OttawaJune 21, 2006
Table of Contents
Speaking Notes for the Director and Officials
FINTRAC Business Process
Link Chart of Money Laundering Case
Speaking notes for the Director and
Officials
Horst
Intscher, Director
Good afternoon, I am pleased that the committee has invited us
back to explain how FINTRAC produces financial intelligence to
combat money laundering and terrorist activity financing.
I am joined today by Sandra Wing, the
Senior Deputy Director of FINTRAC and Yvon Carrière, Senior Counsel, both of
whom you met on May 18th, and by Peter Bulatovic, Assistant Director, Tactical
Financial Intelligence.
Before we begin the presentation, I
will make some contextual remarks. Then Ms. Wing will follow with a quick
overview of our business process and Mr. Bulatovic will walk you through a
sanitized money laundering case that will demonstrate for you the analytical
process we use to produce FINTRAC's key product, financial intelligence.
The framework legislation that created
FINTRAC sets out a careful balance between the needs of investigators and the
privacy rights of Canadians. This notion of balance is at the core of our legislation
and is a defining feature of our operations.
By law, FINTRAC must have reasonable
grounds to suspect that the information we disclose would be relevant to the
investigation or prosecution of a money laundering or terrorist activity
financing offence or other threat to the security of Canada. To protect the
financial transaction information in our possession, FINTRAC's internal process
set out clear rules to ensure that no information leaves the agency without
meeting this threshold test.
Furthermore, no one has access to our
databases. Inside our agency, access is further restricted to only those
employees who do the financial analysis.
With this mandate
in place, what separates FINTRAC from the law enforcement community in that we
do
not conduct investigations or surveillance, lay criminal charges, seize
funds, or create watch lists of suspected money
launderers or terrorist financiers. What we do is analyze the
information available to us to provide a unique financial intelligence product
for law enforcement and CSIS.
Law enforcement and CSIS understand
this structure and the reasons for it and appreciate the financial intelligence
that we are able to produce. We all respect the paramount importance of
the Charter and the privacy rights of Canadians.
I am encouraged that, in a relatively short period of time, our
contributions are being reflected more and more in investigations,
prosecutions and charges. It took time to produce these
results given that money laundering and terrorist activity financing
cases are often complex and can take years to come to fruition.
FINTRAC's contribution of financial
intelligence can sometimes be central to an
investigation or identify suspects previously unknown. Our disclosures can also
provide linkages that may not have been known to investigators without our
intelligence.
I will turn now to Sandra and Peter
who will take you through our business process and a sanitized case example of
our intelligence product.
Sandra
Wing, Senior Deputy Director
Business
Process Diagram
Thank you Horst.
I refer you to the handout entitled FINTRAC's business process.
I am going to quickly run you through
this graphic, which will serve to recap for you our information flow, before
focusing in on how we conduct our analysis.
I draw your attention to the far left
hand side under the heading "receiving information".
We start with the financial transactions, including deposits and
money transfers, when they are undertaken by those entities listed
just to the right, such as banks and casinos.
Moving again to the right, these
entities must submit reports to FINTRAC when they undertake wire transfers into
or out of Canada, or domestic large cash deposits of $10,000 or more. They must also report suspicious transactions
of any dollar amount.
Along the bottom left, you will see
that we also receive reports on cross-border movements of currency and monetary
instruments of $10,000 or more, as well as currency seizures.
This financial information is reported
almost exclusively by electronic means and stored in our database.
This reported information is
supplemented by information from other sources. Our legislation allows us to access information that is
maintained for law enforcement and national security purposes as well as
commercial and publicly available databases.
We are also able to query foreign financial intelligence units.
Our law enforcement and intelligence partners also can and do
provide information to us voluntarily.
Now, how do we analyze all of this information? We rely
heavily on our people and our technology.
With respect to technology, the electronic receipt of financial
information allows us to use IT systems to sift through the reports
and link financial transactions.
In the initial review of these linked transactions, we identify
patterns of suspicious financial activity and we assign these to our
analysts for a closer look.
As the analysts develop their cases, they focus first on the
relevant transactions from our database. Then, they verify
identities and associations among people and businesses involved in
the transactions.
