How organized crime uses B.C. casinos to launder money

Open this photo in gallery:

Former Mountie Peter German described Vancouver-region casinos as “laundromats for the proceeds of organized crime,” in an explosive report to the B.C. government. It has meant dirty money obtained through illegal enterprises is being washed through legitimate enterprises to obscure its shady roots.

The apex of the problem, Mr. German writes in a report commissioned by the government and released Wednesday, came in July, 2015, when a Mountie told an investigator with the British Columbia Lottery Corp. that the RCMP “had been looking for a ‘minnow’ and found ‘a whale.’ “

The scheme, Mr. German explained, was revealed after investigators discovered cash buy-ins at one casino for a month amounted to $13.5-million, “mostly in $20 denomination bills, the preferred currency of drug traffickers.”

Dirty money: How criminals launder

cash through B.C.’s casinos

A B.C. government report has found widespread

evidence of money laundering in which organ-

ized criminals, notably in the drug trade, use a

web of underground banks, loan sharking and

gamblers to clean money through the prov-

ince’s casinos.

 

The result is what the report describes as a

cycle in which dirty money is loaned out to

gamblers and then paid back when they cash

out, in some cases through offshore accounts.

One form of such laundering used to move

money out of China has been dubbed the “Van-

couver model.”

Drugs,

suppliers

Casinos

Foreign

banks

Buys drugs,

precurssors

Cash to play

Money to

cover debt

Drugs

Profit

Cash from

drug deals

Cash lent

to patron

Loan

shark

Organized crime

Casino patron

THE GLOBE AND MAIL

SOURCE: B.C. Ministry of the Attorney General

Dirty money: How criminals launder

cash through B.C.’s casinos

A B.C. government report has found widespread

evidence of money laundering in which organized

criminals, notably in the drug trade, use a web of

underground banks, loan sharking and gamblers to

clean money through the province’s casinos.

 

The result is what the report describes as a cycle in

which dirty money is loaned out to gamblers and

then paid back when they cash out, in some cases

through offshore accounts. One form of such laun-

dering used to move money out of China has been

dubbed the “Vancouver model.”

Drugs,

suppliers

Casinos

Foreign

banks

Buys drugs,

precurssors

Cash to play

Money to

cover debt

Drugs

Profit

Cash from

drug deals

Cash lent

to patron

Loan

shark

Organized crime

Casino patron

THE GLOBE AND MAIL

SOURCE: B.C. Ministry of the Attorney General

Dirty money: How criminals launder cash through B.C.’s casinos

A B.C. government report has found widespread evidence of money laundering in

which organized criminals, notably in the drug trade, use a web of underground

banks, loan sharking and gamblers to clean money through the province’s casinos.

 

The result is what the report describes as a cycle in which dirty money is loaned

out to gamblers and then paid back when they cash out, in some cases through

offshore accounts. One form of such laundering used to move money out of China

has been dubbed the “Vancouver model.”

Casinos

Drug, precurssor

suppliers

Foreign banks

Buys drugs,

precurssors

Bank account

Cash used to play

Money wired to

cover debt

Drugs

Profit

Bank account

Cash from

drug deals

Cash lent

to patron

Loan

shark

Organized crime

Casino patron

THE GLOBE AND MAIL, SOURCE: B.C. Ministry of the Attorney General

In his report, Mr. German, who retired from the Mounties as a deputy commissioner for Western and Northern Canada, sets out to explain the dynamics of money laundering in B.C., largely at Lower Mainland casinos.

Early on in his 247-page report, he defines money laundering as the process by which money obtained through illegal activity is introduced into legitimate financial intermediaries, where the source of funds is obscured by more than one further transaction, creating an appearance of legitimacy.

Read more: B.C. casinos ‘laundromats’ for proceeds of organized crime: report

Mr. German said there is dirty money and black money. Dirty money is the product of criminality. Black money is the product of presumed legal activity, but hidden to evade the payment of taxes.

He says there are three stages in the laundering process:

• The placement of dirty money in a financial vehicle: This, he says, is when money launderers are in a vulnerable stage. “Cash is a bulky commodity in large amounts.”

To solve that problem, Mr. German explained, domestic and international organized crime figures were loaning money to high rollers to gamble with and “hiring [their] own smurfs to gamble.”

Smurfs, the report explains, are low-level members of criminal organizations who are used to deposit relatively small amounts of money at several institutions.

Casinos are among the options for the goal of mixing illegal money with legitimate income, Mr. German said.

• The layering of money: This step includes passing the money through layers of transactions, such as purchasing precious metals and automobiles, and other measures to obfuscate the paper trail around the questionable money.
• The integration or the ‘dry cycle:’ Here, money is reintegrated into the legitimate economy. Proceeds can be used to purchase consumer goods, real estate, luxury cars or boats or even reinvested in illegal business to pay bribes, lawyers or provide personal security.

“Through the process of placement, layering and integration, the money launderer will effectively accomplish three objectives: conversion of bulk proceeds of crime into another form, concealment of its origin and ownership, and creation of an ‘alibi’ for the funds,” Mr. German writes.

He says that some countries act as sources of illegal money and others facilitate the cleansing process. “Still others such as the U.K., Canada and the U.S. act as the source of funds for domestic criminals laundering money, and cleanse money for foreign criminal elements.”

Mr. German writes of a “Vancouver model” – a term created by an Australian professor that includes a dynamic in which money is laundered from Vancouver into and out of China and to other locations, including Mexico and Colombia.

“In addition, ‘high rollers’ from China facilitate the flight of capital from China using Canadian casinos, junket operations and investment in Canadian real estate.”

Once the “heat” becomes too much in a sector such as casinos, organized crime will move into other areas such as real estate, luxury goods, or other enterprises. “As a result, the Vancouver model is a snapshot in time for the casino industry, but it may replicate in other sectors of the economy,” he writes.

Mr. German told a news conference on Wednesday that it was hard to put a number on the amount of money laundered in B.C. over the past several years. While he suggested a figure of $100-million, he conceded that it could be “much higher,” saying his team did not do a “forensic accounting” on the issue.