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Money Laundering in Canada

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View the page of Sanaa Ahmed

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Money laundering, a subject of criminological inquiry, has evolved since the 1980s. Sanaa Ahmed’s study questions the effectiveness of AML/CTF regulations, highlighting methodological flaws and collateral damage.

Image courtesy of interviewee. December 12, 2023

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This video video discusses the evolution of the concept of money laundering, which originated in the 1920s as the process of making "dirty money" appear legitimate, often through businesses like laundromats. The term has since expanded to include the broader concept of "illicit financial flows," which encompasses not only the origins of the money but also its intended use, such as funding for militant groups.

The speaker highlights that public perception often associates money laundering primarily with serious crimes like drug trafficking, arms smuggling, and sex trafficking. However, this view is narrow and overlooks other significant factors, including tax evasion, corporate corruption, trade malpractices, and capital flight, which are equally involved in illicit financial activities.

This video video emphasizes the role of state policies, particularly in contexts like Pakistan, where unaccountable funds are utilized for foreign policy objectives. The speaker critiques the global anti-money laundering framework, initiated by organizations like the Financial Action Task Force (FATF), suggesting that it has become entangled with foreign policy agendas rather than solely targeting criminal activities.

The academic discourse surrounding money laundering has evolved in waves: the first focused on estimating the scope of the problem; the second critiqued the global consensus and effectiveness of anti-money laundering measures; and a newer wave promotes a political economy perspective, emphasizing the need for a broader understanding of money laundering that includes systemic issues and the roles of stakeholders.

In Canada, while there are laws and agencies in place to combat money laundering, the focus remains on traditional crime rather than more systemic issues like corporate tax avoidance. The speaker calls for a shift in attention toward the larger, often hidden, mechanisms of money laundering, such as those related to corporations and foreign investments, that can dwarf the impact of illicit flows from street-level crime.

Ultimately, the argument stresses that in addressing money laundering, it's essential to consider a wider range of activities and the intricacies of state intervention, rather than solely concentrating on obvious criminal enterprises.

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X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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Money laundering as it was originally conceived,

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way back when, the term was invented in the 1920s,

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that referred to the sluicing of dirty money through

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things like laundromats

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and car washes, hence money laundering.

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It was designed to obscure the origins of the money,

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the illegal origins.

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But what we see now is this greater push

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for not really calling it money laundering per se,

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but calling it illicit financial flows,

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because that captures the origin as well

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as the intended use of the monies.

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So just to give you like a random example, if I were

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to be donating money to say a militant group,

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now the source of my income is obviously legit.

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I work at the University of Calgary,

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but the intended use of that money, if it's militancy, then

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that ends up being called money laundering,

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or it would be categorized as an illicit financial.

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So, but the really interesting thing,

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and there's a rift in the academics among this,

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the really interesting pieces that

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when we start talking about crime, there's a huge plethora

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of things that one could conceivably be talking about.

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Most people when they think about money laundering,

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when they think about illicit financial flows,

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they're thinking about money associated with drugs,

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arms trafficking, sex trafficking, insider trading,

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and now more recently environmental crime

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or covid related fraud.

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But I think that kind

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of is not really a complete picture,

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it's a very partial view

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because it doesn't take into account the various other

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things that also construe illicit financial flows.

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So now we're getting into the realm of tax abuse,

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tax avoidance and evasion

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or we, we are talking about trade related malpractices,

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which is transfer pricing base erosion profit shifting over

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and under invoicing.

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We are talking about white collar crime, which is all sorts

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of corruption, political, criminal co,

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corporate corruption.

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We're also talking about things which are given a lot less

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attention, such as capital flight,

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or we are talking about the proceeds from the informal

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economy or what is other, in other jurisdictions,

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it's called the gray economy or the shadow economy.

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So when, when we start taking that kind of view, we see

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that money laundering is not just about drugs, which is

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what generally people tend

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to think about when they think money laundering.

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It's, it's a much broader, it's a much richer kind

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of definition that, one is

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Skewing towards now originally money laundering,

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regulations.

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And I'm talking about the global regulations

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that were conceived of,

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and we had the global regulator, the fact,

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the factive setup, which is the financial action task force

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on money laundering and terrorism financing,

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and the way it was originally set up,

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and the kind of origin story

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that we saw emerging from there was that

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global anti-money laundering measures were seen as a kind

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of a foreign policy.