Where the analysis gives rise to
reasonable grounds to suspect that the financial activity would be relevant to
a money laundering or terrorist financing investigation, a report is prepared
detailing the rationale for disclosure.
They also prepare a disclosure
statement, which contains details on the financial transactions, when and where
they took place, the individuals conducting the transactions, and any accounts,
businesses or other entities involved.
The report and disclosure statement go
through a series of vetting and management approvals before it is submitted to
the Director of FINTRAC for final approval.
This review and approval process ensures
that we meet two fundamental criteria.
First, that we have met our legislative threshold to disclose
and, second, that the information provided is what is allowed under
our legislation.
I will now turn to Peter Bulatovic,
who will show you how our analytical process works in practice.
Peter
Bulatovic, Assistant Director, Tactical Financial Intelligence
Sanitized
Money Laundering Case
Thank you.
Senators, I would
now like to refer you to the second image you have before you. It is a
link chart that depicts a recent money laundering case involving a number of
the financial reports received by FINTRAC, Electronic Fund Transfers Reports
(EFTs), Large Cash Transaction Reports (LCTRs) and Suspicious Transaction
Reports (STRs) concerning the transactions of various foreign and domestic
companies and individuals.
What this chart
demonstrates is through our analysis of the transactions found in our data
holdings and through our analysis of other sources of information we were able
to link three separate clusters of financial transactions into a larger
financial network, identifying new linkages, new parties to the transactions
and new accounts. Thereby providing a more comprehensive financial
tactical product to the recipients of our disclosure. These separate financial
clusters can be found on the chart and are identified as Box A, B and C.
BOX A
Let me begin by
describing the activity in Box A. A Foreign Financial Intelligence Unit
(or 'FINANCIAL INTELLIGENCE UNIT') advised FINTRAC of a money-laundering investigation
of four individuals and a business involved in the wiring of funds between
accounts within the same reporting entity in the foreign country. The
individuals provided Canadian addresses and identification and were described
as "Canadian" by the FINANCIAL INTELLIGENCE UNIT.
The FINANCIAL
INTELLIGENCE UNIT reported that the business referred to in the chart as
"Company 1" in Box A would wire funds (through several foreign
reporting entities) to an account at a reporting entity in their country.
Two of the Canadians held power of attorney over this account. The funds
would then be further transferred to another account at the same reporting
entity. This account was held by the Canadians. The FINANCIAL
INTELLIGENCE UNIT deemed this whole activity as suspicious. No other
information could be found by the FINANCIAL INTELLIGENCE UNIT regarding
"Company 1".
Upon receipt of
this FINANCIAL INTELLIGENCE UNIT Query, our data base was searched for
financial transactions to determine the extent, if any involved the
individuals and business identified. We found financial activity for 2 of
the 4 individuals identified.
In addition we also found transactions involving "Company 1",
the company identified by the FINANCIAL INTELLIGENCE UNIT.
According to the transactions in our database "Company 1" wired
several millions of dollars to multiple companies in Canada.
As can be seen on the chart between Box A and B, Company 1 wired
funds to Companies 2, 3, 4 and to multiple other companies all
located in Canada. One of the principal recipients of these
electronic funds transfers was an import/export auto business
located in Canada noted on the chart as Company 4 in BOX B.
BOX B
A search of open sources yielded very little information on
Company 1 and nothing on Company 4. These searches were conducted to
obtain contextual information on the nature of these businesses and
to determine what is the underlying business relationship or
rationale for these transactions.
We found no open
source information available on Company 4 in the way of advertising, telephone
directory information, or a company website. However we were able to
confirm that this company was incorporated in Canada.
We found that
Company 1 was not in the business of purchasing or selling vehicles or anything
remotely associated to that industry. Therefore the level of financial
activity conducted between Company 1 and Company 4 was suspect and required
further attention.
As a result of our analysis of the financial transactions
involving Company 4, we found a suspicious transaction report filed
by a Canadian reporting entity. The reporting entity reported
to FINTRAC activity it deemed suspicious with regards to the
business accounts held by Company 4. The reporting entity
stated:
The accounts were
opened several years ago and were relatively dormant.
