The Importance of Suspicious Transaction Reporting in Criminal Investigations PART 2

Hello and welcome back to the KYC podcast.

Today we're going to continue our episode

with Stephen Scott, retired RCMP officer,

and we're going to start with Stephen

telling us a step-by-step example of a

real-life case that he investigated and

where the FinTrack intelligence made a

difference in that case.

So let's get to it made a difference in

that case.

So let's get to it.

Had a case back several years ago where one

of our biggest bad guys code trafficker,

arms trafficker, weed trafficker here in

Calgary came to the attention of the

Alberta law enforcement response team when

he got shot in the rear end.

I was going to say I'll leave it at that.

So all of a sudden they look up this guy

and say who's this guy?

Why did he get shot?

You know, is this a gangland thing?

Is this a bystander?

Well, it turns out yeah he's a weed

trafficker, coke trafficker, deals in arms

and he's got quite a number of people

working for him.

So the alert team starts to work up an

investigation.

They call the proceeds crime team in to

work with them.

So we generally would assign one or two

members to work with the project team

that's doing this substantive case.

So as they start to build up this case, one

of the first things I did and another

member of my team was send in this

voluntary information record to FinTrack.

Does FinTrack have anything on this person?

We're investigating them for these

particular reasons.

I have reason to believe that they're

laundering money and within those first

couple of three, four weeks they have

nothing.

So there's been nothing entered by

financial institutions, casinos, msbs and

so on about the guy.

So that's fine, we go on with our

investigation.

At the same time we learn that he's just

finishing off building a property in

Bearspaw, which is a very expensive

development west of Calgary.

It turns out the house was worth about $1.5,

$1.7 million.

The house was registered and this is

important in his parents' names.

Nominees are often used in all these

properties.

And whether it's a trust, whether it's a

numbered company In commercial real estate,

that's a different ballgame again, but

personal properties.

This kid was 23 years old, he didn't hold a

job and then when we looked into the

parents because you investigate the family

in this case because everybody's part and

parcel of this dad was a cabinet builder,

cabinet maker, and mom worked in a hotel

cleaning rooms Pretty tough to own a $1.6

million property all of a sudden with those

yeah without a 1.6 million dollar property

all of a sudden, with those, yeah, without,

uh, without a mortgage.

Yeah, yeah, it must be nice and um, so

we're thinking that that's not right.

So, as the investigation goes on, we're

we're learning more about this guy.

Well, one day the surveillance team sees

him driving a lamborghini um, not unheard

of.

He had a land rover.

He had to throw the cars.

They had.

A tow business was their front business for

laundering money.

All their customers paid cash and all their

customers paid in $20 bills.

Thus he made these massive cash deposits in

the banks Under the $10,000 threshold.

No suspicious transactions came out of that

either.

That's another story.

People knock realtors, but financial

institutions, all these places still

involve people.

People have to make judgment calls.

People have to move things along based on

their knowledge, their training, their

experience.

So, anyway Lamborghini.

We might forget where this guy's purchased

this.

Well, law enforcement here in Canada,

alberta especially, has access to the

actual bill of sale documents.

So reached out to the Alberta government

special investigations unit, got a copy of

the bill of sale.

Turns out the fellow bought the car in the

states eighty eight thousand dollars give

or take there's transportation fees to

bring it back here.

I think that was close to twenty bill of

sale says on it this was paid for in full

took a chance.

We called the dealership out there,

explained who we were and what we did.

We're a little concerned that the

dealership out there explained who we were

and what we did.

We were a little concerned that the

dealership may tip off our guy One of those

judgments you make in a case like this.

We generally do investigations like that

after takedown or after the arrests so the

bad guy can't get rid of all of his assets.

So, that said, determined that you know,

maybe this fellow has sent electronic fund

transfer to the US and that will have been

captured by FinTrack, sent off my VER to

FinTrack again Within two days I did get a

disclosure back on the one transaction that

would never have come out otherwise because

it was just an EFT for $8,000 and then

transportation fees.

But what that did was identify the

financial institution where this guy sent

the EFT from One of the big five banks in

Canada.

We already knew about another bank that

hadn't given us anything.

We'd executed production orders.

