As the federal government says it will introduce new measures to fight organized crime in Canada, helping it stave off tariff threats from the U.S., experts say that Canada’s money-laundering problem has festered for far too long — and that the issue makes it easier for fentanyl-pushing cartels to gain a foothold in this country.
U.S. President Donald Trump has used the fentanyl crisis to justify broad tariffs against Canada, alleging that a massive amount of the drug is entering the U.S. via Canada.
Canada makes up just 0.2 per cent of all U.S. border fentanyl seizures, but the country has shifted in recent years from being a consumer and importer of fentanyl to a producer and exporter, according to a January report by financial watchdog FINTRAC.
The roughly 100 organized crime groups operating in Canada (including three groups dedicated to supplying fentanyl) are partly drawn to loopholes and lax penalties that allow fentanyl-related money-laundering operations to flourish, according to researchers.
“The discussion about fentanyl is closely tied in to money-laundering in two ways,” says Christian Leuprecht, a professor at the Royal Military College and Queen’s University and author of Dirty Money: Financial Crime in Canada.
The profits from fentanyl produced in Canada for the Canadian market are often laundered inside the country through banks, real estate, casinos and other fronts.
But these operations are typically connected to a wider network of precursor suppliers and other crime groups based outside of the country, leading to an extensive transnational money-laundering operation associated with the fentanyl produced in Canada.
“As a result of the overproduction of fentanyl [in Canada], some of this spills over into the United States,” said Leuprecht. He added that organized crime groups choose Canada because it puts them inside of what was, at least before the threat of tariffs, a free-trade zone. “That is not by accident. That is by design because it reduces your risk. It reduces your detection,” he said.
U.S. President Donald Trump says ‘massive’ amounts of fentanyl cross into the U.S. from Canada, but in fact, less than one per cent of the synthetic opioid seized at American borders is at the northern border.
Canadian banks in particular are popular because they operate retail branches both in Canada and the U.S., making it easier for criminals to bank on both sides of the U.S.-Canada border using one institution and thereby reducing their chances of detection, according to Leuprecht.
A recent crisis at TD Bank, for example, saw the financial institution admitting that its lax anti-money laundering regime allowed fentanyl traffickers to launder $670 million through its American branches.
While the U.S. Department of Justice fined the Canadian bank $3 billion US for its role in that scheme, Canadian fines are comparatively smaller — FINTRAC fined TD just $9 million Cdn a few months earlier for violating anti-money laundering compliance rules.
As part of the deal between Canada and the U.S., Prime Minister Justin Trudeau said that Canada would appoint a fentanyl czar, list drug cartels as terrorists, beef up border surveillance and launch a joint strike force to counter organized crime, fentanyl and money laundering.
Disrupting a crime group’s money-laundering operation would be more debilitating than targeting individual fentanyl operations, said Leuprecht.
“The way criminals are moving drugs, producing drugs, how they’re laundering their money and the colossal amounts of money involved, it’s just not been a priority for the government,” he said.
That could be changing: the RCMP busted the largest drug “superlab” in Canadian history this past fall, with the federal government later floating a proposal in the fall economic statement that it would boost the AML oversight penalty to at least $20 million per violation and increase fines for criminal offences. It also announced in its 2024 budget that it would amend some legislation in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
‘Snow-washing’ is pervasive, says compliance expert
Michael Ecclestone, a compliance leader at the AML Shop in Toronto, advises businesses that are obligated to comply with Canada’s anti-money laundering regulations. Noting that there’s a particular name for money-laundering in Canada — “snow-washing” — he says the problem is pervasive.
“There’s almost no limit to how this can be done,” Ecclestone said, noting that money can be laundered through smaller businesses like jewelers, gold dealers or securities dealers.
Professional money launderers use various tactics to clean money, like fraudulent invoicing and trade arrangements, or moving money back and forth between bank accounts or shell corporations without real assets.
When businesses fail to report suspicious activity, the problem festers — and that’s why some groups have called for harsher penalties for non-compliance with AML laws.
In Canada, “one area constantly called out for a lack of resources and a lack of focus is the amount of prosecution,” said Ecclestone.
He said it’s been a long time since there was a concerted effort to update anti money-laundering legislation and to arm police and investigators with adequate resources to tackle the problem.
The focus on fentanyl could provide “a shot in the arm and a jolt to authorities to begin that process of updating, enhancing, making the regime more able to deal with the current levels of money-laundering we’re seeing in Canada,” he added.
“No one trades in fentanyl if they don’t think they’re going to make money from it.”