Examples of Transnational Criminal Activity

The ability of organized crime groups to launder large amounts of money, manipulate commodities and markets, or attempt to corrupt politicians and government institutions could have a crippling effect on Canadian and foreign confidence in these sectors. The following are two examples of how these groups can operate.

Example 1

Since the 1998 opening of Canada’s first diamond mine, Ekati, near Yellowknife in the Northwest Territories (NWT), Canada has become the third-largest producer of diamonds in the world after Botswana and Russia. Canada has the potential to generate as much as 20 per cent of the world revenue in rough diamonds, with projected revenue estimated at US $2 billion per year.

CSIS has determined that individuals associated with Eastern European organized crime have demonstrated their interest in the Canadian diamond industry. This poses a potential threat to the level of government revenue accrued from the industry, the stability of the NWT (and beyond, as exploration and production expand) and consequently, to Canada’s national security. Furthermore, if “conflict diamonds” enter the Canadian production line, this would threaten the integrity and stability of the industry.

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Example 2

YBM Magnex, a public company incorporated in Canada (registered on the Alberta Stock Exchange in 1995 and the Toronto Stock Exchange (TSE) 300 Index) and headquartered in Newtown, Pennsylvania, was investigated by the Federal Bureau of Investigation (FBI) in 1998 for fraud. Further to the criminal investigation, a forensic accounting report alleged that YBM was laundering money and had direct ties to Russian organized crime.

On April 24, 2003, United States authorities charged Semion Mogilevich and three of his associates with racketeering, securities fraud, wire fraud, mail fraud and money laundering. The indictment alleged that between 1993 and September 1998, Semion Mogilevich headed and controlled the Mogilevich Enterprise, an association consisting of the defendants and a network of companies in the United States and abroad, which orchestrated a sophisticated scheme to defraud investors in YBM stock. This complex network of corporations was set up to create the illusion that YBM was engaged in a profitable international business, primarily the industrial magnet market.

According to a National Post article dated October 27, 1998, YBM had amassed a value on the TSE 300 of almost $1 billion. Investors, which included Canadian mutual funds, stood to lose $635 million. In 2002, the Stockwatch Web site reported that a $120 million settlement was reached by YBM’s shareholders against YBM, its officers and directors.

CSIS believes that cases such as the YBM scandal could adversely affect Canadian public confidence in the integrity of the Canadian stock market. The YBM case also demonstrates that at least one Eastern European organized crime group has established a base of operations in North America and has exploited the North American economy.

Date modified: 2005-11-14

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