We'd been through his accounts, his

business accounts.

We didn't like what we saw, but it had

nothing to do with the property.

So that one STR led to the disclosure,

which led to identifying a bank account.

So at that point we have to search the bank

accounts that are associated to that STR,

and what we do is start with a request, the

client profile, and the client profile

provides all the accounts that the person

has and all the joint accounts, and so on.

So with that client profile and learning

that he had six or seven accounts

associated to him and his family, we

searched all those accounts.

We got boxes of documents but what that did

was identify the parents' accounts, the

grandparents' accounts, his brothers'

accounts, his accounts, and each and every

one of them had a connection to building

his house.

The contractors were primarily.

We learned from there and we learned after

our arrests and searches.

At the end of the day, but building towards

that, there were checks made out to certain

you know, concrete contractors, roofing

contractors, siding contract landscapers so

that gave us all opportunities to interview

people later to determine how they were

paid.

We also learned later that you know if the

contract was $40,000, the check that was

delivered was twenty thousand and twenty

thousand dollars paid in cash, cash right.

A lot of these guys are evading taxes on

you and they like cash so you know, at the

end of the day we got this house, it was

worth a million in change.

Um, again, he had no income, the parents

had no income to be able to have paid.

Close to a million bucks was the um with

the building costs.

Uh, we, we got his business.

We got seven vehicles, we got a brightling

watch, um jewelry, cash, a couple hundred

thousand dollars in cash, and we would not

have gotten most of that without that

single str or eft, in this case, just one

small report going to fintrack right and

identifying all these other accounts.

Now had an institution determined that this

$4,500 deposit and $20 bills is not how tow

companies work, you know.

And this other $5,000 deposit, you know,

three days later.

And all these receipts they had an

accountant.

All the receipts were for cash, so hundreds

and thousands of dollars in gas payments,

expenses for the so-called business, were

all in cash.

The accountant should have done something

as well and should have submitted an STR.

Had they submitted those STRs, all that

information would have come to us quicker

because contract had to revert to begin

with.

That stays in your database.

Police are working on it.

If the STR gets sent to them boom, they're

going to send something back right away.

So that turned our whole case around.

It was a single document like that yeah,

it's interesting and to me it perfectly

highlights this concept of the puzzle that

you're trying to build on the investigation

at the end that the frontline people will,

unfortunately, will never know about and

can't know about, to be fair.

But you never know.

But you never know how important that

little tiny thing is, very rarely is police,

do we ever get a chance to thank people for

helping out with like that.

When it comes to us in the form of a

disclosure with two dozen transactions,

five dozen transactions on a ton of

spreadsheets, you're just so overwhelmed by

the work, overwhelmed by getting something

to court, and then you're moving on to the

next one.

You don't get a chance to say, hey guys,

thank you very much.

Occasionally, back in the financial

institution world the old days I guess,

because I'm an old guy you know there's

Christmas parties or there's stampede

parties out here and you'd meet the

corporate security people.

You'd meet some of the money laundering

people.

We go to conferences, like the one coming

up in Toronto or over there, and you meet

the money laundering people there.

The real estate representative show up for

those sometimes and you meet people and

then sometimes you can share, kind of like

what I'm doing here is you know what this

actually made a difference this was a

particular case or you know it actually

results in.

You know, you talk to someone.

They say I've got something that just

doesn't seem right, steve, and they'll

explain something to me and and my response

will usually be yeah, I think that's

suspicious.

That's what we're sending in, and then we

generate more, as tr is that way, strangely

enough, or sometimes just leads.

Well, they'll send something directly to us,

but we'll also follow that up with.

You should be sending something, by the way

and then they start going through their

records, maybe, and understanding the

concept of reasonable grounds to suspect.

Or you know that money laundering isn't

just cash, you know, especially in real

estate business, it's, it's, it's the

person, it's their transaction, it's what's

not normal and in what normal people, you

know, versus what legitimate people do it's

funny in my work, uh, as we do consults

with, uh, with compliance officers as we

build out new programs for them, it's

fairly common, I would suggest, that we end

up having a conversation around a situation

that that brokerage had been involved in,

that they probably should have filed a

suspicious transaction report on, and I

would say probably more than 50% of the

consults we've had have led to us saying,

hey, you might want to reconsider this,

because I think there's probably reasonable

grounds to suspect that this situation

you've just told me about actually was a

suspicious transaction.

