Front companies used to launder illicit cannabis cash: intelligence agency

Jim Bronskill, The Canadian Press

Posted Wednesday, September 28, 2022 5:30 am EDT

Canada’s financial intelligence agency says a wide range of businesses, from food wholesalers to electronics repair services, are being used to disguise profits from illicit cannabis operations.

In a new operational alert, Canada’s Financial Transactions and Reports Analysis Centre, known as Fintrac, is warning banks and others that handle cash to be on the lookout for multiple clues that transactions are linked to the marijuana trade in the market. black.

Canada legalized the recreational use of cannabis four years ago and established a legal framework for the production, sale and possession of the drug.

However, 37 percent of respondents to the federal government’s 2021 cannabis survey said they obtained some or all of their marijuana from illegal or unlicensed sources.

Fintrac says the illicit cannabis market denies public coffers significant tax revenue, while profits of tens of millions of dollars are used by organized crime groups to finance other illegal and harmful activities.

“If you are buying cannabis illegally online, you are in fact providing money to organized crime,” said Barry MacKillop, deputy director of intelligence for Fintrac.

Criminal groups will then disguise that money and use it to buy cocaine or weapons, traffic people, exploit children and seize real estate, he said.

As a result, whether Canadians know it or not, they are helping to finance other criminal activity in their communities, “which makes them and their neighbors insecure, in terms of where they want to live and how they want to live,” MacKillop . said.

Fintrac worked with Canadian law enforcement and major banks to develop the operational alert to advance Project Legion. The project, a public-private partnership led by Toronto-Dominion Bank, aims to raise awareness of the harm associated with the shady cannabis trade and better detect money laundering.

Fintrac tries to uncover evidence of money laundering and terrorist financing by examining suspicious transaction reports provided by more than 24,000 companies, from banks and money transfer services to real estate brokers and casinos. In turn, it passes the resulting financial intelligence to police and security agencies.

Fintrac also uses analytical techniques to help identify emerging trends and tactics.

The agency analyzed a sample of about 5,000 suspicious transaction reports, received between March 2020 and March 2021, related to illicit cannabis activities. While most of these involved the suspected sale and distribution of marijuana from unlicensed online dispensaries, some were linked to possible illicit marijuana production.

Shell companies most often used to launder proceeds included e-commerce businesses in the beauty and wellness industry, food and beverage wholesalers, auto-related businesses, electronics repair services, construction-related businesses, and those in marketing, advertising and consulting.

“There was often little or no business-related transaction in the accounts of these shell companies that were owned by suspected illicit cannabis distributors and producers, their associates, and other members of their networks,” the operational alert says.

“Many of these people owned more than one business and transferred funds between their business and personal accounts and those of their associates, without a clear purpose.”

The analysis turned up several indicators, or red flags, that could suggest the laundering of cannabis profits. Fintrac warns that a single indicator may not initially appear suspicious, but could prompt a look at other facts, contextual elements or additional indicators that may heighten concerns.

Indicators related to illicit marijuana cultivation, processing, and preparation included large retail purchases of hydroponics and unusual utility payments, such as multiple people paying the same hydro bill or cash payments over the counter.

Among the indicators linked to unlicensed online cannabis dispensaries:

— The customer receives a large number of money transfers via email from apparently unrelated third parties;

— transaction details refer to terms such as grass, pot, bud or leaf;

— Numerous purchases from packaging, shipping, or mail service companies; Y

— the wholesale purchase of humidity-controlled packaging from specialized suppliers.

In some cases, networks of numbered companies operated potential transfer accounts for an unlicensed dispensary, the alert says. Although these entities were in very different industries, they were linked through financial flows, shared electronic money transfer contact information, or the same authorized signatories.

The COVID-19 pandemic sped up the phenomenon to some degree because “everyone was buying everything online when things were closed,” MacKillop said. “And this was just another way that organized crime could exploit that and use the online presence to sell their illegal cannabis.”

This report from The Canadian Press was first published on September 28, 2022.

Leave a Comment