Cryptocurrency exchange companies in Canada are evading financial laws by offering to buy thousands of dollars in digital currencies without proper registration or verifying identification. And two international platforms contacted by an undercover journalist proposed delivering up to $1 million in cash to a location in Montreal in exchange for cryptocurrency.
Canada has For a long time I had a problem with dirty money in its traditional economy, whether in banking, casinos or real estate, but the arrival of in-store and online cryptocurrency services and the lack of strict regulation and enforcement are opening new frontiers for laundering and illicit financing, experts say.
Cryptocurrencies are decentralized by nature, making it difficult for police or fraud victims to identify who is behind millions of transactions in digital currencies such as bitcoin, ethereum or tether. But investigators can still trace initial purchases of digital currencies, or when would-be scammers transfer those coins into hard currency.
But the idea that anyone from drug cartels to would-be terrorist plotters can use a cryptocurrency-to-cash service to transfer cryptocurrency to an unregulated foreign digital wallet and then collect tens of thousands of dollars in cash anonymously somewhere in the city (or the other way around) removes controls on the blockchain’s on- and off-ramps.
“If you have this way of moving money without any control, you are facilitating an unlimited amount of crime,” said Richard Sanders, one of the world’s leading experts on the types of cryptocurrency cash operations that have emerged in Canada and around the world.
“Never in my worst dreams could I have predicted the reality we find ourselves in now.”
Nick Smart, chief intelligence officer at Crystal, a company that sells tools to help investigate crypto crimes, said the amount of money being sent through cryptocurrency-to-cash conversion services is “absolutely staggering.” Last year alone, cryptocurrency-to-cash companies in Hong Kong processed at least $2.5 billion in transactions, his team found. They are “a perfect place to operate as a criminal because no one is going to ask 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, as part of a global reporting effort called The Coin Laundry by the Washington-based International Consortium of Investigative Journalists.
In Toronto, only 1 question was asked
On a recent afternoon, a woman dressed in gray jeans and a brown leather jacket walked into a money transfer business in downtown Toronto. It was no blip: the company is registered with FINTRAC, Canada’s national financial intelligence agency, and its store is one of a dozen branches the company has in three provinces.
“Hello, I’m here to be picked up,” the woman said.
“Do you have a file?” the cashier asked behind the glass.
“Here,” the customer said, showing a Canadian $5 bill and its serial number.
The employee checked her phone for a photo of the same invoice that the customer had previously sent via the messaging app Telegram, when setting up the transaction. That $5 bill was the only verification he needed to make sure he was the right person to give $1,900 in cash, which he quickly did, in $100 bills, from a drawer under the counter.
A Toronto Star reporter receives $1,900 at a downtown store after transferring cryptocurrency to a digital wallet in Ukraine.
The customer (actually an undercover Toronto Star reporter wearing a hidden camera and being filmed by Radio-Canada from across the street) walked out with the money. A few hours earlier, she had transferred 2,000 tether tokens to a Ukraine-based crypto exchange, 001k, which directed her via Telegram messages to the Toronto address to collect the cash.
It is illegal under Canadian law. anti-money laundering regulations for a money transfer company to send $1,000 or more, even from cryptocurrency, to someone without recording the recipient’s personal information and details about 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 be doing that. That’s actually illegal,” Joseph Iuso, executive director of the Canadian Association of Money Services Businesses, said of the Toronto transaction.
He There are rules in place, among other reasons, to try to make crime less profitable by preventing perpetrators from making free use of the proceeds of their crimes.
When contacted about the exchange, the downtown money transfer company said a dishonest manager arranged the transaction off the company’s books and in violation of its rules. Contacted by email, the manager said it was his own money, “legally earned,” and that the cashier at the counter “only did what I asked; she had no knowledge of the situation.”
“Welcome to the Wild West”
Iuso said FINTRAC does not have the resources to adequately supervise the more than 2,600 registered money services businesses in Canada, much less monitor those that are not registered. So “there are tons” of foreign money transfer companies illicitly offering services to Canadians. “Everyone is trying to get around the regulations. And, unfortunately, how do you control that?”
A web directory lists more than 20 services for converting cryptocurrency to cash in cities across the country, from Halifax to Vancouver, none of them registered with FINTRAC.
Contacted anonymously by Toronto Star reporters, a handful of Toronto-based services said they would not ask for any identification. Meanwhile, in Quebec, a La Presse journalist started his own anonymous conversations with 001k and another cryptocurrency-to-cash service that said they could deliver $1 million and $890,000 Canadian dollars, respectively, to locations in Montreal in exchange for sending them tethers to specific crypto wallets. The services also never asked for any identification.
It was unclear where those other offers would direct customers to pick up their cash — the location is only revealed once the digital money is sent.
FINTRAC did not respond to questions about the covert crypto-for-cash transaction or whether it is aware of entities like 001k offering such services across Canada.
“FINTRAC is prepared to take strong action as necessary for companies to take their responsibilities seriously,” he said in a statement. “That may include administrative monetary sanctions and referrals of any non-compliance to authorities.”
001k did not answer journalists’ questions. Since August 2022, it has received more than $14.8 billion in cryptocurrency transfers, according to data provided to the International Consortium of Investigative Journalists by crypto-forensics firm Chainalysis.
“Welcome to the Wild West,” said Sanders, the cryptocurrency cash trading expert. “This is a way to move money without any checks.”