Yeah, you know it's funny.

You know we um want to talk money

laundering as well.

Sometimes there are the people that talk,

you know, expanding on that, maybe the big

picture, money laundering, the economic

impacts, the price of houses in vancouver

and toronto and so on.

But there's also the local level and you

know the smaller towns, smaller cities.

If a drug dealer says easiest people to

pick on, you know, is putting their money

into institutions, you know they're getting

away with that so far.

But they want to buy property.

They want to buy their own investment

property or rental unit or two or three, or

their own house and so on.

You know, by submitting that STR you have

that immediate impact, even at the small

level.

You know it isn't always the big picture

stuff that I think about.

In these cases as well, it's local police

doing local work, seizing assets off of

people locally.

That shows to the local community that

crime doesn't pay.

I'm going to take your assets, I'm going to

take your car, I'm going to take your house

and if you've used that house to develop a

meth lab or a marijuana grill or something,

it's offense-related property and we're

going to seize it for that reason too.

But the person who maybe conducted a

transaction to begin with says you know

this person's a student, why are they

buying a house?

This person doesn't necessarily have

employment.

You know, we may not even have to ask them

formal questions.

You're having a conversation with the

person that you're.

You're, you know that you're acting on to

purchase a house.

And if things just don't sound right, maybe

they aren't right and really you as a

frontline reporter don't need to go do the

investigation, you just need to submit it

and let FinTrack do what they will or won't,

but at least you'll have done your part by

flagging it, I think, is what I would say.

I want to come back to something you just

said, though small town thing, because I

get that.

I get that from a lot of people.

Oh well, I'm in small town manitoba,

saskatchewan, whatever.

I'm in small town canada, um, money

laundering doesn't happen here.

Yeah, would you agree with that statement,

steven?

I think I know the answer.

Yeah, exactly no, no, no, because again

it's that nebulous term, if, if you will,

money laundering versus, you know,

purchasing of assets and living a certain

lifestyle that we can't aspire to ourselves

because we work and earn legitimate money.

So you know, the whole point of maybe

conducting some money laundering or many

money laundering investigations is to

identify the assets at the other end of the

person that they purchased, the investments

that they purchased, the investments again,

the lifestyle, the cars, the houses, the

real property, the rental units.

And people who make a lot of money in small

towns spend their money potentially in

small towns and if they're buying

properties in these towns and they're

buying those properties with dirty money,

well, that asset can be subject to

forfeiture.

So really, money laundering is just a

vehicle of few loads that proceeds, a crime

in motion to lead us to that asset, so we

can seek forfeiture of that asset.

Take that power.

Base away from these bad guys that if they

go to jail for that short time that they

seem to get for trafficking two or three

years we don't want them to come back and

still own that house, right.

I don't want them to sell that house in the

meantime.

Put that money in the bank or an investment

while they're in jail so when they get out

they can start up again.

You know, with with cash and with assets

behind.

So you know that's where the small town

comes into it.

I think more they wander their money to buy

assets.

But you know there's also investment

properties in smaller towns.

You know central BC through.

You know call it Vernon, call it Kelowna,

call it.

Well, it's a big place now but you know

these small towns there are cottages, there

are real estate or there are commercial

properties that are being bought up these

days.

Buy up wineries if you will.

We're just down in the new soya's area.

What's to say?

You know, so some kleptocrat or oligarch

from from overseas doesn't want to drop,

you know, 500 million dollars and buy a

winery.

That's pretty nice dirty money, yeah, yeah

yeah, so it's even more than just small

town.

But those are small areas, but there's

opportunity for big investments as well,

yeah, well, and I think the point really is

to make crime, not pay.

Yeah.

And that's the objective.

Lovely Well, thank you for that story.

I really appreciate it.

I don't want to take too much more time

from our audience if so, but I did want to

give you an opportunity.

