The dirty truth about money-laundering laws

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The great North American crusade to track down and eliminate certain illegal activities — drug smuggling, human smuggling, street gangs, Mafia groups, tax evasion, terrorist agencies — has once again zeroed in on the alleged facilitators of all that criminal activity: the banking industry. Regulatory agencies, the media and a new book published by McGill-Queen’s University Press  — Dirty Money: Financial Crime in Canada  — drive the message that criminal activity wouldn’t be possible without the massive money-laundering schemes that allow national and international criminal operators to funnel cash through Canada’s banks and other financial institutions.

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The high-profile case of TD Bank, which is expecting fines of US$4 billion or more for failing to help prevent US$653 million in drug money from being laundered to China and elsewhere, serves as the headline-grabbing illustration for the idea that banks — and weak Canadian laws and regulatory enforcement — have allowed criminal industries, tax evaders and international oligarchs to thrive and contribute to national financial and political risks.

The argument, as presented in the 400-plus pages of academic advocacy in Dirty Money, is that national and global money laundering facilitates “a panoply of heinous local crimes.” If the money-laundering system were eliminated through arrest and persecution, one of the Dirty Money essayists argues, “law enforcement (could) attack organized crime where it is most vulnerable.”

While the rhetorical and political hype behind the idea is intensifying, there are many reasons to question the theory.

Take the sensational case of TD Bank, whose officials and management systems failed to detect and prevent a U.S. money launderer named Da Ying Sze from using the TD and other banks to transfer more than US$653 million in fentanyl cash out of the United States to China or other nations where the drugs originated. In 2022, a 43-year-old Sze pleaded guilty to money laundering and corruption charges.

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To get the cash back to China or Mexico or wherever the drugs originate, money is placed in the hands of a money launderer such as Sze. According to a 2024 report from the U.S. Federal Deposit Insurance Corporation, “Sze routinely accepted illicit proceeds in cash and deposited the cash into financial institutions in New York, New Jersey, Pennsylvania, and elsewhere, utilizing bank accounts in the names of shell companies and conspirators. Sze then further obfuscated the source of the illegal cash by purchasing official bank cheques, writing personal and business cheques, and making international and domestic wires to transfer the illegal cash to thousands of individuals and entities in the United States, China, Hong Kong, and elsewhere. For his services, Sze received a fee of approximately one to two per cent of the cash laundered.”

So let us now follow the fentanyl chain leading to charges against TD Bank. It all begins with government anti-drug laws that make the sale of addictive and deadly drugs such as cocaine and fentanyl a crime. Despite the criminality of importing such drugs, hundreds of millions of dollars’ worth flow into Canada and the United States annually.

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Over a period of about five years, half a billion dollars’ worth of fentanyl and other drugs arrived in United States undetected by customs or other government authorities. Then the drugs were trucked, mailed and flown around the U.S. and Canada through wholesale and retail systems to local street vendors — also undetected and unstopped by government or police. Local participants in the drug trade would also have made their profit off the sales, and presumably lived well off of the proceeds.

At the end of this long trail of criminal activity, across thousands of kilometres of land and sea and through the hands of hundreds of criminals circumventing state detection, the best governments can do is go after the TD Bank for failing to stop what police and scores of other agencies failed to identify.

Banks and other financial institutions that are the target of government anti-money-laundering programs are the last and weakest link in a chain of criminal activity. TD Bank has admitted that its anti-money-laundering regime failed and will pay a price that amounts to an outrageous penalty, while every government agency is free of blame or responsibility.

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The Dirty Money activists claim that if only banks were more rigorously regulated and forced to be the gatekeepers of anti-money laundering, global and local criminal drug cartels would be starved out of existence. There is no evidence for this theory. Prof. Stephen Schneider of Saint Mary’s University in Halifax, in an interview, commented that there is “no point in just focusing on money laundering in and of itself.” In a chapter in a new book published by the University of Toronto Press, Big Crime and Big Policing, Schneider and his co-editors document the myriad instances of the global banking industry’s experience with money laundering. But are the banks the problem?

International investigator L. Burke Files concluded earlier this year that anti-money-laundering laws “sold to the public as a way to end crime and terrorism don’t work.”

Unless, of course, the objective is to pass the buck of criminal responsibility for drug trafficking and other crimes created by governments on to the evil capitalist financial industry.

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