Unregistered Crypto Firms in Canada Fueling Million-Dollar Money Laundering

Unregistered cryptocurrency exchanges in Canada are taking advantage of regulatory loopholes by allowing substantial cash-for-crypto trades without any identity verification. This practice raises significant concerns as it facilitates money laundering and other criminal activities while exposing weaknesses in the enforcement of anti-money laundering laws.

Key Takeaways

Unregistered crypto services are bypassing regulations, enabling large cash transactions without identity checks.
An undercover investigation revealed stark compliance issues within the Canadian crypto sector.
Canada's existing problems with money laundering in various sectors have now extended into the cryptocurrency realm.
Regulatory bodies like FINTRAC are struggling to oversee both registered and unregistered money service businesses.
Canada is moving towards implementing more robust regulations on cryptocurrency and stablecoin transactions.

The Problem with Unregistered Crypto Exchanges in Canada

Unregistered crypto exchanges in Canada are taking advantage of regulatory gaps, allowing for large-scale cash-for-crypto transactions without identity verification. Some international platforms even offer services that can deliver up to $1 million in untraceable cash.

An undercover investigation has shown that anyone can easily move money through these services without any compliance checks. Experts warn that this creates a dangerous environment for criminal activity, particularly as Canada’s digital finance sector continues to grow.

Unfortunately, Canada has a long history of dealing with "dirty money" in banking, casinos, and real estate, and now these issues are filtering into crypto services. Weak enforcement and insufficient oversight have opened up new channels for money laundering and illicit finance.

While blockchain technology does enable investigators to trace some transactions, the cash-for-crypto services eliminate crucial controls at key entry and exit points. This lack of oversight allows drug cartels and potential terrorists to transfer funds anonymously across Canadian cities.

Undercover Operation Reveals Zero-Verification Cash Transactions

A joint investigation by Radio-Canada, CBC News, Toronto Star, and La Presse successfully uncovered how easily criminals can gain access to unregistered crypto-to-cash services throughout Canada.

In one incident in Toronto, an undercover reporter walked into a FINTRAC-registered money transfer business and managed to collect $1,900 in cash using only a $5 bill serial number as verification after transferring tether to a Ukraine-based exchange known as 001k via Telegram.

Unregistered Crypto Firms in Canada Fueling Million-Dollar Money Laundering

This transaction violated Canadian regulations that require money service businesses to record recipient information for transfers over $1,000. Although the storefront was registered with FINTRAC, the transaction was processed through a rogue manager who claimed to use his own "earned legally" cash, while the counter employee asserted they were unaware of the situation.

Meanwhile, journalists in Quebec were offered services from 001k and another platform to deliver $1 million and $890,000, respectively, to various Montreal locations in exchange for tether transfers, again without any identity verification.

Since August 2022, 001k has reportedly received over $14.8 billion in cryptocurrency transfers, according to Chainalysis, yet it operates illegally in Canada without FINTRAC registration.

Industry Scale and Enforcement Challenges Increase

Richard Sanders, an expert in crypto-to-cash operations, highlighted that services with "absolutely zero checks" are facilitating limitless criminal activity. "I could not have in my worst dreams predicted the reality we’re in now," Sanders shared, while Nick Smart from Crystal Intelligence pointed out that crypto-to-cash businesses in Hong Kong alone processed at least $2.5 billion last year, branding them as "a perfect place to operate as a criminal because no one’s going to ask any questions."

Joseph Iuso, executive director of the Canadian Money Services Business Association, confirmed that FINTRAC lacks the resources to monitor all 2,600+ registered money services businesses, let alone enforce regulations on unregistered ones.

Unregistered Crypto Firms in Canada Fueling Million-Dollar Money Laundering

One online directory lists more than 20 unregistered crypto-to-cash services operating from Halifax to Vancouver. Several Toronto-based operators told undercover reporters that they would not ask for identification when conducting transactions.

Although FINTRAC did not respond to specific questions about the investigation, they indicated that they are "prepared to take strong action as necessary" through administrative penalties and law enforcement referrals.

This enforcement gap remains, despite Canada’s largest-ever crypto seizure occurring in September, where the Royal Canadian Mounted Police dismantled the TradeOgre exchange and confiscated CAD 56 million in assets following a year-long investigation initiated by a Europol tip.

Regulatory Framework is Being Developed

In light of these issues, Canada is working swiftly to implement comprehensive regulations for stablecoins ahead of its federal budget, especially following the passage of the GENIUS Act in the United States earlier this year.

The upcoming 2025 federal budget will require stablecoin issuers to maintain full reserves, create clear redemption policies, and establish strong risk management systems. The Bank of Canada has allocated CAD 10 million over the next two years for regulatory oversight.

Despite relatively low crypto adoption rates (with only 3% of Canadians using Bitcoin for transactions in 2023), institutional interest is surging. A 2024 KPMG survey revealed that 39% of Canadian institutional investors held some form of crypto exposure, up from 31% in 2021. Canada also boasts over 3,000 Bitcoin ATMs, which represents the second-largest concentration of these machines in the world.