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Speaking Notes for Sarah Paquet, Director and Chief Executive Officer, Financial Transactions and Reports Analysis Centre of Canada to the Association of Certified Fraud Examiners Canadian Conference

From: Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)


Virtual keynote
November 8-9, 2021

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Good morning. I'd like to thank the Association of Certified Fraud Examiners for the opportunity to speak with you this morning.

As the world's largest anti-fraud organization and leading provider of anti-fraud training and education, the Association plays a key role in helping to prevent, detect and deter fraud here in Canada and around the world.

Before I begin, I want to acknowledge that I'm speaking to you from the traditional and unceded territory of the Algonquin Anishinaabeg People.

I'm really pleased to have the chance to address the Certified Fraud Examiner community – this gathering is an excellent opportunity to exchange knowledge and best practices, and to build on the partnerships that are so critical to combatting fraud and financial crime more broadly.

Today, I want to provide a brief overview of Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime – and FINTRAC's unique mandate within it.

I'll focus, in particular, on our role in helping to combat fraud. Regardless of the type of fraud – be it mass marketing, mortgage, romance or another type – these illicit activities have one thing in common: they're all about generating profit.

I'll also share with you some of the pandemic-related fraud that we've seen in the reporting that we receive from business subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

And, finally, I'll discuss the results that we are achieving through Project Chameleon, our innovative public-private partnership that brings together Canada's financial institutions, law enforcement and FINTRAC to combat romance fraud by following the money.

As you will see, financial intelligence is a very powerful tool in detecting and targeting these types of profit-driven crimes.

A former Director of the FBI once said that the "fraudster's greatest liability is the certainty that the fraud is too clever to be detected."

Working together, in partnership, we can ensure that we're one step ahead of even the most clever fraudsters – and that we can protect our people, our businesses and our financial system.

FINTRAC's Role within Canada's AML/ATF Regime

With exactly this in mind, the Government of Canada has established a robust and comprehensive regime to combat money laundering and terrorist activity financing – crimes that threaten the safety of Canadians and the security of communities across the country and around the world.

Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime is led by the Department of Finance Canada and consists of 13 federal departments and agencies, including the RCMP, FINTRAC, the Canada Border Services Agency, the Canada Revenue Agency, CSIS and the Public Prosecution Service of Canada.

Provincial and municipal law enforcement bodies and provincial financial sector and other regulators are also involved in combating these illicit activities.

Within the private sector, there are more than 24,000 businesses – including accountants, banks, casinos, money services businesses, real estate, securities dealers and others – that play a critical frontline role in Canada's efforts to prevent and detect money laundering and terrorist financing.

The Financial Action Task Force, which sets international anti-money laundering and anti-terrorist financing standards, recently recognized Canada's efforts to strengthen our comprehensive Regime and upgraded our assessment ratings.

For our part, as Canada's anti-money laundering and anti-terrorism financing regulator, FINTRAC is responsible for ensuring the compliance of businesses with requirements under the Act, including to establish a compliance program, identify clients, keep records and report certain types of financial transactions such as international electronic funds transfers and suspicious transactions.

Compliance with the broader legislative and regulatory obligations provides important measures for deterring criminals and terrorists from operating within Canada's legitimate economy.

The simple act of identifying clients when they're conducting a transaction or opening an account is a measure of deterrence as it eliminates the anonymity of the transaction. Furthermore, because the transaction is documented, it can be traced later, if necessary, for evidentiary purposes.

Compliance with the legislation also ensures that we, as Canada's financial intelligence unit, receive the information that we need to generate financial intelligence for Canada's law enforcement and national security agencies to act upon. This includes information on potential criminals and criminal networks that may not have been on any radar.

With the information that we received from Canadian businesses, we were able to provide more than 2,000 disclosures of actionable financial intelligence last year in support of criminal investigations related to money laundering, terrorist activity financing and threats to the security of Canada.

This added to the more than 21,000 financial intelligence disclosures that FINTRAC has generated since becoming operational in 2001.

Often based on hundreds or even thousands of financial transactions, our disclosures include financial information on an individual or a network of individuals or entities suspected of laundering money. They can make links between individuals and businesses that have not been identified in an investigation, and can help investigators refine the scope of their cases or shift their sights to different targets. They are also used by law enforcement to put together affidavits to obtain search warrants and production orders.

We often provide our disclosures to a number of agencies simultaneously, when there is authorization to do so. The ability to provide multiple disclosure packages means that we can help Canada's law enforcement and national security agencies connect criminal activities across a number of jurisdictions by following the money.

