Some Canadian banks allow wealthy Asian investors to skirt Chinese law by helping them bring in large amounts of money that is often used to buy real estate in Vancouver.
Financial institutions in the area have flagged more than 8,200 suspicious transactions since January, 2012, the year China began cracking down on citizens they suspect of corruption.
Ninety-six per cent of those transactions were also facilitated by the banks, however, even though the vast majority of that business involved suspected money laundering, according to FinTRAC, the federal agency responsible for tracking money laundering.
These findings, obtained by The Globe and Mail through an Access To Information Request, come as a debate rages over the source of foreign investment and Vancouver’s soaring luxury housing markets. A recent study by Macdonald Realty said 70 per cent of clients who paid more than $3-million for Vancouver houses last year were from China.
It is illegal for Chinese citizens to remove more than $50,000 (U.S.) a year from China without government permission, partly to stop corrupt millionaires from fleeing with their money. But a review of B.C. court cases by The Globe found they have worked around this restriction by sending millions of dollars into Vancouver-area banks through multiple wire transactions of smaller amounts by family and friends.
Banks are legally obligated to report transactions they deem suspicious to FinTRAC, the Financial Transactions and Reports Analysis Centre of Canada, but do not have to stop them or shut down accounts. The agency’s mandate is to gather and analyze those reports. It will not say what percentage involve this type of foreign investment, but said almost none that do are passed on to police.
The data are raising serious questions among legal experts about the effectiveness of federal laws meant to curb money laundering and transnational crime, and shines a light on a system that is time-consuming and expensive for taxpayers.
“The whole regime is a waste of money,” said lawyer Christine Duhaime, an internationally accredited expert on money laundering who has testified before parliamentary committees. “It seems to be completely ineffective.”
In her experience, Ms. Duhaime said, Canadian police do not have the resources to take on these cases.
“I think they also might face obstacles in China because of political differences between the two countries.”
FinTRAC’s guidelines on what banks should consider suspicious include multiple deposits to a client’s account by third parties, a high volume of wire transfers and frequent wire transfers to a client from individuals who do not have an account with the bank.
A recent B.C. court case heard that CIBC regularly helped wealthy clients move large amounts of money out of China – using several transactions and multiple third parties – even though the bank is familiar with Chinese law.
“This process is often conducted using different remitters in the same Chinese city sending funds to one or more accounts in CIBC, then through a common financial adviser get the funds collected back in one account – to be paid out to a law firm,” testified Kim Clark, a CIBC corporate-security investigator.
That testimony came in an ongoing wrongful dismissal suit by Guiyun Ogden, who was a top-tier financial adviser with CIBC’s Imperial Service unit. Ms. Ogden managed a $233-million (Canadian) portfolio for wealthy Chinese clients in Vancouver.
She helped a client move $500,000 (U.S.) out of China by using friends and relatives to send 10 wire transfers into 10 different CIBC accounts overnight. Ms. Ogden then transferred the money into another account for her client to use as a down payment on a $5.7-million (Canadian) Vancouver mansion.
Ms. Ogden was fired for moving some of that money through her own CIBC accounts. But the bank supported the practice of multiple transactions, according to a 2014 written ruling by Supreme Court of British Columbia Justice Randall Wong.
The testimony from CIBC’s Mr. Clark suggested the practice “enabled the client to say, ‘I am not bringing in $500,000 (U.S.) from China; me and these nine other third parties are each bringing in $50,000.’”
Ms. Duhaime said she has seen other examples of this practice.
“I have seen the bank transaction forms, where $50,000 has been wired out multiple times by several people at one bank in China,” she said. “There is so much money that is being made out of immigrants coming from China to Canada, I suspect no one wants to rattle that cage too much.”
The Globe and Mail asked HSBC, RBC and TD Canada Trust if they also facilitate multiple wire transfers like this from China. None of those banks answered that question specifically except RBC, which indicated it might shut down the account instead.
“Multiple wire transfers may be indicative of suspicious transactions,” spokesman Don Blair said. “Where RBC is of the view that a suspicious transaction report needs to be filed with FinTRAC, we will do so. In addition … RBC may close accounts and terminate relationships.”
In their responses to multiple inquiries by The Globe, all of the banks stressed that they are compliant with the law by reporting suspicious activity to FinTRAC.
In a 2011 e-mail highlighted in the court case, Steven Harvey, national director of CIBC’s anti-money laundering group, advised Mr. Clark the bank “generally [has] no obligation under any foreign law.”
When asked about this practice in general, Ms. Duhaime said, “They are facilitating breaking banking laws in China and they think that’s okay. It’s not. Our anti-money laundering laws say we need to be concerned if someone is breaking the law in another country.”
Canada’s proceeds of crime legislation exists partly “to assist in fulfilling Canada’s international commitments to participate in the fight against transnational crime, particularly money laundering.”
CIBC defended its practices. “It is the responsibility of the remitting institution in China to scrutinize whether the remittance transaction or transactions are in compliance with Chinese laws,” CIBC spokesperson Kevin Dove said.
“We fully appreciate the sensitivity of this issue, but we maintain that the structure of these transactions undertaken by our clients complies with Canadian banking laws and that we have no means or reason to deny them.”
Realtors who specialize in luxury housing say many of their wealthy clients get the money they use to buy homes to Canada though these transactions.
In the Ogden case, CIBC did not report the transactions as suspicious.
Notaries are also legally obliged to report suspicious activity to FinTRAC. However, Ron Usher, a lawyer for an organization that advises B.C. notaries on real estate deals, said the banks are the ones that see how the money got to Canada.
“Our members then get that money from the bank – in a Canadian bank draft – and they have no idea that this involves a suspicious transaction,” Mr. Usher said. “… So we really don’t have a system that actually seems to stop anything.”
Other B.C. cases in family court show how millionaires moved their money out of China through multiple transfers into Canadian bank accounts held by spouses and relatives here.
Fang Long came to Canada with her husband, Lin Li, in 2007, but was left alone for long stretches while he did business in China. The couple bought three Vancouver properties, two of them worth more than $1-million (Canadian).
Mr. Li admitted in a B.C. court he transferred more than $3-million out of China into accounts at Vancouver financial institutions, all in Ms. Long’s name. Some of that money was wired by his family members in China in $50,000 (U.S.) increments.
He then fled to Canada. The Chinese government froze his remaining business assets and issued a warrant for his arrest for misappropriating funds.
A recent Department of Finance report, along with the data from FinTRAC, suggests Ottawa is aware money is being laundered through Canadian bank accounts on a large scale.
“There are many sectors and products that are highly vulnerable to money laundering … domestic banks … were rated the most vulnerable, or very high,” the July, 2015, report says.
It said Canada spends $70-million (Canadian) a year on 11 agencies – including FinTRAC – tasked with fixing that.
“We are not seeing many prosecutions or crimes detected. So either it is spectacularly successful or it’s spectacularly useless,” Mr. Usher said.
“We are all enrolled as bit players in this great theatrical production of security theatre … pretending [by reporting to FinTRAC] that we are doing something important.”
Follow Kathy Tomlinson on Twitter: @KathyTGlobe
Editor's Note: An earlier online version of this article incorrectly said lawyers are legally obliged to report suspicious activity to FinTRAC. This version has been corrected.Report Typo/Error