By Lucy-Claire Saunders

It was a typical Monday afternoon in late May when Langley police and several other regional crime units burst into two separate currency exchange businesses allegedly linked to organized crime and criminal activity.

Four people were arrested and taken into custody.

While charges have not been laid in the dramatic busts, the Langley businesses, Global Tourist Centre Currency Exchange and Capital Forex, are accused of laundering significant amounts of cash.

Police began investigating the two businesses in September 2007, and say some of the individual transactions at the exchanges totaled several hundred thousand dollars at a time.

The raids on the two Money Service Businesses (MSBs) are just the beginning of a new crackdown, says Kim Marsh, manager of the Vancouver division of IPSA International, an anti-money laundering investigation company.

As new federal regulations kick in on June 23, beefing up Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, police and regulators will have more authority to clamp down on an alternative banking system that has been deeply infiltrated by organized crime.

"The pressure’s going to go up," says Marsh. "MSBs don’t have to be completely compliant with regulations by June 23 but they must be in the process."

Marsh, a retired RCMP officer, suspects investigators will find that the money laundered in Langley actually came from the grow-op industry.

"One of the best ways to get crime money into the system is through unscrupulous money exchange businesses that have a corespondent relationship with a bank," he explains.

"They have a good excuse for having all this cash because of their money exchange business."

MSBs like Western Union and Money Mart are common throughout Metro Vancouver. Mom and pop money shops also play a legitimate role in the region, serving members of the Asian and South Asian communities who want to send money back home, a practice called remittance.

MSBs offer an informal but trusted method of moving funds for transient individuals who may not have the necessary paperwork to support a mainstream banking relationship.

The Filipino community in Canada, at roughly 400,000, is just one ethnic group that relies heavily on MSBs. Last year, the eight million Filipinos working abroad contributed remittances of more than $10 billion, or 10 per cent of their homeland’s GDP.

But for every legitimate currency house, there is an untold number of underground MSBs that do not comply with regulations and participate in criminal schemes that pump dirty money into the mainstream financial system.

Less is known about underground banking in law enforcement circles and government regulatory agencies than any other form of money laundering. There are language barriers, cultural barriers, and ancient systems so complex in nature that authorities are only now coming to understand their inner workings.

Legitimate alternative money remittance systems take various forms, including Hawalas (Arabic for "a transfer related to dollars") and Chittis (a derivative borrowed from the Hindi chitthi, meaning "mark").

Based on a code of honour, these types of banking are efficient and reliable.

They are also cost effective. Hawaladars, or brokers, are able to offer their customers better rates than those offered by the major banks.

In South Asia, this system fuels a parallel economy, or black market, which accounts for up to 50 per cent of the documented economy, according to Interpol.

Hawala works by transferring money without actually moving it. Instead, hawaladars use pieces of paper — even e-mails — with symbols or numbers that act as currency.

Garry Clement, manager of the Toronto division for IPSA and the former national director for the RCMP, says he knows one Hong Kong police official who once seized a piece of paper with a picture of an elephant on it. The mark was worth half a million dollars at a Hong Kong gold shop.

"These underground banking systems are more significant than most people realize," Clement says.

"The dilemma is that they are traditionally housed within the ethnic community and a lot of people in these cultures have grown up with them.

"It works very efficiently but it also lends itself to criminal proceeds, which is the greatest concern."

Organized crime is something that every Canadian has to pay for, costing Canada $5 billion every year, or $600 annually from every family of four, according to Clement.

Metro Vancouver, he adds, has a "serious organized crime problem."

Canada is taking steps to crack down on criminal activity involving money laundering. The new regulation is just one such step. The federal government also recently joined the Financial Action Task Force, which meets this week in London to discuss international regulations and enforcement.

But underground banking operations are tough to track down. There is no paper trail and money hardly ever physically moves across borders. But eventually, the books must be balanced and the cash does have to be moved.

It’s proven easier to monitor large financial institutions that deal with shady MSBs. Recently, Citibank was fined $100 million and American Express was fined $80 million for non-compliance with U.S. regulations.

While large financial institutions already spend millions in the fight against terrorist financing and money laundering within their own walls, the new regulations will force banks to comply with stricter guidelines and procedures.

"These large institutions are going to have to be far more stringent about who they do business with, there’s no doubt about that," says Clement.

But even as authorities take steps to regulate Money Service Businesses, Canada will always appeal to organized crime because of its close proximity to the U.S., argues Marsh.

"This is a great place to do business if you’re a criminal," he says.

"What better place to be sitting than in Canada with a huge market just south of us but without the risks?"