Was there one other like quick message that

you thought was really important that you

hadn't had a chance to talk about through,

uh, through the course of the conversation?

um, yeah, maybe I touched on it a bit

earlier that you know too many or too often

we associate money laundering with, with

cash.

I guess, and and again with um, what the

Colin Commission talks about and what's

been in the media lately, it is that big,

nebulous, big picture problem.

As opposed to, it impacts us locally, it

impacts us domestically and so on.

So it's something that's more than that.

It is about the assets, it is about the

people, it is about the underlying crime.

But because people associate it with cash,

they're not always thinking well,

transactions are suspicious and who may be

suspicious.

Our biggest issues in law enforcement, and

even all of legal law enforcement in the

time being is knowing who the ultimate

beneficial owner of certain assets are.

If realtors can come to that or do more

investigation to determine that the

ultimate beneficial owner might be a

politically exposed person who's been

sanctioned by the Russians, might be an

oligarch, a kleptocrat, somebody who's

stolen billions from their country's oil

reserves, and so on, we need to know the

ultimate beneficial owner.

Something to keep in mind as well is the

source of funds.

Again, it doesn't have to be suspicious of

the transaction itself, but where did the

money come from?

And that's when you question the people's

employment, their status in Canada, their

associates, if you've done any adverse

media checks.

Who had disperse and did they show up?

Yeah, and a media check is having a drug

trafficking conviction or being a member of

the Hells Angels or a brother of the Hells

Angels, because nominees again coming back

to the ultimate beneficial ownership is one

of our biggest concerns, so it's Source

Funds, ubo and um, not just getting it out

of your mind that it's always about cash

and the transaction itself Now very quickly.

The attempted transaction is important,

though Someone does come to you as a

realtor and say I've got $50,000 cash I

want to put down, you're going to say no, I

know I trust enough people.

They're going to go no, no, no, go to the

bank, get a draft, go to the bank, put it

in an account, send me an e-transfer, get

it into a large trust account.

That's an attempted transaction, mind you.

That should be suspicious.

Yes, anyone that comes with that amount of

cash in my world is suspicious.

There's no excuse these days on why people

are transacting that amount of money

anymore.

I rarely have $20 cash in my wallet.

These days, it's all plastic.

I've laundered my own money in banks and

you're taking out money to do undercover

buys.

That don't happen and you go back to

another branch of the same bank because the

government used to deal with it.

And also you walk in with forty thousand

dollars and back in the day I had the hair

and the beard nice, yeah heller looks at

you and goes I don't think so well, I'll

take that, but let me just file this

paperwork over here.

I've had paperwork filed.

even though there's my ID, there's my badge,

I do want to build on something you said,

though, because what you just said is

important for people to hear.

The nature of and I guess what I want to

say is the nature of being a realtor or a

mortgage broker is that you're in these

very personal relationships and as a result

of that personal relationship, you often

have information that nobody else in the

world will have access to.

When I go shopping with a client, if the

father is the one actually there hovering

over the shoulder telling their kid what

they can and can't buy, that might be weird,

but I'm the only one who would ever see

that, because nobody else is a party to

that conversation and to those flip that

around, greg.

And what probably is more suspicious is, is

the kid telling the father sure you cannot

buy.

I've seen that with um vehicles.

Yeah, the vehicle is in grandma's name.

She's 67 years old, doesn't speak english,

but it's it's a ferrari, it's a corvette

yeah, so when you speak to the, the car

dealer in this case, you know it.

It's yeah, so-and-so.

Came in with his mother but he did all the

talking.

He asked about the warranties and, oddly

enough, the multimillion-dollar property

there bill of sale.

Every car was in his dad's name, right,

every truck.

But all the initials on the bill of sale.

I don't want financing His initial, want

financing his initials, his initials, yeah,

so they put that together.

So, yeah, it's um, you will see people up

close and personal and you see how they

it's, it's their behavior.

Not necessarily you know who they are,

their, their race, anything like that.

It's what they do.

That's different.

That doesn't fit with what I'm going to do

when I'm going to buy a small life and I

meet a realtor, we do this.

Hey, what do you guys do?

Hey, I'm a retired, this is what I got you

move on.

It's normal conversation.

You're much more intimate in that case and

sometimes it's harder to pass information

on.

