Canada’s anti-money-laundering watchdog has seen an uptick in reports relating to the use of virtual currencies such as bitcoin by human traffickers engaged in sexual exploitation.
Entities such as financial institutions, securities dealers, money-services businesses, casinos and real estate brokers are legally required to report suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
Between 2017 and 2018, the number of reports flagging cryptocurrency transactions relating to trafficking people into the sex trade increased significantly, according to a FinTRAC document obtained under the Access to Information Act by Ottawa researcher Ken Rubin. The document did not specify precisely how many such reports it received.
Virtual currencies such as bitcoin and ether are considered to be at high risk of exploitation by criminals because they allow users to transact directly with one another without the oversight of intermediaries such as banks.
“While recognizing that some users have legitimate reasons to seek greater anonymity, the capacity of cryptocurrencies to enhance anonymity make them attractive tools for illicit actors,” FinTRAC spokeswoman Renée Bercier said in an e-mail.
FinTRAC said the increase in reports linking virtual-currency transactions to human traffickers is likely because of the Project Protect, a partnership between FinTRAC, financial institutions and law-enforcement agencies. The initiative, launched in 2016, identifies and investigates human traffickers by following their financial transactions.
The initiative has led to heightened awareness among financial institutions and other entities that report to FinTRAC, the agency said in a financial intelligence report dated October, 2019.
As part of the project, FinTRAC – alongside its law-enforcement partners and Canada’s major banks – developed an operational alert aimed at helping financial institutions recognize and report transactions that appear to be related to trafficking victims into the sex trade.
Since the launch of the project, FinTRAC has seen more than a seven-fold increase in suspicious-transaction reports relating to laundering the proceeds of human trafficking in the sex trade, Ms. Bercier said. The increased reporting has allowed the agency to pass along more than 500 disclosures of financial intelligence to law enforcement agencies across Canada and internationally, she added.
FinTRAC also saw a spike in the number of suspicious-transaction reports indicating a connection between virtual currencies and fraud. Some of the more common types of fraud linked to virtual currencies include bitcoin ponzi schemes, bond and securities fraud and romance scams, which involve feigning romantic intentions to gain a victim’s affection and then asking for financial help.
When warranted, the anti-money-laundering agency passes along the financial intelligence it has gathered to its law-enforcement and national-security partners for investigation.
The Globe and Mail previously reported that the number of cryptocurrency-related incidents that FinTRAC disclosed to its law-enforcement partners more than tripled in the agency’s most recent fiscal year. The watchdog made 61 such disclosures in the fiscal year that ran from April 1, 2018, to March 31, 2019, compared with 19 the previous year.
The amount of suspicious-transaction reporting linked to cryptocurrency transactions has been rising in light of the growing popularity of virtual currencies. Experts predict it will skyrocket next year, when virtual-currency exchanges officially come under FinTRAC’s watch.
New regulations that come into effect on June 1, 2020, will require virtual-currency dealers, the online marketplaces where people go to buy and sell cryptocurrencies, to register with FinTRAC, report suspicious activity and keep detailed records of their clients and transactions.
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Alexandra Posadzki