Business
Canada can – and should – crack down on trade-based money laundering
From the Macdonald Laurier Institute
By Jamie Ferrill for Inside Policy
Neglecting to take decisive action enables organized criminal networks whose activities cause significant harm on our streets and those of our international partners.
Financial crime bears considerable political and economic risk. For the incoming Trump administration, the threat that transnational organized crime and the illicit financial flows pose to global financial stability is a top priority. The threat of tariffs by the Trump administration makes the costs to Canada in enabling global financial crime all too apparent. In addition to the cost of tariffs themselves, the associated reputational risk and loss of confidence in Canada’s financial system has implications for investments, credit, supply chains, and bilateral co-operation and agreements.
Canada’s proximity to major international markets, stable economy, high standard of living, and strong institutions and frameworks make it an attractive place to do business: for both legitimate and criminal enterprises.
Trade is a key contributing sector for Canada’s economic security. It represents two-thirds of Canada’s GDP, and exports alone support nearly 3.3 million Canadian jobs. Trade is also highly vulnerable to criminal exploitation. Ineffective oversight, regulatory complexity, and lagging technology adoption, coupled with a lack of export controls, make it possible to move vast proceeds of crimes, such as those from drug trafficking, human trafficking, corruption, and tax evasion through the global trade system.
These vulnerabilities are well-known by transnational organized crime groups. They are able to effectively move billions of dollars of dirty money through the global trade system every year, a method commonly referred to as Trade-Based Money Laundering (TBML).
While any statistics must be interpreted with caution, evidence shows that TBML is a prevalent method of money laundering.
What is it?
There are several types of Trade-Based Financial Crimes such as terrorism financing through trade, sanctions evasion, and simply trade fraud. However, the TBML definition is necessarily specific. Essentially here, TBML is a money laundering method: the processing of criminal proceeds to disguise their illegal origin. TBML involves the movement of value through the global trade system to obfuscate the illicit origin. This is usually done through document fraud: undervaluing, overvaluing, phantom shipping, or multiple invoicing. Different techniques employ different aspects of the supply chain. And TBML may be just one method used within larger money laundering operations.
By way of example, US authorities allege that two Chinese nationals living in Chicago laundered tens of millions of dollars for the Sinaloa and Jalisco Cartels. Drugs were smuggled into the United States and sold throughout the country. The proceeds from these sales were collected by the Chinese nationals. Those proceeds were used to purchase bulk electronics in the United States, which were then shipped – with a falsified value – to co-conspirators in China, who sold them locally. The legitimacy provided by the electronics sales and the trade transaction provide cover to “clean” proceeds from precursor crime.
Either the importer and/or the exporter of the goods can shift value. Chances here are the electronics shipped were undervalued: on leaving the country, they are declared at a (much) lower value than they are actually worth. The importer in China pays the undervalued invoice, then sells the goods for what they are worth. The profit from those electronics now appears clean, since it was used for a “legitimate” sale. The ensuing value gap can be transferred informally or stored as illicit wealth. The value has now shifted, without fiat currency leaving the country of origin.
But the cycle does not stop there. The value and money itself continue to traverse around the world, through various intermediaries such as financial institutions or cryptocurrency exchanges. It then goes right back into the system and enables the very crimes and organized crime groups that generated it in the first place. It is, in short, the business model of organized crime.
The Canadian problem
Ultimately, the proceeds of crime that have been legitimised through TBML (and other money laundering methods) supports the criminal enterprises that generated the value in the first place. In the example, these are prolific cartels who have been behind the fentanyl crisis, migrant trafficking and abuse, corruption, and widespread violence that destabilizes communities and undermines governments across North America and beyond.
With new actors, drug routes, and ways of doing business, the cartels are very much active in Canada. The Sinaloa cartel in particular has established a significant presence in Canada where it controls the cocaine market, manufactures and distributes fentanyl, and is embedded in local criminal networks. This increases Canada’s role as a strategic location for drug trafficking and a base to export abroad, notably to Europe, the US, and Australia.
