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Safeguarding against Money Laundering on Tuition Payments

Safeguarding  Money Laundering on Tuition Payments

Money laundering is not just illicit drug cartel dollars washing through banks, businesses, and corporations. In Canada, the problem continues to spread into more benign activities, including that of collecting university tuition payments. The concern of possible money laundering has been brought to the forefront with several recent inquiries at different levels of government. Here is how it works: University students deposit thousands of “dirty” dollars in advance payment for multiple semesters. The payments are followed by refund requests, resulting in the dirty money now being cleansed and providing legitimacy to the illicit funds.

Money Laundering Expert Clement Weighs in

Garry W.G. Clement has over 45 years in the fight against money laundering. He is the former National Director of the Proceeds of Crime Program for the RCMP and the former Vice President of the Association of Certified Financial Crime Specialists. For the past 12 years, Clement has been a consultant for the financial services industry focusing on anti-money laundering (AML) and currently acts as a special advisor to the board of directors at the MTFX Group of Companies.

Clement points to two key reports on how money laundering has become entrenched in many major industry segments including higher education. First, the 2015 Charbonneau Commission concluded that money laundering throughout Canada is “far more widespread than originally believed”. Then he cites an investigation by Peter German of money laundering in higher education.

Clement: Why University Tuition Payments Can be a Conduit for Money Laundering

In many countries drug production and traffic, human trafficking, as well as cyber-crime syndication generate vast amounts of money, much of which is in cash. Couriers of that cash have been known to include foreign students coming to Canada to enroll in the country’s exceptional higher education system.

Clement advises that attacking the problem must begin with a potential risk assessment. Canada accepts students from throughout the world, and some of those foreign countries are the source of tainted money. Likewise, foreign tuition payments are continually on the rise. Universities must be on the lookout for students who want to make large cash tuition payments, especially in advance.

B.C. Government Crackdown on Tuition Money Laundering

A May 2019 Global News article on Money Laundering announced a B.C. government campaign to ferret out money laundering through university fees. Highlights:

B.C. officials are requiring post-secondary institutions to take a close look at their financial policies. That review should be focused on ensuring that large cash payments for an individual student are not accepted.

The crackdown is on the heels of anecdotal complaints made to Peter German as part of his investigation of money laundering and its effect on the B.C. economy. Peter German reported that people “are paying thousands of dollars in cash for multiple semesters in advance and then seeking refunds by cheque".

Warned German, "Our post-secondary institutions must not be used to launder money, and we are asking them to review their policies to put a stop to it”.

Melanie Mark, B.C. Advanced Education Minister seconded German’s observation. Said Mark, “We need to protect post-secondary institutions as places of higher learning…not alleged places for organized crime to clean dirty money”.

Ethics and Solutions

Clement recognizes that money laundering “is a societal problem that can only be abated with the overall support of all sectors” including higher education. It is all about accepting responsibility. When identifying suspicious activity, anyone accepting cash has the burden of due diligence. Where did all that cash come from? Can you determine source of funds? Can you identify who is the ultimate beneficiary on student refunds? Solutions and best practices include questioning amounts of cash in excess of $8,000. When the amount is $10,000 or more, the transaction must be reported to FINTRAC.

However, there are better solutions, which include:

  1. Requiring colleges and universities to go completely cashless and only accept payments via electronic funds transfers and international wire transfers. Moving to a completely cashless solution is secure, but can be slow, adds to the student’s financial burden through fees and processing charges and dramatically increases the administrative responsibilities of student financial services departments where they need to track payments individually and post payments manually into student information systems.
  2. Do an AML background check and screening on tuition payments. There are 3rd parties who will provide this service, but this solution brings challenges of integrating AML processes to current business processes while also and also understanding the source of funds and ultimate beneficiaries. The net result would be significantly more overhead, and a building of capacity to include AML compliance officers as part of financial services administrative teams.
  3. Rely on a 3rd party payment processors that are registered and regulated by FINTRAC. Clement strongly recommends this option in processing student tuition payments. The benefits to universities admin services, says Clement, is that compliance obligations are “taken off the backs of universities…and delegated to a regulated money transmitter”.

Conclusions and 5 Takeaways

  1. Money laundering is becoming a big issue in Canadian higher education payment processing. Officials are not waiting for formal report findings or independent reviews. They are demanding immediate action.
  2. Higher education institutions often lack the tools and process to manage AML. They must rely on 3rd party regulated payment processors for compliance and AML.
  3. AML and payment processing are ideal candidates for outsourcing. (See conclusion 2.)
  4. For international payments, outsourcing to international payment processors allows for better security and gives students better choices for paying in local currencies. Local currency payments are controlled through formal banking channels and are scrubbed through robust anti-money-laundering and counter-terrorist financing programs.
  5. Third-party tuition payment processors work best when integrated into student information systems. This integration allows for a single sign on approach for additional security and eliminates the risk of fraud and data breaches.