How Drug Cartels and Trade-based money laundering pose a serious threat to Canada’s Credit Unions
Sarah had been a teller at her local credit union for fifteen years. Nothing about the paperwork seemed right that morning—the invoices did not match the shipping documents, and the business owner’s sudden interest in importing luxury watches from overseas raised red flags she could not ignore. Thanks to her recent training in detecting trade-based money laundering (TBML), she knew exactly what steps to take next.
Stories like Sarah’s are becoming increasingly common across Canada’s financial landscape, as criminal organizations, particularly drug cartels, devise ever more sophisticated methods to wash their illicit profits through legitimate trade channels. The recent RCMP assessment has pulled back the curtain on a troubling reality: Canada’s trade system has become a preferred vehicle for international money laundering operations.
For many AML professionals, the intricacies of international trade might seem like a complicated, almost unsolvable problem. But trade-based money laundering is a growing threat as it touches every corner of the global financial system, and Canada provides a target-rich environment.
Imagine raindrops falling on the shingles of your roof. Oh, they seem harmless enough, but water is patient, persistent, and clever in finding the paths of least resistance. And Canada has a leaky roof right now, and we have not done nearly enough to plug the holes that have left us vulnerable. A minor leak today can escalate into a big problem tomorrow. Trade-based money laundering should be on everyone’s radar, especially now, as it is part of our government’s current priority list for cracking down on cross-border financial crime.
The Surrey, BC Money Laundering Case: Sinaloa Cartel Connections
A recent example that highlights the seriousness of this threat involves British Columbia’s civil forfeiture office filing suing an alleged Sinaloa Cartel-linked drug trafficking operation based in Surrey, BC. Three individuals lived together in a luxurious Surrey home valued at more than $2.2 million, which became central to the investigation. According to court documents, this property served as both an operational base for drug trafficking activities and a vehicle for laundering proceeds of crime.
What makes this case significant is the alleged direct communication between this Canadian-based cell and the highest echelons of the Sinaloa Cartel leadership. Court filings reveal the group engaged in negotiations with Ismael Garcia, known as “El Mayo,” the reputed chief of the Sinaloa Cartel, regarding cocaine importation arrangements.
The CBSA (Canadian Border Security Agency) has documented extensive evidence linking TBML activities to cartel operations throughout Canada, with internal assessments showing that TBML activity occurs “on a daily basis in Canada, particularly in large metropolitan cities.” Despite this awareness, full quantification of the scope and scale of TBML in Canada remains challenging.
Trade-Based Methods and Asset Acquisition
The lawsuit details sophisticated trade-based money laundering techniques employed by this organization. Beyond the real estate component, authorities are seeking forfeiture of numerous assets allegedly purchased with illicit proceeds, including six vehicles, a vintage 1950 Ford, four motorcycles (three customized), an Azure boat, jewellery, and more than $15,000 in cash. These purchases represent a classic trade-based money laundering strategy—converting illicit cash into tangible, high-value assets that can later be sold as “legitimate” property.
The court documents specifically allege that “the 77th Avenue property was also used as an instrument of unlawful activity, by facilitating the laundering of proceeds of crime.” Investigators assert that the defendants “did not have sufficient legitimate income” to acquire the vehicles, motorcycles, boats, trailers, or jewellery identified in the case. This pattern of acquisition without corresponding legitimate income sources is a hallmark indicator of TBML operations.
The Surrey, BC, case provides a compelling illustration of how Mexican drug cartels, particularly the Sinaloa Cartel, have established sophisticated trade-based money laundering operations within Canada.
How did this trade-based money laundering (TBML) scheme work?
The scheme allegedly employed by the Surrey, BC-based drug trafficking organization (DTO) involved several sophisticated methods:
- Direct cartel connections: The group reportedly negotiated directly with Ismael “El Mayo” Garcia, the reputed head of the Sinaloa Cartel, to arrange cocaine importation from Mexico to Canada.
- Use of front companies: The DTO likely used complicit import/export companies to purchase goods destined for or coming from Canada using proceeds of crime.
- Customs document manipulation: The group allegedly manipulated customs documents by fraudulently overvaluing or undervaluing goods, as well as potentially altering weights and descriptions.
- Wire transfers: The import/export of goods created a pretext for the criminal syndicate to wire funds as “payment” for said goods at source or destination 1.
- Phantom shipments: In some cases, money was laundered with no physical goods being shipped.
- Multiple invoicing: The scheme may have involved issuing a single invoice but receiving multiple payments.
- Black Market Peso Exchange: This method was likely used to facilitate currency exchange between pesos and dollars.
- Cryptocurrency: The group allegedly used cryptocurrency transactions to move drug money.
- Real estate and luxury purchases: Laundered funds were used to buy property, luxury items, and pay for tuition.
- Chinese underground banking: The DTO partnered with Chinese money launderers to process large amounts of drug proceeds in U.S. currency in the Los Angeles area.
- Structuring: The group allegedly structured assets to avoid federal financial reporting requirements.
Challenges and the Modern Landscape of TBML
If it were so simple to catch, it wouldn’t be an estimated multi-trillion-dollar problem. It’s worth thinking through *why* trade-based money laundering is so tough to crack. TBML remains an attractive method to place, layer, and integrate criminal proceeds globally. Here is the data supporting the current issues facing law enforcement:
“Trade-based money laundering activity varies between regions, as they adapt to different law enforcement practices and the existing regulatory environment. As technology becomes more sophisticated, so too, organized crime and terrorist financiers (such as those present in some Middle East and African countries), evolve their TBML methodologies, which makes identifying their movements increasingly difficult.
Fighting Back: Solutions and Best Practices
This all sounds rather bleak; however, people aren’t just sitting around. Actionable strategies are evolving worldwide, including in Canada. In response to the growing threat of trade-based financial crime, Canadian authorities have proposed amendments to regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. These amendments would require traders to report on the importation and exportation of goods to the Canada Border Services Agency for the purposes of detecting, deterring, and disrupting trade-based financial crime.
Capacity Building: Getting the Right Tools
Let’s move past paper, because automation is becoming more and more critical part of the solution. Trade documents still have too many manual steps, so we need to explore modern tools like artificial intelligence applications to search for “red flags” saving the days of investigation required.
Technology is not enough, though. A focus needs to be on educating frontline and back-office personnel about TBML. If employees don’t know what trade-based money laundering is and looks like, they will not be able to spot it.
Training your frontline and back-office staff
Frontline and back-office employees can sharpen their focus to detect TBL schemes and protect their communities. CCUA partners with Tamlo for compliance training. They have designed a microlearning course that can be a valuable addition to your annual training. By partnering with Tamlo, we are able to offer a full library of microlearning courses that provide key insights to safeguard credit unions by identifying and reporting suspicious indicators.
Remember: trust your training! If something seems unusual, take the extra time to dig a little deeper.
ABOUT Flag Financial Crime Microlearning Series
The Flag Financial Crime Microlearning Library series is designed to keep a broad range of financial crime topics front and centre. This library comprises 48 five- to ten-minute modules that expand learners’ understanding of financial crime. Once enrolled in the library, learners will receive monthly reminders of a microlearning course to review. Notifications come directly to their inbox with a link to jump into the training module, and these sessions are quick and impactful, offering solutions to keep current with regulatory developments, Fintrac operational alerts, and specific financial crime trends.
All compliance training, including the Flag Financial Crime Microlearning Library can be access through CCUA Campus or by contacting client.solutions@ccua.com to discuss your credit union’s needs.