Money laundering is pervasive, clandestine and transnational. Measures to combat money laundering have been implemented by most states and have become integral tools at the disposal of national and transnational law enforcement. In this post I will discuss what money laundering is and the various means that are commonly used to clean dirty money with an emphasis on the wide net cast by Parliament over the legal landscape in Canada.

1. Introduction

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is established by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. (here) The centre receives reports about suspicious money laundering and collects information considered relevant to money laundering activities, the financing of terrorism and activities related to sanctions evasion. FINTRAC is one of thirteen federal government departments and agencies that play a role in Canada’s anti-money laundering and anti-terrorist financial regime. According to Sarah Paquet, the Director and CEO of FINTRAC, the significant money laundering threats facing Canada are drug trafficking, fraud, illegal gambling, corruption and third-party money laundering. (here) Transnational organized crime groups and professional money launderers are the most prominent money laundering threat actors in the Canadian context. (here) In 2023-24 drug offences, fraud and tax evasion comprised 53% of the predicate offences related to case disclosures.

2. What is Money Laundering?

Money laundering is the process of concealing the origin of illicit money to make it appear that it came from a legitimate source. The United Nations Office on Drugs and Crime has defined money laundering as “the processing of criminal proceeds to disguise their illegal origin.” (here) Money laundering has also been addressed in Art. 3(1)(b)(i) of the United Nations Convention Against Illicit Traffic In Narcotic Drugs and Psychotropic Substances 1988 as “the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade […] legal consequences […].” (here) The laundering process is relatively simple. It works by “finding a place to house the dirty money, leveraging performative bookkeeping to make it appear as if the money came from legitimate transactions and then returning the clean money for use in the financial system.” (here) The three stages are described as placement, layering and integration.

3. Some Money Laundering Techniques

The laundering of money can be achieved in a variety of ways and the growth of electronic banking has expanded the possibilities. Some techniques, more common than others, include the following.

• Smurfing: Financial institutions are required to report large transactions. Money launderers may attempt to get around reporting requirements by a process called “smurfing” which is the technique of dividing a large amount of illicit funds into smaller amounts that are then deposited into separate bank accounts.
• Cash Intensive Businesses: Dirty money may be co-mingled with legitimate funds in cash based businesses such as restaurants, car washes and laundromats. If a laundromat, for example, earns $20,000 in a month, it might report earnings of $25,000 instead and include $5,000 of dirty money in its bank deposit.
• Virtual Currencies: Digital currencies like Bitcoin may be used to transfer money anonymously across borders. Crypto wallets or peer-to-peer exchanges may also be used to obscure the origin of illicit funds.
• Real Estate: Money launderers might funnel dirty money into flipping a real estate deal by buying property with illicit funds and then selling it to recover clean cash.
• Trade-Based Laundering: Money launderers may misrepresent the value of transactions to conceal dirty money by over-invoicing or under-invoicing for goods and services.

Large financial institutions are frequently duped by money launderers. All that is required is a bank that defaults in its reporting procedures which enables the deposit of large sums without triggering scrutiny by regulators. Prestigious financial institutions such as Danske Bank and HSBC Holdings have been convicted of enabling money laundering by failing to properly report large cash deposits. The scandal involving Danske, the largest bank in Denmark, emerged in 2017-18 when it was revealed that around €800 billion of suspicious transactions flowed through its branch in Estonia between 2007-15. HSBC, based in London, England, and reported to be the seventh largest bank in the world by total assets, was fined $1.9 billion in 2012 for serving as a conduit for Mexican drug cartels. More recently, in 2024, TD Bank became the first bank in U.S. history to plead guilty to conspiracy to commit money laundering and agreed to pay a fine of $3 billion for failing to maintain an anti-money laundering program that I discussed in a previous post to On The Wire. (here)

4. Principles of Canadian Law

Money laundering in Canada is prohibited by s. 462.31 of the Criminal Code which I will condense as the use of any property or proceeds of any property with intent to conceal or convert that property, knowing or believing that, or being reckless whether that property or proceeds was obtained by the commission of a “designated” offence which includes an indictable offence other than one prescribed by regulation or a conspiracy to commit an indictable offence. The actus reus of money laundering (the prohibited act) basically involves the proscribed actions by a person who has possession of the subject property. The mens rea (intent or mental element) has two components: (a) the specific intent to conceal or convert; and, (b) the knowledge component which involves knowing or believing or being reckless whether the subject property was obtained by the commission of an indictable offence. It is the mental element that has been the subject of important litigation. Significantly, the text does not contain the element “with intent to launder” or “with intent to conceal or launder”.

The precursor to the present definition only contained the word “knowing”. In United States of America v. Dynar the Supreme Court of Canada held that knowledge is not entirely subjective. Knowledge, for legal purposes, has two components – truth and belief – and of these, only belief is mental or subjective. Accordingly, it was held that truth, which is a state of affairs in the external world that does not vary with the intention of the accused, cannot be part of the mens rea. Knowledge as such is not, then, the mens rea of the money laundering offence. Belief is. (here) The ruling in Dynar was controlling in R. v. Tejani where the Ontario Court of Appeal considered the same wording in the former Narcotic Control Act holding that “the mens rea of money laundering is belief not knowledge.” Parliament subsequently amended the section twice to include the elements of belief and recklessness. The state only has to show that a defendant believed the money was derived from, for example, drug trafficking. The state does not have to prove that a defendant’s belief was correct. (here) It is a wide net.

5. Conclusion

I will leave you with some numbers. The United Nations Office on Drugs and Crime estimated that, in 2024, the worldwide volume of laundered money was 2-5% of global GDP, or $800 billion to $2 trillion. Due to the clandestine nature of money laundering, however, it is difficult to accurately estimate the total amount of money that goes through the laundering cycle. The U.S. Treasury Department has estimated that at least $300 billion is laundered annually in the United States. The National Crime Agency in Britain has reported that over £100 billion is laundered annually and in Germany the annual figure is estimated to be €100 billion. In Canada, the value of all transactions in 2023-24 that FINTRAC had reasonable grounds to suspect were relevant to money laundering, terrorist financing or threats to the security of Canada was $44 billion. And, with the surge in digital asserts, cryptocurrency is increasingly being used for off-chain crimes such as fraud and drug trafficking because cryptocurrency is “cross-border, virtually instant, and generally inexpensive to transact.” (here)