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Study cites significant challenge in detecting terrorism financing in crowdfunds

TORONTO — Canada's money-laundering watchdog is studying the use of crowdfunding platforms by suspected terrorists and says in an internal study that the reporting protocol poses a "significant challenge" in trying to identify such transactions.

The Fintrac report, obtained by The Canadian Press through an Access to Information request, says there is a lack of information available in electronic fund transfer reports on contributors to crowdfunding campaigns.

Financial companies, money services businesses and casinos are legally required to submit the reports to Fintrac for cross-border, electronic transactions above $10,000.

That lack of information poses a problem for financial intelligence, "especially when trying to flag individuals supporting a crowdfunding campaign that may be suspected of being (terrorist financing)-related by an investigative authority," Fintrac says in the November 2015 report.

The federal agency said the reports typically don't include information on contributors to crowdfunding campaigns because the amounts transferred tend to fall below the reporting threshold of $10,000.

"Terrorism financing and high-risk traveller cases, in particular, most often entail relatively small amounts of money," spokeswoman Renee Bercier said in an email.

Daryl Hatton, founder of ConnectionPoint.com, a company that runs three crowdfunding websites, said they don't have to submit funds transfer reports because that is the duty of the payment processors.

"The short answer is that crowdfunding platforms leverage the anti-money laundering systems of our payment processors," Hatton said in an email. 

"We add our own checks on the identities of the people running the fundraising campaigns but trust the much more sophisticated work our partners are doing in this area."

Hatton said he has removed a "very small number" of campaigns over terrorism financing concerns. The decision to remove the campaigns was made in collaboration with payment processors and was done more as a precaution, he said.

Craig Asano, the executive director of the National Crowdfunding Association of Canada, said it's important that there are mechanisms in place to detect such transactions.

The Financial Action Task Force, an international organization that aims to combat money laundering and terrorist financing, flagged crowdfunding as an emerging terrorism-finance risk in a 2015 report.

The task force report said crowdfunding platforms are vulnerable to being exploited for illegal purposes because people can mask the true reason for their fundraising efforts.

It also said there have been instances in Canada where people under investigation for terrorism-related offences have used crowdfunding sites before leaving the country or attempting to leave the country, suggesting that they could be using that money to fight overseas. But details of those cases were not provided.

In addition to filing reports for large electronic funds transfers, banks and payment processors also have an obligation to report suspicious transactions to Fintrac, even ones that fall below $10,000.

But in the case of crowdfunding campaigns, banks are only facilitators of the transactions and typically don't have all of the information about the fundraising effort, said Moh Datoo, a senior adviser in the financial crime risk management practice at Securefact Transaction Services.

"The actual information on who the investors are, the identities of the companies and the individuals — all that information is maintained by the crowdfunding platform," said Datoo. "So it becomes inherently very difficult for banks to be able to spot illicit activity within those transactions."

Datoo suggested that regulators undertake a "countrywide" review of existing laws in light of technological advancements that have transformed the financial services industry.

"A lot of the (current) regulations do not consider the fast-changing pace of technology and how it's affecting the way businesses are being run today," he said.

 

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