Canada’s cryptocurrency landscape is facing a surge in unregulated cash transactions, raising concerns about money laundering and financial crime.
The results of undercover investigations, revealed on Tuesday, indicated that some crypto exchange services are willing to deliver large amounts of cash without proper registration or identity checks, creating loopholes for illicit activity.
Two international platforms approached by an undercover journalist offered to deliver as much as CAD$1 million in cash to a Montreal location in exchange for cryptocurrency. Experts warn that these services exploit Canada’s regulatory gaps, allowing criminals to bypass traditional financial oversight.
The Canadian economy has long battled money laundering in banking, real estate, and casinos. However, the rise of online and storefront cryptocurrency services is opening new avenues for illicit finance. Decentralized digital currencies, such as bitcoin, ethereum, and tether, make it difficult for authorities to trace transactions, though initial coin purchases and subsequent conversions to cash remain trackable.
Financial crime specialists emphasize that services enabling anonymous crypto-to-cash exchanges can facilitate unlimited criminal activity. Richard Sanders, a leading expert on crypto-to-cash operations, said the scale of unmonitored transactions in Canada surpasses expectations, highlighting the risks posed to law enforcement.
Nick Smart, chief intelligence officer at Crystal, a company providing tools to investigate crypto crimes, noted that the volume of transactions is staggering. He cited Hong Kong-based crypto-to-cash services, which handled at least $2.5 billion US last year alone, as an example of how easily criminals can operate without scrutiny.
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Investigation confirms ease of crypto for cash exchange
Radio-Canada and CBC News, in partnership with the Toronto Star and La Presse, participated in a global investigation known as The Coin Laundry, coordinated by the International Consortium of Investigative Journalists in Washington. Their investigation confirmed that Canadians could easily access cash from cryptocurrencies without proper identification or registration.
In one Toronto test, a woman posing as a customer visited a registered money transfer business in midtown Toronto. The company has multiple branches in three provinces and is registered with FINTRAC, Canada’s financial intelligence agency. She presented a $5 Canadian bill with its serial number as verification and received USD$1,900 in cash. Prior to the pickup, she had transferred 2,000 tether tokens to a Ukraine-based exchange, 001k, which instructed her to collect the cash at the Toronto location via Telegram messages.
Canada’s anti-money laundering regulations require money transfer businesses to record recipients’ personal information for transactions of $1,000 or more. Additionally, it is illegal for unregistered entities like 001k to conduct business with Canadians. Joseph Iuso, executive director of the Canadian Money Services Business Association, emphasized that such transactions violate the law and undermine efforts to limit criminal activity.
The Toronto transfer business claimed that a rogue manager conducted the transaction off the company’s records. The manager asserted the cash was legally obtained and stated that the teller had no knowledge of the arrangement. Nevertheless, this incident illustrates the vulnerabilities in current oversight mechanisms.
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Over 20 unregistered crypto-to-cash services in Canada
FINTRAC struggles to monitor all 2,600-plus registered money-services businesses in Canada. Unregistered services, meanwhile, operate largely unchecked, according to Iuso.
“There’s just tons of foreign money transfer businesses trying to circumvent regulations,” Iuso said. “Enforcement is extremely challenging.”
A web directory lists more than 20 unregistered crypto-to-cash services in cities from Halifax to Vancouver. Some Toronto-based services approached by reporters admitted they do not ask for identification. In Quebec, La Presse journalists found that 001k and another service promised deliveries of CAD$1 million and CAD$890,000, respectively, without any ID verification. Locations for cash pickups are only revealed after cryptocurrency transfers are completed.
FINTRAC did not comment on the specific undercover transactions but stated that the agency is prepared to take strong action, including administrative penalties and law enforcement referrals, to ensure businesses comply with their responsibilities.
Since August 2022, 001k has received over USD$14.8 billion in cryptocurrency transfers, according to Chainalysis data shared with the International Consortium of Investigative Journalists. Sanders described the situation as akin to the Wild West, warning that these operations allow unrestricted movement of money without scrutiny.
Criminals benefit from crypto-to-cash services because they eliminate the conventional safeguards that financial institutions rely on. In addition to laundering proceeds from illegal activities, criminals frequently exploit these services for tax evasion, fraud, and funding organized crime or terrorism. Law enforcement faces the dual challenge of tracing digital transactions and identifying the real-world recipients of cash.
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Public awareness is crucial
Observers argue that Canadian authorities need more resources and stricter regulations to combat these risks effectively. Conversely, the decentralized and borderless nature of cryptocurrency complicates oversight. While blockchain records can provide some traceability, the initial conversion to cash creates a gap that criminals exploit.
Experts stress the importance of monitoring both on- and off-ramps for cryptocurrency. On-ramps refer to points where individuals convert traditional currency into digital assets, while off-ramps are where crypto is turned back into cash. Unregulated off-ramps, particularly those offering anonymity, facilitate illegal financial activity.
Additionally, investigators suggest that public awareness is crucial. Many Canadians may not realize the legal and financial implications of using unregulated crypto-to-cash services. By educating consumers and business operators, authorities can reduce inadvertent participation in illegal transactions.
In Toronto, only a single question verified a customer’s identity, yet the transaction involved a substantial cash exchange. Experts caution that even small oversights can be exploited repeatedly, escalating financial crime risks nationwide.
Furthermore, the investigation highlighted that international platforms actively target Canadian users. The anonymous offers in Montreal for near-million-dollar cash deliveries demonstrate how global networks can intersect with domestic vulnerabilities. This international dimension increases the complexity of enforcement and heightens the potential for large-scale money laundering.
Authorities continue to face challenges in balancing innovation and security. Cryptocurrency offers legitimate advantages, including faster transfers, reduced transaction fees, and financial inclusion. However, the notion that criminals can exploit sytems for illicit purposes overshadow these benefits. Consequently, experts advocate for a regulatory framework that enforces compliance without stifling technological development.
