Crypto exchange companies operating in Canada are sidestepping financial regulations by facilitating large transactions in digital currencies without proper registration or identity verification. An undercover investigation revealed that two international platforms offered to exchange cryptocurrency for up to $1 million in cash at a location in Montreal.
Canada has been grappling with money laundering issues in various sectors such as banking, casinos, and real estate. The emergence of storefront and online cryptocurrency services, coupled with weak regulatory oversight, is creating new opportunities for illicit financial activities, experts warn.
The decentralized nature of cryptocurrencies like bitcoin, ethereum, and tether makes it challenging for authorities to trace transactions. However, investigators can still monitor the initial purchase of digital coins and when individuals convert them into fiat currency.
The ease with which criminals can utilize crypto-to-cash services to anonymously exchange cryptocurrency for cash poses a significant risk for facilitating illegal activities, according to Richard Sanders, a leading expert in this field.
Nick Smart, Chief Intelligence Officer at Crystal, highlighted the substantial volume of money flowing through crypto-to-cash services, citing that businesses in Hong Kong processed over $2.5 billion US in transactions last year. These services, he noted, provide a haven for criminal activities due to lax oversight.
To assess the accessibility of such services in Canada, a joint investigation by Radio-Canada, CBC News, Toronto Star, and La Presse, under the initiative “The Coin Laundry,” was conducted. The probe uncovered lax practices at money transfer businesses, including failure to adhere to anti-money laundering regulations.
In one instance, a reporter posing as a customer received $1,900 US in cash from a Toronto-based business without providing any personal information beyond a photo of a $5 bill. This transaction violated Canadian regulations requiring businesses to record recipient details for transactions exceeding $1,000.
Joseph Iuso, Executive Director of the Canadian Money Services Business Association, condemned the illicit transaction, stressing the importance of upholding regulations to deter criminal activities.
Despite existing regulations, the proliferation of unregistered foreign money transfer businesses offering services to Canadians presents a significant regulatory challenge. Several crypto-to-cash services in Canada were found to operate without proper oversight, raising concerns about the potential for illicit financial transactions.
In Quebec, investigative efforts revealed that certain crypto-to-cash services in Montreal were willing to exchange large sums of cash for cryptocurrency without verifying the customers’ identities. The lack of regulatory scrutiny in these transactions underscores the vulnerabilities in the crypto ecosystem.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) declined to comment on the undercover operation or the prevalence of such services in the country. However, it emphasized its commitment to enforcing compliance and taking punitive measures against non-compliant businesses.
001k, a crypto exchange mentioned in the investigation, did not respond to inquiries. Data provided by Chainalysis indicated that the platform had processed over $14.8 billion US in cryptocurrency transfers since August 2022, underscoring the scale of potential illicit activities facilitated through such services.
The proliferation of unregulated crypto-to-cash operations in Canada has raised concerns among experts, highlighting the urgent need for enhanced regulatory oversight to combat money laundering and illicit finance activities in the digital currency realm.