The Importance of Suspicious Transaction Reporting in Criminal Investigations

Greg, hello and welcome to another episode of

The know your compliance the KYC podcast with me. My name is

Greg. I am your host and with me today. I am super excited we

have Mr. Stephen Scott. Stephen is a retired RCMP officer. He

did 31 years of service in the RCMP, and he's going to come and

today, he works in private security, does some anti money

laundering investigations, and is kind enough to share with us

today some really cool I've had a preview of this, some really

cool stories about his work and the way and importantly, and

what I want to bring to the podcast today and to you as our

audience today, is how important it is for how Steven's stories

will highlight for you exactly how much the information you as

a reporting entity are gathering, how much it can

influence The outcomes of real life, actual criminal

investigations. So Stephen, thank you very much for joining

us today.

Greg, it's an absolute pleasure to be here. I

always enjoy talking about, personally, my career in money

laundering and organized crime, and sort of sharing that

knowledge, if you will, with various reporting entities. In

this case, you know, real estate focused,

yeah, well, so, I mean, I think let me, let me

launch right into it. And I think what I had said to you a

few weeks ago, when we started talking about this, was one of

the questions I frequently get from real estate agents, from

real estate compliance officers, and now starting to see from

from mortgage brokerages, is all of this stuff, all this

paperwork that we need to do, or have been doing, or are going to

be need to doing. Why does it all matter? And you have a

really great way of getting to an answer. So I thought I'd

start with that.

All right, yeah. And if you don't mind, maybe a

bit of a rant, if you will, or the pep talk. I guess to me,

money laundering is more than just sort of that abstract

concept of money being placed, layered, integrated and so on.

And big picture, people like to say it affects the economic

integrity of the country, and it's, it's, it's, it affects the

prices of properties and so on. But really, to me, what's behind

it all are the predicate crimes, the violent crimes, the drug

trafficking, human trafficking, the arms trafficking, any crime

that generates profit, that profit or those earnings need to

be laundered, whether it's to go back into the business, like a

cost of goods sold, to buy more drugs, to pay your employees, to

rent cars, rent stash houses, are leading to the real estate

side, buy properties, even to use to build a meth lab, to have

a marijuana grow, commercial properties from which you want

to wander your money. But to me, the most important thing is, is

people have to remember that it's the violent crimes behind

that. And one of the sayings I have, I'll finish with, is, is

other than crimes of passion and stupidity, it's all about the

money.

Yeah, yeah. I mean, you quite rightly start there. I

think that's a great place to start, because it's so one of

the things I've observed in my work is that money laundering

sounds clean. It sounds I think a lot of people think tax

evasion is what we're actually talking about. And look, tax

evasion is a crime and is it's important when you watch that,

sure, but when you start to talk about drug trafficking and

murder for hire and drug meth labs and all the rest, then that

that like that gets people's attention, generally speaking.

