By Jenna Dawson, National Intelligence Analyst, Criminal Intelligence Program, Royal Canadian Mounted Police, Ottawa, Ontario
he Government of Canada recognizes that organized crime activity is a threat to Canada’s economic integrity. Today’s Canadian organized crime response is based on partnerships among all levels of law enforcement and an all-points strategy that counters its destructive effect on the economy.
|Law Enforcement Response|
“Law enforcement plays
by yesterday’s rules and
increasingly risks dealing only
with the weakest criminals
and the easiest problems.”
—SAG Intelligence Committee
Futures Working Group,
“Crime and Policing Futures,”
(March 2008), 2.
The forces of supply and demand drive the illegitimate market just as they do the legitimate one. Organized crime (OC) groups are entrepreneurs, actively seeking ways to turn a profit. They are opportunists, responding to changing economic conditions and operating environments
In one generation in Canada, organized crime has expanded not only in its scope and significance, but also in its sophistication and severity. Criminal organizations have infiltrated Canada’s legitimate economic sectors and damaged its reputation as a stable, safe, quality place to invest. Canadians pay the price, either directly or indirectly, for corruption, infiltration, and money laundering activities. Increased business costs, which are passed on to consumers, are the most obvious repercussion. Numerous sectors of the Canadian economy have been infiltrated by organized crime and include the following:
- Manufacturing (for example, car parts manufacturing)
- Natural resource (for example, mining, fishing, and lumber corporations)
- Real estate (for example, real estate and mortgage brokers)
- Retail (for example, supermarkets, restaurants, and bars)
- Transportation (for example, trucking and shipping companies)
- Other economic sectors such as the entertainment, high tech, and import/export sectors
Organized Crime Branching Out
The Hells Angels, a designated organized crime group, is an example of OC infiltrating economic sectors. Well-known owners of bars, restaurants, and escort services, the Hells Angels are becoming entrenched in Quebec’s construction and auto industries.1 The construction sector has long been infiltrated by traditional organized crime groups. Bid-rigging, arranged tenders, collusion, influence-peddling, and bribery pervade the lucrative construction industry.2 The auto industry (body shops, towing, detailing, vehicle sales, and rental businesses) also appears to be a new target for Hells Angels’ expansion and interest in market control.3
Members of the Hells Angels intimidate, threaten, and harass legitimate business owners to develop or expand the group’s local or regional monopoly.4 In many cases, the Hells Angels use involvement in legitimate industries to expand its illicit activities such as drug trafficking or money laundering.5
Opening the Front Door
The International Monetary Fund (IMF) estimates, and Royal Canadian Mounted Police (RCMP) analysis supports, that the scope of money-laundering activity in Canada is likely between $30-76 billion USD.6 In order to launder proceeds of crime and lend the appearance of legitimacy to other criminal activities, OC groups often incorporate legitimate storefront companies, considering such operations to be the cost of doing business.
These shell businesses, however, create economic distortion and unfair competition, increase corruption, facilitate criminal activity, reduce government tax revenues, and negatively affect the integrity of the Canadian economic and financial systems.
Counterfeiting: More than Just Music and Movies
Counterfeiting goes beyond pirated DVDs and fake designer handbags; organized crime is now involved in the production of counterfeit auto parts, electrical appliances, and medications. From an economic viewpoint, this counterfeiting results in inferior products and erodes consumer confidence and faith in the products. From a public safety viewpoint, the counterfeited products are a hazard and not safe to use.
OC involvement in counterfeiting is a threat to Canada’s economic integrity. The RCMP seized $24.7 million worth of counterfeit products in 2008, more than double the value of seized goods in 2007. In late April 2009, the U.S. Trade Representative office added Canada to the priority watch list (blacklist) of countries designated as lax in protecting intellectual property. Canada is the only democratic, Western country on the list, which includes Algeria, China, Indonesia, Pakistan, and Russia. Major source countries identified by the RCMP in 2008 were Canada, China (including Hong Kong), and the United States.8
The top categories of seized products include the following:
- Audiovisual, literary, and related copyright work such as music, CDs and DVDs, software, and books
- Apparel, footwear, and designer clothing
- Other items such as batteries, sporting goods, and stickers9
In combination with the drop in consumer confidence that has resulted from the global credit crunch and stock market decline,10 counterfeiting is detrimental to Canada’s Gross Domestic Product.
