Canada’s

anti-money-laundering

authority is warning that the country is a potential target of weapons proliferators including terrorist organizations, which are increasingly seeking out dual-use goods and technologies — those that have both military and civilian purposes — and using

cryptocurrencies

that conceal financial trails and evade scrutiny from authorities.

In a special bulletin, the

Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

said the developments are complicating efforts to enforce counter-proliferation controls, which aim to thwart state and non-state actors who seek to acquire the goods, technologies, resources and knowledge needed to develop chemical, biological, radiological and nuclear weapons and high-yield explosives, including their precursors and delivery systems.

An added layer of complexity is growing transfers of “intangible” technology through the exchange of knowledge, technical data and expertise, often via “seemingly innocuous means such as academic collaborations, research partnerships, or professional consultancy,” FINTRAC warned, noting that this can be shared across borders and almost instantaneously through the Internet and encrypted communications.

The agency said Canadian financial institutions and operators subject to anti-money-laundering and anti-terrorist-financing laws need to be on the lookout for such activity because Canada is a draw due to the country’s advanced industrial and technological capabilities alongside academic and research institutions and businesses with expertise in high-technology sectors such as

nuclear energy

, biotechnology and life sciences, aerospace, chemicals and electronics.

“These strengths make Canada and its businesses a potential target for proliferators,” FINTRAC said in the special bulletin, which outlined characteristics of the transactions proliferators are using to procure, transport and receive illicit goods in order to help Canadian companies and individuals recognize and thwart them.

“Disrupting their financing is essential to halting the spread of weapons of mass destruction,” the FINTRAC bulletin said.

Part of the report focused on trade finance, where the use of fraudulent, altered or misleading trade documentation can conceal the origin of funds and the end-user of sensitive goods.

Common transactional and behavioural characteristics of this activity can include vague descriptions of goods on trade or financial documentation, such as the use of the words “sample” and “for business purposes,” the FINTRAC bulletin said.

There may also be inconsistencies, such as payments from a third-party that was not identified on the original letter of credit, sometimes located in an intermediary jurisdiction unrelated to that of the importer of exporter.

Another type of transaction that should be probed, FINTRAC said, are ones that involve shipments to a country that does not normally import the types of goods being sent, or where shipments are incompatible with the technical level of the country, such as semiconductor manufacturing equipment shipped to a jurisdiction with no electronics industry.

The FINTRAC bulletin also highlighted the growing use of crypto to fund proliferation of goods, knowledge or technology used to develop weapons and to evade traditional tools to track to the movement of funds.

“Virtual currencies are both a tool for obtaining funds to support proliferation activities — such as in the case of the Democratic People’s Republic of Korea’s financing of its weapons of mass destruction and ballistic missile programs through hacking virtual currency exchanges and decentralized finance platforms — and for the movement of funds, allowing proliferation actors such as the Democratic People’s Republic of Korea, Iran and Russia, to evade the traditional financial system.”

A concrete example cited in the bulletin was the 2021 case of a dual Canadian-American citizen who pled guilty to money laundering on behalf of criminal schemes including the theft of funds from North Korean

cyberattacks.

“According to court documents, the individual and his co-conspirators used business email compromise schemes, ATM cash-outs and bank cyber-heists to steal money from victims,” with more than US$1.3 million stolen from cyptocurrency wallets, which was subsequently laundered through bank accounts and digital currency.

FINTRAC said there are recognizable patterns in attempts to evade proliferation controls and sanctions imposed by the

Canadian government,

with traits common to money laundering schemes, such as the diversion of shipments of military and dual-use goods and technologies through complex networks of intermediaries and third-parties. The use of front companies and shell companies to conceal the end-use of shipments is also common.

“These intricate networks conceal the true origin and destination of the goods, making it challenging to trace the trade back to sanctioned entities,” the bulletin said.

It flagged additional indicators to be on the lookout for, including the involvement of third-party nationals as directors, shareholders and in other prominent ownership structure positions of corporate entities. This can be used to conceal the connection between activities and sanctioned individuals or entities.

 

“For instance, the Democratic People’s Republic of Korea has been known to use Chinese nationals for such purposes, effectively masking the true ownership and control of assets to evade international sanctions,” the bulletin said.

FINTRAC said Canada’s geographic proximity to the United States and its status as that country’s largest trading partner adds risk to being targeted by those who seek to acquire high-quality Western-made goods and technologies to develop weapons of mass destruction programs.

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“Canada’s positive international reputation may also make it an attractive jurisdiction for proliferators who may wish to use Canadian financial and commercial entities to legitimize proliferation-related financial transactions between other international jurisdictions,” the bulletin said.

 

“Such actors may use both witting and unwitting third-parties, including Canadian citizens, in their illicit schemes.”

• Email: bshecter@nationalpost.com