Unmasking Canada’s Crypto Regulatory Loopholes
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Concerns Over Canada’s Crypto Compliance
A recent investigative report has revealed significant gaps in Canada’s regulatory framework for cryptocurrency platforms. Both registered and unregistered platforms have been found exploiting these loopholes, leading to potential violations of Anti-Money Laundering (AML) rules.
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The Coin Laundry Investigation
On a recent Monday, CBC News, in collaboration with Radio-Canada, the Toronto Star, and La Presse, unveiled findings from a global investigative effort known as The Coin Laundry, led by the Washington-based International Consortium of Investigative Journalists. This extensive investigation exposed how numerous exchanges, both domestic and international, are allegedly sidestepping Canadian financial laws by offering crypto-to-cash services without appropriate registration or identity verification.
The report highlights persistent issues with illicit financial activities in Canada’s traditional financial system, compounded by weak regulations and enforcement in the cryptocurrency sector. These vulnerabilities have created “new frontiers for laundering and illicit finance,” as articulated by the investigative teams.
AML Violations and Crypto-to-Cash Transactions
According to the investigation, certain companies, even those registered with Canada’s Financial Transactions and Reports Analysis Centre (FINTRAC), have facilitated transactions breaching AML regulations. In one instance, a FINTRAC-registered company in Toronto handed $1,900 in cash to an undercover journalist after receiving a 2,000 USDT deposit to a Ukraine-based crypto exchange, identified as 001k. Verification was limited to checking the serial number of a $5 bill.
Meanwhile, two overseas platforms, including 001k, offered to deliver up to $1 million in cash in Montreal in exchange for cryptocurrency, without requesting any personal information or identification.
Under Canadian AML laws, it is illegal for a money transfer business to remit over $1,000 without recording the recipient’s personal information and verifying their identity. Moreover, unregistered exchanges are prohibited from conducting business with Canadians.
Proliferation of Unregistered Services
CBC News noted that a web directory lists over 20 services for converting cryptocurrency into cash across Canadian cities, none of which are registered with FINTRAC. Anonymous inquiries by reporters from the Toronto Star revealed that many Toronto-based services would not require identification for transactions.
Richard Sanders, a prominent crypto-to-cash network investigator, emphasized the risks, stating, “If you have this way to move money with absolutely zero checks on it, you’re facilitating an unlimited amount of crime.”
Nick Smart, Chief Intelligence Officer at Crystal Intelligence, highlighted the “absolutely staggering” scale of money moving through these crypto-to-cash services, citing $2.5 billion processed in Hong Kong in 2024 alone.
Challenges Facing FINTRAC
The Canadian regulatory body FINTRAC has remained largely silent on the issue of these undercover transactions and whether it is aware of the illicit crypto-to-cash services operating within the country. However, FINTRAC has stated its readiness to enforce compliance, which may include imposing monetary penalties and referring non-compliant entities to law enforcement.
In October, FINTRAC imposed a $126 million fine on the Vancouver-based digital assets trading platform, Cryptomus, for violating multiple federal AML and Counter-Terrorist Financing (CTF) laws. The agency is also developing a comprehensive framework to align with global crypto regulations.
Earlier reports indicated that Canada’s 2025 federal budget includes plans to implement stablecoin-related regulations aimed at enhancing consumer confidence and modernizing the country’s payment systems.
Despite these efforts, Joseph Iuso, Executive Director of the Canadian Money Services Business Association, expressed concerns to CBC News about FINTRAC’s capacity to monitor illicit transactions effectively. He noted that the agency lacks sufficient resources to oversee the more than 2,600 registered money-service businesses, let alone track unregistered platforms offering unauthorized services. “There’s just tons,” Iuso lamented. “They’re all trying to circumvent the regulations. And, unfortunately, how do you police that?”
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