The dollar value
of wire transfers received into the two business accounts were steadily
increasing
Over a short
period, millions of dollars were wired to the accounts held by this business
with no rationale as to why the increase occurred.
The number of
wires received from various foreign companies originated from a country with
weak anti-money laundering controls.
In addition the
reporting entity indicated that it was suspicious that cheques were being issued
from a foreign currency exchange and then subsequently deposited
into the reporting entity accounts of Company 4. Again
there was financial activity that was inconsistent with the
nature of Company 4's business.
We also found two other companies operating at the same address
as Company 4. They are Company 5 and 6 and they form part of the 2nd
cluster of financial transactions found in Box B. In fact when
an address for one business changed so had the other addresses for
the other businesses, for the same period. The addresses had
changed three times over a four year period.
Wire transfers received by Company 5 were also received from the
same foreign country that possessed weak anti-money laundering
controls.
Open source
information provided a phone listing for Company 5 and a business description
as an auto import/ export business. Company 5 and Company 6 shared the
same director.
I would like to
draw your attention to Company 7 on the chart which is almost at the center of
the chart. Company 7 is the financial link to Company 4 and Company 1 and
to the personal reporting entity accounts belonging to two individuals
identified in Box C, the third cluster of financial transactions.
Company 7 sent wire transfers to Company 4. Company 7 has
also sent wire transfers to an account held by two individuals in
Canada. Company 7 also sent wire transfers to a Canadian
Company, Company 2 which was also a recipient of wire transfers from
Company 1. Company 7 links the three clusters of financial
transactions identified on the chart.
BOX C
Following a search
of our transactional database on Company 7, we found a suspicious transaction
report filed by another Canadian Reporting entity on the two individuals in
Canada identified in the lower right corner of the chart in Box C. The STR was submitted as a result of the suspicions raised regarding the activity
of the accounts held by the two Canadians. The reporting entity
stated that:
Over a period of
five months, the two individuals received 14 wire transfers from four
different companies, Company 7 being one of them.
Efforts had been
made to contact the individuals but Canada Post had returned their mail and the
phone number provided was incorrect. The reporting entity wanted to
question the couple regarding the recent financial activity involving their
accounts.
It refused
the receipt of several wire transfers for the couple. As a result, the
male appeared at the reporting entity and claimed that the funds were owed to
him from his business overseas.
When asked about
the wires received from the various foreign companies he did not know the
companies and why they were sending the payments.
It is unusual that
a customer would receive funds from multiple businesses and not know who these
businesses were or why the funds were being sent.
It was also
unusual that a new customer would not come to the financial institution over a
7-month period.
We also received
voluntary information from a Canadian Law Enforcement Agency on the two
individuals. It was suspected that they were using their personal accounts
to launder proceeds of crime.
As a result of our
analysis of all of the information available to us, we suspected that the
transactions identified in the chart would be relevant to the investigation or
prosecution of a money laundering offence. The following internationally
recognized indicators of money laundering were identified as applicable to this
case:
Large and/or rapid
movement of funds.
Large incoming wire
transfers on behalf of a foreign customer with little or no explanation.
Unexplained
dispersal of funds to multiple beneficiaries.
Use of multiple
accounts at a single financial institution for no apparent legitimate purpose.
On-going (law
enforcement, foreign FINANCIAL INTELLIGENCE UNIT) investigation.
Multiple amounts
paid into personal account without explanation.
Re-activation of a
dormant account.
Atypical
business/account behaviour.
Overall in this
case we received from eight different reporting entities in excess of 400
electronic funds transfers, several large cash transaction reports and
some suspicious transaction reports.
FINTRAC Business Process
The following is a chart of the FINTRAC
business process. For better accessibility, the chart is offered in an image
format (GIF) and in a Portable Document Format (PDF).
( GIF -
PDF )
Link Chart of Money Laundering Case
The following is a link chart of a money laundering case. For better
accessibility, the chart is offered in an image format (GIF) and in a Portable
Document Format (PDF).
( GIF - PDF
)
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