These agencies continue to seek our financial intelligence in record numbers. We received more than 2,100 voluntary information records from Canada's law enforcement and national security agencies last year. These records contain information on alleged criminals and terrorist financiers and are often the starting point for our analysis and the financial intelligence that we are able to generate and disclose.

Many of the recipients of our disclosures have told us that they will not start a major project-level investigation without seeking out our financial intelligence.

Last year, our financial intelligence contributed to 376 major, resource-intensive investigations, and hundreds of other individual investigations at the municipal, provincial and federal levels across the country.

For example, the RCMP Greater Toronto Area Financial Crime Section recognized FINTRAC's contribution last year to Project Octavia, which led to the arrest of two people for alleged fraud and money laundering in connection to various transnational telephone scams, including the Canada Revenue Agency tax scam, the bank investigator scam and the tech support scam.

Between 2014 and 2019, the CRA tax scam resulted in victim losses of nearly $17 million. And with the bank investigator and tech support scams, victims reported additional losses of over $30 million.

It's not difficult to recognize the tremendous harm done to individuals who lost thousands of dollars – and potentially their life savings – to these fraudulent schemes.

Combatting Money Laundering related to Fraud

Of the financial intelligence disclosures that we provided to law enforcement and national security agencies last year, 35% – or more than 700 – were related to money laundering where the origins of the suspected criminal proceeds were linked to fraud.

This is fairly consistent year-over-year as fraud and drug offences generally rank either first or second in terms of the most common predicate offences to money laundering.

Canada's 2015 Assessment of Inherent Risks of Money Laundering and Terrorist Financing identified four types of fraud – mass marketing fraud, capital markets fraud, commercial fraud and mortgage fraud – as being the very highest money laundering threats in the country.

Mass marketing fraud is recognized as being very prevalent in Canada – and the scams associated with it are growing in both frequency and sophistication. Based mainly in Toronto, Montreal, Vancouver, Edmonton and Calgary, the most common mass marketing fraud includes service, prize, employment and extortion scams. The majority of mass marketing fraud connected to Canada is carried out by organized crime groups.

This past March, the Toronto Police Service acknowledged FINTRAC's assistance in a year-long employment fraud investigation called Project Drop, which led to the execution of search warrants, the arrest of four people, and the seizure of cheque forging materials, electronic devices and SIM cards that were allegedly used to send out mass marketing texts advertising employment opportunities for couriers to deliver loans for a small Toronto-based lending company.

Victims were instructed to pick up and deposit what they thought were legitimate business cheques, then pay funds to other individuals in cash, Bitcoin or e-transfer. All of the cheques were eventually discovered to be well-made forgeries.

Securities fraud is also prevalent in Canada. This includes investment misrepresentation and other forms of capital markets fraud-related misconduct, such as illegal insider trading and market manipulation. More than a quarter of Canadians believe that they have been approached with a possible fraudulent investment opportunity.

Most of the large-scale securities frauds in Canada have been undertaken by criminalized professionals, who have professional credentials and financial expertise. Capital markets fraud – especially the larger, more elaborate national and international schemes such as Ponzi schemes – requires significant knowledge and expertise and access to a network of witting or unwitting facilitators to help perpetrate the fraud.

In September 2020, the Ontario Provincial Police acknowledged FINTRAC's contribution to an investigation into a complex Ponzi scheme, where the victims were led to believe that they would receive a royalty on each purchase made via their 'point of sale' terminals.

More than 500 known victims suffered losses totalling more than $24-million since the scheme originated in 2012 in Barrie, Ontario, while the accused is believed to have collected more than $56-million from victims who believed they were investing in a legitimate investment. Charges included fraud over $5,000 and laundering the proceeds of crime.

Commercial fraud is often undertaken by transnational organized crime groups and networks that are generally sophisticated and capable, with the knowledge, expertise and international relationships to manipulate multiple trade chains and trade financing vehicles, often operating under the cover of front and/or legitimate companies.

Mortgage fraud also occurs across Canada, but is most prevalent in large urban areas in Quebec, Ontario, Alberta and British Columbia. Mortgage fraud schemes are often undertaken to facilitate another criminal activity or directly for profit. Organized crime groups conduct the vast majority of mortgage fraud in Canada and often rely on the assistance of witting or unwitting professionals in the real estate sector, including agents, brokers, appraisers and lawyers.

