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SGA - Underground Banking through Unregistered Money Services Businesses

SGA - Underground Banking through Unregistered Money Services Businesses (Transcript)

FINTRAC has developed a new strategic intelligence product, the Sectoral and Geographic Advisory, which identifies sectors or geographic areas more at risk from specific money laundering or terrorist activity financing methods.

Sectoral and Geographic Advisories also identify trends and patterns specific to particular regions and industries, which can help in discerning suspicious financial transactions that could be reported to FINTRAC in support of money laundering and terrorist activity financing investigations.

The first Sectoral and Geographic Advisory focuses on the money laundering and terrorist activity financing risks associated with underground banking through unregistered money services businesses, particularly those suspected of operating in Metro Vancouver and the Greater Toronto Area and, to a lesser extent, the Calgary-Edmonton Corridor.

Underground banking is a form of informal value transfer system, or IVTS, involving the transfer of value between parties in different locations without moving the object of value itself.

An IVTS operator can take funds from a client in one country and arrange for another IVTS operator to disperse the equivalent value to the intended recipient located in another jurisdiction. Canada regulates IVTS activity.

Money services businesses must register with FINTRAC to legally provide these services. Operating an unregistered money services business is a violation and an offence under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

IVTS can be essential in providing diaspora community members and expatriate workers with an accessible way to send and receive funds overseas. IVTS service providers often have geographic, cultural or ethnic ties to the communities they serve and may be trusted members within those communities.

The versatility and global reach of these services allow value to be transferred in and out of regions with unstable or inaccessible financial services and systems.

Individuals and businesses, including those in diaspora communities, use these services for legitimate day-to-day transfers, which accounts for a significant portion of IVTS transactions.

However, the convenience and accessibility of underground banking systems make them attractive to criminals.

FINTRAC's Sectoral and Geographic Advisory was developed to target these illegal activities in underground banking, which—in effect—contributes to the detection, prevention and deterrence of money laundering and terrorist activity financing.

For example, the proceeds of crime generated by organized crime groups result in large supplies of funds that can't easily be put into banking system, or repatriated to drug source and transit countries.

Foreign currency controls that restrict access to cash between jurisdictions create demand for this supply of illicit cash.

Money launderers may capitalize on this demand to launder criminal proceeds, while facilitating remittances, capital flight, and sanctions evasion. These funds can feed into underground banking systems.

When you transfer money through underground banking, you run a greater risk of facilitating the laundering of dirty money for criminals. The limited visibility and lack of transparency associated with underground banking pose money laundering and terrorist activity financing risks.

Consumers transferring funds to and from different jurisdictions can protect themselves by dealing only with financial institutions and reputable registered money services businesses.

Consumers should immediately report any unusual transactions to their financial institution.

To learn more, please see FINTRAC's Sectoral and Geographic Advisory on Underground Banking through Unregistered Money Services Businesses.

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