Major Organized Crime
National Security and Intelligence Committee of Parliamentarians Annual Report 2020
Overview
82. In its 2018 annual report, the Committee stated that the impact of organized crime was significant and insidious. Organized crime groups pursue traditional criminal activities such as the illegal trafficking of drugs, weapons, illicit goods and people, and financial crimes, such as fraud, illegal gaming and market manipulation. The illegal activities of major organized crime groups continue fo carry significant costs for society and pose substantial risks to Canada. Over the past two decades, these activities have grown in complexity and sophistication. The nature of the threat has not markedly changed since 2018.
Description of the threat
83. Major organized crime remains an important national security threat. Organized crime groups continue to pursue traditional criminal activities such as the illegal trafficking of drugs, weapons, illicit goods and people, and financial crimes, such as fraud, illegal gaming and market manipulation. They launder money to conceal the profits of their crimes and use extreme violence, including murder, to operate. Furthermore, the activities of major organized crime groups have grown in complexity and sophistication in the past two decades. Footnote 126 The same technological enhancements that have facilitated faster flows of people, money, information and goods have also permitted organized crime groups to establish complex global criminal networks. As the UN Office on Drugs and Crime notes, these networks have enabled organized crime to "flourish, diversify and expand their activities." Footnote 127
84. New areas of organized criminal activities include: cybercrime, identity-related crime, trafficking in cultural property and organ trafficking. Footnote 128 Interpol also notes that "with revenues estimated in the billons, their criminal enterprises closely resemble those of legitimate international businesses. They have operating models, long-term strategies, hierarchies, and even strategic alliances, all serving the same purpose: to generate the most profits with the least amount of risk." Footnote 129
Organized crime in Canada
85. In Canada, organized crime is pervasive. The Criminal Code defines a criminal organization as consisting of three or more people, inside or outside of Canada, whose main purpose is to commit or facilitate serious offences to obtain material benefits. The RCMP's, Criminal Intelligence Service Canada (CISC) identified more than 1,850 organized crime groups operating in Canada in 2019, Footnote 130 a sharp increase from 2011 when it identified between 700 and 900 groups. Footnote 131
86. The majority of the groups identified by CISC do not pose a national security threat and would not fall within the remit of this Committee. However, CISC identified 14 organized crime groups as highest-level threats, meaning that they have interprovincial networks, almost always possess international connections, engage in multiple criminal markets and use violence to further their criminal interests. Footnote 132 The CISC definition of the highest-level threat groups is consistent with the Committee's definition of national security threats, which are threats to the security of Canada defined in the CSIS Act or criminality of national scope or gravity. These 14 organizations primarily engage in large-scale drug trafficking and money laundering, use the legitimate economy to pursue their criminal interests and can operate from abroad. Of the 14 identified by CISC, 12 grew from medium-to high-level threats in the past five years. Two others have maintained their status as a high-level threat, and are well entrenched in Canada. Between July 2018 and September 2020, the RCMP, conducted *** priority investigation(s) related to transnational serious organized crime. Footnote 133
Major organized crime in Canada: The illegal drug trade
87. The illegal drug trade is the most lucrative source of funds for organized crime groups in Canada. Footnote 134 In 2018, over 90 percent of organized crime groups in Canada were involved in at least one illicit drug market. Footnote 135 The 2019 CISC report on organized crime states that five high-level threat groups are involved in the largest cocaine importing networks in Canada, including with ties to Mexican and Colombian drug cartels. These groups import up to 1,000 kilograms of cocaïne to Canada per month.
88. According to CISC, the illegal drug trade has been increasing, particularly in fentanyl and methamphetamines. The illicit cannabis market has shrunk with legalization and organized crime groups are moving away from heroin and toward fentanyl, particularly in western Canada. Footnote 136 Five high-level threat organized crime groups are involved in large methamphetamine networks, which includes the diversion of unregulated chemicals in Canada and the importation of precursor chemicals from China and Mexico for the production of methamphetamine and fentanyl. Footnote 137
Major organized crime: Money laundering
89. Money laundering on behalf of organized crime is Canada's largest illicit financing threat. The government assesses that money laundering will probably increase in coming years. Footnote 138 Major organized crime groups engage in money laundering to clean their own proceeds of crime or to provide the service as a third party to other criminal organizations. The CISC 2019 report on organized crime notes that at least four high-level threat groups provide large-scale money laundering services in Canada for international drug traffickers. Organized crime groups engage in money laundering operations through casinos, the underground banking system, illegal gaming (including illegal gaming houses and illegal gaming websites), shell companies and nominees, trade-based money laundering, and real estate investments. Footnote 139 The infusion of illegally obtained revenue into legitimate marketplaces erodes the integrity of Canada's financial systems, distorts marketplaces, creates instability, and enables corruption in industry and government.