Last year, the Ontario Provincial Police recognized FINTRAC's contribution to Project Southam, a 15-month investigation into Greater Toronto Area-based organized crime groups that have allegedly been importing high volumes of cocaine into Canada for the purpose of trafficking, as well as participating in other criminal activities, including mortgage fraud.

Through this investigation, police seized, among other things, 92 kilograms of cocaine; 21 litres of GHB; a handgun; more than $370,000 in Canadian currency; and a large amount of cryptocurrency. Twenty-two people were charged with 139 offences, including the laundering of proceeds of crime.

For organized crime groups, it's all about the money and diversification of their illicit activities is both common and critical to their ability to generate profits.

Fraud related to the COVID-19 Global Pandemic

FINTRAC's financial intelligence has been more important than ever as criminals have sought to take advantage of the pandemic to enrich themselves and advance their illicit enterprises.

Last year, we produced more than 320 disclosures of actionable financial intelligence related to the laundering of proceeds stemming from fraud, corruption and other financial crimes directly associated with the crisis.

From the reporting that we've received from Canadian businesses and through the use of research and analytical techniques, we have also generated valuable strategic financial intelligence related to the global pandemic for Canada's law enforcement and intelligence community, regime partners and policy decision-makers.

In the early months of the pandemic, FINTRAC published a Special Bulletin, COVID-19: Trends in Money Laundering and Fraud, to assist businesses, partners and stakeholders in identifying the increased money laundering risks associated with the crisis.

Based on the suspicious transaction reporting from businesses and the Canadian Anti-Fraud Centre's analysis of fraud reporting, the Special Bulletin identified new and expanded areas for criminals and organized crime groups to engage in – and profit from – a range of fraud-related crimes.

For example, the pandemic created new opportunities for criminals in the virtual currency space in Canada and internationally. Counterfeiters have focused on selling fake COVID-19 home test kits and pharmaceuticals, and offering unconfirmed and often false advice on the treatment of COVID-19 on the Internet and the darknet, with transactions conducted using virtual currencies.

The increased use of online services during the pandemic has also enhanced the risk of cybercrime. Cyber criminals are exploiting the situation to target individuals, businesses and entities with COVID-19 variants of popular phishing and blackmail scams, which are increasingly directing victims to send virtual currency for donations and ransom payments.

Of the merchandise scams reported to the Canadian Anti-Fraud Centre last year, 80% were related to individuals buying facemasks and not receiving the product or receiving an inferior or counterfeit product – or vendors selling all types of personal protective equipment and people not receiving anything at all or receiving inferior or counterfeit goods.

Common phishing scams have included phone calls, emails and text messages from criminals pretending to be linked to Employment Insurance benefits, the Canada Emergency Response Benefit (the CERB), the Public Health Agency of Canada or other businesses.

Victims were often directed to click on a link or open an attachment, which contained malware or directed them to spoofed websites soliciting personal and financial information. The majority of the reports submitted to the Canadian Anti-Fraud Centre tied to identity fraud related to the victim's personal information being used to apply for the CERB payments.

Throughout the global pandemic, FINTRAC has also produced classified strategic financial intelligence for Canada's law enforcement and national security agencies and select federal departments to inform them of the various types of fraud-related activity that was being directed at the federal government's benefits programs – particularly the CERB and the Canada Emergency Business Account.

This strategic financial intelligence is based on an analysis of thousands of suspicious transaction reports that we received from businesses throughout the global pandemic. While I cannot go into too much detail in an open forum such as this, I can give you a sense of what we're seeing in relation to the targeting of these pandemic-related programs.

At the individual level, we've observed that fraud has generally taken the form of individuals who did not meet the CERB eligibility requirements applying for and receiving these benefits. These fraudulent applicants included individuals who were unemployed prior to the COVID-19 outbreak; individuals who were still fully employed and receiving income; and individuals who did not reside in Canada and were reported to be living in jurisdictions of concern.

Those attempting to scam the CERB program appeared to be doing so by making multiple online applications for benefits using stolen personal information and social insurance numbers. The identities of individuals both eligible and ineligible for CERB payments had been stolen. The scammers then often purchased a single-load prepaid card and upgraded it to a loadable card on which they arranged for funds to be directly deposited.

Through the suspicious transaction reporting, we also observed that criminal organizations appeared to operate in the same manner as the individual scammers – making numerous applications using multiple stolen identities. They differed in that they tended to hire groups of individuals to cash the benefit cheques at various locations.

