Not as clean as we think

While Canadians might be shocked to learn of a major money laundering scheme operating out of Vancouver, it is no surprise to fraud investigators.

In October 2016, the US Department of the Treasury’s Office of Foreign Assets Control designated a little-known Vancouver financial company — the PacNet Group — as “a significant transnational criminal organization,” putting it in the company of infamous and dangerous criminal enterprises such as the Japanese Yakuza, Mexican Los Zetas and Italian Camorra. The stunning financial order “points to Vancouver’s growing reputation as a hub for global money laundering,” the Vancouver Sun noted.

“The executive notice, which freezes financial transactions, names 12 people, including several Metro Vancouver residents, and a number of PacNet associated companies with links to a global network of cities and countries including Vancouver, Ottawa, Italy, India, Ireland, Tokyo, Brazil, Chile, and the US,” the Sun said. “The notice also grounds a PacNet airline that the US government alleges was used to deliver bulk shipments of criminal cash in Europe.”

According to the Treasury department, PacNet, which is described as an international payments processor and money services business, had a nearly 20-year history of “money laundering by knowingly processing payments on behalf of a wide range of mail fraud schemes that target victims in the United States and throughout the world.”

A COMPLICATED WEB OF FRAUDSTERS

The allegations against PacNet were part of a large-scale investigation that also involved several US government agencies, including the Department of Justice, the US Postal Inspection Service and the Federal Trade Commission.

“The schemes involve a complicated web of actors located across the world,” then US Attorney General Loretta Lynch said at a news conference. She announced “criminal charges and a civil injunction action against a Turkish resident whose direct-mail schemes defrauded US victims out of more than US$29 million; a seizure warrant against the bank account of [PacNet] that laundered money for more than 100 mass-mailing fraud campaigns; and a consent decree that would impose a permanent injunction against two so-called ‘caging services’ in the Netherlands, which received and processed victim payments, and also tracked victims’ personal information.”

The victims, Lynch added, were “elderly individuals and those in vulnerable financial situations and [the perpetrators’] activities have cheated Americans out of hundreds of millions of dollars. The fraud is massive in scale and global in scope, and it can be devastating on an individual level.”

According to CNN, the scams typically targeted lonely seniors suffering from dementia who may have hoped to bolster their meagre retirement savings with promises of lottery prizes. Victims were also sent letters enticing them to contact, and spend money on, so-called psychics.

The Treasury department claims PacNet was contacted by North Dakota’s attorney general in 2009 with regard to processing of payments relating to the “Maria Duval” psychic scheme, in which purported psychics sent letters to people claiming to have foreseen good fortune for them based on the purchase of various products and services. “Although PacNet eventually refunded the money to the victims, PacNet continued to process transactions for the Duval scheme for another five years,” the release says.

HELPING THE UNSAVORY

Located in downtown Vancouver, PacNet was founded in 1994 by a young Canadian banker named Rosanne Dronsfield (now Day) who went “from being a low-level bank employee to running an international enterprise now singled out by the US government as one of the world’s most illicit criminal organizations,” CNN Money said in an October 2016 report entitled Dirty Secrets of the Mail Fraud Mafia, following a months-long investigation of the company.

CNN says Day “stumbled upon a golden opportunity. The bank she worked for had shut down the accounts of a number of direct marketing clients because of the suspicious ways they were making their money. Rather than staying at her banking job, [she] used her connections to create an entirely new payment processing business that would cater to clients like these and help them access bank accounts wherever they wanted to do business.”

PacNet Services Ltd., as it was then called, grew from being a small local operation into a global powerhouse with operations and subsidiaries in more than a dozen countries, CNN reported. Multiple sources told the news network how “the company’s very business model was rooted in helping the unsavory clients that banks want nothing to do with.”

Jennifer Fiddian-Green, a partner at Grant Thornton who has worked with a number of payment service providers and fund-transfer companies, sees this area as vulnerable to such problems: “Regulations [in Canada] are needed and need to be tighter along with regulatory oversight. Right now there is no consequence in Canada for those choosing not to follow the rules or, when there are no rules, no consequence at all until limited law enforcement resources are focused on the problem.”

PacNet spokespeople deny all allegations of wrongdoing and claim it, too, was a victim of unscrupulous clients. The US government, however, says the company knowingly facilitated money laundering and mail fraud for decades — using secret bank accounts, moving bundles of money by plane and lying to customs officials.

As an example of PacNet’s modus operandi, the US government noted an instance when a PacNet client wanted to send money through a bank that had previously refused to do business with PacNet. “Day responded, asking the client to wire money to an account in the name of ‘Indian River UK Ltd.’ at another bank in London [England], and ‘therefore, please do not mention PacNet on the transfer.’ ”

In its reporting, CNN said, “We had stumbled across a business filing for Indian River (UK) Ltd., which listed PacNet as the only shareholder and PacNet manager Ruth Ferlow [Day’s sister] as a director. Oddly enough, we also found a firm with the same name that had previously been registered to a man who claimed the company imported and distributed Russian weapons. This business was dissolved in 2011, the year before the company with the same name was registered by PacNet executives. We couldn’t determine whether this weapons company was related to PacNet at all, and PacNet said there is no connection between the two businesses.”

Fiddian-Green says that “while financial institutions are required to conduct a minimum level of due diligence on their clients, in practice the execution of these requirements across huge volumes of clients and transactions is mixed.”

LAXNESS AND LOOPHOLES

While Canadians might be shocked to learn of a major money laundering scheme operating out of Vancouver, it is no surprise to fraud investigators. Canada has long been seen as soft on money laundering and has been taken to task for its laxness by organizations such as Transparency International (TI).

In a March report, Doors Wide Open: Corruption and Real Estate in Four Key Markets, TI said loopholes in Canadian law allow a corrupt elite to use the housing market for money laundering, the Huffington Post reported. “The report found 10 problem areas with the laws related to real estate transactions in Canada, Australia, the UK and the US — four countries it identifies as being hot-spots for real estate-related money laundering. ‘Canada’s legal framework has severe deficiencies under four of the 10 identified areas,’ the report stated. ‘In the other six, there are either significant loopholes that increase risks of money laundering through the real estate sector or severe problems in implementation and enforcement of the law.’”

A year earlier, the Financial Action Task Force, a G7 organization established to promote policies aimed at protecting the global financial system against money laundering and terrorist financing, said, “Canada faces an important domestic and foreign money laundering threat” from criminal organizations that launder billions of dollars in this country, the Toronto Star reported. “The stiff warning also sounds an alarm about the threat against ‘major financial institutions and some unscrupulous real estate lawyers’ targeted by criminals involved in laundering money.”

While Canada has increased its efforts to combat money laundering in recent years, more action needs to take place.

“Canada has to do more to strengthen the anti-money laundering system to produce results, including regulatory over-sight,” says Fiddian-Green. “Law enforcement and the justice system need to open and prosecute more cases.”

Interestingly, no Canadian police or government body was mentioned in the US’s announcements regarding the PacNet investigation. Canada has always seen itself as one of the world’s cleanest countries when it comes to corruption. Perhaps it’s time to accept that our laundry can be as dirty as anyone else’s.