Money Laundering and Terrorist Financing Trends in FINTRAC Cases Disclosed Between 2007 and 2011

Common Characteristics of Suspected ML Fraud Cases

Typical investment fraud scheme Footnote 1

Richard Jr., age 30, inherited his father’s empire while Richard Sr., age 60, still had controlling interest. The two individuals approached elderly individuals in their Canadian community. They presented them with their business proposal to develop land nearby, for which they were seeking investment funding. They promised a 30% return on the initial investment once the development would be finished. The community trusted them as they were already established, successful businessmen and had strong ties to the greater community. Through the assistance of colluding investment advisors, a network of offshore shell companies was established. The two men, aided by their wives (who also held directorships in some of the companies), took the investors’ money and used multiple business and personal bank accounts to order numerous EFTs for the benefit of individuals and entities located in the Caribbean as well as the newly established companies in offshore locations. Some of those offshore EFTs were used to purchase large luxury assets in those jurisdictions. EFTs worth millions of dollars were also sent to law firms in multiple countries through the company accounts.

Eventually, investors started asking questions; they demanded the return of their initial investments, but the family had already packed up and relocated to another country far away. Contrary to many other types of crimes, investment fraud funds were already in the financial system and transferred electronically by victims to the perpetrators of the scheme. There were no STRs reported on this family or their businesses, as the companies under them were so diverse that the number of EFTs and the beneficiaries to which they were sending them could all be justified as normal business activity. There were many EFTs involved and hardly any LCTRs reported.

Characteristics of individuals conducting ML activities related to fraud

Based on a review of a sample of 2010-11 ML case disclosures related to suspected fraud offences, the following characteristics were noted:

ML methods and techniques observed in suspected fraud-related schemes

Use of multiple institutions

Use of credit cards

Use of shell/front companies

Use of electronic funds transfers

Personal bank accounts

Nominees

Use of prepaid cards

Use of MSBs

Types of businesses used in suspected fraud-related cases

Cases involving fraud are more commonly associated with businesses compared to other predicate offences, particularly when it involves investment/securities fraud. For example, businesses act as conduits to receive investments from victims which can then be easily transferred to accounts held in offshore banking centres. Other types of fraud, such as debit/credit card fraud, can utilize the services of collusive merchants to perpetrate the fraud. Throughout the last four years, 84% of fraud-related cases involved at least one business. Examples of businesses and sectors observed in fraud-related cases were:

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Return to footnote 1 The details of the scheme represented here are not taken from one particular case disclosure; rather, they are based on observations made in a number of similar cases.

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