China is behind many money-laundering transactions and other fraudulent financial activity in Canada, according to a July report from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
The report identified students, homemakers, lawyers, and business owners as some of the occupations involved in receiving funds from China.
It’s possible that many individuals were used as money mules, the report said. It added that Chinese individuals operated as “straw buyers”—intermediaries in place of a true purchaser with the intention of concealing ownership—to move Chinese funds.
According to FINTRAC officials, Canadian financial institutions “were often the recipient of large bank drafts ultimately funded from unknown sources in China.”
The operational report, “Updated Indicators: Laundering the Proceeds of Crime Through Underground Banking Schemes,” offers analysis and updates FINTRAC’s 2019 Project Athena Operational Alert report on the laundering of the proceeds of crime via a casino-related underground banking scheme.
“FINTRAC analyzed a sample of nearly 48,000 transactions in relation to the laundering of the proceeds of crime through underground banking schemes,” it said.
FINTRAC said the most common occupations for those individuals involved in laundering disclosures were students, homemakers, office managers, business owners and CEOs—frequently listed within the automotive industry, construction sector, and securities firms—and real estate agents and the unemployed.
“The majority of the underground banking-related disclosures 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 into the following sectors: casinos, real estate, securities, automotive, and the legal profession.”
The report also provides supplementary information to help identify suspicious financial transactions involving money laundering, particularly those associated with China.
Identifying Fraudulent Transactions
FINTRAC outlined a number of factors that could indicate questionable activity and might point to money-laundering operations.Among those indicators that could qualify as “red flags,” it noted quick sequences of transactions in the automotive, legal, and real estate professions; funds received from agents in China with limited to no online presence; transactions involving entities that have adverse mentions in the media and “linked to criminal activity such as fraud, possession of proceeds of crime;” and business accounts that are funded by multiple transfers.
Using financial transaction reports, FINTRAC enables the identification, reduction, and deterrence of every phase of money laundering and the funding of terrorist activities. It delivers actionable financial intelligence to law enforcement and national security agencies.
According to the report, “Project Athena focuses on improving the collective understanding of the money laundering threat, strengthen financial systems and controls, and disrupt money laundering activity in British Columbia and across Canada.”
Underground banking, according to the report, is the transfer of value assets outside of the established banking system between agents and third parties without the physical relocation of items, also called “informal value transfer.”
Referring to the abuse of real estate business pathways, the report said, “Incoming funds from China ... were used to fund a series of structured draft purchases to a property developer with memos referencing the same address or a series of unit numbers within the same address.”
FINTRAC observed “several instances of legal professionals specializing in real estate listed as the beneficiary of bank drafts and less frequently cheques sourced from an unknown source in China, notably in Hong Kong,” referring to the use of financial routes in the legal profession.
Those employing the securities and investment sector send large transactions to individuals who use the money to purchase short-term investment certificates and subsequently redeem and transfer proceeds to other accounts, or create bank draft payments for recipients.
Transactions in the automotive sector included straw buyers who used funds from individuals or entities situated in China to finance bank drafts for acquiring vehicles from luxury car dealerships. “These purchases were often inconsistent with [the] stated occupation of the purchasing client, such as student or homemaker,” FINTRAC said.
“How reporting entities determine if they should submit a suspicious transaction report to FINTRAC ... requires more than a ‘gut feel’ or ‘hunch,’ although proof of money laundering is not required,” said the report.
In conclusion, the report outlined instructions on how suspicious financial activities can be reported via the FINTRAC website.