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They were stemming from the, this foreign policy imperative

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that the US was set to have, which was the primary.

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Um, they were the primary people

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who were pushing for it at that point.

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And so the foreign policy objectives were later analyzed

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as, you know, things like the defeat of communism

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or propping up friendly dictators

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or unseating unfriendly ones.

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And then the, the other piece that kind of emerged was also

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that these sources of funny money,

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they, they also ended up being a bit of a, a funding

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kind of stream for governments

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that were embarking on foreign policy misadventures.

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So think about,

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and we've all heard this story about

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the CIA funding the creation of the Taliban

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during the Cold War.

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So that was one of the things.

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So, and the, the, the thing

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that really interests me is how

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those foreign policy imperatives, they are not limited

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to countries such as the US and the us I started off with

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because that was the origin story of fatf.

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But we now see these foreign policy imperatives

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being assumed

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and translated in various jurisdictions according

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to their own needs.

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So the, one of the jurisdictions

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that I work on is Pakistan,

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because I'm originally from there.

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And it's super interesting to me that this kind of,

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desire for the state to hang on

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to these sources of loose money, it's,

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it's essentially unaccountable money.

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And so what they get to do with that is a bit

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of a, it's, it's a fluid kind of situation.

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So in, in places like Pakistan,

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in jurisdictions like Pakistan, you have the state using

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such monies and being invested in money laundering

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because, you know, it funds proxy warfare in Kashmir

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or in Afghanistan.

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And having access to that money is important to the state

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and its foreign policy objectives. And this is the

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Situation like when one goes across jurisdictions,

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you see these kind of imperatives cropping up

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because, you know, every state has its own

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domestic imperatives, and those do shape its foreign

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policy imperatives.

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The money rounding literature has come in waves.

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The first wave, of course, it started off with,

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you know, people like Peter Reuter, Michael Levy, Michael,

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Woody, and these people were talking about the

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undelivered promises of the global a ML regime,

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what it said it was going to do and what it did.

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So in a way, they were kind of trying to track the efficacy

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of, of the global regime.

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And then at that point there was also this huge push,

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and now we are talking the mid nineties, there was this push

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to try and kind of quantify

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how much money laundering there was actually.

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And so Peter Reuter wrote this really influential piece in

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which he was trying to, and he was writing for the IMF at

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that point, and he was trying to estimate

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how much laundering there was.

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But given the, the, the very furtive

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or the very surreptitious nature of the activities

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that one he is trying to track over there,

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all he could come up with was this estimate, which was two

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to 5% of the global economy of the global GDP.

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And the really interesting thing is from the mid nineties

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to now, we are talking about at least 30 years

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and we are still tracking

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and we are still adhering to that two to 5%

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of global GDP figure.

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So that estimate,

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and there have been attempts by people such as John Walker

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to try and quantify it

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and do more, more kind of consistent,

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consistent econometric modeling.

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It doesn't really work.

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And so eventually what one ends up talking about again,

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is like, you know, two to 5% of global GDP.

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Then, there was this,

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and the, the second wave that we saw was

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this hypercritical state, strain within the literature,

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which is people like, you know, Petras, van Doon, Rayna,

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and these people started trying to figure out

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how the consensus

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regarding global anti-money laundering measures was evolved

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because global regulation

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and there in mind that this literature is coming out

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in the early noughties.

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So one has already seen the global development story pan out

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and trying to get back into,

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and I'm, I'm relating this to the global trade kind of,

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measures that we saw

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and how hotly contested they were

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between the global north and the global south.

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So these guys like Van

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and these, these people were super interesting for that time

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because they brought that kind of perspective shift

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because they started asking, how does one end up mobilizing

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this overwhelming con consensus?

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Everyone seems to think money laundering is terrible.

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How does that happen? So there was that,

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in Canada we had people like,

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my late supervisor Margaret Bear, we had people like,

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Tom Naer and they were talking about how there's limited

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evidence of the purported destructiveness

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of money laundering.

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And of course, because both of them were criminologists,

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Margaret, bear had this, this thing that as long

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as the profit imperative exists,

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money laundering can't be done away with,

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which Tom Mayer kind of characterized as money laundering

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is a response toward demand driven crime.

