In a recent Operational Alert, FINTRAC has issued updated information building upon its 2019 Project Athena initiative. The alert focuses on exposing money laundering activities associated with casino-related underground banking schemes. It introduces additional indicators that will aid reporting entities in identifying financial transactions that may be linked to the laundering of illicit funds. These activities are particularly linked to underground banking networks in China, notably Hong Kong.
Uncovering the Intersection of Underground Banking and Formal Financial Systems
The world of underground banking operates in parallel with formal financial systems, often evading regulations and sanctions. This entails informal value transfer systems where value is moved across borders without physical transfer, frequently facilitating illicit activities. While informal systems are regulated, they're exploited for money laundering and evading controls.
The Intersection: Where Formal and Underground Banking Converge
Underground banking and formal financial systems intersect when certain transactions necessitate formal banking, such as purchasing financial instruments for money laundering across sectors like real estate. Regulated financial entities start observing this overlap, leading to FINTRAC reporting.
Focus on China and Hong Kong
Project Athena zeroes in on links to China, particularly Hong Kong. This alert highlights indicators linked to underground banking tied to China-related money laundering groups. China's significance arises from attempts by the Chinese diaspora in Canada to bypass currency controls using Hong Kong as a conduit. Unlike mainland China, Hong Kong's unique status excludes it from strict currency controls, making it an entry point for international underground banking schemes.
Exploiting Opportunities: Currency Control Loopholes
Currency controls create a black market for professional money launderers. While not all funds from China to Canada evade controls or commit a Canadian crime, the restrictions offer a platform for laundering proceeds of crime.
Visualizing Informal Value Transfers
Figure 1 illustrates a common method employed by the Chinese-Canadian diaspora to move funds from China/Hong Kong to Canada. Money reaches Canadian bank accounts through unrelated individuals via foreign money service businesses (MSBs). This setup allows money launderers to use money mules to receive deposits sourced from their criminal clients. The process not only facilitates money laundering but also circumvents Chinese currency controls.
Project Athena's Evolution: Battling Money Laundering
Project Athena, a collaborative initiative, began by investigating bank draft use in BC casinos. It expanded nationally to include real estate, securities, and automotive sectors.
COVID-19 led to Canadian casino closures, pushing money launderers to shift tactics. FINTRAC noticed increased fund transfers from foreign money services, especially in China/Hong Kong. Laundering spread to real estate, securities, and automotive fields.
With casinos reopening post-pandemic, FINTRAC saw a return in casino transactions. This highlights evolving money laundering techniques.
FINTRAC's Analysis: Underground Banking Scheme Disclosures
An in-depth analysis by FINTRAC delved into nearly 48,000 transactions tied to laundering proceeds through underground banking schemes. The majority involved incoming wire transfers from China, notably Hong Kong. Funds flowed through sectors like casinos, real estate, securities, automotive, and legal services. Common transaction types were electronic funds transfers, email money transfers, cash deposits, and bank drafts. Notably, funds were often layered between related accounts, and investment accounts were exploited for laundering.
Individuals in the Mix
Involved individuals spanned various occupations: students, homemakers, office managers, CEOs (often in automotive, construction/property development, and securities), real estate agents, and the unemployed. Many were potentially used as money mules, executing transactions related to Project Athena. Some acted as "straw buyers," using funds from China, particularly Hong Kong, to purchase assets. They also supported Asian "daigou" networks, buying goods for Chinese clients, potentially obscuring the origin of funds.
Money Mules' Role
Suspected money mules showcased active bank accounts, marked by frequent cash deposits or substantial incoming wire transfers from unknown parties in China/Hong Kong. These funds were used to acquire bank drafts for various sectors, including real estate, securities, automotive, and legal services.
Real Estate Misuse
Real estate funds reached property management, development, agents, sellers, brokers, and mortgage consultants. Funds often funded a series of structured draft purchases referencing the same address or unit numbers.
Securities Manipulation
Investment firms and individuals, including financial planners and investors, received large bank drafts traceable to unknown sources in China/Hong Kong. Some bought short-term investment products and redeemed them, transferring funds to other accounts or using them to buy drafts.
Automotive Industry Exploitation
High-end car dealerships and import/export entities in the automotive sector received funds from China/Hong Kong. "Straw buyers" acquired bank drafts, sometimes conflicting with their listed occupations. Circular fund flows were noted among different entities, some based in China/Hong Kong.
Legal Profession Complications
Legal professionals faced inherent vulnerability due to withheld information about transaction origins and beneficiaries. Real estate-focused legal experts received bank drafts from unknown sources in China/Hong Kong, often with no further activity after. Legal channels were used for property purchases, trust and company management, and client affairs.
Key Insights from FINTRAC's Underground Banking Analysis
- Adapting Scope: Project Athena expanded nationally, targeting real estate, securities, and more, beyond casinos.
- COVID-19 Impact: Pandemic forced shifts in tactics, driving increased transfers from foreign sources and feeding various sectors.
- Evolving Strategies: Money launderers showcased dynamic adaptability, even reviving casino activities post-pandemic.
- Diverse Roles: Individuals spanned varied roles, potentially serving as money mules for cross-border transactions.
- Sector Misuse: Sectors like real estate, securities, autos, and legal services were misused for laundering with "straw buyers" and complex fund flows.
- Legal Challenges: Legal professionals faced hurdles due to concealed transaction details exploited for laundering.
- China Focus: China, especially Hong Kong, played a central role in underground banking, impacting multiple sectors.
- Persistent Indicators: Casino-related indicators remained relevant, underscoring the durability of specific laundering methods.
