Chinese triads’ money laundering schemes are fueling Canada’s fentanyl nightmare

Chinese triads’ money laundering schemes are fueling Canada’s fentanyl nightmare

Chinese triads have set their sights on Canada due to its geographical location and lax laws. Their large-scale money laundering schemes have helped fuel Vancouver's opioid epidemic. The government is finally reacting.

February 21, 2024 

In Vancouver's Eastside neighborhood, drug-related deaths are a sad part of everyday life.

The contrast between western neighborhoods and the Eastside in Vancouver, Canada, could not be more dramatic. While skyscrapers with luxurious apartments tower over the west's streets, a walk down the Eastside's sidewalks will typically take a visitor past tents pitched by thousands of homeless people and drug addicts.

Fentanyl, a synthetic opioid that is 50 times more potent than heroin, has become the drug of choice for addicts in the city. As a consequence, number of drug-related deaths in Vancouver has skyrocketed. Nor is the situation is unlikely to improve in the foreseeable future, because there is no shortage of fentanyl supplies. This is in turn linked to the skyscrapers on the west side, but also to the large goods port, the local Chinese diaspora and lax national money laundering laws. The government now wants to change its legislation on money laundering.

Vancouver has been experiencing a health emergency since 2016. Pictured: Rescue workers trying to revive a man with naloxone after a fentanyl overdose.

The Vancouver model

Vancouver has long since established itself as a North American hub both for the import of fentanyl precursors and for money laundering. Both businesses are controlled by the Chinese mafia, also known as the Chinese triads. The triads 14K, Sun Yee On and the Big Circle Gang have deep roots in Vancouver's Chinese diaspora population, one of North America's largest and oldest.

In China, the triads in turn control numerous pharmaceutical companies that manufacture fentanyl precursors. These are then exported from Hong Kong to Vancouver. In Canada, the triads, Mexican cartels and biker gangs operate laboratories in which they produce fentanyl pills and powder. The money from drug sales on the street is then laundered through the Chinese triads. According to an Arte documentary, the police believe that the Chinese triads are now the secret bankers of organized crime.

Canadian author Douglas Coupland published a book about Vancouver entitled «City of Glass,» alluding to the city's countless skyscrapers.

The money laundering system that the Chinese triads have developed for this purpose is called the «Vancouver model,» and works via money exchange offices, also known as underground banks. The following example illustrates how they can function:

1. A Chinese investor wants to buy three luxury apartments in a skyscraper in a prime location in Vancouver for 10 million Canadian dollars. However, as there is a capital export restriction of 50,000 U.S. dollars per year and per person in China, it is not possible for him to transfer 10 million Canadian dollars to Canada. He therefore transfers the money to a money exchange office run by the 14K triad in Shenzhen.
2. The Chinese investor then flies to Vancouver.
3. Upon his arrival in Vancouver, he visits a money exchange office there that also belongs to the 14K triad.
4. The money exchange office gives him cash worth 10 million Canadian dollars in $20 bills. This money comes from the proceeds of fentanyl sales. Drug dealers from the triads or the Mexican cartels have made this money on the street, and deposited it in the guarded back room of an exchange office.
5. The Chinese investor is then driven to one of the many casinos in Vancouver. There, he buys chips with the money, plays two or three games with small amounts, and redeems the money in larger bills, which are bundled according to Canadian banking standards.
6. The money has now been laundered, and can be used to purchase the three apartments. The exchange office only charges the investor a fee for providing the cash in Canada.
7. The 14K triad in Shenzhen then supplies its Vancouver branch with fentanyl precursors worth 10 million Canadian dollars. These are processed locally into tablets or powder and sold on the street.

Rising crime rates and expensive housing

The strict capital export restrictions in China create a harmony of objectives between organized crime and Chinese citizens who have made their wealth legally. If the Chinese government were to lift its capital export restrictions, this would at least make money laundering schemes more difficult. However, China has no interest in doing this. «Some countries, such as Russia, Venezuela and China, want to keep as much capital as possible within their own borders in order to strengthen their own economies,» says Florian Haufe, money laundering expert at Alix Partners.