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It's a, it's an outcome from that.

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So as long as crimes are demand driven,

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you can't stamp them out with supply side interventions such

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as, you know, what one hears often in the media is,

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you know, follow the money, catch the criminals do do away

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with the money that's associated with the drug trade

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and drugs will fizzle out or they'll, they'll be eradicated.

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But Tom Nala's intervention was that as long

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as there's a supply, as long as there's a demand

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for such crimes in society,

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you can't really extinguish that.

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Um, the newer wave of literature.

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And now I'm talking about people like Eleni Singal,

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I'm talking about, you know,

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Mary Alice Young Nico's pastors.

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These people are taking a very interesting approach.

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So, Singal

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talks about the political economy approach

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to money laundering.

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And her argument is that, you know, one needs to consider it

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as part of, one needs

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to consider it far more holistically than

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one has done so far.

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Um, Mary Alice Young kinds of builds on that.

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And, there's this very influential piece she wrote,

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I think in 2020.

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And that was with Michael Woody.

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And that was really interesting

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because she used, correspondence between

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British and American bankers,

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and she relied on that to show

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how the global regime was constructed in response

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to the needs of these bankers

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and how the financial industry particularly benefited.

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Um, PaaS talks about trade-based money laundering, which is

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of course coming up a lot more in the, in the literature.

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Um, he talks about terrorism financing

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and weapons of mass destruction

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and how that kind of feeds into the,

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the broader debate about money laundering.

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So those are the, the kinds of waves that one has seen.

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The Canadian state on the face of it seems to do really well

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because there are a bunch of laws that deal

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with money laundering,

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and there are a sizable number of federal

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and provincial agencies, like about 12 federal agencies,

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some 14 agencies per province.

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Um, they ostensibly deal with the problem

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of money laundering.

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But the issue is

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that even though there is this, there's this background work

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that has been done in terms of the laws

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and in terms of the agencies that are tasked with,

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dealing with the issue of money laundering.

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Everything still turns on what one calls money laundering.

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So if we are still going

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after the drug peddlers, then we are not going

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after people who are committing widespread tax avoidance.

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Now, occasionally now,

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and you'll remember this, that,

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when we started talking about the Panama Papers

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or the Paradise Papers, in 2021 you had a list

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of 500 Canadians who were supposed to have been,

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stashing away money abroad.

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And the CRA eventually came out

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and said that, you know, these people owed something like

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78 million.

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That's, that's a drop in the pool if you,

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if you start talking about those kinds of figures,

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it doesn't really make a lot of sense.

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But there are two kind of related questions.

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First, does one have the, the desire

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to go into corporate crime

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and investigate it so thoroughly, which is why my, a lot

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of my work starts talking about the role of the state.

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Is the state complicit in this?

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How do the laws and all the regulations that we come up

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with, how are they independent of the people who would stand

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to benefit the most from these?

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So a, a lot of the conversation in Canada

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that we are now hearing is about beneficial

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ownership registries.

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Now, any second year law student could tell you that,

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you know, 200 years of corporate law, we,

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we like beneficial ownership.

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It was set up with certain specific aims.

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Are you really going to subvert that?

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When we start talking about a federal publicly searchable

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registry, we are not taking into account that almost 90%

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of corporations in Canada,

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they're registered provincially, not federally.

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So if you are starting out with 10%

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and then narrowing it further based on the kind of

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investigation capability that you have,

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and of course we are talking about, you know, underfunding

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of the RCMP, when we start talking, financial crimes

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and economic crimes,

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we are talking about those kinds of things.

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These are not your standard, you know,

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someone committed homicide

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and we are going to go and catch them.

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You need teams of forensic lawyers.

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If you just take the random example of Microsoft

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and the IRS in the US

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started working on the case in 2007,

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and they have finally come up with this determination

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that Microsoft owes them $28 billion.

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That is a huge amount of time, a 16 year investigation.

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Do we have a, the political will to go

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after big time, tax abusers

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and do we have the capacity, do we have the funding

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that is required to do this?

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You are talking about large teams of forensic accountants

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and lawyers and geo talking about throwing everything at

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them, and yet we are not talking enough about

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the fact that the laws, the existing laws, they are set up

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to facilitate this kind of laundering.

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The major conclusion, I think for me at least,

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it's been a far more detailed study

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of the role of the state in this.

