Organized crime ‘knowingly and actively’ exploited federal pandemic benefits: intelligence reports

The federal government spent billions of dollars on income supports to help Canadians weather the pandemic — but it appears these emergency benefits inadvertently went to criminals as well.

According to a recently obtained financial intelligence report, criminals and organized crime appeared to have “knowingly and actively” defrauded the Canada emergency response benefit (CERB) and Canada emergency business account (CEBA) programs.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the country’s financial intelligence wing, observed that during the first few months of the CERB program, criminal organizations filed multiple applications using stolen identities.

“They tend to hire groups of individuals to cash the benefit cheques at various locations around town,” said the 2020 FINTRAC report, released through an access to information request filed by Ottawa researcher Ken Rubin.

“In one instance, the reporting entity indicated that social media was used as the means of recruitment of these people.”

Launched in March, the CERB originally paid $2,000 a month to Canadians whose income took a hit due to the pandemic. The program paid out more than $74 billion before the government transitioned to paying Canadians through employment insurance.

A similar scheme was used by criminal organizations exploiting the Canada Emergency Business Account: applicants transferred the $40,000 subsidy from their business accounts to personal accounts and withdrew the money in cash.

“Why would you not take that? I mean, it’s free money in a manner of speaking,” said Sanaa Ahmed, an assistant professor of law at the University of Calgary.

“I think this is one of those crimes of opportunity. Even at the time that the government announced these emergency relief measures, we knew some of that was bound to happen, because Ottawa has said quite explicitly that, you know, they’re not really fussed about interrogating, whoever’s applying, so it only stood to reason that some of the applicants would be fraudulent .”

CERB mixed in with laundered funds

Sometimes the benefit money appeared to be mixed in with laundered funds.

“Reporting entities indicated that criminal organizations, using stolen IDs and individuals recruited via social media, are operating ‘CERB scams’ in certain cities; prepaid cards are loaded with CERB benefits and other laundered funds,” said the intelligence report.

The phrase “reporting entities” refers to casinos, accountants, agents of the Crown, Canadian banks and foreign banks in Canada, insurance and real estate brokers, sellers of precious stones and metals and others — all of which must report suspicious transactions to FINTRAC if there’s reasonable grounds to believe they may be linked to money laundering or terrorist financing.

Jessica Davis, a former senior intelligence analyst with CSIS who now heads the consulting firm Insight Threat Intelligence, said using prepaid cards is a well known money laundering tactic to prevent a paper trail.

“Criminal entities are combining the money obtained through CERB fraud and identity theft with criminal proceeds, potentially from a variety of different schemes maybe other frauds, maybe other criminal activity. So it’s all just getting pulled into one pot, transferred to prepaid cards as a form of severing the money trail,” she said.

“There was a huge impetus to get the money out the door quickly, which I think for many Canadians will have been a lifesaver … whether or not there were appropriate safeguards in place, well, I think criminals will often find workarounds for a lot of those anyway,” she said.

The report also said payments were sent to people who appear to have been engaged in illegal or suspicious financial activity. FINTRAC said some clients received cheques despite not living in Canada and while appearing to live in “a jurisdiction of concern.” Those are countries and areas that FINTRAC views as posing a higher money laundering or terrorist financing risk.

FINTRAC said that since the start of 2020, until Oct. 31 of this year, it received 30,095 suspicious transaction reports where COVID-related benefits were referenced, a small percentage of the overall reports. The majority of those 30,000 also dealt with human trafficking and drug offences.

Roughly 1,500 of those dealt with CERB and/or CEBA related fraud.

“Given that there is no monetary threshold associated with the reporting of a suspicious transaction, it is not possible to provide an accurate number in relation to the total amount of CERB/CEBA funds that may have gone to organized crime,” said spokespesron Mélanie Goulette Nadon.

Prosecutions unlikely

While the FINTRAC document details how organized crime used the programs, it’s far from the first warning. In July 2020, the Canada Revenue Agency advised the House of Commons finance committee that the program had been targeted by organized crime.

A spokesperson for the Canada Revenue Agency stressed that the government rushed to make sure Canadians could stay afloat at the start of the pandemic.

“Throughout the lifespan of the CERB program, we made adjustments to introduce new measures and controls to address suspicious activity,” Etienne Biram said.

“The CRA has zero tolerance for fraud. The vast majority of Canadians are honest, and the CRA has effective systems in place to manage the small percentage of people who submit fraudulent claims.”

FINTRAC, which helps police detect money laundering and the financing of terrorist activities, calls money laundering a “multibillion-dollar problem” in Canada. Investigating that problem hasn’t necessarily been a priority though.

“Canada doesn’t prioritize the investigation and prosecution of financial crime,” said Davis.

“Canada is a pretty significant economy, there’s significant criminal activity and there’s significant financial criminal activity happening in this country and I would say that broadly speaking, law enforcement isn’t good at detecting and disrupting that activity.”

Ahmed agreed, noting in the past decade Canada has secured less than 50 laundering convictions, calling prosecutions in these cases “unlikely, highly unlikely.”

CBC