But the money usually finds its way out of the country anyway, as the Vancouver model shows. This is because the triads' underground banking systems function without the money having to cross national borders. Moreover, the laundering process does not require any contact with Canadian banks, which are subject to money laundering laws and would flag such transactions.

For years, money was laundered on a grand scale at the River Rock Casino in the Vancouver suburb of Richmond.

«Many countries with a high standard of living are susceptible to such practices – including Switzerland,» says Haufe. This is because rich Chinese and Russian nationals prefer to invest in safe and stable countries, he notes. This has led to an enormous increase in real estate prices in Vancouver, so that most locals can no longer afford an apartment.

As these transactions are linked to organized crime, they are additionally fueling the fentanyl trade and associated gang crime. According to the Vancouver Sun, the police exposed several large fentanyl laboratories in the Vancouver metropolitan region over the past year. The authorities assume that numerous fentanyl laboratories are today being operated in the provinces of Alberta and Ontario as well.

In August 2023, drug investigators discovered what was the largest fentanyl laboratory in Canada found to date near Niagara Falls, just 30 kilometers from the U.S. border. Although 90% of all fentanyl in the U.S. comes from Mexican cartels, its northern neighbor could become a second serious gateway for fentanyl in the United States. However, the production costs for fentanyl pills and powder in Canada are currently still significantly higher than in Mexico. Canadian fentanyl is therefore not competitive, and is mainly sold on the domestic market.

Many profiteers

Organized crime has not been the only beneficiary of the casinos' operations. For years, they have also generated considerable tax revenues for the province of British Columbia. In addition, according to the Financial Post, the real estate and financial sectors as well as law firms long resisted reporting transactions by questionable clients.

The final report of the Cullen Commission money laundering inquiry, published in 2022, showed that several billion dollars a year had been laundered in the province of British Columbia alone. The commission was established by the government of British Columbia after Canadian investigative journalist Samuel Cooper published his book «Wilful Blindness – How a Network of Narcos, Tycoons and Chinese Communist Party Agents Infiltrated the West» in 2021. Cooper exposed the Chinese triads' money laundering activities, and proved that several key organized crime figures maintained contacts with local politicians in British Columbia as well as representatives of the national government.

An addict's possessions, seen in Vancouver's Eastside neighborhood.

The Cullen Commission recommended that the government pass a law to deal with undeclared assets in British Columbia. «Although this measure has been implemented, it has not yet significantly reduced money laundering in Vancouver,» Cooper says. He notes that casinos have now at least introduced a cash limit of 10,000 Canadian dollars as a result of his revelations. This has made it more difficult to launder large sums of money in the casinos, he says.

However, modified variations of the Vancouver model have since emerged. Today, networks consisting of shell companies are increasingly being used for transactions. This is because companies are subject to different, less restrictive capital export restrictions. In addition, the triads have numerous associates in China and Canada who repeatedly transfer small amounts of money to one another, further disguising the origin of the money.

Canada as a major money laundering country

According to Global News, NGOs such as Transparency International and the U.S. State Department have criticized the Canadian government for its lax money laundering laws in recent years, putting it on a par with countries such as Afghanistan, the British Virgin Islands, China, Macao and Colombia.

Haufe, the money laundering expert at Alix Partners, agrees with this assessment. «Canada's money laundering laws have not met internationally recognized standards for a long time,» he says. Although a lot is happening, the country is still not where it should be, he adds.

However, the government is now declaring war on «snow washing,» as money laundering through Canada is called, partly due to the country's abundance of snow. Last November, Justin Trudeau's government enacted a series of reforms to the state's money laundering laws. According to Reuters, Canadian financial regulators have already imposed record fines on three of the country's five largest banks for violations of money laundering laws since the beginning of the year.