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So I think that that, the piece

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that really bothers me in all of this is the fact

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that when we start talking about the state

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and its imperatives, we assume

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that the state is a disinterested arbiter.

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We assume that the state, when it says that they want to go

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after money launderers, we assume that they do.

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But when we start considering the facts on the ground,

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that's not supporting that contention or that claim.

16:56.015 --> 17:00.755
So I would, I mean, my own sense in that is that instead

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of pretending, I mean, and,

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and the pretenses piece comes in when we start

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looking at other things.

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So for example, right until the end of last year,

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we were talking about money laundering in terms

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of the housing affordability crisis.

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We weren't talking about beneficial ownership.

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And this is the central piece of my current work

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that when we start focusing on these things,

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when we start focusing on drug rs,

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where you start focusing on housing affordability,

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what is it that we are not seeing?

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Because if one is being channeled into

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focusing on something that is assumed to be problematic,

17:42.215 --> 17:45.035
and I'm leaving aside the criminological implications that,

17:45.035 --> 17:48.155
you know, you can't deal with the drugs crisis

17:48.575 --> 17:52.165
unless you also deal with the oversubscription, crisis.

17:52.745 --> 17:54.845
You deal with the medical health crisis.

17:55.335 --> 17:56.765
Those are huge problems.

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But if we just look at it as funding of

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drugs business, then you start just looking

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for drug peddlers

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and then you don't really focus on the larger amount

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of money laundering that goes on, which is

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by the corporations.

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The, the numbers, the disparity is stunning.

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Crime accounts for only about one third

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of the total size of the pie.

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So by focusing on one third, what are we not looking at?

18:25.025 --> 18:26.925
We are not looking at the two thirds.

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And that's I think where the serious money is.

00:00 - Money laundering as it was originally conceived, way back when, the term was invented in the 1920s, that referred to the sluicing of dirty money through things like laundromats and car washes, hence money laundering. It was designed to obscure the origins of the money,

00:19 - the illegal origins. But what we see now is this greater push for not really calling it money laundering per se, but calling it illicit financial flows, because that captures the origin as well as the intended use of the monies. So just to give you like a random example, if I were to be donating money to say a militant group, now the source of my income is obviously legit. I work at the University of Calgary,

00:55 - but the intended use of that money, if it's militancy, then that ends up being called money laundering, or it would be categorized as an illicit financial. So, but the really interesting thing, and there's a rift in the academics among this, the really interesting pieces that when we start talking about crime, there's a huge plethora of things that one could conceivably be talking about. Most people when they think about money laundering, when they think about illicit financial flows,

01:29 - they're thinking about money associated with drugs, arms trafficking, sex trafficking, insider trading, and now more recently environmental crime or covid related fraud. But I think that kind of is not really a complete picture, it's a very partial view because it doesn't take into account the various other things that also construe illicit financial flows. So now we're getting into the realm of tax abuse,

02:02 - tax avoidance and evasion or we, we are talking about trade related malpractices, which is transfer pricing base erosion profit shifting over and under invoicing. We are talking about white collar crime, which is all sorts of corruption, political, criminal co, corporate corruption. We're also talking about things which are given a lot less attention, such as capital flight, or we are talking about the proceeds from the informal

02:33 - economy or what is other, in other jurisdictions, it's called the gray economy or the shadow economy. So when, when we start taking that kind of view, we see that money laundering is not just about drugs, which is what generally people tend to think about when they think money laundering. It's, it's a much broader, it's a much richer kind of definition that, one is Skewing towards now originally money laundering, regulations.

03:04 - And I'm talking about the global regulations that were conceived of, and we had the global regulator, the fact, the factive setup, which is the financial action task force on money laundering and terrorism financing, and the way it was originally set up, and the kind of origin story that we saw emerging from there was that global anti-money laundering measures were seen as a kind of a foreign policy.