Hells Angels, Red Scorpions, ’Ndrangheta, and other organized crime groups are also exploiting Canada’s strategic location using their transnational links. These groups are active in criminal activities that generate proceeds of crime, which they launder through Canadian institutions. From drug trafficking to extortion to human and sex trafficking, the foundation of organized crime relies on generating and maximizing profits. The proceeds generally need to be laundered; otherwise, there are direct lines back to the criminal organizations. They are, without a doubt, exploiting the trade sector; the very sector that provides so much economic security for Canada.
Canada’s regulation, reporting, and prosecution record for money laundering is notoriously weak. Its record for regulation, reporting, and prosecution for trade-based financial crimes, namely here TBML, is even weaker.
As financial institutions and other regulated entities face increased scrutiny following the TD Bank scandal and the Cullen Commission’s inquiry into money laundering in BC, more criminal activity is likely to be displaced into the trade sector and the institutions it comprises.
TBML is difficult for financial institutions to detect, especially given that 80 per cent of trade is done through open accounts. It exploits established trade structures that are meant to protect the system –like documentation and invoicing processes – by manipulating transactions outside traditional payment systems, which requires more sophisticated anti-money laundering strategies to address these hidden vulnerabilities.
Addressing the problem
Trade is a gaping vulnerability. Yet, it attracts minimal attention in countering transnational financial crime. Containing the fentanyl crisis for one requires a collaborative effort to bolster supply chains and the trade sector against financial crime. This means global cooperation, technological advances (such as blockchain technology), appropriate resourcing, more scrutiny on high-risk countries and shippers, and regulatory innovation.
But political will is in short supply. The federal government’s Budget 2024 and the resulting proposed Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorism Financing Act will grant CBSA new authorities to counter TBML, but limited resources to make good on them. And CBSA cannot do it alone.
Transnational organized crime and the illicit financial flows that support it poses a threat to global financial stability. The enabling of financial crime hurts Canada’s reputation abroad. With a new political regime emerging in the US, Canada cannot afford to be seen as a weak link. Loss of confidence in a country and its financial system has implications for investments, credit, supply chains, and bilateral cooperation and agreements.
By neglecting to take decisive action, we inadvertently enable organized criminal networks whose activities cause significant harm on our streets and those of our international partners. With profits as their primary driver, it is imperative that we scrutinize financial pathways to disrupt these illicit operations effectively.
Organized crime groups are not bound by privacy laws, bureaucracy, political agendas, and government budgets. They are continually evolving and staying many steps ahead of what Canada is equipped to control: technologically, geographically, strategically, logistically, and tactically. Without appropriate regulations, technological advances, and resources in place, we will continue to be a laggard in countering financial crime.
More systematic change is needed across regulatory frameworks, law enforcement coordination and resourcing, and international partnerships to strengthen oversight, close loopholes, and enhance detection and disruption. It would be a low-cost signal to the Trump administration that Canada is committed to upping its game.
Jamie Ferrill is senior lecturer in Financial Crime at Charles Sturt University and co-editor of Dirty Money: Financial Crime in Canada.
By Ken Macon
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Millions of Siri users may receive compensation as Apple addresses claims of unintentional voice recordings and data misuse
Apple has agreed to a $95 million cash settlement to resolve a proposed class action lawsuit accusing the tech giant of breaching user privacy through its Siri voice assistant. The preliminary settlement, filed in a federal court in Oakland, California, awaits approval from US District Judge Jeffrey White.
The lawsuit alleged that Siri recorded private conversations inadvertently activated by users and disclosed these recordings to third parties, including advertisers.
Siri, like other voice assistants, responds to “hot words” such as “Hey, Siri,” which can unintentionally trigger recording. Plaintiffs claimed this led to targeted ads based on private discussions, citing examples such as ads for Air Jordan sneakers after casual mentions of the brands. One plaintiff also reported receiving ads for a surgical treatment brand after a private conversation with their doctor.