So yeah, no, and I hope it does, because, as I

say, 24 years until the end of my career, has been involved in

organized money laundering. And, you know, I've literally dealt

with killers that we managed undercover operation one year

that involved liquor. Mind you, not, not necessarily real

estate. And the RCMP at the time paid $220,000 cash to buy a

truckload of booze. But the people we bought it from, there

were two of them, and they were hired killers. One guy's record

read manslaughter, stayed murder, withdrawn. Murder stayed

manslaughter, you know, three years. And the other fellows

record was equally as abysmal as violent, violent people. This is

a guy picking up the money on our deal. And you know, to take

that story one step further, we'd done a transaction pages,

$220,000 well, it turns out the agent that was working for us, a

civilian working for the RCMP, and the two bad guys, went up to

a hotel room. They count the money. The money's in bundles,

these $10,000 $5,000 bundles of $20 bills. Well, it turns out

they're $10,000 short. And I'm in the car with the agent

handler, driver, his phone rings, and all of a sudden it's

it's the agent calling, and he says, holy, these guys have a

gun in my head. I'm $10,000 short, man, WTF, in a matter of

words, yeah. And so my guy, and the agent hander, is playing the

role of the truck driver who transacted the deal. Mind you,

he's. As well. Let me pull the truck over. I'll get back in,

you know, we'll figure out what's going on, amongst other

things, we call up the truck driver from there, Bill. It

pulls over. He finds that $10,000 bundle it's hauling out

the bag literally falling out of the he's about 10 kilometers

east of Calgary by that time, and so he turns around, pulls

into the parking lot of the hotel in his big rig, and hands

over the $10,000 to one of these killers. And the guy says,

you're unlucky. You got that money, man. And he shows him a

gun, you know, just under his coat, yeah, which was great for

us with better evidence,

uh, well, also better outcome for great agents, yeah.

And strangely

enough, the bad guys were taking that money

right to one of our storefront money laundering operations to

get that money turned into an investment or into a check. We

had it covered on both ends. Nice that that's the the crime

behind this that you know people don't see every day is, you

know, people are killed to transact, drug transactions,

liquor transactions, human trend, you know, human

trafficking. And again, I just can't stress that enough that

we're not doing we don't have a compliance regime in Canada and

around the world, because it's a financial problem, it's

organized crime problem, it's a transnational organized crime

problem, and that was recognized back in the late 80s, and

something had to be done. That's the creation of FINTRAC

compliance regimes, reporting entities and so

on. That's cool, yeah, no, and that makes sense

to me, and I think it's important to start there again,

because it highlights the importance of why all of this

happens. What would be really helpful is if you could share a

story where the intelligence that FINTRAC is gathering helped

inform, help direct, help advance a criminal

investigation, because that's the other part of things that we

don't have a lot of answers for when people are doing this.

Yeah. And strangely enough, or not,

strange enough, I've had that question since, you know, the

2000s when interact was created and whole regime was created, is

people put a lot of time and effort, money and million

scholars in terms of the big financial institutions into

reporting, whether it's large cash transactions, international

EFTS, and most importantly, suspicious transaction reports,

suspicious activity reports in the state's STRS, they form a

piece of a puzzle of a much larger case, and maybe I'll

backtrack. But again, FINTRAC is an intelligence agency, and they

get data from the reporting entities, realtors, financial

institutions, money services, businesses, casinos. It goes

into their system these days because of the sheer volume and

the millions upon millions of transactions that are that are

input. You know, it's machine driven to begin with, if there

are indications of money laundering, spits out the

information that goes to an analyst who looks at this

personally. They do research, whether it's open source,

internet their secret databases, police databases, corporate

registries and so on, land titles registries to all the

provinces. If that analyst determines that the information

provided by these reporting entities reaches the threshold

of reasonable grounds to suspect that money laundering is

occurring, of course, recognizing there's crimes

behind that, they will send this disclosure product to police.

Now that's an intelligence product, and there's a big

difference between intelligence and evidence and information,

and it's important that people know we don't just get, and I

say we, back in the day, the police don't just get a FINTRAC

disclosure automatically start an investigationally, a charge

thing. Everything that comes from the reporting entity to

begin with, has to be corroborated. It has to be

managed, if you will, triage, determined, even if it's going

to become an investigation. So keeping that mind, we get an

intelligence product from from FINTRAC, based on these STRS,

ltrs and so on.