03:34 - They were stemming from the, this foreign policy imperative that the US was set to have, which was the primary. they were the primary people who were pushing for it at that point. And so the foreign policy objectives were later analyzed as, you know, things like the defeat of communism or propping up friendly dictators or unseating unfriendly ones. And then the, the other piece that kind of emerged was also that these sources of funny money,

04:08 - they, they also ended up being a bit of a, a funding kind of stream for governments that were embarking on foreign policy misadventures. So think about, and we've all heard this story about the CIA funding the creation of the Taliban during the Cold War. So that was one of the things. So, and the, the, the thing that really interests me is how

04:39 - those foreign policy imperatives, they are not limited to countries such as the US and the us I started off with because that was the origin story of fatf. But we now see these foreign policy imperatives being assumed and translated in various jurisdictions according to their own needs. So the, one of the jurisdictions that I work on is Pakistan, because I'm originally from there.

05:09 - And it's super interesting to me that this kind of, desire for the state to hang on to these sources of loose money, it's, it's essentially unaccountable money. And so what they get to do with that is a bit of a, it's, it's a fluid kind of situation. So in, in places like Pakistan, in jurisdictions like Pakistan, you have the state using such monies and being invested in money laundering because, you know, it funds proxy warfare in Kashmir

05:47 - or in Afghanistan. And having access to that money is important to the state and its foreign policy objectives. And this is the Situation like when one goes across jurisdictions, you see these kind of imperatives cropping up because, you know, every state has its own domestic imperatives, and those do shape its foreign policy imperatives. The money rounding literature has come in waves. The first wave, of course, it started off with,

06:15 - you know, people like Peter Reuter, Michael Levy, Michael, Woody, and these people were talking about the undelivered promises of the global a ML regime, what it said it was going to do and what it did. So in a way, they were kind of trying to track the efficacy of, of the global regime. And then at that point there was also this huge push, and now we are talking the mid nineties, there was this push to try and kind of quantify how much money laundering there was actually.

06:51 - And so Peter Reuter wrote this really influential piece in which he was trying to, and he was writing for the IMF at that point, and he was trying to estimate how much laundering there was. But given the, the, the very furtive or the very surreptitious nature of the activities that one he is trying to track over there, all he could come up with was this estimate, which was two to 5% of the global economy of the global GDP. And the really interesting thing is from the mid nineties

07:24 - to now, we are talking about at least 30 years and we are still tracking and we are still adhering to that two to 5% of global GDP figure. So that estimate, and there have been attempts by people such as John Walker to try and quantify it and do more, more kind of consistent, consistent econometric modeling. It doesn't really work.

07:52 - And so eventually what one ends up talking about again, is like, you know, two to 5% of global GDP. Then, there was this, and the, the second wave that we saw was this hypercritical state, strain within the literature, which is people like, you know, Petras, van Doon, Rayna, and these people started trying to figure out how the consensus regarding global anti-money laundering measures was evolved because global regulation

08:25 - and there in mind that this literature is coming out in the early noughties. So one has already seen the global development story pan out and trying to get back into, and I'm, I'm relating this to the global trade kind of, measures that we saw and how hotly contested they were between the global north and the global south. So these guys like Van and these, these people were super interesting for that time

08:55 - because they brought that kind of perspective shift because they started asking, how does one end up mobilizing this overwhelming con consensus? Everyone seems to think money laundering is terrible. How does that happen? So there was that, in Canada we had people like, my late supervisor Margaret Bear, we had people like, Tom Naer and they were talking about how there's limited evidence of the purported destructiveness of money laundering.

09:30 - And of course, because both of them were criminologists, Margaret, bear had this, this thing that as long as the profit imperative exists, money laundering can't be done away with, which Tom Mayer kind of characterized as money laundering is a response toward demand driven crime. It's a, it's an outcome from that. So as long as crimes are demand driven, you can't stamp them out with supply side interventions such as, you know, what one hears often in the media is,

10:05 - you know, follow the money, catch the criminals do do away with the money that's associated with the drug trade and drugs will fizzle out or they'll, they'll be eradicated. But Tom Nala's intervention was that as long as there's a supply, as long as there's a demand for such crimes in society, you can't really extinguish that. the newer wave of literature. And now I'm talking about people like Eleni Singal, I'm talking about, you know,

10:38 - Mary Alice Young Nico's pastors. These people are taking a very interesting approach. So, Singal talks about the political economy approach to money laundering. And her argument is that, you know, one needs to consider it as part of, one needs to consider it far more holistically than one has done so far. Mary Alice Young kinds of builds on that.