Up in Smoke
Illicit sales of contraband tobacco contribute to an underground economy worth hundreds of millions of dollars. Traditionally seen as a victimless crime, tobacco trafficking is now a significant source of income for all levels of organized crime, which reinvests the substantial profits to support other criminal activities.
The linkages between the illicit tobacco market and OC have increased exponentially over the last six years. OC influences both the manufacturing and the distribution of contraband tobacco products across Canada.
Contraband tobacco directly decreases government revenue, increases criminal justice spending, undermines health objectives, and opens the door for easy and unmonitored accessibility by youth. While tobacco is a legal substance that is consumed by approximately five million Canadians, a growing number are purchasing contraband tobacco without realizing the negative impact such purchases have on Canadian communities and Canada’s economic integrity.
Canada’s stable financial institutions are well-respected, and an attractive investment alternative for domestic and transnational OC. Foreign individuals with associations to national and transnational OC groups are known to have penetrated key industrial sectors of the Canadian economy. While this pattern is not unique to Canada—similar activity has been noted in Italy, the United Kingdom, and the United States—the potential criminal business and investment dealings of foreign nationals continue to be an area of concern for Canadian law enforcement. These activities tend to be high-level economic crimes such as stock market manipulation, abuse of business privileges, or sophisticated frauds that are extremely difficult to investigate. The global interest in resources, notably oil and mining, leaves Canada’s rich natural resource sector vulnerable to exploitation by OC, particularly in the Arctic.
For example, YBM Magnex International, a publicly traded company incorporated in Canada, was used to launder money and commit securities fraud in the late 1990s. Semion Mogilevich, a Russian billionaire crime boss, and others belonging to the Russian Mafia were associated to YBM Magnex. The company had links to Canada, the United States, the United Kingdom, Russia, France, Italy, and Germany. Investors lost over $150 million. Four men were charged on 45 counts of racketeering, securities fraud, mail fraud, wire fraud, and money laundering, and the company pled guilty to conspiracy to commit securities and mail frauds.11
THE SOLUTIONS – LAW ENFORCEMENT RESPONSE
Protecting Canada’s financial systems and economic integrity is not a simple task. OC activity in these areas is difficult to detect and challenging to investigate. High-level OC groups are smart, insulated in legitimacy and have vast resources at their disposal, including highly qualified lawyers, accountants, and bankers. Investigations into these complex, sophisticated crimes are resource and time intensive and require specialized knowledge and skill sets.
The Canadian police community’s integrated approach combats organized crime and mitigates its impact on the Canadian economy. This integrated approach enhances coordination and cooperation between domestic and international agencies and often cuts across jurisdictional lines.
Based on its experience of integrating resources from various agencies to dedicated OC investigative teams, Canadian law enforcement is now coordinating its efforts through the Canadian Integrated Response to Organized Crime (CIROC). CIROC represents law enforcement’s ongoing efforts to promote effective, efficient investigations and reduce duplication of efforts through coordinated investigation priorities. Based on criminal intelligence services’ providing accurate and timely threat assessments, provincially established committees coordinate the operational activities of law enforcement to ensure that these efforts are directed towards identified criminal organizations. As such, CIROC has become the operational response to organized crime.
The integrated approach has achieved numerous successes through Integrated Border Enforcement Teams (IBETs), which include members from both Canadian and United States law enforcement agencies. For example, Project Shiprider, a central St. Lawrence Valley maritime border integrity initiative, addresses the increasing and evolving threat of marine cross-border criminality. Shiprider, a concept designed by the U.S. Coast Guard (USCG), is an integrated approach to conducting joint maritime enforcement by extending the capability of U.S. and foreign law enforcement agencies to enhance maritime cooperation.
From August 3 through September 30, 2007, Project Shiprider targeted a 100-km span of the St. Lawrence Seaway between Valleyfield, Quebec, and Cardinal, Ontario. The Shiprider project cross-designated peace officer status and powers to both RCMP and USCG participants, allowing vessels to work together on both sides of the border and cross freely into each other’s jurisdiction. Over the course of the Project, 39 separate incidents resulted in 41 arrests, and nearly 40,000 cartons of contraband cigarettes and 215 pounds of marijuana were seized.12
Another example of Canada’s integrated approach to law enforcement, Project Colisée, was aimed at disrupting and dismantling the illegal activities of some of the more formidable OC groups operating in Canada. Colisée was a joint operation led by the Combined Forces Special Enforcement Unit (CFSEU) that worked under the coordination of the RCMP, with collaboration from the Sûreté du Québec, Service de police de la ville de Montréal (SPVM), Service de protection des citoyens de Laval, Canada Border Services Agency (CBSA), and the Canada Revenue Agency (CRA).