90. The UN Office on Drugs and Crime estimates that from 2 to 5 percent of global GDP, or US$800 billion to US$2 trillion, are laundered throughout the world annually. Footnote 140 In Canada, the highest estimate for domestically laundered funds is C$100 billion. Footnote 141 Money laundering by organized crime in British Columbia through the real estate market and casinos is the most prominent and publicly discussed domestic example. Footnote 142 In 2018, the Expert Panel on Money Laundering in B.C. Real Estate estimated that $7.4 billion was laundered in the province, with $5 billion of it channeled through the real estate market. Footnote 143 The Expert Panel found that laundered funds inflated housing prices across the province by approximately 5 percent, putting housing out of reach for large segments of the population. Footnote 144
91. Similar increases have occurred in other large Canadian real estate markets. Transparency International Canada estimates that between 2008 and 2018, more than $20 billion entered the Greater Toronto Area real estate market outside of the current legislated regime and therefore without any due diligence or review from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).That estimate included $9.8 billion used in cash transactions, and $10.4 billion in purchases by corporate buyers that used unregulated tenders operating outside Canada's anti-money laundering framework. Footnote 145 This is just one example of how organized crime groups evade this framework in the way they distribute their assets and financial transactions to limit the detection of their criminal activity. Footnote 146
92. An increasing area of concern for Canada is trade-based money laundering. The Financial Action Task Force, the international body responsible for establishing anti-money laundering and anti-terrorist financing norms and best practices, defines trade-based money laundering as "the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origin." Footnote 147 According to the Financial Action Task Force, a common method of trade based money laundering involves the misrepresentation of the price, quantity or quality of imports or exports. Footnote 148 The scale of trade-based money laundering in Canada is unknown, but CBSA assesses that, at a minimum, it is likely in the hundreds of millions of dollars. lt further assesses that this activity is happening particularly in Toronto, Montréal and Vancouver. Footnote 149 Intelligence indicates that trade-based money laundering seems to be a key method used by Mexican and Colombian drug cartels. Footnote 150
93. The RCMP, is responsible for investigating cases of trade-based money laundering. However, this method of money laundering is not widely identified or understood, and referrals are often limited as a result. For example, FINTRAC does not have the legislative authority to collect transaction information linked to documentary credit information, which creates gaps in the ability of CBSA and law enforcement to identify suspicious financing links to trade transactions. ln response, the government established the Trade Fraud and Trade-Based Money Laundering Centre of Expertise at CBSA in April 2020 to identify, interdict and investigate complex trade fraud, and refer trade-based money laundering files to the RCMP,. Footnote 151
Major organized crime: Penetrating the legal marketplace
94. Organized crime groups are active in the legitimate economy to aid in the laundering process or to invest so-called clean money in the ongoing pursuit of profit. Beyond the various criminal activities noted above, organized crime groups maintain contrai of hundreds of businesses in many industries, including food services, transportation, construction and haulage, property management, financing and loans, real estate companies, and cash-only businesses. Footnote 152 The challenges associated with organized crime embedding itself in the legitimate economy are clearly described by France Charbonneau in her message for the final report of Quebec's [translation] Commission of inquiry on the awarding and management of public contracts in the construction industry:
[translation] The repercussions from this illegal flow of money into the legal economy are devastating in the long run. Companies infiltrated by organized crime are often converted into empty shells, depriving society of the benefits associated with their activities as they are transformed into sterile investments used only for money laundering purposes. The presence of organized crime in certain economic sectors also discourages investors. These criminal organizations launder their money by infiltrating the legal economy. They eventually become untouchable, even though they acquire their fortune illegally through the use of violence... Footnote 153
COVID-19 pandemic
95. The pandemic has provided opportunities for organized crime groups. The RCMP, notes that continued border restrictions couId result in increased demand for licit and illicit goods that couId be exploited by organized crime. Footnote 154 The RCMP, also assesses that organized crime groups have increased their web presence, particularly to facilitate the illicit trafficking of pandemic-related goods (e.g., persona! protective equipment, masks and medical equipment). Footnote 155 CBSA assesses that the pandemic has resulted in some adjustments to smuggling methods of organized crime groups, but that it is unlikely to result in significant drops in global trafficking of drugs to Canada over the next year. According to CBSA, the primary impact will likely be the absorption of smaller-scale organized crime groups into larger syndicates that are better able to adapt quickly to the shifting restrictions of the pandemic. Footnote 156
Key conclusions
96. Major organized crime continues to pose an important national security threat. The proceeds of crime are estimated in the billions, which represents significant lost revenue for governments and a source of further criminality. Beyond these costs are the financial and societal ramifications of organized crime: it undermines the rule of law, threatens public safety, and erodes our financial, legal, political and social institutions.