Ontario ‘Highly Vulnerable’ To Money Laundering Activities, Experts Say

The bombshell Cullen Report has caught the attention of gambling regulators in major provinces

The Canadian casino industry is on high alert after Commissioner Austin Cullen dropped his bombshell report in June confirming large amounts of cash were laundered through British Columbia’s provincial casinos.

Cullen’s 1,800-page report was the culmination of a three-year investigation commissioned by the province of British Columbia that confirmed an “astounding amount of dirty money” was laundered through local casinos between 2008-2018. The release of the report has been eye-opening for the country’s entire casino industry, and regulators in Ontario have been noticeably cracking down on venues that skirt money laundering policies.

Just over a month after the release of the report, the Alcohol and Gaming Commission of Ontario handed out monetary penalties totaling $227,250 (CAD) to HR Ottawa LP, which is responsible for the day-to-day operations of the Ontario Lottery Gaming Corporation Slots at Rideau Carleton Raceway in Ottawa, for 36 violations stemming from an audit. HR Ottawa LP is owned by Hard Rock International.

One of the major infractions was for repeatedly failing to implement, follow, and enforce required anti-money laundering policies and procedures. A few weeks later, the Royal Canadian Mounted Police uncovered another money laundering scheme in Toronto- and Niagara-area casinos. Police brought multiple criminal charges against five individuals after the four-year investigation concluded more than $3 million from the illegal sale of cannabis was laundered.

According to experts in the money laundering field, this crackdown in Ontario is not coincidental.

“As the crackdown came in B.C., there’s been a move towards Ontario — because the networks that work with B.C. definitely have linkages in Ontario,” James Cohen, executive director of at Transparency International Canada, told US Bets. “With the Greater Toronto Area, it’s kind of everyone. There’s linkages to networks all over the world and there’s domestic networks.

“This crackdown in B.C. only really came in 2016 because a handful of politicians really took an interest in it. So far, we haven’t seen the same level of concern in Ontario about the scale of money laundering.”

Transparency International is widely regarded as the world’s leading anti-corruption non-governmental organization. Cohen is leading the Canadian chapter, which has a mission to be an informed voice that promotes anti-corruption practices and transparency in Canada’s public sector, businesses, and society at large.

“If anyone thinks that money laundering just happened to be regional and is west of the Rocky Mountains in B.C., then that’s just naive,” said Cohen. “To think that Canada’s largest economy [Ontario] wouldn’t be affected by all this, well, it is.”

Port cities attractive to money launderers

It’s virtually impossible to put an actual dollar figure on the amount of money laundered in Canada each year, Cohen said, but some estimates have it ranging from $46 billion to $113 billion a year. That number gets even foggier once you break down how much is laundered through gambling activities.

“We’re still trying to figure out which province is at the highest risk,” said Cohen. “This is a problem that Canada has, and we think very regionally. We have to think about the whole country being at risk. … It’s the balloon analogy: If you squeeze one side, the air goes to another spot. I mean, just naturally because of the size of the Ontario economy, Ontario is vulnerable — highly vulnerable.”

Matt McGuire is an internationally recognized expert in anti-money laundering and counter-terrorist financing. He’s the co-founder and practice leader of the AML Shop, which is based in Toronto, and has been assisting financial institutions assess and reduce financial crime and related regulatory risks for 15 years. He has also served as an advisor to the United Nations, as well as Canadian and foreign governments on development of their laws and financial intelligence functions.

McGuire feels that port cities are attractive places to launder money, as less than 1% of outgoing containers are inspected. He also said that border towns are at risk, as well as financial centers like Toronto, Vancouver, and Montreal.

“They’re huge centers for providing money laundering because you can find lots and lots of volume within bigger volumes,” he said.

Of course, these large city centers are also where you can find the majority of Canada’s casinos.

Experts react to the Cullen Report

Commissioner Cullen made exactly 101 recommendations as part of his report, with the most prominent suggestion being that the province appoint a dedicated anti-money laundering commissioner. He also believes the threshold for gamblers to provide proof of the source of their funds for casino transactions conducted in cash should be lowered from $10,000 to $3,000.

McGuire appreciated the thoroughness of the report and thought it shed some light on some very important facts.

“[Cullen] rightly pointed out that there is a lot of money laundered in the country, despite the fact that we can’t put a finger on exactly how much,” McGuire said. “The second thing that I think he got very right is that we have very little in the way of prosecutions, or convictions, or forfeitures, to show for what has become a model of compliance and record-keeping. He was right to point out there’s half a million suspicious transaction reports filed every year. This is an extraordinary number of records, and maybe only dozens of convictions in any given year, and almost no seizures.

