Informal value transfer systems, money laundering, and the financing of terrorism: Canada's response to the threat

Informal Value Transfer Systems (IVTSs) are financial services that transfer funds through personal networks of the operators using various methods. IVTSs are mostly used by immigrants who want to send money back home to their families. Since the 9/11 attacks in 2001, these mechanisms have been the subject of heightened suspicion from the point of view of preventing money laundering and the financing of terrorism. This paper focuses on the typical hawala IVTSs in which transactions involve: a sender and a receiver, as well as intermediaries or trusted agents that carry out the receiving and delivering of cash or other value instruments. This paper aims to understand the links between IVTSs, money laundering and the financing of terrorism and focuses on Canada’s response to the threat of financing of terrorism through IVTSs by reviewing the literature. The paper argues that authorities may have misunderstood the relationship between terrorism and money laundering and therefore continue to invest in policies that are not based on sufficient evidence. The available research shows that the IVTSs have been used more for money laundering than for financing terrorism, while terrorist organizations have tended to rely more on formal financial systems, such as wire transfers through established banks, than on IVTSs. Canada’s Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regime is focused on imposing compliance policies on the IVTSs and linking them to the formal financial sector. Canada’s AML/CFT regime is not currently focused on vulnerable areas where potentially problematic financial transactions take place without sufficient oversight, including designated non-financial businesses, transactions facilitated by legal professionals, or transactions related to various charitable organizations. The effectiveness of that regime is also hindered by existing privacy protection laws which complicates the sharing of information and financial intelligence among law enforcement agencies and the effective use of that information for prevention, investigation and prosecution purposes.