Drug and money laundering investigation 'Operation Mad Money' has links to GTA real estate, documents show

A drug and money laundering investigation called "Operation Mad Money—which stretched from Toronto to British Columbia to China—has shown links between illegal marijuana sales and Toronto’s booming real estate market, CTV News Toronto has learned.

The investigation, led by the Calgary Police Service, is part of an attempt to seize millions in what authorities allege are drug profits that ended up in money service businesses in the Greater Toronto Area, who passed them along to people trying to buy homes.

And it could be the tip of the iceberg, says one retired Royal Canadian Mounted Police officer and money laundering expert. In an interview, Garry Clement says Ontario should follow in the footsteps of B.C. and call a public inquiry to assess how big an impact laundered money has in the property market.

“We know that this is going on, we know money is coming into the province. All you do is look at the number of condos that are sitting vacant,” Clement said.

“Canada really needs to sit down and realize we are still a very weak link. This case demonstrates that we have a long way to go."

The investigation started with a Calgary police officer buying marijuana from websites called BudExpressNow and Cheapweed, a motion filed in Ontario Superior Court says.

The Calgary police made several purchases of marijuana in their investigation of an online retailer they allege is connected to real estate purchases in the Greater Toronto Area

Court documents claim the sites didn’t have a licence to sell, and an investigation showed they did more than $3 million in business through multiple feeder accounts, accepting electronic bank transfers with explanatory notes including “weedguy” and “ed and bills.”

Police watched money get deposited in bank accounts in Edmonton, and tracked some of that to three properties outside Vancouver, where they say it was used to pay $1.38 million in electricity bills.

The properties did have Health Canada licenses to grow about 5,000 marijuana plans, but a police raid in 2020 counted almost four times as many.

B.C.’s OffIice of Civil Forfeiture is applying to seize those properties.

In Ontario, authorities claim in documents filed in Superior Court that the alleged profits of the operation ended up in the control of Toronto-area money service businesses, which authorities say sent money in Canada to Chinese nationals interested in buying Toronto real estate.

In exchange, the Chinese nationals repaid the money in China, the documents say, pointing out that this is a way to circumvent currency controls in China that prevent money from easily being withdrawn from that country.

Ontario’s Attorney General is now applying to seize some $3.7 million in bank accounts it says contain money from the marijuana sales.

"The pattern of deposits into the subject accounts, including the frequent, large deposits made in round numbers, is indicative of unlawful activity," the court application says.

"The contents of the respondent accounts are made up in whole or in part by proceeds of illegal online cannabis sales and/or are instruments of money laundering."

The allegations are in civil court, which rely on a lower standard of proof than criminal court. Nothing has been proven and a judge is weighing the case now.

One lawyer for the recipients of the money told a recent court hearing they believed everything was legal and had no idea that the money deposited in their accounts could have come from unlicensed marijuana.

“The respondents were not in any way involved in the alleged unlawful acts that were apparently committed by unknown perpetrators,” said lawyer William E. Peppall.

"This is not a case of a delinquent individual, a felon, nor a criminal mastermind. The respondents are innocent bystanders who purchased for legitimate reasons Canadian currency at fair market value in exchange for their Canadian currency that was earned through legal means," he said.

Clement, the money laundering expert, says the alleged arrangement has a lot in common with a scheme in B.C. where drug money was laundered through government-licensed casinos, and poured into real estate — so much that a government report found it was responsible for a five per cent surge in prices.

The B.C. government called a public inquiry known as the Cullen Commission. Clement said a public inquiry may be necessary in Ontario too.

“This shows we have a lot of gaps in our system,” he said.

FINTRAC, the federal agency which tracks money laundering, says it’s conducted 276 examinations in the past three years, and 700 real estate transactions in the last five years.

The agency says it’s issued nine notices of violation for non-compliance, five in the real estate sector for $143,219, two in money services for $143,219, and two in the dealers of precious metals and stones for a total of $272,910.

The agency said the money service business identified in the court case is registered, but it could not share anything it would have disclosed to police about the case.

The Department of Finance told CTV News Toronto in a statement it had invested $98.9 million over five years to enhance the RCMP and strengthen its foundations to help fight money laundering and identify proceeds of crime.

“New integrated money laundering investigative teams (IMLITs) will be created in British Columbia, Alberta, Ontario and Quebec, bringing together expertise from a variety of agencies to address high profile cases and advance money laundering and proceeds of crime investigations nation-wide,” a spokesperson said.