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Given Canada’s relatively lax financial regulations and enforcement, we’re vulnerable to underground banking.

The independent Basel Institute on Governance ranks Canada 45th out of 143 nations for the degree to which it is at risk of being used for money laundering, bribery, corruption and terrorist financing.

That’s better than war-ravaged Afghanistan and giant China, but Canada is far surpassed by Denmark and Uruguay for having national financial security, stability and transparency. We’re even more at risk than the U.S.

Bundles of 20-dollar bills sezied in October 2015 as part of RCMP E-Pirate investigation into money laundering at alleged underground Richmond bank, Silver International. Source: police photos filed in BC Supreme court documents. [PNG Merlin Archive] ORG XMIT: POS1902071551465074 [PNG Merlin Archive]
Bundles of $20 bills seized as part of RCMP E-Pirate investigation into money laundering at the alleged underground Richmond bank, Silver International. (Source: Police photos filed in B.C. Supreme court documents) Photo by TBA /PNG

The awkward thing about underground banking, sometimes simply and blandly referred to as an “informal funds transfer system,” is that a lot of everyday people take part in it through families or clan networks.  No signatures are involved.

In India and the Middle East underground banking is called hawala, in Pakistan it’s known as hundiand in China it’s dubbed fei chi’ien. “Chinese funds transfer systems were in evidence during the Tang Dynasty (618-907 AD),” says a report by the Australian Institute for Criminology. Underground banking is similar to formal banking but without its bureaucracy and external regulation.

Even though transfer techniques are highly varied and almost impossible to trace, here’s one simple way underground banking works:

A migrant worker in South Korea wants to send funds home to the Philippines. So she hands 800,000 won — South Korea’s currency — to a neighbourhood broker. She receives a code in exchange. The worker then calls her parents in the Philippines and tells them the code, which is indecipherable to outsiders. The parents present the code to their local broker and receive the cash in Philippine pesos, minus a commission fee.

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