Trade Wars and Dirty Money
This week, President Trump threatened Canada with 25% tariffs. Part of his justification for this action was that organized crime groups in Canada export fentanyl to the United States.1 There is little evidence to support this assertion, and a recent FINTRAC report indicates that most of the fentanyl produced in Canada remains in the Canadian market.2 Regardless, in a deal to have the tariffs put on hold for 30 days, Prime Minister Justin Trudeau agreed to a series of measures targeting crime in Canada:
$1.3 billion border plan (this had previously been announced)
Appointing a fentanyl czar
Listing cartels as terrorist organizations
Watching the border 24/7
Launching a joint Canada-U.S. strike force to target organized crime, fentanyl and money laundering
Signing a new intelligence directive on organized crime and fentanyl backed by $200 million
If some of this sounds like stuff Canada is already doing, that’s because it is. However, the last two points are likely new, and listing the cartels as terrorist organizations certainly is. While details are murky about what the joint Canada-U.S. “strike force” entails or the new intelligence directive, any efforts to combat money laundering and organized crime in Canada are welcome.
What exactly we’re going to do on the intelligence front is particularly unclear because, in Canada, we don’t really have “intelligence directives.” We have intelligence priorities, and combatting organized crime and illicit financing are already two priorities. It might be a Ministerial Directive to law enforcement and intelligence services to do more on this issue. It’ll be interesting to see what, if any, details emerge because much of this is already happening.
Leaving that aside, let’s talk about two issues that Trudeau’s negotiations raise: the scope and scale of money laundering in Canada and listing cartels as terrorist entities.
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Money Laundering in Canada
Like terrorist financing, there are several different ways to measure money laundering. In Canada, we frankly have no idea what the scope and scale of money laundering is. Our biggest issue is the lack of coherent and collated information on money laundering investigations, charges, prosecutions, and other forms of disruption.
However, we know plenty of suspected money laundering activity is happening in Canada. According to FINTRAC’s annual reports, the Centre shares thousands of disclosures with law enforcement about suspected money laundering in Canada yearly. Each disclosure could contain a single suspicious transaction or thousands of individual transactions. Still, in each case, disclosures must be shared based on reasonable grounds to suspect that the information would be relevant to a money laundering investigation. That’s a lot of possible money laundering.
Source: FINTRAC data compiled by Insight Threat Intelligence
There are also other measures of illicit activity in the Canadian economy: Canadian exposure to illicit crypto transactions. My friends at TRM Labs were kind enough to share their 2024 Crypto Adoption and Illicit Exposure Report with me, and there is some disturbing info in it. Their illicit crypto exposure index shows countries with the highest proportion of illicit crypto exposure. Canada is in the top ten this year for the first time, with the illustrious company of countries like Iran, North Korea, Nigeria, and Russia. This is not a good list to be on. The primary category of illicit activity in Canada? Sanctions evasion activity.
There are also the non-compliance disclosures that FINTRAC shares with law enforcement. These disclosures share information that rises above the usual regulatory failures and wades into potential criminal liability for not complying with the Proceeds of Crime, Money Laundering, and Terrorist Financing Act.
FINTRAC non-compliance disclosures. Data compiled by Insight Threat Intelligence
This often involves things like professional money launderers and informal value transfer systems.
Further, profit-motivated crime, particularly cybercrime, is rising in Canada. This often involves money laundering and organized crime. Police-reported organized crime is also increasing in Canada (all data available from Statistics Canada). Recent reporting from FINTRAC also indicates that Canada is home to professional money laundering networks.
Finally, gravity models3 of money laundering in Canada suggest that this was a $46.7 billion problem in 2018,4 and would undoubtedly be a more substantial problem in 2025.
All of these measures point to a reasonably serious money laundering and crime problem in Canada. In the last election, the Liberals promised to tackle this issue, in part by establishing a financial crimes agency. That has not happened, and from what I understand, resources continue to be pulled from federal financial crime policing efforts despite a recent high-profile success. So there’s a non-zero chance (as much as it pains me to say it) that the threat of tariffs might motivate the government to finally get serious about money laundering and illicit finance in Canada. That’s the hope, anyway.
Listing Cartels as Terrorist Organizations
Part of Trudeau’s negotiations with Trump resulted in the agreement that Canada would list cartels as terrorist organizations. I’ve gotten a lot of questions about whether this would be lawful, and my answer is unfortunately, probably. And even if it isn’t, it likely doesn’t matter. Here’s why.
First, many cartels engage in targeted killings and general violence for the purpose of intimidating the population or a segment of the population, such as politicians. The criteria for listing involves carrying out terrorist activity (violence for a political purpose) is easily met by this activity. So the designation of cartels is likely lawful.
Second, even if the designation were not lawful (i.e. the criteria had not been met), it wouldn’t matter, and Canada would designate them anyway. Take, for instance, the listing of the IRGC. The Islamic Revolutionary Guards Corps is listed in its entirety as a terrorist entity, even though there’s a specific carve-out for state armies in the listing criteria. Canada has shown that it is not interested in adhering to its own listing criteria in this process, and instead increasingly uses it as a political tool and for political theatre, as the votes for listings have illustrated.
There’s little threat of repercussions for Canada for not following its listing process and criteria: to challenge the listing, the designated entity would have to engage legal counsel, something that is difficult to do when you are prohibited from engaging in financial transactions. Further, most listed entities can’t be bothered to challenge the listing, as it has little material impact on their activities, particularly if they employ a modicum of financial tradecraft.
In other words, the sophisticated analysis I shared on Bluesky yesterday stands: It’s icky but lawful.
I’m sure there’ll be more to discuss on this issue over the coming days and months, and you can be sure that I’ll be writing about it here. But you can also listen to my analysis on my new podcast, Secure Line, which I’m cohosting with Leah West and Stephanie Carvin. Subscribe wherever you get your podcasts.