The scope and intensity of money laundering in British Columbia has been “unprecedented” over the past decade, criminologist Stephen Schneider told the Cullen Commission of Inquiry into Money Laundering over a two-day examination of his 171-page analysis of the subject.
The Halifax-based Saint Mary’s University criminology professor provided Commissioner Austin Cullen with a broad and basic overview of money laundering in Canada based on his review of literature, including media reports, academic research and official sources.
Schneider prefaced his assertions at times, noting money laundering is not new and law enforcement authorities may inflate the matter for their own interests.
However, “certainly the intensity and scope of the laundering and the amount of drug money in Vancouver over the past 10 years is unprecedented.
“I’ve never seen anything in this scope and in this period of time concentrated locally….if the evidence is true.”
While much has been said and reported on about drug money being laundered through Metro Vancouver casinos and B.C. real estate and aided by China-based money service businesses — known as the “Vancouver Model” — Schneider reminded the commission that the bulk of criminal proceeds are still being moved through established Canadian financial institutions.
And although not all crimes create cash — noting stock market fraud requires money launderers to complete the job — he said cash is still the predominant vessel of money launderers and drugs remain a primary source of funds that needs to be obfuscated by criminals via tried-and-true techniques such as placement, layering and integration in the legitimate economy.
“Even the most sophisticated money launderers still have to handle cash and pack cash in suitcases,” said Schneider.
But, noted Schneider, online gaming, digital currencies and trade-based money laundering are some of the emerging vehicles for money launderers, particularly as it relates to moving money across physical borders.
“Banks have been seen as attractive vehicles for international money laundering” but “if you don’t have the cash to start with, that makes the laundering so much more efficient,” said Schneider.
Schneider said there are no case studies yet to prove the emerging body of literature surmising it may be the case that online games are vulnerable to money laundering.
But online games transcend borders and are venues where people (gamers) can exchange goods (game credits) for money. Money launderers can conspire to buy game credits and sell them to other gamers around the world.
“Any kind of virtual currency is vulnerable to money laundering so once a value is placed on any object, whether it’s virtual or real, criminals are going to find a way to use it for fraud or money laundering,” said Schneider.
His analysis states how in recent years, “cryptocurrency has been in the spotlight due to its status as an alternative to cash and other forms of payment. It has also faced scrutiny for its potential to help expedite illegal financial transactions and money laundering specifically.”
A more tangible emerging trend is trade-based money laundering (TBML), as highlighted by anti-money laundering experts, according to Schneider.
TBML uses commercial trade practices, such as falsification of invoicing. For instance, a foreign company may export cheap products for an inflated return payment from the importer; or it may export regular products but under-invoice the importer. Or, exporters could over or under state the amount of goods being transferred. Or, they may falsely describe the quality or type of a good or service. It all depends on which way the money is going, noted Schneider. Transferring cash through money service businesses/money brokers makes up the differences.
“That’s really emerged as a key way to not only launder money internationally but also facilitate international drug purchases as well,” he said.
Schneider’s two-day presentation touched on other subjects the commission is to explore in more full detail this fall, as it relates to allegations and problems identified in B.C. specifically.
Whereas the Vancouver Model sees drug money from Vancouver streets washed through casinos and real estate by having wealthy Chinese people purchase the cash through transnational money service businesses (to avoid capital export restrictions by the People’s Republic of China), Schneider acknowledged there is some debate as to whether the source of funds from China is criminal — a key tenet of money laundering.
Some money from China may be legitimate while some may be sourced from corruption and outright crime, he said. “You can argue whether capital flight has been laundered in and of itself based on semantics of the source.”
More so, “the question is whether the capital flight from China is contributing to further crime,” which it is, noted Schneider.
Schneider said financial, corporate and legal institutions play a critical role for organized crime.
“Professionals like lawyers are certainly seen as a legitimate asset in laundering money either through the formal or informal economy,” he said.
The commission will explore the role lawyers play in setting up trusts to move money or other assets, such as shares. The Law Society of B.C. generally asserts its own self-regulating internal controls are sufficient to combat money laundering while keeping the legal profession independent of overt state interference (by forcing lawyers to report suspicious transactions directly to government).
As it relates to Canada’s anti-money laundering reporting systems, Schneider also said, “Offshore financial haven countries have always been an issue with money laundering.”
Securities fraudsters use shells incorporated in offshore tax havens to layer their profits. Money and shares may be lent between companies.
“Criminally influenced companies exist to launder money,” said Schneider.
His analysis of the situation was based on media reports as well as official sources, which he acknowledged presents a knowledge gap, particularly since the scope of the crime in its entirety cannot be known.
On Tuesday, Great Canadian Gaming Corp. lawyer Mark Skwarok suggested media reports are only evidence of a reporter’s opinion, to which Schneider disagreed.
Lawyer Christine Mainville, representing former head of security of the B.C. Lottery Corporation Robert Kroeker, wanted to make clear that some of Schneider’s sources were media reports and that there may be a risk in media further sourcing Schneider’s analysis as fact.
At the start of Schneider’s testimony, commission counsel Brock Martland had clarified Schneider’s testimony was not to be relied upon as a primary source of facts, but rather as an analysis of facts and reports on the subject.
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