job, [she] used her connections to create an entirely new payment processing business that would cater to clients like these and help them access bank accounts wherever they wanted to do business.” PacNet Services Ltd., as it was then called, grew from being a


small local operation into a global powerhouse with opera- tions and subsidiaries in more than a dozen countries, CNN reported. Multiple sources told the news network how “the company’s very business model was rooted in helping the unsavory clients that banks want nothing to do with.” Jennifer Fiddian-Green, a partner at Grant Thornton who


has worked with a number of payment service providers and fund-transfer companies, sees this area as vulnerable to such problems: “Regulations [in Canada] are needed and need to be tighter along with regulatory oversight. Right now there is no consequence in Canada for those choosing not to follow the rules or, when there are no rules, no consequence at all until limited law enforcement resources are focused on the problem.” PacNet spokespeople deny all allegations of wrongdoing and


huge volumes of clients and transactions is mixed.” While Canadians might be shocked to learn of a major


money laundering scheme operating out of Vancouver, it is no surprise to fraud investigators. Canada has long been seen as soſt on money laundering and has been taken to task for its laxness by organizations such as Transparency International (TI). In a March report, Doors Wide Open: Corruption and Real


Estate in Four Key Markets, TI said loopholes in Canadian law allow a corrupt elite to use the housing market for money laundering, the Huffington Post reported. “The report found 10 problem areas with the laws related to real estate transac- tions in Canada, Australia, the UK and the US — four coun- tries it identifies as being hot-spots for real estate-related money laundering. ‘Canada’s legal framework has severe deficiencies under four of the 10 identified areas,’ the report stated. ‘In the other six, there are either significant loopholes that increase risks of money laundering through the real estate sector or severe problems in implementation and enforcement of the law.’”


Canada has long been seen as soft on money laundering A year earlier, the Financial Action Task Force, a G7 organiza-


claim it, too, was a victim of unscrupulous clients. The US gov- ernment, however, says the company knowingly facilitated money laundering and mail fraud for decades — using secret bank accounts, moving bundles of money by plane and lying to customs officials. As an example of PacNet’s modus operandi, the US govern-


ment noted an instance when a PacNet client wanted to send money through a bank that had previously refused to do busi- ness with PacNet. “Day responded, asking the client to wire money to an account in the name of ‘Indian River UK Ltd.’ at another bank in London [England], and ‘therefore, please do not mention PacNet on the transfer.’ ” In its reporting, CNN said, “We had stumbled across a busi-


ness filing for Indian River (UK) Ltd., which listed PacNet as the only shareholder and PacNet manager Ruth Ferlow [Day’s sister] as a director. Oddly enough, we also found a firm with the same name that had previously been registered to a man who claimed the company imported and distributed Russian weapons. This business was dissolved in 2011, the year before the company with the same name was registered by PacNet executives. We couldn’t determine whether this weapons company was related to PacNet at all, and PacNet said there is no connection between the two businesses.” Fiddian-Green says that “while financial institutions are


required to conduct a minimum level of due diligence on their clients, in practice the execution of these requirements across


tion established to promote policies aimed at protecting the global financial system against money laundering and terrorist financing, said, “Canada faces an important domestic and foreign money laundering threat” from criminal organizations that launder billions of dollars in this country, the Toronto Star reported. “The stiff warning also sounds an alarm about the threat against ‘major financial institutions and some unscru- pulous real estate lawyers’ targeted by criminals involved in laundering money.” While Canada has increased its efforts to combat money


laundering in recent years, more action needs to take place. “Canada has to do more to strengthen the anti-money laun-


dering system to produce results, including regulatory over- sight,” says Fiddian-Green. “Law enforcement and the justice system need to open and prosecute more cases.” Interestingly, no Canadian police or government body was mentioned in the US’s announcements regarding the PacNet investigation. Canada has always seen itself as one of the world’s cleanest countries when it comes to corruption. Perhaps it’s time to accept that our laundry can be as dirty as anyone else’s.


DAVID MALAMED, CPA, CA•IFA, CPA (ILL.), CCF, CFE, CFI, is a partner in forensic accounting at Grant Thornton LLP in Toronto (linkedin.com/in/forensicaccountant)


SEPTEMBER 2017 | CPA MAGAZINE | 57


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