The lawsuit covers users of Siri-enabled devices, including iPhones and Apple Watches, from September 17, 2014, when the “Hey, Siri” feature was introduced, to December 31, 2024. Class members, estimated to number in the tens of millions, could receive up to $20 per eligible device.
Apple denied any wrongdoing in agreeing to the settlement and did not immediately comment on the matter.
Similarly, the plaintiffs’ attorneys have yet to issue statements. From the $95 million settlement fund, attorneys may seek up to $28.5 million in legal fees and an additional $1.1 million for expenses.
For Apple, the settlement represents a fraction of its financial might, equivalent to just nine hours of profit. The Cupertino-based company reported a net income of $93.74 billion in its most recent fiscal year.
This lawsuit isn’t the only privacy-related legal battle involving voice assistants. A separate case against Google’s Voice Assistant is ongoing in a federal court in San Jose, California, within the same judicial district. The same law firms represent the plaintiffs in both lawsuits.
More than once in this space I’ve advocated for a comprehensive all-of-government review to find and eliminate waste and corruption. So it’s about time I set finger to keyboard and started mapping out how such a review might unfold.
Why is it just this moment in history that finds me so passionate about reviews?
Canada’s government spends more money than it receives. I know that’s hardly breaking news, but Ottawa’s reckless and frenzied race to max out every credit card in the known universe has driven the federal debt to $1.24 trillion. That’s 42.1 percent of GDP.¹
Among the biggest expenses? Employment growth in the federal civil service. Parliament employed 276,367 people in 2015 but by 2023 that had exploded to 370,368. That 94,001 increase amounts to a jump of 34 percent. For context, Canada’s overall population during that time increased by just 12 percent.
Given that the average weekly earnings for individuals employed in federal government public administration was $1,779 in 2023, just covering salaries for those extra 94,001 workers cost us $8.7 billion through that year.
But workers cost us much more than just their salaries. There are pension and CPP contributions, EI premiums, health and dental benefits, and indirect costs like office accommodations and training. All that could easily add another $50,000 per employee. Multiply that by all the new hires, and the total cost of those extra 94,001 workers has ballooned to $13.4 billion. That would be nearly a quarter of the deficit from the 2024 $61.9 billion fall update.² (Chrystia Freeland may not have been the one to officially announce that number, but she and her boss were the ones who got us there.)
Of course using a lottery to select, say, two out of every five bureaucrats for firing won’t give us the result we’re after. We want to improve government, not cripple it. (Although, to be completely honest, I find the idea of random mass firings way more attractive than I should.)
A successful review will identify programs that aren’t delivering cost-effective value to the people of Canada. Some of those programs will need changes and others should disappear altogether. For some, appropriate next-steps will come to light only through full audits.
But success will also require creating an organizational culture that earns the respect and buy-in of department insiders, stakeholders, and the general public.
The rest of this post will present some foundational principles that can make all that attainable. I should note that this post was greatly enhanced from input using the invaluable experience of a number of The Audit subscribers.
Use Transparent and Well-Defined Goals
Consensus should always be the ideal, but clarity is non-negotiable. Program advocates must be prepared to convincingly explain what they’re trying to achieve, including setting clear metrics for success and failure. Saving taxpayer funds to avoid economic catastrophe is obviously a primary goal. But more effective governance and more professional service delivery also rank pretty high.
Questions to ask and answer before, during, and after review operations:
- Does the program under review fall within the constitutional and operational scope of the federal government?
- Is there overlap with other programs or other levels of government?
- Are the original policy goals that inspired the program still relevant?
- Is the program in its current form the most effective and economical way of achieving those goals?
- Are the changes you’re proposing sustainable or will they sink back into the swamp and disappear as soon as no one’s looking?
Perhaps the most important goal of them all should be getting the job done in our lifetimes. We’ve all seen commissions, working groups, and subcommittees that drag on through multiple years and millions of dollars. You don’t want to make dumb mistakes, but that doesn’t mean you can’t adopt new tools or methodologies (like Agile) to speed things up.
