Canada is a haven for crypto businesses—and white-collar crime – The Logic

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Canada’s reputation for being soft on white-collar crime makes it an attractive destination for unscrupulous actors in the rapidly growing cryptocurrency-exchange industry, experts say. On Monday, The Logic reported there are now more than 600 companies that offer cryptocurrency-trading services in Canada that have not registered with securities regulators, and at least 11 that haven’t registered with the Financial Transactions and Reports Analysis Centre of Canada. There’s also no evidence any of them have faced penalties from Canadian authorities. New businesses are entering the space daily, with five additional companies registering as virtual-currency dealers with FINTRAC since the story was published.

Why it matters: The lack of oversight means Canadians have little reason to trust that these businesses—which collectively hold about US$144 billion worth of Bitcoin in custody—are handling their money responsibly. Remember Quadriga? The Vancouver-based exchange’s 76,000-plus investors lost a combined $169 million when its founder died in 2018, largely as a result of what an Ontario Securities Commission investigation found was fraudulent trading. It was one of just a handful of exchanges accepting Canadian dollars at the time. Now, there are hundreds.

What experts are saying: Matt McGuire, who advises cryptocurrency companies on anti-money-laundering law, was blunt about Canada’s ability to prevent the next Quadriga. “There is no safer place to commit a financial crime than here. The legislation has very little teeth,” said McGuire, whose career has included stints with FINTRAC and the Toronto Police Service. 

  • McGuire said the RCMP and TPS have some staff dedicated to the cryptocurrency file, but Canada doesn’t have nearly enough resources dedicated to policing financial crimes in general. A Global News investigation in 2019 found almost three-quarters of accused money launderers go free in Canada, a much lower successful prosecution rate than the U.S. and U.K. “There might be some resources, but it’s not enough to deal with the extent of the problem, or to have the international reach necessary to deal with this,” McGuire said.
  • FINTRAC’s mandate covers a wide range of businesses, from accountants to casinos. But according to its 2019–2020 annual report, the agency only conducted 399 compliance examinations that year, levying just two monetary penalties. “The likelihood of being examined is quite low, so you can operate with fair impunity,” said McGuire.
  • Investor-protection advocate Preet Banerjee agreed that Canada’s record on white-collar crime enforcement is poor, and the country is unlikely to become a leader in cryptocurrency regulation: “I think that characterization is a pretty strong one, to suggest Canada has been lagging in enforcement,” he said.
  • Jean-Paul Bureaud, executive director of the Foundation for Advancement of Investor Rights Canada, said Canadians looking to buy cryptocurrencies need to do their homework: “The important takeaway is that crypto assets may be sold or promoted without following any regulation. As a result, they carry additional risks than just market volatility.”
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How officials are responding: The RCMP didn’t respond to a request for comment in time for publication on how it’s dealing with the issue. Asked whether Canadian investors are sufficiently protected against cryptocurrency-trading scams and what the government plans to do about the issue, the Department of Finance offered the following statement: “Cryptocurrencies are not considered legal tender in Canada. The Government of Canada continues to engage with international institutions and partners about the potential impact of digital currencies on the global financial system. This is because of the highly integrated nature of financial markets and the transborder design of digital currency technology. In January 2018, the Financial Consumer Agency of Canada released guidance for Canadians who use digital currency.”


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