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:
- Fraudsters are typically middle-aged males, but are on average 10 years older than individuals disclosed in drug and TF cases
- Females are typically related through marriage or other familial ties and are suspected to work in partnership to facilitate the fraud
- The involvement of an entire family is more commonly noted in investment/securities fraud cases than in other types of cases
- Individuals perpetrating investment fraud often hold ownership or senior management positions within a number of private and/or public companies, sometimes holding up to a dozen positions at one time. These companies are commonly related to investment/financing/consulting services
- Individuals suspected of taking part in other types of fraud hold various employment positions which do not fit a single profile. In reviewed cases, the majority of individuals under suspicion owned their own business. Where this was not the case, individuals mainly held an office job or were employees of businesses under suspicion.
ML methods and techniques observed in suspected fraud-related schemes
Use of multiple institutions
- Individuals used the proceeds of fraud to purchase a bank draft, which was deposited in another financial institution, then followed by an EFT to another individual
- Individuals deposited cheques from a business account at one financial institution to a business account at another institution, then offset the money by depositing cheques into personal accounts, then purchased bank drafts and drew personal cheques payable to the first business account at a different institution.
Use of credit cards
- Individuals purchased large amounts of goods on credit cards and paid it off with fraudulent funds on a regular basis.
Use of shell/front companies
- Individuals registered shell companies in foreign jurisdictions and sent the proceeds of fraud to the foreign accounts of these companies
- Individuals used asset management and securities firms as a front to lure investors. Once the investors’ money was acquired, bank drafts were issued to nominees or individuals
- Several investment companies located offshore were used in the process of moving money from one country to another to create a complex trail
- Individuals used multiple front companies which shared the same address.
Use of electronic funds transfers
- Individuals frequently used EFTs (EFTs appear to be used four times more often in fraud cases than in drug cases)
- Individuals moved proceeds of fraud to specific bank secrecy and tax haven countries, and took up residence there
- EFTs were received in a company account, then were immediately wired to a personal account
- Complicit investment advisors or lawyers established offshore accounts and businesses and used EFTs to send funds to multiple offshore locations. Money was moved between these accounts and new offshore companies were created
- EFTs were ordered to 10 or more countries, with the ordering business registered in a high-risk jurisdiction
- Individuals used foreign pass-through accounts: money sent by EFT from Canada to a secondary country, which was then immediately sent by EFT to a third country
- Some investor victims sent EFTs directly to offshore accounts held by the fraudsters.
Personal bank accounts
- Excessive activity was observed in a short period of time with multiple unrelated third parties depositing funds.
- Owners of companies were only nominees, and financial transactions were really conducted by suspected criminals.
Use of prepaid cards
- Investors ultimately defrauded in a Ponzi scheme received untraditional payouts through prepaid cards.
Use of MSBs
- MSBs were used to send and receive funds to/from offshore companies and Canadian companies, where this would have normally been a direct payment at a financial institution between the company bank accounts. The use of MSBs redirected the money trail to avoid linking the two companies together.
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:
- Holding companies
- Financial services companies
- Investment/securities companies
- Real estate development
- Consulting firms
- Energy sector
- Precious metals
- Life insurance
- Technology (e.g. aviation, computers, etc.)
- Medical supplies
- Food and entertainment
- Auto industry
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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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