Transparency is a fundamental requirement for public and institutional buy-in. That means publishing program goals and processes along with regular updates. It also means being responsive to reasonable requests for information. Fortunately, someone (Al Gore?) invented the internet, so it should be possible to throw together an interactive browser-based dashboard that keeps the rest of us in the loop and allows for feedback.
Over the years, I’ve personally built nice(ish) websites in minutes, even sites that use pipelines for dynamically pulling data from third-party sources. This isn’t rocket science – especially when you’re not dealing with sensitive private data.
Be Non-Partisan
Going to war against the complexity, toxic politics, incompetence, institutional inertia, NIMBY-ism, and sheer scope of government waste is not for the faint of heart. But setting yourself up as the Righteous Redeemer of only 40 percent of Canadians will make things infinitely more difficult.
Key project positions have to be filled by the most capable individuals from anywhere on the political spectrum. And proposals for cuts should rise above political gamesmanship. It may be unreasonable to expect friendly cross-the-aisle collaboration, but the value of the eventual results should be so self-evident that they’re impossible to oppose in good faith.
Frankly, if you’d ask me, any government that managed to miraculously rise above partisan silliness and genuinely put the country’s needs first would probably guarantee itself reelection for a generation.
Be Efficient
Don’t reinvent the wheel. If internal or external departmental audits already exist, then incorporate their findings. Similarly, make use of any existing best-practice policies, standards, and guidance from bodies like the Office of the Comptroller General and the Treasury Board of Canada Secretariat.
It’ll be important to know who really controls the levers of power within government. So make sure you’ve got members of key insider organizations like the Privy Council Office and the Committee of Senior Officials on speed dial.
Also, incorporate forward-thinking elements into new programs by including sunset clauses, real-time monitoring, and ongoing mini reviews. To keep things moving fast, implement promising auditing and analysis ideas early as pilot programs. If they work, great. Expand. If they don’t work, bury ‘em. No harm done.
AI-driven insights can probably speed up early steps of the review process. For instance, before you even book your first meeting with the dreaded Assistant Deputy Minister, feed the department’s program spending and outcomes data to an AI model and tell it to look for evidence-based inefficiencies and redundancy. The results can set the agenda for the conversation you eventually do have.
You can similarly build simple software models that search for optimal spending balances across the whole government. Complex multivariate calculations that once required weeks of hard math can now be done in seconds.
A friend who administrates a private high school recently tasked ChatGPT with calculating the optimal teaching calendar for the coming school year. After a few seconds, the perfect schedule showed up on-screen. The woman who, in previous years, had spent countless hours on the task, literally laughed with excitement. “What are you so happy about?” My friend asked. “This thing just took your job.”
Consult the Civil Service (and the public)
I know exactly what you’re thinking: is there a better way to destroy any process than burying it under endless rounds of public consultations (followed by years of report writing)? Trust me, I feel your pain.
But it’s 2025. Things can be different now. In fact, contrary to the way it might look to many good people inside the public sector, things can be a lot better.
This consultation would be 100 percent digital and its main stage need last no longer than 60 days. Here’s how it’ll go:
- Build a website, make a lot of noise to attract attention, and invite all Canadians – with a particular focus on current and former civil servants.
- Require login that includes a physical address and (perhaps) a government-issued ID. This will prevent interest groups from gaming the system.
- Use AI tools to identify boilerplate cut-and-paste submissions and flag them for reduced relevance.
- Encourage (but don’t require) participants to identify themselves by their background and employment to permit useful data segmentation. This will make it easier to identify expert submissions.
- Provide ongoing full public access to all submissions. Private information would be redacted, of course. And whistle blowers could have specialized, extra-secure access.
- Use traditional software analytics to flag especially interesting submissions and analyze all submissions using AI models to produce deeper summaries and analyses.
- Publish ongoing overviews of the results.
- [Other stuff…]
- Pick out a nice suit/dress for your Order of Canada investiture ceremony.
There’s absolutely nothing revolutionary about any of this (except the Order of Canada bit). The City of Toronto has been doing most of it for years.
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