Cryptocurrency exchange companies in Canada are circumventing financial laws by offering to buy thousands of dollars in digital currency without proper registration or ID verification. And two international platforms contacted by the undercover reporter offered to deliver up to $1 million in cash to a single location in Montreal in exchange for cryptocurrency.
Canada has there was a problem for a long time With dirty money In its traditional economy, be it banking, casinos or real estate, the emergence of storefronts and online cryptocurrency services, as well as the lack of strict regulation and enforcement, are opening new frontiers for money laundering and illicit finance, experts say.
Cryptocurrencies are decentralized in nature, making it difficult for police and fraud victims to determine who is behind millions of transactions in digital currencies such as Bitcoin, Ethereum or Tether. But investigators can still track initial purchases of digital coins or instances where would-be scammers convert those coins into hard currency.
But the idea that anyone from drug cartels to would-be terrorist plotters could use a cryptocurrency-to-cash service to transfer cryptocurrency to a foreign, unregulated digital wallet and then anonymously collect tens of thousands of dollars in cash somewhere in town—or vice versa—removes control from the inputs and outputs of the blockchain.
“If you have this way of moving money with absolutely zero checks, you're facilitating an unlimited amount of crime,” said Richard Sanders, one of the world's leading experts on the types of cryptocurrency transactions that are emerging in Canada and around the world.
“I could not, even in my worst dreams, predict the reality we find ourselves in now.”
Nick Smart, chief intelligence officer at Crystal, which sells tools to help investigate crypto crimes, said the amount of money being pushed through cryptocurrency-to-cash exchange services is “absolutely staggering.” Last year alone, cryptocurrency-to-cash companies in Hong Kong processed at least US$2.5 billion in transactions, according to his team. They are “the perfect place for a criminal to operate because no one will ask any questions,” he said.
To test how easy it would be to find such a service in Canada, Radio-Canada and CBC News partnered with the Toronto Star and La Presse in a global reporting campaign called The Coin Laundry, organized by the Washington-based International Consortium of Investigative Journalists.
Only 1 question asked in Toronto
On a recent afternoon, a woman dressed in gray jeans and a brown leather jacket walked into a money transfer company in downtown Toronto. It wasn't a one-day operation: the company is registered with FINTRAC, Canada's national financial intelligence agency, and its store is one of a dozen company branches in three provinces.
“Hi, I’m here to pick it up,” the woman said.
“Do you have a badge?” – asked the cashier behind the glass.
“Here,” the customer said, holding up a Canadian $5 bill and its serial number.
The employee checked her phone for a photo of the same invoice that the client had previously sent via Telegram messenger when completing the transaction. That $5 bill was the only confirmation she needed to make sure it was the right person who had handed over $1,900 in cash, which she quickly did, in $100 bills, from a drawer under the counter.
A Toronto Star reporter was handed $1,900 in a downtown store window after transferring cryptocurrency to a digital wallet in Ukraine
The client – actually an undercover Toronto Star reporter wearing a hidden camera and filmed by Radio-Canada from across the street – walked away with the money. Hours earlier, she had transferred 2,000 tether tokens to Ukrainian crypto exchange 001k, which directed her via Telegram messages to an address in Toronto to pick up the cash.
This is illegal under Canadian law. anti-money laundering regulations for a money transfer business, transfer $1,000 or more, including in cryptocurrency, to someone without recording the recipient's personal information and details of all accounts involved in the transaction. It is also illegal for 001k to do business with Canadians because it is not registered with FINTRAC.
“They shouldn't do this. It’s actually illegal,” Joseph Yuso, executive director of the Canadian Money Services Business Association, said of the Toronto deal.
The rules exist, among other things, to try to make crimes less profitable by preventing offenders from freely using the proceeds of their crimes.
When asked about the exchange, representatives of a downtown money transfer company said the rogue manager orchestrated the transaction outside the company's books and in violation of its rules. When we contacted the manager via email, he said it was his own money, “legally earned,” and that the cashier behind the counter “only did what I asked her to do; She didn’t know anything about the situation.”
“Welcome to the Wild West”
Yuso said FINTRAC does not have the resources to properly supervise all of the more than 2,600 money services businesses registered in Canada, let alone monitor the unregistered ones. So there are “just tons” of foreign money transfer companies illegally offering services to Canadians. “They're all trying to bend the rules. And unfortunately, how do you control it?”
One web directory lists more than 20 cryptocurrency-to-cash conversion services in cities across the country, from Halifax to Vancouver, none of them registered with FINTRAC.
Toronto Star reporters anonymously contacted several services in Toronto, which said they would not ask for any identification. Meanwhile, in Quebec, a La Presse journalist got into his own anonymous discussions with 001k and another cryptocurrency-to-cash exchange service, which said it could deliver $1 million and $890,000 CAD, respectively, to locations in Montreal in exchange for sending it to certain crypto wallets. The services also never asked for any identification.
It was unclear where these other offers would entice customers to take their cash – the location is only revealed after digital money is sent.
FINTRAC did not respond to questions about the secret cryptocurrency-to-cash transaction or whether it is aware that such services are offered across Canada by entities such as 001k.
“FINTRAC is prepared to take decisive action if necessary to ensure businesses take their responsibilities seriously,” the statement said. “This may include administrative monetary penalties and referral to law enforcement in the event of any non-compliance.”
001k did not answer journalists' questions. He has received more than $14.8 billion in cryptocurrency transfers since August 2022, according to data provided to the International Consortium of Investigative Journalists by crypto-forensics firm Chainaanalysis.
“Welcome to the Wild West,” said Sanders, a cryptocurrency expert. “It’s a way of moving money with absolutely zero checks.”
