Digital-asset tracing will be key priority for new financial-crimes agency, deputy minister says

Following digital-money trails will be a priority for Canada’s new Financial Crimes Agency in the war against illicit finance, says Rob Stewart, deputy minister of the proposed law enforcement agency.

Mr. Stewart, who has the task of getting the long-promised initiative off the ground, has spent months speaking to stakeholders ranging from policing agencies to private-sector experts to international partners.

The Financial Crimes Agency (FCA) could launch as early as next year, depending on when Bill C-29, the legislation to establish it, passes, Mr. Stewart said. The bill, which was introduced in the spring and is currently being studied by MPs in a parliamentary committee, aims to more effectively target financial crimes.

One of the skill sets that he’ll be looking for when staffing the new agency is the ability to analyze cryptocurrency transactions, to address the growing use of virtual currencies by organized-crime groups to move money across borders.

“Crypto is a growing part of the movement of the proceeds of crime, particularly at the more organized level of financial crime, where organized crime is involved,” Mr. Stewart said in an interview at the ACAMS conference in Toronto on Thursday. (ACAMS is a global organization dedicated to fighting financial crime.)

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Criminals are “consolidating their cash, they’re converting it to crypto, they’re moving it to another jurisdiction and they’re washing it back into the system,” he explained.

Canada’s abilities to prosecute complex money-laundering cases, seize proceeds of crime and supervise high-risk businesses such as virtual currency exchanges was flagged as weaknesses by the Financial Action Task Force. That’s even as Canada’s overall financial-crime regime received a passing grade in the global financial watchdog’s review, which was published last week.

The FCA’s work force, which is expected to be around 230 to 250 people, mostly civilians, will be broken up into two categories: peace officers, and regular officers of the agency. The RCMP is expected to provide 150 staff on a temporary basis to help get the agency up and running, and a commissioner will be hired to oversee the operation, according to Mr. Stewart.

Finding workers skilled in areas such as forensic accounting, digital forensics and blockchain analysis will be essential to the agency’s success, Mr. Stewart said.

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He highlighted unregistered money-services businesses, such as cryptocurrency exchanges, as one area that requires additional enforcement. Some of them are openly flouting the law, hanging signs that say “No KYC” in their windows, Mr. Stewart said. (KYC, which stands for Know Your Client, refers to the requirement that financial institutions and other regulated businesses confirm the identities of their customers.)

Stablecoins such as Tether, which are virtual currencies pegged to more stable assets like the U.S. dollar, are also of concern to Mr. Stewart, who calls them “almost ready-made for criminality.”

Unlike cryptocurrencies, whose values fluctuate wildly, Tether’s value is relatively stable, making it better suited for payments. That stability, combined with the ability to move money across borders quickly, has also made it attractive to criminals, anti-money-laundering experts and law enforcement officials have said.

Ryan Wedding, the Canadian Olympic snowboarder accused of trafficking drugs for Mexico’s Sinaloa drug cartel, is alleged to have used a sophisticated Tether network to launder money.

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Canada’s biggest banks are experimenting with tokenized deposits after the passing of Canada’s Stablecoin Act, which received royal assent in March.

Ottawa has also introduced legislation to ban cryptocurrency ATMs, which Mr. Stewart characterized as “the tool of choice for street-level fraudsters.”

Despite recent efforts, much work remains to be done in the fight against financial crime, including enhancing information sharing between entities, Mr. Stewart said.

“We are at war with financial criminals, and we need to do better, and the government is dedicating itself to that.”