Dirty money, tidy profits

"It's the dumb and greedy who get caught," says Stephen Schneider, a criminologist at St. Mary's University in Halifax who recently wrote a report for the RCMP on money laundering in Canada. Only between 5 and 10 per cent are ever nabbed, he says, and "that's no indictment of law enforcement or the laws. It's simply the nature of the beast."

The Toronto Star
June 18, 2004

Dirty money, tidy profits
Money laundering, a crime made famous by Al Capone, is a Byzantine multi-billion-dollar industry
Rita Daly

When Chicago gangster Al Capone set up coin-operated launderettes to hide his bootlegging profits in the 1920s, money laundering wasn't even an offence.

Decades later, countries worldwide including Canada have made concerted efforts to crack down — with little success — on what has ballooned into a multi-billion dollar illegal business that in many cases still operates out of mom-and-pop establishments.

"It's the dumb and greedy who get caught," says Stephen Schneider, a criminologist at St. Mary's University in Halifax who recently wrote a report for the RCMP on money laundering in Canada.

Only between 5 and 10 per cent are ever nabbed, he says, and "that's no indictment of law enforcement or the laws. It's simply the nature of the beast."

It explains, in part, why most were surprised by this week's arrest of prominent Toronto lawyer Peter Shoniker, along with jeweller Babak (Bobby) Adeli Tabrizi, on charges of money laundering in an elaborate sting operation.

The charges involve the transfer of $750,000 in Canadian money to the United States that allegedly was illegally gained.

"Very few individuals outside of drug traffickers have been charged with money laundering," Schneider says.

"Those that have are usually lawyers."

Money laundering — the process of hiding the money trail that leads police to a profit-making crime such as drug trafficking, prostitution, arms smuggling or fraud — is so pervasive it has infiltrated just about every aspect of everyday life, says Chris Mathers, a former RCMP undercover operator who posed as a money launderer and drug trafficker for 20 years, infiltrating Russian, Colombian and Asian organized crime groups.

The term was coined because of Capone, whose launderettes were used to "wash" millions of dollars made selling alcohol during Prohibition.

Laundering schemes vary widely today, Mathers says, from a drug dealer cleaning ill-gotten money through his brother's restaurant simply by tossing the drug money into the till, to professionals involved in organized crime, insider trading or credit-card fraud who launder millions through domestic banks, wire transfers, shell companies and offshore accounts.

"Every time a bad thing happens that generates money, it has to be laundered, so you can imagine there's a lot of laundering going on everywhere, " says Mathers, whose book Money Laundering was published recently.

Global estimates of the amount of money laundered in a single year range between $500 billion and $1 trillion (U.S.), an indication that no one really has a handle on actual figures.

The federal government estimates anywhere from $5 billion to $15 billion worth of criminal proceeds are laundered through Canada every year. The more sophisticated the criminal operation, the greater the need for money laundering and for corrupting professionals or public officials, Schneider says.

"If you sell cars, if you're a bank teller, if you're an insurance agent, a security broker or bank manager, if you're an accountant or a lawyer, pretty much any profession in the commercial world is susceptible," he says.

Of the 149 completed RCMP cases from 1993 to 1998 that he analyzed, 93 per cent of them involved the accused or an accomplice conducting a laundering transaction with a professional, although often it was an unwitting bank employee.

In his report, Schneider also found 49 cases, from B.C. to the Maritimes, of criminally controlled companies laundering money in setups not unlike Capone's launderettes: from fish retail stores, car dealerships, bars, hotels and marinas to lumber supply stores, pool halls, tanning salons and fitness clubs, not to mention shell companies.

The real estate and construction industry is especially susceptible, with under-the-table cash transactions for a house purchase or renovation making it easy for dirty money to mix with normal business.

However, simply taking cash to the bank — usually in amounts unlikely to draw suspicion — is still the predominant laundering scheme.

"The criminal world is still very much a cash-based economy, especially with respect to drugs, prostitution, gambling and people smuggling," Schneider says.

Although there is no data to show that corruption among professionals or public officials has increased, Schneider says it is inevitable as criminals try to work around tighter regulations since 9/11 and the threat of terrorist activity, and the millions spent by financial institutions on detection software and money-laundering reporting officers.

Capone had to be one of the most notorious examples of corrupting officials: he had up to half of Chicago's police force on his payroll and dozens of aldermen, state attorneys, mayors and legislators in his pocket.

Canada first brought in anti-money laundering legislation in 1989, but strengthened laws in 2002 when it required banks, casinos, real estate agents and foreign exchange dealers to report "suspicious" transactions or any transactions over $10,000 to the federal money-laundering watchdog, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

The analysis centre received more than two million reports of suspicious transactions, passing on 103 cases of suspected money laundering and terrorist activity financing valued at $460 million to law enforcement and national security agencies in fiscal 2003.

One of the biggest eye-openers since the agency was established is the speed at which illegal money is being transferred out of the country.

"We've learned the money is in very large amounts and quite often moves internationally very quickly out of Canada," said FINTRAC spokesperson Peter Lamey.

RCMP inspector Don Panchuk, in charge of the integrated proceeds of crime unit, says the majority of cases in the Toronto area involve at least one offshore jurisdiction, including the United States. In some cases, individuals first smuggle the cash out to a country whose institutions are under less scrutiny, then "repatriate" the money through wire transfers.

Law enforcement has had few successes, although one of the biggest global corruption and money laundering cases was allegedly cracked when charges were laid involving a $67 billion scandal in the United Nation's "food-for-oil" program in Iraq. Documents allege more than 200 individuals, companies and agencies were involved. Canada's former top spy, Reid Morden, has just been named to lead the probe.

Closer to home, a massive drug bust in March led to 140 arrests in cities across Canada and the United States, including Toronto. One Ottawa woman is alleged to have organized the laundering of as much as $5 million (U.S.) a month in profits through money transfers via Vietnam and China.

In another case, an Ontario justice of the peace in Niagara Falls and a Welland lawyer were charged in March with money laundering following an investigation into drug trafficking and bike gangs.

Tougher laws have helped police win a few battles, but Schneider says the war on money laundering is being lost because punitive measures, no matter how innovative, don't work.

"Money laundering is a microcosm of the criminal mind, and the criminal mind is very adaptive and resilient," he says.

"We need to start thinking outside the box."

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