An Ontario judge delivered a blistering ruling that cleared Chinese-Canadian families who used Langley and Alberta banks to transfer money to this country – inadvertently becoming involved in a money laundering network used by unlicenced cannabis growers based in Abbotsford.
The Ontario Attorney General’s office had asked the court to seize $600,000 from Yanchuan Lu’s bank accounts and $3.1 million from the Han family’s accounts, alleging it was all proceeds of money laundering.
Ontario Superior Court Justice Paul Perell dismissed the AG’s attempts on Dec. 17, ruling there was no evidence that Lu, or Huiming Han and his daughter Yuyu Han, had any knowledge of money laundering when they transferred cash from China to Canada through what is known as a hawala network.
“She [Lu] used responsible intermediaries,” Perell wrote. “She had no reason to suspect that the hawala had been compromised by unlawful activity – of which she was not a knowing 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 used mostly in South Asia and the Middle East, similar systems of informal money transfer are also used in China.
Using hawala, a person in China will deposit money in that country with a broker who is part of the hawala network. The broker will then notify another broker in another nation – in this case Canada – to hand over the funds to a designated person on the receiving end. The whole system operates largely on the honour system between the intermediaries, who take a small percentage of the total funds transferred as a fee.
Hawala systems are popular because of China’s strict rules on currency exports. Any amount over a few thousand dollars leaving the country via the banking system has to be reported to the government.
Because hawala networks operate outside of the traditional banking system, they have come under suspicion as possible routes for money laundering and even terrorism funding.
Although the case was settled in an Ontario courtroom, it began with a criminal investigation in Alberta. The Calgary Police Service was looking into two online websites, BudExpressNow and Cheapweed. Neither was a legally registered grower or distributor of cannabis.
Buyers sending money to the accounts often used subject lines like “Edibles,” “Weedguy,” and “BC bud.”
The police bought cannabis from the two firms using electronic fund transfers and Bitcoin, then traced the money to a pair of what they called “feeder accounts” in Alberta. Each was run by a numbered company. One of the accounts was making large payments to BC Hydro for large-scale illicit cannabis grow operations in British Columbia.
Each of the accounts took in more than $1 million in under a year as police tracked their activity through late 2019 and into 2020.
Over the course of the investigation, Calgary Police found another 18 feeder accounts being used to take payments from BudExpressNow and/or Cheapweed, and funelling the money along. Some of the Cheapweed and BudExpressNow money was turned into bank drafts.
In November, 2020, the investigation led to raids in the Lower Mainland, when Abbbotsford Police descended on two properties on Bradner Road and Marion Road, seizing 18,000 cannabis plants along with packaged and processed cannabis, on properties that were authorized by Health Canada to grow about 5,400 plants.
The B.C. Civil Forfeiture Office launched legal actions to seize both properties, and a Vancouver condo, in February 2021.
Meanwhile, Lu, a business consultant in China, was making annual months-long visits to a Chinese-Canadian friend in Toronto. In 2014, she planned to buy a condo unit under construction in there.
In 2018, Lu opened a bank account in Canada, and began transferring money via a hawala network, for the condo payments and for travelling in Canada and the U.S.
In April, via the hawala system, she purchased bank drafts of between $50,000 and $80,000, which had been issued by two banks in Langley, two banks in Calgary, two banks in Edmonton, and a bank in Fort McMurray.
Two of those bank drafts, including one issued by a Langley bank, had originated from the bank accounts linked to BudExpressNow and CheapWeed.
The Han family was in a similar situation. Part owners of a major Chinese industrial firm, the family had immigrated to Canada in 2010. In 2019, with daughter Yuyu married and expecting her first child, her father Huiming began transferring money from his Chinese holdings through a hawala network to buy her a home.
Of the more than $3 million transferred, about $1.4 million was turned over as bank drafts associated with the illegal cannabis funds.
In the case of Lu and the Han family, Perell said there was no evidence whatsoever that they were involved in laundering money, or had any knowledge of the origin of the bank drafts they had bought in Canada.
“The Attorney General had no answer when I pointed out during argument that had the respondents used their Chinese currency to purchase shares on the Toronto stock exchange – a highly regulated market – they could not be faulted for not knowing the provenance of the shares which could also be converted proceeds of unlawful activity by the original owner of the shares,” Perell said.
The Attorney General of Ontario’s arguments were that Lu and the Hans were “reckless” by simply using the hawala network.
“I find, as a fact, that the respondents were not reckless and that there was nothing untoward in their employing the hawala to obtain Canadian currency for which they paid fair exchange value,” Perell wrote in his ruling.
Have a story tip? Email: email@example.com