When you're intimate with people and you're

friends with them, you humanize people and

it does make it harder to send in something

that's suspicious.

But, on the other hand, realtors and all

the other reporting entities are vulnerable

to being abused by money lenders and

criminals, people wanting to buy assets and

investments, and it's been determined the

world over for over 20 years.

So it is.

I'll say this and I'm not admonishing

anybody it is time to get with the program

now.

There's enough bad guys buying property.

We'll never stop at all.

That said, you know an STR doesn't mean you

don't make a sale.

An STR doesn't mean you don't take on a

client.

It just means I think I have reasonable

grounds to suspect it is like 25% of 100%,

beyond a reasonable doubt.

This just doesn't seem right.

I believe they're laundering money or using

this property to launder money, legitimize

their dirty money or to flip it in the

future.

That said, if you've seen a property flip

two days, flip it in the future.

That said, if you've seen a property flip

two days, you know, three days later, after

the title's gone through, if something

comes up in the land title registry that

you happen to see, or they reach you again,

reach out to sell a property again.

You know things like that are suspicious

and there's an obligation, a moral

obligation if you will, you know and this

is me moralizing as a cop to comply because

of all the violence, all the violence, all

the problems behind the scenes that we

don't see.

Yeah, and from a fairly like I don't know,

this is crass, but I'm going to say it

anyway.

As a salesperson, you can still go cash

your check, You're still going to sell that

property, even though you're filing a

suspicious transaction report.

Oh, I mean look again it's a little crass,

but I think it's still true and I guess

people should take some.

It's 100% true, because financial

institutions deal and that's coming back

very briefly, slightly different topic, but

included everything that they should be

doing in their compliance regime is

risk-based anyway.

So you risk assessing your clients.

Is this a high-risk person?

Well, yeah, they're from Eastern Europe.

They've just come to Canada or they've got

a third party dealing on their behalf and

we've never seen them.

They've bought a third party dealing on

their behalf and we've never seen them.

They've bought this property site unsold,

or it's a trust fund, or it's a trust and

you're not seeing the owner behind that, as

opposed to you.

Know, I'd like to think I'm no risk to buy

a place, but if all of a sudden, I turn

around next week and buy a $2.5 million

acreage outside of town here with cash, you

know, maybe my nephew, who's our realtor,

you know, might be going, hmm, yeah, maybe

he would send something in, unless I have

to say, hey, man, I won a lottery and you

know.

Even then, you know.

So what I'm getting at is um, actually, I

got, I got kind of sidetracked, greg,

excuse me, that's okay it's funny because

one of my favorite things I like to talk

about is when I bought the home I'm

currently talking to you from, uh, my wife

and I toured it for maybe 15 minutes,

probably 10 to 15 minutes.

We walked outside, wrote an offer for more

than full price subject free and had bought

this home four hours later.

Well, speed of transaction.

There's a flag uh, that's a pretty big flag,

in fact.

Paying over over list that's a big flag,

like really less so.

Paying over over list that's a big flag,

like really less so these days but yeah.

Yeah, and and it occurred to me, as I mean

I've often thought about that since that

somebody probably should have filed a

suspicious transaction report on me.

Not that I was laundering money, I was

responding to the market conditions.

I had perfectly good reason to do what I do

is doing was doing.

But there's some big str flies, yeah, but

that goes into the risk assessment.

Um, my wife and I were looking at a condo,

potentially on behalf of her daughter, and

you know, hey, we're gonna ask market price

and slightly more if necessary.

Apparently there's 10 offers before we even

made a call.

You know so.

But it would have been done.

Hey, I can close it.

This was like a sunday called, called my

nephew and said this is what we want to do.

He calls back on Monday and says this is

the case and I said look, tell them I'll

close on Wednesday.

Yeah, I can pay full price for this right

now, just pull out some savings and so on.

So, yeah, again part of the risk assessment.

That's where I got sidetracked earlier, if

you will.

No way.

You're assessing everybody you deal with

and you're documenting that risk assessment

and you're documenting that risk assessment.

It shouldn't be a tick box type of thing,

but you can make it easy and make it that

way though.

