Illegal Cannabis Money Laundering Through Front Companies: Report

OTTAWA-

The Canadian Financial Intelligence Agency says a wide range of businesses – from food wholesalers to electronics repair services – are used to conceal the proceeds of illicit cannabis transactions.

In a new operational alert, the Financial Transactions and Reports Analysis Center of Canada, known as Fintrac, warns banks and others who handle cash to be on the lookout for various clues that transactions are related to pot trading on the black market.

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% of respondents to the federal government’s 2021 cannabis survey said they got some or all of their pot from illegal or unlicensed sources.

Fintrac claims that the illicit cannabis market robs public coffers of significant tax revenue, while tens of millions of dollars in profits are used by organized crime groups to fund other illegal and harmful activities.

“If you buy cannabis illegally online, you are actually providing money to organized crime,” said Barry MacKillop, deputy director of intelligence at Fintrac.

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

Therefore, whether Canadians know it or not, they are helping to fund other criminal activity in their communities, « which makes them and their neighbors dangerous in terms of where they want to live and how they want to live off of,” MacKillop said. said.

Fintrac has worked with law enforcement and major banks across Canada to develop operational alerting to advance the Legion project. The project, a public-private partnership led by the Toronto-Dominion Bank, aims to raise awareness of the harms associated with the shady cannabis trade and better detect the laundering of profits.

Fintrac tries to uncover evidence of money laundering and terrorist financing by sifting through 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 the police and security agencies.

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

The agency analyzed a sample of approximately 5,000 suspicious transaction reports, received from March 2020 to March 2021, related to illicit cannabis-related activities. While the majority of them involved the alleged sale and distribution of weed from unlicensed online dispensaries, some were related to the possible production of illicit weed.

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

« Often, there was little or no trading activity in the accounts held by these shell companies that belonged to suspected illicit cannabis distributors and producers, their associates, and other members of their networks, » the alert reads. operational.

« 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 yielded several indicators, or red flags, that could suggest the laundering of cannabis products. Fintrac cautions that a single indicator may not initially seem suspicious, but could prompt consideration of other facts, background elements or additional indicators that could heighten concerns.

Indicators related to illicit growing, processing, and pot-making included large purchases from hydroponics retailers and unusual utility payments, such as multiple people paying the same electricity bill or online payments. cash at the counter.

Among the indicators related to unlicensed online cannabis dispensaries:

— Customer receives a large number of e-mail money transfers from seemingly unrelated third parties;

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

— many purchases from packaging, shipping or postal service companies; and

— bulk purchasing of humidity-controlled packaging from specialized suppliers.

In some cases, numbered business networks operated possible relay accounts for an unlicensed dispensary, the alert said. Although these entities are listed in very different industries, they were linked by financial flows, shared contact information for electronic funds transfers, or the same authorized signatories.

The COVID-19 pandemic accelerated the phenomenon to some extent because « everyone was buying everything online when things were closed, » MacKillop said. « And it was just another way for organized crime to 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.