New drug cartel terrorist designations raise legal risks for Canadian banks
Canada’s recent designation of drug cartels as terrorists could implicate financial institutions that facilitate illegal transactions
By Alexandra Keeler | 4-minute read
Canada’s financial institutions could face criminal liability for facilitating transactions tied to cartel-linked drug sales, according to a new report by journalist David Clement.
Clement argues Canada’s recent designation of seven transnational criminal organizations as terrorist entities may implicate banks, credit card companies and Interac under the Criminal Code, due to their role in processing payments for illegal drug sales.
“In Canada, collaborating with a listed terrorist organization is a serious offence under the Criminal Code,” writes Clement in the report.
“It should cause them — the banks and Interac — to take action,” Clement told Canadian Affairs in an interview.
Legal experts say the Criminal Code permits the prosecution of institutions that facilitate terrorism. But the burden of proof is high and the likelihood of charges being laid is low.
“Theoretically, there’s no impediment to [prosecuting financial institutions],” said Anil Kapoor, a criminal and national security lawyer.
“The real question is how you acquire the evidence, and … does the evidence add up to knowingly [facilitating illegal transactions]?”
Terrorist organizations
In February, Canada expanded its list of designated terrorist organizations to include seven criminal organizations, most of them powerful drug cartels.
The list includes five Mexican cartels, such as the Cártel de Sinaloa and Cartel de Jalisco Nueva Generación (CJNG), El Salvador’s La Mara Salvatrucha (MS‑13) and Venezuela’s Tren de Aragua.
This designation brings anti-terrorism laws into play for groups previously targeted mainly for drug trafficking. This allows law enforcement to pursue broader charges with harsher penalties and lower thresholds for prosecution.
Clement’s report, published by the advocacy group Consumer Choice Center, warns that banks, credit card companies and Interac could face legal risks for facilitating transactions with online drug vendors linked to these cartels.
However, Clement stops short of identifying any specific institutions as having committed wrongdoing.
Bankrolling cartels
Clement says financial institutions should be required to act on publicly available information about how to purchase illicit substances.
“If I buy from Moon Haus and I buy cocaine, what bank is that deposit going to?” said Clement. Moon Haus is an online Canadian vendor that openly sells illicit psychedelic drugs and accepts payment via e‑Transfer.
A vendor like Moon Haus is not a designated terrorist organization, but its connections to cartel-supplied products could leave financial institutions legally exposed, says Clement.
“A compliance officer at a bank could likely just search for [a Moon Haus] email and see if it’s linked to any of their deposit accounts,” he said.
Legal experts agree that the Criminal Code permits financial institutions to be charged with facilitating terrorism. But the challenge would be proving intent.
There needs to be a deliberate understanding or intention to facilitate terrorist-related transactions for it to be considered “knowingly” aiding terrorism, says Kapoor, who sits on the board of the Canadian Civil Liberties Association and previously served on the Prime Minister’s Advisory Council on National Security.
Jessica Davis, president of Canadian security consultancy Insight Threat Intelligence, says the bar is very high for prosecuting financial institutions for terrorist financing in Canada.
“You’re much more likely to get things like really large fines for [financial institutions] just not doing enough due diligence and not reporting enough,” said Davis, who was formerly a senior analyst with the Canadian Security Intelligence Service.
“Then [law enforcement would] have to meet a very high bar to convince a prosecutor that this was a good use of their time. And in my experience, it’s hard enough to get prosecutors to pursue terrorist financing charges.”
Davis says Canada has seen only three terrorist financing convictions — and none of them targeted financial institutions that facilitated the transactions.
By contrast, the U.S. has aggressively pursued financial institutions linked to cartel crimes. In October 2024, the U.S. Department of Justice slapped TD Bank, Canada’s second-largest bank, with a $3 billion US fine for failing to stop cartel-linked money laundering.
The department highlighted “long-term, pervasive, and systemic deficiencies” in TD’s transaction monitoring. It said TD had knowingly underfunded its U.S. anti-money laundering program, enabling over $670 million in cartel-linked laundering.
“By making its services convenient for criminals, it became one,” said Attorney General Merrick Garland, at a press conference at the time. Deputy Attorney General Lisa Monaco called the case a “lesson” for bank compliance officials nationwide.
‘Choked out’
Kapoor and Davis say Canada currently lacks the legal framework to hold banks accountable in the way U.S. agencies do.
“We don’t have the statutory infrastructure to hold our banks responsible in the same way,” said Kapoor.
Still, Kapoor says there are ways for Canadian institutions to disrupt cartel operations by cutting off their financial channels. “If they’re choked out of the equation and won’t assist people, then cartels really can’t operate,” he said.
Kapoor says Canadian banks, credit card companies and postal services could de-platform or report suspicious transactions to FINTRAC, Canada’s financial intelligence unit. This could then lead to investigations by law enforcement.
“Banks [are] in the business of essentially getting people to deposit money in their institutions so they can turn around and lend it out — that’s how they make their money,” said Kapoor.
“But at the same time, they don’t want to run afoul of any regulations.”
‘Tougher approach’
According to FINTRAC, businesses and financial institutions subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act are required to report to law enforcement about suspicious transactions, listed persons or properties.
“Following the listing of seven transnational criminal organizations as terrorist entities under the Criminal Code in February 2025, FINTRAC called on businesses to update their processes and ensure the submission of listed person or entity property reports,” a spokesperson told Canadian Affairs in an emailed statement.
Last fiscal year, FINTRAC generated more than 400 financial intelligence disclosures related to terrorist financing and threats to Canada’s security, which were shared with law enforcement and national security partners, the spokesperson said.
The Canadian Bankers Association, which represents more than 60 domestic and foreign banks operating in Canada, told Canadian Affairs its members dedicate “significant resources” to anti-money laundering and anti-terrorist financing programs.
It cited its work on Project Guardian as one example. That project uses financial intelligence and suspicious transaction reports to thwart fentanyl-related money laundering networks.
Interac told Canadian Affairs it carefully monitors its e-Transfer network for risks and threats, and alerts the financial institutions on both ends of the transaction about any issues.
Visa Canada told Canadian Affairs it enforces “robust compliance requirements” for financial institutions and merchants, but declined to provide further detail. Mastercard, BMO, RBC, TD and Scotiabank did not respond to requests for comment.
Davis says she hopes to see Canada take a tougher approach to holding financial institutions accountable.
“I would love to personally see more prosecutions for criminal non-compliance,” she said.
“Then, once there is a reasonable case law on that, I think that then we might be able to see something brought against financial institutions in the right circumstances for knowingly facilitating.”
“At a certain point in time, they cannot deny it anymore.”
This article was produced through the Breaking Needles Fellowship Program, which provided a grant to Canadian Affairs, a digital media outlet, to fund journalism exploring addiction and crime in Canada. Articles produced through the Fellowship are co-published by Break The Needle and Canadian Affairs.
Great article, but nobody is talking about Crypto. While banks and credit cards are used by organized crime, so much is flowing through the Crypto ATMs that we allow in Canada.