Ontario judge delivers scathing ruling that cleared Chinese-Canadian families who used Langley and Alberta banks to transfer money to that country – inadvertently becoming involved in a money laundering ring used by unlicensed cannabis producers based in Abbotsford.
The Ontario attorney general’s office asked the court to seize $ 600,000 from Yanchuan Lu’s bank accounts and $ 3.1 million from Han family accounts, alleging that it was all of the proceeds of money laundering.
Ontario Superior Court Judge Paul Perell dismissed the Attorney General’s attempts on Dec. 17, ruling that there was no evidence that Lu, or Huiming Han and his daughter Yuyu Han, had knowledge money laundering when they transferred money from China to Canada through what is known as the Hawala Network.
“She [Lu] used responsible intermediaries, âPerell wrote. âShe had no reason to suspect that the hawala had been compromised by any illegal activity – of which she was not a conscious participant. She was a responsible owner. It would clearly not be in the interests of justice to order forfeiture.
He found the same arguments applied to the Hans.
Although hawala is a term primarily used in South Asia and the Middle East, similar informal money transfer systems are also used in China.
Using hawala, a person in China will deposit money in that country with a broker that is part of the hawala network. The broker will then notify another broker in another country – in this case Canada – to deliver the funds to a designated person on the receiving side. The whole system largely operates on the honor system between intermediaries, who take a small percentage of the total funds transferred as a fee.
Hawala systems are popular due to China’s strict rules on foreign exchange exports. Any amount over a few thousand dollars leaving the country through the banking system should be reported to the government.
Because hawala networks operate outside the traditional banking system, they are believed to be possible avenues for money laundering and even terrorist financing.
Although the case was settled in an Ontario courtroom, it began with a criminal investigation in Alberta. The Calgary Police Department was investigating two online websites, BudExpressNow and Cheapweed. Neither was a legally registered cannabis producer or distributor.
Buyers sending money to accounts often used subject lines like “Edibles”, “Weedguy”, and “BC bud”.
Police bought cannabis from the two companies using electronic funds transfers and Bitcoin, then traced the money to a pair of what they called “grocery accounts” in Alberta. Each was managed by a numbered company. One of the accounts was making large payments to BC Hydro for large-scale illicit cannabis cultivation operations in British Columbia.
Each of the accounts grossed over $ 1 million in less than a year as police tracked their activity through the end of 2019 and into 2020.
During the investigation, Calgary Police discovered 18 other grocery accounts used to receive payments from BudExpressNow and / or Cheapweed, and channel the money. Some of the money from Cheapweed and BudExpressNow was turned into bank drafts.
In November 2020, the investigation led to raids in the Lower Mainland, when Abbotsford police raided two properties on Bradner Road and Marion Road, seizing 18,000 cannabis plants as well as packaged and processed cannabis, on properties licensed by Health Canada to grow approximately 5,400 plants.
The BC Civil Forfeiture Office launched legal actions to seize the two properties and a condo in Vancouver in February 2021.
READ MORE: Two Abbotsford properties part of Calgary investigation into illegal cannabis operations
Meanwhile, Lu, a business consultant in China, made annual month-long visits to a Chinese-Canadian friend in Toronto. In 2014, she was considering buying a condo under construction there.
In 2018, Lu opened a bank account in Canada and began transferring money through a hawala network, for condo payments and for travel to Canada and the United States.
In April, through the hawala system, it purchased bank drafts between $ 50,000 and $ 80,000, which had been issued by two banks in Langley, two banks in Calgary, two banks in Edmonton and one bank in Fort McMurray.
Two of those bank drafts, including one issued by a Langley bank, were from bank accounts linked to BudExpressNow and CheapWeed.
The Han family was in a similar situation. Part owners of a large Chinese industrial company, the family immigrated to Canada in 2010. In 2019, when her daughter Yuyu got married and was expecting her first child, her father Huiming began transferring money from his Chinese assets through a hawala network to buy him a house. .
Of the more than $ 3 million transferred, around $ 1.4 million was remitted in the form of bank drafts associated with illegal cannabis funds.
In the case of Lu and the Han family, Perell said there was no evidence that they were involved in money laundering or that they knew the origin of the bank drafts they had. purchased in Canada.
âThe Attorney General had no response when I pointed out during oral argument that if the respondents had used their Chinese currency to purchase shares on the Toronto Stock Exchange – a highly regulated market – they could not be blamed for not knowing the provenance of the shares which could also be converted into proceeds of illegal activity by the original owner of the shares, âPerell said.
The Ontario Attorney General’s arguments were that Lu and the Hans were “reckless” by simply using the Hawala network.
“I find, in fact, that the respondents were not reckless and that there was nothing untoward in using the hawala to obtain Canadian currency for which they paid the fair exchange value,” said writes Perell in his decision.
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