Money Laundering and Terrorist Financing Trends in FINTRAC Cases Disclosed Between 2007 and 2011
Common Characteristics of Suspected Terrorist Financing-Related Cases
Typical scheme Footnote 1
For years, the Smith family had supported the liberation efforts in their home country. They had an especially deep attachment to the cause as some of their close family members continued to live in that country and were affected by the ongoing conflict. They had become close with a number of individuals in their community who felt the same way and through this friendship the Smith family employed them in their family business. Together, they conspired to raise funds for this cause and attempted to develop ways in which to transfer funds to their country of origin without being detected. The following methods and techniques were employed:
- They took small amounts of cash under $10,000 to MSBs and ordered numerous EFTs to individuals, including relatives, in their country of origin
- Through business and personal accounts, they also ordered EFTs at banks in larger amounts which benefited individuals in their country of origin
- They would also order EFTs to bank accounts they held abroad and indicated they were for purposes such as real estate. However, the frequency and amounts of the EFTs were excessive
- They would deposit cash at banks and purchase multiple drafts payable to precious metal dealers, for the buying and selling of gold
- They physically couriered the cash in large amounts when travelling, without declaring it at the border
- Some of them were nervous when they came to the bank and appeared to be following instructions from someone who came into the branch with them.
By the time each individual conducted his own transactions over a period of time, the group had managed to transfer a significant amount of money indirectly (through nominees and businesses) and directly to the country where the terrorist group was active. Law enforcement informed FINTRAC of its suspicions and FINTRAC was able to identify numerous types of reports on these individuals. A number of STRs were submitted by multiple institutions, providing detailed information on the actions and suspicions relating to the individuals. STRs also provided information, based on keen observations from bank staff, that certain individuals were linked. A number of cross-border seizure reports were also received when individuals failed to declare having $10,000 or more when leaving Canada. Based on FINTRAC’s analysis of the financial transactions and other information received, FINTRAC reached reasonable grounds to suspect that the information would be relevant to the ongoing terrorist financing investigation.
Characteristics of individuals suspected of terrorist financing activities
Based on a review of a sample of suspected 2010-11 TF case disclosures, the following characteristics were noted:
- The majority of these individuals are middle-aged males. Individuals working in groups are within the same decade in age
- Females are related through marriage and familial ties and are suspected of facilitating terrorist financing
- Individuals are not generally connected through business relationships, in contrast to other crimes
- However, where there is a business involved, there are often familial ties between the individuals
- Individuals suspected of being involved in TF activity are more likely to own a small business.
- Other employment sectors include non-profit organizations; professions (such as accountant, doctor, dentist, engineer, etc.); service industry, including retail; trades (such as painter, flooring professional, etc.); and the food industry. In some instances, individuals were students.
Methods and techniques observed in cases involving suspected terrorist financing and money laundering
Structuring and smurfing
- Individuals conducted large cash deposits into bank accounts, but split it up so that deposits were under the $10,000 threshold to avoid reporting requirements
- Individuals ordered several EFTs on the same day, each under $10,000, to the benefit of the same individual when it would have been more economical and logical to send a single EFT
- Multiple unrelated individuals ordered EFTs (through MSBs) to the benefit of the same beneficiaries located in a high-risk foreign jurisdiction.
Precious metal dealers
- A group of individuals used smurfing methods to deposit large amounts of cash into the financial system followed by purchases of multiple drafts payable to precious metal dealers.
Use of nominees
- Individuals conducted transactions at financial institutions while receiving instructions from unknown individuals over the phone
- Two individuals arrived at the bank and only one conducted transactions while receiving instructions from the unidentified individual.
Commingling and the use of front companies
- Business bank accounts were used to conceal illicit funds
- Bank accounts were opened for front companies. When compared to similar types of business bank accounts, transactional activity was not in keeping with that type of business.
Use of credit cards to perpetrate “bust out schemes” in both TF and ML cases
- A change in cardholder activity occurred with an increase in purchases, followed by out-of-pattern cheque payments. Large purchases at retail stores were made which were abnormal for that type of business, such as gas stations, fast food restaurants, etc. Eventually, the cheque payments were returned but the cardholder quickly used the available credit before a hold was placed on the account
- This scheme often used collusive merchants (according to STR information) to facilitate false credit transactions, where goods or services were never exchanged
- In the instance where illicit cash was laundered, both layering and integration phases were observed when payments were made to the credit card account with proceeds of crime and then using the credit card to conduct purchases.
Use of electronic funds transfers
- Individuals ordered numerous but low-value EFTs under $1000 at MSBs to the same foreign beneficiary or various foreign individuals on a daily or weekly basis. Over time, the amounts increased to under $5000.
Lawyer’s trust account
- Large bank drafts were purchased and large cheques were issued to lawyers’ trust accounts. At times, there were multiple law firms receiving deposits.
- In the instance where terrorist financiers are laundering illicit cash, bank account funds were depleted for high value real estate purchases, which might have been part of the integration stage.
- Suspected complicit MSBs ordered large EFTs to the benefit of foreign MSBs in countries of concern
- Individuals appeared to be operating an MSB through a personal account with rapid movement of funds and unknown source and destination of funds.
- Large cheques were issued to companies that distributed prepaid cards, including telephone cards.
Use of various businesses and NPOs in suspected terrorist financing cases
The last decade has seen an urgent commitment to developing anti-money laundering and terrorist financing compliance regimes; in response, terrorists have evolved and found ways to adapt to these restrictions. The use of non-profit organizations (NPOs) and legitimate businesses quickly became exploited by these groups. However, in reviewing cases of the past four years, a notable decline in the use of businesses to move funds was observed, as shown in Table 4.
|% of cases involving businesses||82%||84%||56%||64%|
|% of cases involving NPOs||29%||25%||24%||20%|
Throughout the past four years, the following businesses and sectors have been commonly implicated in suspected terrorist financing cases:
- Non-profit organizations
- Food industry (i.e. butcher, food distributor, grocery store, etc.)
- Real estate
- Auto industry
- Shipping/freight companies
- Import/export companies
- Trades (i.e. painter, flooring professional, carpenter, etc.)
- Textile and trading companies
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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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