Canadian real estate, an “ultra violent cult,” money laundering, and Toronto’s stolen cars. Sounds like a spy thriller, but that’s reality in Canada, according to FINTRAC. In 2017, the financial intelligence agency assessed the money laundering threat of an organized crime group called Black Axe. The group infiltrated the government, conducts mass fraud, and runs a Toronto-based car theft ring. FINTRAC found nearly 1 in 5 suspicious transaction reports linked to Black Axe, involved real estate.
Black Axe: The “Ultra Violent Cult”-Turned Global Mafia
Black Ax is a transnational organized crime group originating from Nigeria. They’re best known as the operators of 419 Frauds, also known as the Nigerian Prince Scam. Don’t let that fool you—this isn’t just a few scammers in an overseas call center. They’re a ruthless, diversified organized crime group, that infiltrates governments around the world. BBC described them as “ultra-violent cult that became a global mafia.”
The crime syndicate entered Canada in 2003, according to the organization themselves. A FINTRAC analysis of transactions confirms operations began in early-2000s, although they didn’t land on law enforcement’s radar until 2013. They launched as the Black Ax Canada Zone, before forming the Vancouver Zone later. Let’s gloss over the fact Vancouver is considered its own criminal jurisdiction.
FINTRAC considers the organization a sophisticated money laundering threat. These aren’t street thugs, but politically saavy operators that have infiltrated the system.
“In order to help facilitate their criminal activities in Canada and abroad the Black Ax has actively exploited the financial sector and government,” warned FINTRAC.
Toronto’s Stolen Cars, Corrupt Government, and Billions In Fraud
Like most sophisticated transnational criminal organizations, they operate a diversified portfolio of crime. Drugs, human trafficking, document fraud, etc. — the list goes on, rivaling the Sicilian Mafia, Triads, or Cartel. Canada is a crowded market for organized crime, so the primary way to raise proceeds is more narrow. “The Black Ax in Canada is actively involved in large scale fraud and vehicle theft rings,” reads the report.
They aren’t exaggerating when they say “large scale.” Black Ax was found using a Romance Scam, catfishing people looking for love, at an epic scale. One Canadian member was involved in a $5 billion operation with victims across Canada and the US, which came to the attention of the FBI. That might not be news to the anti-fraud community, but the way the money is washed will be. We’ll come back to that.
Greater Toronto’s explosion in vehicle thefts might be more than just annoying. At this point, most people realize there’s a good chance that once they’re stolen, they’re already on a container ship for export within a few hours. This is one of the groups behind the exports to Africa.
“… Black Ax is involved in sending used cars from Canada to Nigeria and Ghana (both legitimately bought and stolen vehicles),” wrote the agency.
Wondering how an operation of that scale gets past the government? That’s where Black Ax demonstrates it’s a lot more than just some street thugs. FINTRAC explains the organization has infiltrated various levels of government for help.
“… Service Ontario employees knowingly assisted Black Ax members in large scale vehicle theft rings based out of the Greater Toronto Area,” reads the report.
Nearly 1 In 5 of The Group’s Suspicious Transactions In Canada Involved Real Estate
Canada is an extremely special place. Regardless of where you’re from or your religion, you’re welcome to use its world-class laundry facilities. As the anti-corruption group OCCRP pointed out recently, Canada is more opaque than many tax havens. One expert even told them, “If organized crime were to create a country, it would look a lot like Canada.”
Most countries have a cost associated with money laundering—it’s not easy. In Canada, it’s fun, easy, and profitable. Analyzing their financial activity, FINTRAC found there are four major areas where Black Ax launders:
Trade Based Money Laundering (59%)
The analysis found roughly 59% of the cases used trade-based money laundering. This is when business owners and employees mix illicit cash with legitimate activity. It occurred over a wide range of industries, many you wouldn’t expect.
“Inbound funds transfers in the data set are often related to used auto sales, real estate purchases, vehicle parts, textile purchases, other container shipments and student fees,” explains the agency.
Used car import/export is an area that once again gets special attention. FINTRAC explains that legitimately purchased vehicles are mixed with stolen vehicles at shipping. The stolen vehicles fetch roughly half the amount they would go for legally in North America.
Funnel Accounts (40%)
Funnel accounts are third-party accounts used to obfuscate the money trail. Using identity fraud and aliases, accounts are created for deposits and transfers. Since these accounts aren’t obviously linked to illicit networks, they invite little scrutiny. In some cases, unsuspecting victims are paid to transfer money on behalf of someone.
FINTRAC found evidence of funnel accounts used in 40% of transactions they looked at.
Third Parties (30%)
Third party transfers are similar to funnel accounts, often using emotional manipulation. Catfishing through “romance scams” and employment scams, are usually ways to extract cash. That’s where the two-bit scams get separated from the pros—Black Ax uses these people to launder cash.
Instead of just extracting money, they get the victims to process their cash through their accounts. The love of your life just wants to send you money to go buy a house, it’s not a big deal—right? Or maybe they need you to pay their friend for help at work? It all seems so innocent, until it isn’t.
FINTRAC found evidence of third parties used in 30% of the transactions analysed. Just over half of those cases involved “rapid movement,” another red flag for banks. The funds leave to another account shortly after being deposited.
Real Estate (19%)
Are you even a criminal in Canada if you aren’t using real estate to launder money? Black Ax related individuals bought real estate “under suspicious circumstances” in Canada. They believe it was used in the integration stage of money laundering, when illicit cash is in the final stage of being laundered.
FINTRAC found nearly 1 in 5 (19%) of suspicious transactions involving real estate. “While the number of incoming ETFs related to Black Ax property purchases in Canada per year have remained steady, the overall value has increased substantially,” writes the agency.
In other words, they didn’t buy more homes—they bought more expensive ones. This is one of the issues with money launderers using real estate, helping to artificially boost prices at the margin.
Black Ax Is Richer Than We Think
FINTRAC alleges the group might be richer than we think. An analysis indicates Black Ax associates are depositing 4-5x more than they withdraw. That indicates they operate in cash intensive industries. The funds identified are primarily deposited and withdrawn in Greater Toronto.
“It is assessed that the level of proceeds in Canada from Black Ax fraud is higher than FINTRAC’s own cases indicate,” reads the report. The agency explains, part of the reasons for this shortfall is that they aren’t privy to bank data obtained via warrant from other agencies.
A key takeaway here is related to FINTRAC. While the debate on money laundering and real estate raged on, they kept quiet. Even during the Cullen Commission, they failed to bring up evidence of a report they produced showing it was happening. It’s unclear if law enforcement acted on any of the data, since FINTRAC can only provide data to agencies.
The report also reinforces the influence of money laundering on home prices. As Black Ax needed to launder more, they didn’t increase their purchase volume. They sought more expensive homes to move the most amount of money in the least scrutinized way. The incentive when laundering is to pay more, influencing prices at the marginal level.
As we’ve discussed before, laundering even a modest amount can push home prices higher. Since you’re trying to move as much money as possible, someone laundering wants to overpay. Buyers don’t know if they’re bidding against a launderer or using their comps to price a home. The market just knows a qualified buyer was willing to pay more, so buyers will have to up the ante.
That’s why tools like beneficial ownership are needed. It won’t stop crime, necessarily. However, being one of the countries without public beneficial ownership sure does invite crime.
Update (Nov 17, 2022) : FINTRAC has contacted us to dispute this was brought to the attention of the Commission. Prior to publishing, we asked people who worked on the Commission if they had seen this evidence, and none were familiar with it. We found 8 pages of the intelligence report (about half the report) attached as an appendix to an aggregate document, with the final Commission report making no mention of the evidence.