B.C.'s Attorney-General David Eby says his constituents have long told him they know properties in their tony westside Vancouver neighbourhood are being bought, left empty, then flipped quickly by people laundering ill-gotten gains.
On Thursday, an independent report released by the provincial government provided a handful of real-life case studies showing how such “problematic activity” is linked to money being laundered through the property market.
These examples, uncovered by a small team of investigators led by retired senior Mountie Peter German, included red flags that involve buying sprees of numerous properties, individuals obscuring their ownership through the use of post-office boxes or law firms, as well as mortgages being paid off quickly and the recruitment of other people – or “straw buyers” – to purchase a home and obscure its true owner.
One of the largest buying sprees, defined as more than three purchases within two years, involved a homemaker acquiring more than a dozen downtown Vancouver row houses for a total of $4.1-million between 2004 and 2007, according to the report. Those properties were recently assessed at a total of $15-million, the report stated.
Another homemaker bought five luxury homes for a total of $21-million between 2014 and 2017, with only one of them mortgaged and believed to include her husband as the guarantor, the report stated.
“In a quiet real estate market, buying sprees may stand out as unusual. Yet that hardly applies to B.C., where rampant speculation and an influx of wealthy buyers from abroad have fuelled a lengthy real estate boom,” the report stated.
Mr. German’s team identified 1,167 titleholders whose service address is a post-office box in Vancouver and 149 service addresses that lead to offshore post-office boxes.
“It makes identifying the true owner incredibly difficult, if not impossible,” Mr. Eby said of this tactic.
Investigators connected one property on the Gulf Islands worth $3.5-million that was owned by a company that acquired the home with funds allegedly embezzled from a $90-million loan fraud at an Indian bank. The report stated that a director of the company was charged in April, 2018, but he appears to have been a minor player in the scheme and the B.C. property has remained out of the reach of the Indian authorities.
The report stated criminal gangs and those who wish to obscure their ownership often use straw buyers, also known as nominees, in real estate transactions, with 3 per cent of B.C.'s residential land titles over the past 20 years being held “by persons whose occupation is listed as student, homemaker or unemployed.
“These tend to be expensive houses, with 88 houses over $10-million that are apparently owned by nominees,” the report stated. “The use of nominees provides anonymity, enables access to financial services and complicates asset forfeiture efforts if the authorities suspect that property was purchased with proceeds of crime.”
The report singled out this activity by citing a 2015 civil-forfeiture case in which a convicted drug dealer lived in a $768,000 Surrey home with his wife. The couple had originally signed a contract with the sellers before substituting the man’s brother-in-law as the purchaser at the last minute, according to the report. The brother-in-law took out two mortgages in the ensuing years; the man and his wife “allegedly covered the mortgage payments by depositing cash into his bank account.”
Another red flag of possible money laundering in real estate is mortgages being paid off fast. Mr. German’s team found 494 different properties “with four to 29 mortgages registered and repaid in rapid fashion,” according to Mr. Eby.
These investments give money launderers access to large sums of legitimate money that can be repaid with criminal proceeds, the report noted.
“Most homeowners take many years to repay a mortgage,” the report noted. “A mortgage that is taken out and quickly repaid suggests that the borrower has access to significant capital and/or cash flow and may be an indication that they withheld funds from their purchase by choice.”
These launderers can also structure their mortgage payments through deposits below the $10,000 threshold that triggers scrutiny from the federal financial intelligence watchdog, the report stated. As well, repaying a mortgage way ahead of schedule triggers penalties, which money launderers are likely less concerned about than the average citizen, Mr. German’s team noted.