Spanning several years, the investigation focused on the structure, hierarchy, and involvement of the leaders of the criminal organization. In addition to uncovering traditional criminal activities such as extortion, the investigation demonstrated that the organization infiltrated legitimate industries with a view to gain control through coercion and violence.
The criminal organization used complex methods to launder money through financial service businesses and other legitimate industries, notably construction. The proceeds of crime investigation identified millions of dollars in assets to be seized and restrained, including over $3.5 million in cash, bank accounts, and residences in the Montréal and the Laval regions. CFSEU investigators uncovered criminal links around the world and gathered evidence in several countries, bringing charges in Canada. In total, 90 persons were charged for crimes committed between 2003 and 2006.13
Today’s economic uncertainty resulting from the fragile global economy reinforces the need to enhance the protection against crimes that undermine Canada’s economic integrity. Despite the relative successes of the integrated approach to combating OC, gaps remain in intelligence and resources directed towards economic and financial crime. These gaps jeopardize Canadian law enforcement’s ability to prevent and investigate high-level OC threats as they emerge and develop to target Canada’s stability, prosperity, and economic integrity.
The enhancement of integrated partnerships and cooperation between enforcement agencies, the different levels of government, financial institutions, securities regulators, the justice system, and other public and private stakeholders will help mitigate these gaps and facilitate the sharing of intelligence and resources to reduce the impact of organized crime on Canada’s economy. ■
1Hugo Meunier, “La SQ frappe encore chez les Hells,” La Presse (Montreal: May 21, 2009), A18; André Célidot and André Noël, “L’opération Colisée, mène à des perquisitions dans la construction,” La Presse (Montreal: May 9, 2009), A7; André Noël, “Rénovation à l'hôtel de ville: la SQ ouvre enquète,” La Presse (Montreal: June 16, 2009), A2-3.
2André Célidot, “L’encerclement des Hells,” La Presse (Montreal: June 13, 2009), A12.
3André Célidot, “Une suite de l’opération Printemps 2001,” La Presse (Montreal: May 21, 2009), A19.
4Hugo Meunier, “X Vitres-Teintées imposait un régime de terreur,” La Presse (Montreal: May 21, 2009), A19.
5Hugo Meunier, “La SQ frappe encore chez les Hells.”
6This figure is based on the IMF estimate that money laundering represents 2-5 percent of global GDP. Assessing proceeds of crime is difficult, as they are generated from the underground economy and statistics are not readily available. In Canada, the criminal activities included in this estimate are drug trafficking, certain types of frauds, intellectual property crimes, contraband tobacco, illegal online gaming, and vehicle theft, which are estimated to be between $29-69 billion CDN.
7Paul Koring, “Canada Placed on Copyright Blacklist,” Globe and Mail, (April 30, 2009), http://www.theglobeandmail.com/news/technology/download-decade/canada-placed-on-copyrightblacklist/article1127052/ (accessed May 15, 2009).
8Cases involving the United States as a source country were, for the most part, a result of interceptions by the Canada Border Services Agency (CBSA) at the Canada–United States border that were referred to the RCMP for further action. Canada’s involvement as a source country for its own domestic market consisted primarily of DVD production for local resale.
9Commodity types examined were categories by the Security and Prosperity Partnership of North America (SPP) agreement, based on definitions from the Organization for Economic Co-Operation and Development (OECD).
10“Canadian Consumer Confidence Retreats to 1982 Level,” CBC News (October 17, 2008), http://www.cbc.ca/money/story/2008/10/17/confidence.html (accessed November 2, 2009).
11Margaret E. Beare, “Russian (East European) Organized Crime around the Globe,” paper presented at the Australian Institute of Criminology, Australian Customs Service, and Australian Federal Police, Transnational Crime Conference, Canberra, March 9-10, 2000, abstract available at the Nathanson Centre, http://www.osgoode.yorku.ca/NathansonBackUp/Publications/russian.htm (accessed November 2, 2009).
12Project SHIPRIDER – A Central St. Lawrence Valley Maritime Border Integrity Initiative, RCMP, (November 5, 2007).
13“CFSEU Officers Tackle Traditional Organized Crime on Several Fronts,” “C” Division News Release, RCMP (November 23, 2006).