11:06 - And, there's this very influential piece she wrote, I think in 2020. And that was with Michael Woody. And that was really interesting because she used, correspondence between British and American bankers, and she relied on that to show how the global regime was constructed in response to the needs of these bankers and how the financial industry particularly benefited.

11:43 - PaaS talks about trade-based money laundering, which is of course coming up a lot more in the, in the literature. he talks about terrorism financing and weapons of mass destruction and how that kind of feeds into the, the broader debate about money laundering. So those are the, the kinds of waves that one has seen. The Canadian state on the face of it seems to do really well because there are a bunch of laws that deal with money laundering,

12:15 - and there are a sizable number of federal and provincial agencies, like about 12 federal agencies, some 14 agencies per province. they ostensibly deal with the problem of money laundering. But the issue is that even though there is this, there's this background work that has been done in terms of the laws and in terms of the agencies that are tasked with, dealing with the issue of money laundering.

12:52 - Everything still turns on what one calls money laundering. So if we are still going after the drug peddlers, then we are not going after people who are committing widespread tax avoidance. Now, occasionally now, and you'll remember this, that, when we started talking about the Panama Papers or the Paradise Papers, in 2021 you had a list of 500 Canadians who were supposed to have been, stashing away money abroad.

13:24 - And the CRA eventually came out and said that, you know, these people owed something like 78 million. That's, that's a drop in the pool if you, if you start talking about those kinds of figures, it doesn't really make a lot of sense. But there are two kind of related questions. First, does one have the, the desire to go into corporate crime and investigate it so thoroughly, which is why my, a lot

13:58 - of my work starts talking about the role of the state. Is the state complicit in this? How do the laws and all the regulations that we come up with, how are they independent of the people who would stand to benefit the most from these? So a, a lot of the conversation in Canada that we are now hearing is about beneficial ownership registries. Now, any second year law student could tell you that, you know, 200 years of corporate law, we,

14:29 - we like beneficial ownership. It was set up with certain specific aims. Are you really going to subvert that? When we start talking about a federal publicly searchable registry, we are not taking into account that almost 90% of corporations in Canada, they're registered provincially, not federally. So if you are starting out with 10% and then narrowing it further based on the kind of investigation capability that you have,

15:01 - and of course we are talking about, you know, underfunding of the RCMP, when we start talking, financial crimes and economic crimes, we are talking about those kinds of things. These are not your standard, you know, someone committed homicide and we are going to go and catch them. You need teams of forensic lawyers. If you just take the random example of Microsoft and the IRS in the US

15:28 - started working on the case in 2007, and they have finally come up with this determination that Microsoft owes them $28 billion. That is a huge amount of time, a 16 year investigation. Do we have a, the political will to go after big time, tax abusers and do we have the capacity, do we have the funding that is required to do this? You are talking about large teams of forensic accountants and lawyers and geo talking about throwing everything at

16:05 - them, and yet we are not talking enough about the fact that the laws, the existing laws, they are set up to facilitate this kind of laundering. The major conclusion, I think for me at least, it's been a far more detailed study of the role of the state in this. So I think that that, the piece that really bothers me in all of this is the fact that when we start talking about the state and its imperatives, we assume

16:36 - that the state is a disinterested arbiter. We assume that the state, when it says that they want to go after money launderers, we assume that they do. But when we start considering the facts on the ground, that's not supporting that contention or that claim. So I would, I mean, my own sense in that is that instead of pretending, I mean, and, and the pretenses piece comes in when we start looking at other things. So for example, right until the end of last year,

17:11 - we were talking about money laundering in terms of the housing affordability crisis. We weren't talking about beneficial ownership. And this is the central piece of my current work that when we start focusing on these things, when we start focusing on drug rs, where you start focusing on housing affordability, what is it that we are not seeing? Because if one is being channeled into focusing on something that is assumed to be problematic,

17:42 - and I'm leaving aside the criminological implications that, you know, you can't deal with the drugs crisis unless you also deal with the oversubscription, crisis. You deal with the medical health crisis. Those are huge problems. But if we just look at it as funding of drugs business, then you start just looking for drug peddlers and then you don't really focus on the larger amount of money laundering that goes on, which is

18:11 - by the corporations. The, the numbers, the disparity is stunning. Crime accounts for only about one third of the total size of the pie. So by focusing on one third, what are we not looking at? We are not looking at the two thirds. And that's I think where the serious money is.

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