You know where are they from, you know

what's their source of funds the questions

that we put together earlier and if there

are actual indicators or terminology that

people can use.

You know this money came from a

jurisdiction of concern or we don't know

the person's source of funds.

That's the type of information a slightly

different topic that goes into the SDR, but

it becomes really helpful.

It will generate interest by that FinTrack

analyst when people use that terminology

properly too.

Yeah, no, this is great.

Thank you so much.

I really appreciate hearing from the other

side of the front lines, because it really

does address something that a lot of our

clients often ask about, which is, I feel

like I'm just shouting into the wind with

this stuff, and to hear you talk through

how important the data that is coming

through Fintrack can be to actually solving

real-world bad crime is, I hope, helpful

and, to me, is encouraging, and I think

people will generally get some value out of

that.

So thank you for being able to do it.

And, if I may finish, every single case,

like I say, will include a FinTrack

disclosure.

These days, every major project, every bad

guy, every fraud, every whatever, and

buried within that are STRs from other

reporting entities that give us leads that

take us further, because really, the only

way to go after these guys is to seize

their assets and take that power away from

them.

Crime shouldn't pay.

And these STRs from realtors and I'd love

to see more of them because I know they

will provide some great, great information

and stuff that's collected will lead to so

much more.

And if, at a certain point, the police

decide to execute a production order on a

real estate office and I don't want to

scare anybody by saying that you know what

may be in that file may provide other leads

as well, other financial accounts and so on.

Because, again, it doesn't necessarily

include bank accounts in these STRs if

they're not known, if there's an attempted

transaction, but you know, at some point in

the future that evidence or that

information is going to become evidence and

it's going to be useful.

Because, again, yeah, these pieces of a

puzzle count and I'll stand by that after

30 years of doing this.

No, and I think I will give you.

I will end this, I think, with a bit of a

positive note and a positive spin which is

in our work.

We're seeing already that the culture of

compliance that has been missing.

People are starting to get that message and

they're starting to see where they should

be filing STRs.

In our work we have a bunch of brokerages I

don't even it's double digits who are

waiting to file STRs.

Waiting because the web reporting thing

isn't back up yet.

Actually it is.

They have a phase two trial out of the new

web reporting I heard this last week, so

it's almost back up but phase two trial out

of the new rubber horn and I heard this

last week, so it's almost back up.

But anyhow, my point is waiting to file

pretty soon.

Um, that, uh, that, that.

But that wouldn't have been true 10 years

ago because it just there was not that

culture of compliance, there was not that

awareness of what should be happening yeah,

no, I can guarantee there's no better

feeling.

You can get a fendrick disclosure that's

got good information or good intelligence

in it that we can use for something else.

It's like, well, I got that guy now, or I

got this, or I've got something new.

People like I'll say, people like me, the

dozens and dozens of money laundering,

asset forfeiture people thrive on that.

You know that's what makes our cases and

when we present some of our proceeds of

crime cases, money laundering cases, to

these substantive teams, the drug teams,

human trafficking teams and you show these

people I've seized this house, I've seized

this car, I've seized a donut shop years

ago.

That's another story.

That's a dangerous one for a police officer,

but anyhow.

I'll leave that part alone.

Yeah, we had a city police car pull up

while we were executing the paperwork.

A fellow looks at me and says so.

I said hey, by the way, we just put a

restraint against this property.

He says what does that mean?

I said well, the government kind of owns

this now until we can sort out the fact

that these people are drug traffickers and

they get convicted and it gets forfeited.

He looks at me and says so Steve, does that

mean I get free donuts?

He said not likely.

Now, man, I'm the owner of this place.

I'm going to pay as much money as I can.

But no, I appreciate if everyone starts to

do this, it keeps it going.

As I say, it's.

Hopefully some of my excitements come out

here that I believe strongly in this and I

still do it, and I know again the dozens

and dozens of people that work these

investigations just thrive on this, and it

is really one of the most important ways to

take down bad guys is to take their stuff

and put them in jail.

But it goes part and parcel.

As far as I've seen, and it's proven around

the world yeah, absolutely.

Well, thank you so much, Stephen, much

appreciated.

Thank you for having me Talk again.