Financial intelligence agency tracks laundered cash from black market cannabis sales

Canada’s Financial Intelligence Agency says a wide range of companies – from grocery wholesalers to electronic equipment repair services – are being used to conceal the proceeds of illegal cannabis operations.

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

Canada legalized the recreational use of cannabis four years ago, establishing a legal framework for the manufacture, sale and possession of the drug.

However, 37 percent of respondents to the federal government’s 2021 Cannabis Survey said they obtained some or all of their weed from illegal or unlicensed sources.

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

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

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

As a result, whether Canadians know it or not, they help fund other criminal activities in their communities “that make themselves and their neighbors unsafe about where they want to live and how they want to live,” according to MacKillop said.

Fintrac worked with law enforcement and Canada’s major banks to develop the operational alert to advance Project Legion. The project, a public-private partnership led by Toronto-Dominion Bank, aims to raise awareness of the harms associated with the shady cannabis trade and improve the detection of money laundering.

Fintrac attempts to uncover evidence of money laundering and terrorist financing by combing through suspicious transaction reports from more than 24,000 companies – from banks and money transfer services to real estate agents and casinos. In turn, she forwards the resulting financial information to the police and security authorities.

Front companies used to launder #IllicitCannabis money: Secret Service. #CDNPoli #Fintrac #cannabis

Fintrac also uses analytical techniques to pinpoint emerging trends and tactics.

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The agency analyzed a sample of approximately 5,000 suspicious transaction reports received from March 2020 to March 2021 related to illegal cannabis activities. While most of these concerned the alleged sale and distribution of cannabis from unlicensed online pharmacies, some were linked to the possible production of illegal weed.

The front companies most commonly used to launder proceeds included e-commerce companies in the beauty and wellness industries, food and beverage wholesalers, automotive companies, electronics repair services, construction companies, and companies in marketing, advertising, and consulting.

“Often there have been little to no business-related transactions in the accounts of these front companies, which belong to suspected traffickers and producers of illegal cannabis, their employees and other members of their networks,” the operational alert said.

“Many of these individuals owned more than one business and were transferring funds between their business and personal accounts and those of their employees for no clear purpose.”

The analysis revealed several indicators, or red flags, that could point to laundering of cannabis proceeds. Fintrac warns that a single indicator may not initially appear suspicious, but may provide a glimpse of other facts, contextual elements, or additional indicators that may reinforce concerns.

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Indicators associated with growing, processing, and preparing illicit marijuana included large purchases from hydroponic dealers and unusual incidental payment, such as a

Among the indicators associated with unlicensed online cannabis dispensaries:

— The client receives a large number of email money transfers from seemingly unrelated third parties;

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

— numerous purchases from packing, shipping or postal services; and

— Wholesale purchase of moisture-controlled packaging from specialist suppliers.

In some cases, networks of numbered companies operated possible pass-through accounts for an unlicensed pharmacy, the alert said. Although these companies were listed in vastly different industries, they were linked by financial flows, shared contact information for electronic funds transfers, or the same authorized signatories.

The COVID-19 pandemic has accelerated the phenomenon to some degree because “everyone was buying everything online when the stores were closed,” MacKillop said. “And this was just another way for organized crime to take advantage of this and use the online presence to sell their illegal cannabis.”

This report from The Canadian Press was first published on September 28, 2022.