Fraud-related activity targeting the Canada Emergency Response Benefit and the Canada Emergency Business Account has been low when compared to the many millions of Canadians who received much-needed support through these programs.

But it has shown again just how committed criminals are to exploit any opportunity to make money – regardless of the harm done to average Canadians and Canadian businesses.

Results through Public-Private Sector Partnerships

It's only by working together – across Canada's anti-money laundering regime and with key stakeholders, including those of you here today – that we can effectively protect our people, our businesses and our financial system against fraud.

The best example of the extensive collaboration that currently takes place within Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime is our innovative and successful public-private partnerships.

These partnerships are aimed at more effectively combatting online child sexual exploitation, money laundering in British Columbia and across Canada, human trafficking in the sex trade, the trafficking of illicit fentanyl and romance fraud.

By working with Canadian businesses and law enforcement agencies across Canada, we've been increasingly effective at following the money to identify potential subjects, uncovering broader financial connections and providing intelligence to advance national project-level investigations.

One of our earliest public-private partnerships was Project Chameleon. Launched in 2017, it focuses on the laundering of criminal proceeds stemming from romance fraud, a despicable activity that has cost many seniors and other vulnerable Canadians their life savings.

Romance fraud generally involves criminals expressing false romantic intentions toward victims to gain and then take advantage of their trust and affection in order to access their cash, bank accounts and credit cards. Under the leadership of HSBC, Project Chameleon has mobilized businesses, FINTRAC and law enforcement with the goal of identifying the criminals and helping to protect victims and their money.

In 2018–19, in consultation with HSBC and the Canadian Anti-Fraud Centre, FINTRAC published an Operational Alert, which included indicators of money laundering associated with romance fraud, to assist Canadian businesses in identifying this illicit activity and reporting suspicious transactions.

With the increased reporting that we've received, FINTRAC has provided nearly 400 disclosures of actionable financial intelligence to law enforcement to help combat romance fraud since the launch of Project Chameleon.

In many instances, we've been able to link criminals who were transacting with numerous victims from reports received from different financial institutions. The suspicious transaction reports that FINTRAC receives from businesses also help to build a clearer view of romance fraud networks that are operating in Canada and abroad. I'll provide you with two examples.

In September 2020, the Sûreté du Québec recognized our assistance in an investigation that led to the dismantling of a vast romance fraud network that collected more than $2 million from approximately 50 victims, many of them senior citizens, over a number of years. Twelve persons were charged with fraud and concealment, including the head of the network and two accomplices.

In recognizing FINTRAC's contribution to Project Konclave in 2019, the RCMP singled out the Centre's 9 disclosure packages as being extremely useful from an investigative standpoint and in allowing them to discover well over 70 individuals who were unaware that they were the victims of romance fraud – and who would likely have faced financial ruin.

Financial intelligence is a very powerful tool. By following the money through Project Chameleon, we are achieving real and meaningful results in detecting and targeting the criminals engaged in romance fraud and in protecting some of the most vulnerable members of our society.

A Call to Action

With the global pandemic, we've seen that we are going to continue to confront increasingly sophisticated fraud schemes and ever-opportunistic criminals intent on making a profit – often at the expense of Canadians and Canadian businesses.

We have to be equally committed to following the money to detect this illicit activity and to target the criminals and organized crime groups engaging in it. But we can't do this alone – we need your help.

Those of you working for businesses subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, we need you to continue to fulfill your obligations – particularly as it relates to submitting suspicious transaction reporting to FINTRAC. This reporting is crucial – it is the foundation of the financial intelligence that we are able to generate for Canada's law enforcement and national security agencies, as well as our counterparts internationally.

Those of you representing law enforcement, we need you to keep submitting voluntary information records to FINTRAC. As I mentioned, these records contain information on alleged criminals and terrorist financiers and are often the starting point for our analysis and the financial intelligence that we are able to generate and disclose.

For those of you who fall outside of Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime but, through your work as Certified Fraud Examiners, want to provide suspicions of money laundering related to fraud, you can report this through a web portal on our Internet site. We will treat it the same way as if it came from law enforcement.

We all have a stake in, and role to play, in combatting fraud and protecting our people, our businesses and our financial system. Your help – your information – is critical to the financial intelligence that we are able to generate for law enforcement.

Let's work together, in partnership, to stay one step ahead of the fraudsters.

Thank you for your time this morning and I wish you a productive conference.

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