“We know lots of it [money laundering] is happening because our international partners are showing the connection to the country. And we’re not prosecuting vigorously.”

The report also found that criminals laundered money through British Columbia’s luxury goods and housing markets, although Cullen believes this activity did not impact the price of local real estate. The total amount of illicit funds laundered through the British Columbia economy is estimated to be in the billions of dollars, according to the report. Many of Cullen’s recommendations were related to real estate regulations.

Shortfalls of FINTRAC

FINTRAC is Canada’s national financial intelligence unit, as well as its anti-money laundering and anti-terrorist financing regulator.

The Cullen Report noted that not all money service businesses (MSBs) register with FINTRAC, even though they are required to do so. The report also pointed out that FINTRAC typically conducts only a limited number of compliance examinations of MSBs.

McGuire previously served as a FINTRAC intelligence officer from 2004 to 2005. Although he believes FINTRAC is producing high-level intelligence, he thinks the enforcement isn’t at the level it should be, explaining that there are too few examinations and a very low percentage of reporting entities that are subjected to compliance scrutiny.

“There are very few penalties on the board,” McGuire said. “When you look at the U.S. as a comparison, they’ve had penalties ranging between $2 billion and $9 billion a year. By comparison, try to get to a million dollars with the penalties that have been issued in Canada this year or the preceding year. So the numbers are quite low, from that perspective. There are a bunch of things that are happening right underneath their noses that they’re missing.

“They’re taking in a fair bit of intelligence for conducting examinations — maybe not as many examinations as you would hope. It’s in the magnitude of hundreds a year when there are tens of thousands reported. So they’re likely understaffed. Largely they act as a database administrator.”

When asked whether or not FINTRAC was doing an adequate job in regards to Canada’s money laundering issues, Cohen said, “It is a matter of intelligence spread thin. There’s a lot of pressure put on FINTRAC, but there’s not equal pressure put on the Royal Canadian Mounted Police, and in Ontario’s case, the Ontario Provincial Police, and even regional police in Ontario, and especially the prosecution services. And that’s not to target the initial officers or prosecutors. Are they getting the resources and political will to prioritize these things? Are the decision-makers giving the guidance and the tools to go after these network systems?”

In its 2020-21 annual report, FINTRAC said it made 1,812 disclosures relating to money laundering. The top recipients of FINTRAC’s financial intelligence disclosure packages were federal law enforcement agencies, municipal police, federal government organizations, and provincial law enforcement agencies.


Online gaming lowers risk

Ontario launched its regulated online gaming and sports betting industry on April 4, but the removal of physical cash significantly lowers the risk for money laundering.

“There’s a benefit to online gaming from a money laundering perspective,” said McGuire. “Anybody of age can walk into a casino and start playing without a player card and remain anonymous. … So the advantage you have with online casinos is the ability to use any number of fairly cheap tools now to ID the person that you’re dealing with, and satisfy yourself about their age and residency, and then relate every subsequent transaction to that person to conduct really meaningful monitoring. You’ll have a great view into their entire gaming history. I see that as a positive step from that perspective.”

The next step in the evolution of sports betting in Canada is the creation of land-based sportsbooks. Ontario could see the development of brick-and-mortar sportsbooks in its existing casinos soon. The agenda is being pushed hard by the Canadian Gaming Association and other key stakeholders.

However, the launch of a physical sportsbook would reintroduce the cash element, increasing the risk of money laundering through the venues.

“I hope regulators are looking at the Cullen Commission and seeing where the faults were,” Cohen said. “They need to take warning signs from staff, who are meant to flag warning signs up to their bosses, the regulators, seriously.”

Canada’s land-based casino industry was hit hard by the COVID-19 pandemic, as provincial governments imposed rolling lockdowns over parts of the last couple of years in the interest of public safety. But with the industry finally now back up and running at near-normal capacity, many casino workers are working without collective bargaining agreements. Last month, a major casino strike in Ontario was mostly averted in the final hours before a union-imposed deadline. However, workers at two Durham-area casinos — Pickering Casino Resort and Casino Ajax — failed to reach an agreement with their employer, Great Canadian Gaming, and are on still on strike.

“There is an unacceptable gap in the wages and benefits between workers doing the same job for the same employer an hour down the highway,” said Corey Dalton, president of Local 1090, in an email to US Bets. “This strike is about fair working conditions across the gaming sector during uncertain economic times.”

Photo: Shutterstock



Related Posts