Insight Threat Intelligence: Trends in financial crime and the funding of illicit activities

Comments for CDA Institute Ottawa Conference

Jessica Davis

A little over a week ago, I spoke to the CDA Institute’s 91st Ottawa Conference about the challenges of illicit financing and global governance. My comments were in French, but I also prepared some written remarks in English to share with all of you here. I hope you find this interesting! And thank you very much for your ongoing support — it’s a real pleasure to write this newsletter for you every week and engage on issues that I find so interesting, and important.


I want to focus on three trends that I see in illicit financing today: the adaptation of illicit actors, cryptocurrency, and the professionalization of illicit financing.
Adaptation of illicit actors

Illicit actors adapt to avoid detection, law enforcement pressure, and evade counter-measures used to disrupt their activities. We see this in the terrorist financing space, as well as in sanctions evasion and other forms of illicit financing. Because illicit actors are adaptive, we need to be reviewing our national security legislation and policies regularly. For instance, conducting a risk assessment on terrorist financing risks and threats once every ten years is not sufficient to really understand Canadian, and global, risk.

Another good example is our monitoring and enforcement of sanctions: we have not brought all the tools to bear on this problem; there are plenty of capabilities to better monitor and enforce sanctions, but too few authorities in national institutions. This means we aren’t pulling our weight when we try to act in coordination with our international partners. It also means that Canada tends to leave the enforcement of global sanctions to the United States.

Insight Intelligence
Enforcing Canadian Sanctions
Welcome to a special edition of Insight Intelligence! Today’s newsletter is brought to you by a reader question about sanctions enforcement in Canada. Thanks for the question Douglas, and I hope this helps! There are a number of different sanctions regimes in Canada: there’s the Canadian terrorist listings process, the Special Economic Measures Act (SEMA), the Freezing Assets of Corrupt Foreign Officials Act, the Justice for Victims of Corrupt Foreign Officials Act and various other acts with other sanctioning powers / exclusions. The Special Economic Measures Act is Canada’s primary sanction tool — we use it extensively, and this is what creates our “Russia” sanctions…
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12 days ago · 1 like · 1 comment · Jessica Davis and Elena Martynova

Failing to update our national security frameworks to deal with 21st century threats, and illicit actor adaptation, means that we are a weak spot internationally – and that’s something that illicit actors know and will take advantage of. This is also an international problem: the machinery of international organizations and international agreements is slow, to the benefit of our adversaries, be they criminal or state-based (or, increasingly, some combination of the two).


One of the places we see this adaptation is in cryptocurrency. While crypto is a bad way to finance a terrorist attack (it’s largely traceable, and is way less useful than cash for purchasing goods or equipment), it’s a great way to launder proceeds of crime or even to evade sanctions. Just look at the case of North Korea: the country deployed a team of hackers to steal money from a number of different targets, including the Central Bank of Bangladesh, and used that money to buy cryptocurrency. North Korea continues to deploy advanced persistent threat groups like the Lazarus cybercrime group to acquire crypto, evade sanctions and purchase goods and services in support of their weapons of mass destruction programme, as well as other forms of sanctions evasion (like acquiring luxury goods for the leadership of the country).

When crypto was first developed, there were few tools to make it truly anonymous, which meant that illicit actors were conducting transactions that were almost 100% traceable (it was heaven to an illicit finance analyst who didn’t have to ask a judge for a warrant!). But now, there are increasingly tools to make transactions more anonymous. And illicit actors aren’t keeping their funds in crypto, or at least not on exchanges; instead, they are using cold-storage wallets (essentially wallets not connected to the internet) to protect their assets from freezing and seizure, or exiting crypto altogether, shifting to more liquid forms of funds, like USD, Euros, etc. Crypto is prized for its speed and international reach in illicit circles, but it isn’t always a great wealth preservation tool.

And adaptation doesn’t stop there. Increasingly, illicit actors are turning to professionals to hide the source and destination of their funds, and making use of “less compliant” countries.
Professionalization of illicit financing

In terms of terrorist financing, we see this trend with the deployment of ISIS external advisors to their far-flung provinces in an effort to professionalize, and concretize, their financing. And it works: it creates resilience in their networks and allows them to expand their reach for both organizational and operational financing.

In the case of oligarchs, we see them making use of company formation agents, “shelf” (or pre-made) companies that can be used as a shell for their activities if or when an existing company becomes sanctioned; this basically involves moving the entire operations of a sanctioned company into an existing corporate structure that, on paper, looks like it has been in existence for ten or more years, but in practice, has been dormant that entire time, waiting to be exploited for illicit purposes.

These professional tools give the veneer of legitimacy to bad actors such as the Wagner group, which is really a network of companies and individuals, and that make extensive use of these tools of professionalization.

We also see illicit actors making use of other professional enablers like accountants and lawyers to give their illicit money the veneer of legitimacy. These professionals also work hard to throw up obstacles for law enforcement investigations, giving their clients time to move money, settle accounts, and hide assets. And this is an international problem: these professionals know how to exploit the weakest link in the international system, targeting countries that are too slow, or too careless, to update their laws and adequately resource their enforcement teams.
So why should we care about illicit financing?

It’s often said that financial crimes aren’t serious crimes, but I beg to differ. Financial crimes, whether they are perpetrated for purely criminal profit, or to benefit a state actor, are serious. They have real consequences for victims, ranging from serious financial and economic hardship (which can lead to things like depression, and even suicide).

Democratic institutions and governance in general are also victims of these crimes. Think about all the taxes that aren’t paid, the money lost, or the broader corrupting influence of these illicit actors on our institutions, be they financial, democratic, or governance.

Globally, and in Canada, we have looked away from these types of crimes, focusing instead on immediate threats; but these are persistent, and advanced, threats to our way of life, and they will continue to undermine our trust in democracy and our institutions unless we take action to seriously address them.

And this isn’t about one government not taking action: our ability to combat illicit financing, in Canada and abroad, has been neglected for decades, and our adversaries have adapted to this, and exploited our weaknesses. It’s time to make combatting illicit financing a core pillar of our democracy and our international approach to security.

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