That's you for one second there, because what you

just said is really important, because one of the pieces of

feedback I frequently get from frontline people in many sectors

is, well, I don't want to rat out my client. I don't want to

rat out this person. And I think what you've just said perfectly

illustrates why that's not actually what's happening. It

might be true that the intelligence that they provide

FINTRAC eventually yields an investigation which eventually

finds that this person was guilty of something, but there's

not a direct line to your client being arrested just because you

filed a suspicious transaction report. It's a pretty involved

process, as you've just outlined, absolutely,

yeah, and I got a bit sidetracked from the

original question to get there, I guess. But yeah,

realistically, it's it goes through a lot of stages. And of

course, even within the firm itself, transactions takes

place, whether it's a frontline, frontline real estate agent to

see something wrong, or the money lendering officer in the

brokerage of the business that says, Yeah, I agree with what

this frontline person says. Or it has to get written. It has to

go to FINTRAC, as I say, it goes through, certainly not AI. It

goes through a computer process where the indicators are picked

out, or there's certain terminologies and. I draw their

attention again to the analyst, in some cases, when you say,

does an STR make a difference? Well, an STR could form a

disclosure package, but there might also be four or five or

six other STRS from other institutions. There might be 10

electronics funds transfers. There might be casino

disbursement reports, because a FINTRAC disclosure doesn't

necessarily consist of one STR that goes to FINTRAC and is

given to police. You know, it goes through that analytical

process first. So that's when I say, it's a piece of the puzzle,

if you will, that your STR might just provide a lead that sends

FINTRAC on another direction, that's in turn, they may send

police on another direction that's going to identify an

asset. So as I say, in building on what you said that that

disclosure comes to police. Well, you know, if there's

several 1000 disclosures given to police over the years, you

know, there's only so many resources that can be devoted to

this, and a certain values are taken into consideration as a

big case. This is a small case, so that STR and everything else

that's included with it in that disclosure report is going to

get triaged by police to say, yeah, we'll work on this. Or no,

we won't. We'll file it for some time in the future, and it may

come up in the future as something important, not another

case on a related case, and so on. But even that STR that

FINTRAC disclosure will only be part of a potentially major

project that, you know, takes a year to investigate, and that

results in, to put it visually, you know, bankers boxes full of

documents that we provide in disclosure, it can almost get

buried, you know, in all the information when the bad guy

does get access to it or the lawyers get access to it. So no,

there isn't a direct correlation between the STR and an arrest.

There's no fear of ratting out bad guys. And you got to

remember, too, if I can go on to send an STR you really just have

reasonable grounds to suspect that something's happening,

basically money laundering, or somebody's involved in terrorist

property. That's a very low threshold. It's below balanced

probabilities, which is 51% it's above, you know, having a spidey

sense that this isn't right, but it's something that is not

normal, you know, based on the person's behavior, based on

their transactions, based on the product, goods and services that

they bring to the table or that they want from you. So, yeah,

getting back to that, it's you're not writing anyone out

when you do that, you're just forwarding information that that

is anonymous, or, you know, an anomaly that's not normal that

you think should be investigated further potentially.

I really like the puzzle visual, the visual of,

you know, maybe I'm the guy who noticed that my client, I don't

know, didn't want to get identified. But by putting that

in, maybe the bank's got five s5 large cash transaction reports

on the same individual, and suddenly you're starting to

build a puzzle of information that actually might become

useful online. And it's, it's, you know, my view of it is so

small that I can't actually see that. When you start to step

back and look at the larger thing, I really

like, oh, that's absolutely huge. Greg, almost

exactly two years ago, I went back to work for the police

briefly, and I was talking to our FINTRAC rep here in Alberta,

and he says, Steve, you know, I'm in the middle of putting

together this disclosure. And what those consist of mind, you

are Excel spreadsheets that will detail the, you know, the sender

of transaction, the beneficiary, the depositor, the anything to

do with transaction, basically, the countries and count numbers

and so on. He was saying he was putting together hundreds of

transactions in these spreadsheets and in these i two

charts to send off to the police. So, you know, there

could very well be, you know, 300 STRS from 50 different

reporting entities, or there could be, you know, two or three

STRS, but all of sudden, there's tons of electronic funds,

transfers of money going out, money going out, money going

out, money coming in, that layering that's going on around

the world. But it's that STR that may push that analyst over

the edge to say, someone thinks this is suspicious, and maybe

these two other people think this is suspicious, that's what

gets the attention of FINTRAC international funds transfers,

$10,000 transactions and electronic funds transfers.

There's billions of dollars transacted every day. They

don't, they don't attract anybody's attention. But that

STR does well,

and the STR compiled with all of that financial data

and the money flows that come with it might actually paint a

wholly different picture than you might have other or that I

don't have otherwise. And

to quickly put that in different terms, I guess

what I was trying to say, because I don't say anything

short, is they may have all this information database that isn't

necessarily suspicious, because you have to report these

transactions to threshold transactions, but all of a

sudden an STR or two or three come in, because the fellow may

be doing or the bad guy may be doing a number of transactions

with a number of different people that may be suspicious.

