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Canada can – and should – crack down on trade-based money laundering

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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.

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Trudeau leaves office with worst economic growth record in recent Canadian history

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From the Fraser Institute

By Ben Eisen

In the days following Prime Minister Justin Trudeau’s resignation as leader of the Liberal Party, there has been much ink spilt about his legacy. One effusively positive review of Trudeau’s tenure claimed that his successors “will be hard-pressed to improve on his economic track record.”

But this claim is difficult to square with the historical record, which shows the economic story of the Trudeau years has been one of dismal growth. Indeed, when the growth performance of Canada’s economy is properly measured, Trudeau has the worst record of any prime minister in recent history.

There’s no single perfect measure of economic success. However, growth in inflation-adjusted per-person GDP—an indicator of living standards and incomes—remains an important and broad measure. In short, it measures how quickly the economy is growing while adjusting for inflation and population growth.

Back when he was first running for prime minister in 2015, Trudeau recognized the importance of long-term economic growth, often pointing to slow growth under his predecessor Stephen Harper. On the campaign trail, Trudeau blasted Harper for having the “worst record on economic growth since R.B. Bennett in the depths of the Great Depression.”

And growth during the Harper years was indeed slow. The Harper government endured the 2008/09 global financial crisis and subsequent weak recovery, particularly in Ontario. During Harper’s tenure as prime minister, per-person GDP growth was 0.5 per cent annually—which is lower than his predecessors Brian Mulroney (0.8 per cent) and Jean Chrétien (2.4 per cent).

So, growth was weak under Harper, but Trudeau misdiagnosed the causes. Shortly after taking office, Trudeau said looser fiscal policy—with more spending, borrowing and bigger deficits—would help spur growth in Canada (and indeed around the world).

Trudeau’s government acted on this premise, boosting spending and running deficits—but Trudeau’s approach did not move the needle on growth. In fact, things went from bad to worse. Annual per-person GDP growth under Trudeau (0.3 per cent) was even worse than under Harper.

The reasons for weak economic growth (under Harper and Trudeau) are complicated. But when it comes to performance, there’s no disputing that Trudeau’s record is worse than any long-serving prime minister in recent history. According to our recent study published by the Fraser Institute, which compared the growth performance of the five most recent long-serving prime ministers, annual per-person GDP growth was highest under Chrétien followed by Martin, Mulroney, Harper and Justin Trudeau.

Of course, some defenders will blame COVID for Trudeau’s poor economic growth record, but you can’t reasonably blame the steep but relatively short pandemic-related recession for nearly a decade of stagnation.

There’s no single perfect measure of economic performance, but per-person inflation-adjusted economic growth is an important and widely-used measure of economic success and prosperity. Despite any claims to the contrary, Justin Trudeau’s legacy on economic growth is—in historical terms—dismal. All Canadians should hope that his successor has more success and oversees faster growth in the years ahead.

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Greenland Is A Strategic Goldmine

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From the Daily Caller News Foundation

By John Teichert

President-elect Donald Trump recently snapped the gaze of the national security establishment to an often-overlooked geographical feature — Greenland.

Trump’s comments have been enough to start a long-overdue conversation about the semi-autonomous territory owned by Denmark, a landmass that retired Admiral James Stavridis, who served as the Supreme Allied Commander for NATO, has called “a strategic goldmine for the United States.” Stavridis was speaking both literally and figuratively.

Trump has likely done something that many of the so-called national security experts have never considered: He has looked down on a globe from the top. The traditional U.S.-centric view does not tell the full story nor provide the proper perspective. A top-down glance unveils key observations that reveal the wisdom of focusing on a geographic feature that has been brushed aside for far too long. 

Greenland and the entire Arctic region are typically considered simply rugged and quaint. Yet, their significance must be properly elevated as a fundamental component of U.S. national security and economic interests. Trump has done just that.

A North-Pole-centered perspective reveals that Greenland is the largest geographical feature in the Arctic region. As a result, it holds oversized strategic significance in controlling land, sea, air, undersea and space domains for a substantial part of the planet. Proper utilization of the Greenland landmass creates opportunities for multi-faceted dominance of the entire region.

This same perspective reveals a massive trade route, given the right climatic conditions and ice-breaking capabilities. It provides a maritime shortcut between the East Coast and the West Coast of the United States, and similarly for trade between Europe and Asia.

The Houthis in Yemen have reminded the world of an important economic truth — the ability to shut down transit through a key trade route can have ripple effects on the global economy. Suffocating transit through the Red Sea has tripled the cost of shipping from Asia to the East Coast of the United States, enacting huge global inflationary pressures. These negative impacts would be dwarfed by a nation that could control and restrict transit through the Arctic Ocean.

The view from the North Pole also enlightens the viewer about the closer-than-expected proximity between Russia and North America. The protective buffer of the Atlantic Ocean does not tell the full story, and the distances between the United States and Canada and their Russian adversary are much shorter than would otherwise be understood.

Through this literal worldview, Greenland looms large in its significance. This is especially true when it is properly viewed as the primary barrier between Russia and the east coast of the United States. Such positioning provides the rationale for the United States Space Force’s posture on the island with its early warning radars and space control systems – situated to protect against strategic surprise.

Trump’s strong statements about proper economic and strategic utilization of Greenland have been informed by such strategic orientation. These statements are also a natural extension of his rightful insistence that European NATO members pay their fair share to meet collective defense requirements.

While the United States has a commendable 75-year history of supporting European and collective security, fair share also means that America’s European allies must support North American security. That starts with Greenland and continues with a robust strategic focus on the Arctic region.

None of this addresses the largely untapped and abundant natural resources in the Arctic region, from oil and natural gas to precious metals and rare earth minerals, which are desperately needed to sustain a thriving modern global economy. Calling it a goldmine is not hyperbole.

Not only have Trump’s comments gained our attention, but they have also captured the attention of Greenland’s Prime Minister Múte Egede. Egede has eagerly proclaimed that his territory is poised to enhance its collaboration with the United States regarding natural resources and security efforts.

Thus, with just a few words informed by a properly oriented security perspective, Trump has already motivated and cultivated a collaboration that could strike gold for American interests.

United States Air Force Brigadier General John Teichert (ret) is a prolific author and leading expert on foreign affairs and military strategy. He served as commander of Joint Base Andrews and Edwards Air Force Base, was the U.S. senior defense official to Iraq, and recently retired as the assistant deputy undersecretary of the Air Force, international affairs. General Teichert maintains a robust schedule of media engagements, and his activities can best be followed at johnteichert.com and on LinkedIn. General Teichert can be reached at [email protected].

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