate international cooperation. Now known as the Egmont Group of Financial Intelligence Units, these FIUs meet regularly to find ways to cooperate, especially in the areas of information exchange, training and the sharing of expertise. Canada has been an active member of this group since 2002. In early 2008, the Egmont Group established its Secretariat in Canada. For more information on the Egmont Group, visit their Web site at http://www.egmontgroup.org.
Other international anti-money laundering initiatives include but are not limited to the following:
  • European Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime
  • Asia Pacific Group on Money Laundering (APG)
  • Caribbean Financial Action Task Force on Money Laundering (CFATF)
  • United Nations Single Convention on Narcotic Drugs
  • United Nations Convention on Psychotropic Substances
  • United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
  • United Nations Convention Against Transnational Organized Crime
For more information about CFATF and APG, visit https://www.cfatf-gafic.org and http://www.apgml.org.
As a member of FATF, a sponsoring country of the CFATF, a signatory to the United Nations Conventions listed above, as well as a member of APG and the Egmont group, Canada is very active in the international fight against money laundering. The Proceeds of Crime (Money Laundering) and Terrorist Financing Actis a further demonstration of Canada's commitment to fighting money laundering. See sections 4 and 5 for more information about Canada's anti-money laundering efforts.
For more information on money laundering, you can also refer to the following Web sites:
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