That is what triggers, effectively, the disclosures, if

anything or there is important or more important than anything

else. Yeah, so

I want to, I want to continue that smile. I just want

to put an asterisk for a second, because what you've just said is

really important for compliance officers to hear, and what I've

observed and where we've seen some. Some small businesses get

into problems with FINTRAC with their compliance regime,

specifically is if some other reporting entity has filed a

suspicious transaction report, or has in some way, shape or

form, identified a transaction that should have been

suspicious, and then a FINTRAC shows up and examines your books

and there's nothing that's when FINTRAC is going to make sure

you have a very bad day. And the reality is, a certain amount of

that might be defensive filing, sure, maybe. But my advice, I

suppose, is, or where I'm trying to get to with this statement,

is, it would be in your best interest as a reporting entity

to file when you think you might have reasonable grounds to

suspect, because if you don't file, you will have a much worse

day than if you file and you're wrong, is what

that's the prevailing thought, actually,

yeah, and it's funny, I see that from both ends. You know, as an

investigator, I want everything. I want more. Give me more. It's

morally right to do this, and for all the other reasons I talk

about, as a person who's worked with with variance, compliance

people as well. Over the years, I see that it's sometimes hard

to do, or it seems like it takes a long time, or there's a cost

to do business, or you don't see the result at the end of the

day. So we ask, why did we do this? But realistically, it

doesn't take that long to fill in one of those reports online.

You know, it's core biographical data, facts, context and

indicators, and along the same lines. You know, every major

police investigation sends in what we call a voluntary

information record to FINTRAC. They're exactly like STRS, and

minimize that. We're working on a money laundering investor or

direct traffic investigation. We've identified assets. We

think this person is laundering money. This is their core

biographical data accounts that we know of. Maybe we've done

some production orders, maybe we've done surveillance,

wiretaps. You put all that in there realistically, and I put

in dozens, it's 10 or 15 minutes, not even 1015 minutes.

And that's all that FINTRAC, you know, really demands that if you

fill out an STR it's not going to take too long. And I think

you're better off doing it than not, because, yeah, they're

coming down. And I still say, hey, talk to people on FINTRAC,

and I see them quite a bit online, and I've seen the amps,

the administrative monetary penalties are coming out.

They're starting to crack down. They've hired more people there.

There's more issues. Money laundering in real estate is

much more out there than it used to be. There's greater awareness

of it. To call them Commission, the Mulroney report. It's in

television. It's at the FATF reports. I was reading something

from 2006 this morning when it was, you know, described as a

problem back then. And now Canada's catching up with that,

I guess because of the the negative press we're getting

around the world, if you will. Yeah, that's problem. So, yeah,

if you think you should do it, there's no harm in doing it,

because, as I say, from an investigator's perspective, and

this, what it's all done for, is to, you know, take that, that

monetary reward, away from these bad guys, and they launder their

money. To do that, to buy assets, to buy toys, to to live

a certain lifestyle, put it in there. It may make a difference.

And it will say to you, the the wrath of FINTRAC, if you will,

here and you just

touched on something, I'm hoping we could go a little

deeper on, which is, could you walk me through how this

information as an investigation, as an investigator, sorry, put

yourself back in your shoes as an investigator. Where those

where that FINTRAC data has been helpful for you in guiding an

investigation, or where maybe it's informed your investigation

or even moved it forward, I suppose,

sure. Um, preface out with as we spoke the other

day, there haven't been a great deal of suspicious transaction

reports submitted from the real estate industry last bunch of

years fully acknowledged. Yeah, I can't say to all of us here

that I've even seen an STR related to real estate in dozens

and dozens and dozens, I'll say several 100 disclosures that

involve that, but that said they exist. And I know there's more

and more, and there's been a lot more since I've retired