Crypto exchange companies in Canada are evading finance laws by offering to buy thousands of dollars in digital currencies without proper registration or without checking ID. And two international platforms contacted by an undercover journalist proposed to deliver as much as $1 million in cash to a location in Montreal in exchange for cryptocurrency.
Canada has long had a problem with dirty money in its traditional economy, whether it be in banking, casinos or real estate, but the advent of storefront and online cryptocurrency services and a lack of strong regulation and enforcement are blasting open new frontiers for laundering and illicit finance, experts say.
Cryptocurrencies are decentralized by nature, making it difficult for police or fraud victims to identify who is behind millions of transactions in digital currencies like bitcoin, ethereum or tether. But investigators can still track initial purchases of digital coins, or when potential fraudsters offload those coins into hard currency.
But the idea that anyone, from drug cartels to would-be terrorist plotters, can use a crypto-to-cash service to wire cryptocurrency to a foreign, unregulated digital wallet and then go collect tens of thousands of dollars in cash anonymously somewhere in town — or the reverse — strips away the controls at the blockchain’s on- and off-ramps.
“If you have this way to move money with absolutely zero checks on it, you’re facilitating an unlimited amount of crime,” said Richard Sanders, one of the world’s foremost experts on the kinds of crypto-to-cash operations that have cropped up across Canada and around the world.
“I could not have in my worst dreams predicted the reality we’re in now.”
Nick Smart, the chief intelligence officer at Crystal, a company that sells tools to help investigate crypto crimes, said the amount of money being pushed through crypto-to-cash services is “absolutely staggering.” Last year alone, crypto-to-cash businesses in Hong Kong processed at least $2.5 billion US in transactions, his team found. They’re “a perfect place to operate as a criminal because no one’s going to ask any questions,” he said.
To test how easy it would be to find such a service in Canada, Radio-Canada and CBC News partnered with the Toronto Star and La Presse, as part of a global reporting effort called The Coin Laundry from the Washington-based International Consortium of Investigative Journalists.
On a recent afternoon, a woman dressed in grey jeans and a brown leather jacket stepped into a money transfer business in midtown Toronto. It was no fly-by-night operation: The company is registered with FINTRAC, Canada’s national financial-intelligence agency, and its storefront is one of a dozen branches the company has in three provinces.
“Hi, I’m here for pickup,” the woman said.
“Do you have token?” the teller behind the glass asked.
“Here,” the customer said, showing a Canadian $5 bill and its serial number.
The employee checked her phone for a photo of the same bill that the customer had previously sent via the messenger app Telegram, when setting up the transaction. That $5 bill was the only verification she needed to make sure it was the right person to hand over $1,900 US in cash to — which she promptly did, in $100 bills, from a drawer under the counter.
Undercover journalist visits money exchange for anonymous cash handover
The customer — in reality, an undercover reporter for the Toronto Star wearing a hidden camera and being filmed by Radio-Canada from across the street — exited with the money. A few hours before, she had transferred 2,000 tokens of tether to a Ukraine-based crypto exchange, 001k, which directed her via Telegram messages to the Toronto address to pick up the cash.
It is illegal under Canada’s anti-laundering regulations for a money transfer business to remit $1,000 or more, including from cryptocurrencies, to someone without recording the recipient’s personal information and details about all the accounts involved in the transaction. It is also illegal for 001k to do business with Canadians because it’s not registered with FINTRAC.
“They shouldn’t be doing that. That’s actually illegal,” Joseph Iuso, the executive director of the Canadian Money Services Business Association, said of the Toronto transaction.
The rules are in place, among other reasons, to try to make crime less profitable by impeding perpetrators from having freewheeling use of the proceeds of their offences.
When contacted about the exchange, the midtown money transfer business said a rogue manager arranged the transaction off the company’s books and in violation of their rules. Reached by email, the manager said that it was his own cash, “earned legally,” and that the teller at the front counter “only did what I asked her to do; she had no knowledge of the situation.”
Iuso said FINTRAC doesn’t have the resources to properly oversee all 2,600-plus money-services businesses registered in Canada, let alone to police unregistered ones. So “there’s just tons” of foreign money transfer businesses illicitly offering services to Canadians. “They’re all trying to circumvent the regulations. And, unfortunately, how do you police that?”
One web directory lists more than 20 services for converting crypto into cash in cities across the country, from Halifax to Vancouver, none of them registered with FINTRAC.
Contacted anonymously by reporters for the Toronto Star, a handful of the Toronto-based services said they wouldn’t ask for any ID. Meanwhile in Quebec, a journalist for La Presse entered into his own anonymous discussions with 001k and another crypto-to-cash service that said they could deliver $1 million and $890,000 Cdn, respectively, to locations in Montreal in exchange for sending them tether to specific crypto wallets. The services also never asked for any ID.
It wasn’t clear where those other offers would direct the customers to go pick up their cash — the location is only revealed once digital money is sent.
FINTRAC would not answer questions about the undercover crypto-for-cash transaction or whether it’s aware that such services are being offered across Canada by entities like 001k.
“FINTRAC is prepared to take strong action as necessary so that businesses take their responsibilities seriously,” it said in a statement. “That can include administrative monetary penalties and referrals of any non-compliance to law enforcement.”
001k did not answer questions from reporters. Since August 2022, it has been on the receiving end of more than $14.8 billion US in cryptocurrency transfers, according to data provided to the International Consortium of Investigative Journalists by crypto forensics firm Chainalysis.
“Welcome to the Wild West,” said Sanders, the expert on crypto-to-cash operations. “This is a way to move money with absolutely zero checks.”
