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Canada What makes British Columbia - and Canada - a haven for money launderers

Dirty money is not a problem strictly in casinos.

John Lehmann/Globe and Mail/John Lehmann/Globe and Mail

This week, British Columbians learned the price paid by ordinary people for money laundering by organized crime.

Dirty money is not a problem contained to casinos and the luxury car trade. It involves billions of dollars tumbling through the real estate market, inflating prices at a time when residents are struggling with unaffordable housing.

The B.C. NDP government has now released the final instalment of a series of reports on money laundering. The government’s experts have established that large-scale, transnational money laundering by organized crime is taking place throughout the provincial economy − an estimated $5-billion just in the real estate sector last year.

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B.C. Attorney-General David Eby plans to meet with federal Organized Crime Reduction Minister Bill Blair to discuss next steps, and the B.C. cabinet will soon decide whether to call a public inquiry.

But B.C.'s investigations also revealed that the province is not alone in its challenges. Ontario, Alberta and the Prairies face similar problems. “This issue feels like a national-level crisis,” Mr. Eby told reporters this week, a crisis that threatens confidence in the Canadian economy.

On Friday, speaking to reporters in Edmonton, Prime Minister Justin Trudeau called the findings “extremely alarming,” and promised action. “This is a real and pressing problem for Canadians and it’s a problem around the world that Canada is going to continue to lead in the fight against.”

Money laundering inflows and outflows,

2015

Canada is both a receiver and a sender of

criminal money for laundering. The major

estimated inflow comes from the United States

and from Europe.

DIRECTION OF CRIMINAL MONEY FLOW

Into Canada

Out of Canada

Note: arrow thickness relates

to the amount of money.

$2.5b

Northern

$2.5b

Canada

$1.8b

Europe

Western

$1.2b

$1.2b

Southern

$4.8b

$750m

$1.2b

$2.6b

North

America

Western

Asia

Eastern

Asia

$427m

South

America

CARRIE COCKBURN / THE GLOBE AND MAIL,

SOURCE: MINISTRY OF FINANCE

Money laundering inflows and outflows, 2015

Canada is both a receiver and a sender of criminal money

for laundering. The major estimated inflow comes

from the United States and from Europe.

DIRECTION OF CRIMINAL MONEY FLOW

Into Canada

Out of Canada

Note: arrow thickness relates to the amount of money.

$2.5b

$2.5b

Northern

CANADA

$1.8b

Europe

Western

$2.6b

$1.2b

$1.2b

Southern

$1.2b

$4.8b

$750m

North

America

$427m

Western

Asia

Eastern

Asia

South

America

CARRIE COCKBURN / THE GLOBE AND MAIL,

SOURCE: MINISTRY OF FINANCE

Money laundering inflows and outflows, 2015

Canada is both a receiver and a sender of criminal money for laundering.

The major estimated inflow comes from the United States and from Europe.

DIRECTION OF CRIMINAL MONEY FLOW

Into Canada

Out of Canada

Note: arrow thickness relates to the amount of money.

$2.5b

Northern

Europe

$2.5b

CANADA

$1.8b

Western

Europe

$2.6b

$1.2b

$1.2b

Southern

Europe

$4.8b

North

America

$1.2b

$750m

Eastern

Asia

Western

Asia

$427m

South

America

CARRIE COCKBURN / THE GLOBE AND MAIL, SOURCE: MINISTRY OF FINANCE

CASINOS AS LAUNDROMATS

The reports kicked off with Dirty Money, which was released in June, 2018 and looked at money laundering in Lower Mainland casinos.

In that report, former RCMP deputy commissioner Peter German said local casinos had for many years “unwittingly served as laundromats for the proceeds of organized crime." He catalogued a host of problems, including a flagship anti-money-laundering software system that didn’t work – Mr. German called it a “debacle” – and a confusing, ineffective regulatory regime.

The report was released with video that showed people entering casinos with shopping bags and oversized handbags full of cash, neatly stacked and held together with what look like rubber bands. It described the Vancouver model, a system in which money is laundered in and out of Vancouver to other locations, including Mexico and Colombia.

In one instance described in the report, investigators determined that $13.5-million, mostly in $20 bills, had passed through the cash cages of one casino in a month.

Canada needs to stop being dirty money’s 24-hour laundromat

Mr. German’s first report contained 48 recommendations, including that a transaction analysis team should be set up and meet at least weekly to review all suspicious transaction reports.

The British Columbia Lottery Corporation (BCLC) says the number and value of suspicious transaction reports has plummeted, with the value of such reports falling from $27-million in July of 2015 to $1-million in March, 2019.

Under BCLC rules that took effect in January, 2018, casinos in B.C. are required to gather detailed information on the source of player funds for all transactions of $10,000 or more.

The changes have had an impact on casino operators.

Great Canadian Gaming Corp., which runs the River Rock casino in Vancouver and other gambling venues, including the Hastings Racecourse (also in Vancouver), said in its first-quarter report that revenues in 2018 decreased from the previous year with “a part of the decrease in gaming revenues … due to the BCLC source-of-funds procedures.”

Like this week’s real estate report, the casino report highlighted how existing regulations, including reporting requirements of the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), the federal money-laundering watchdog, were not having the desired effect.

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It was a theme Mr. Eby returned to at his Thursday press conference. “Many, many reports were filed with FinTRAC from our casinos about bulk cash transactions with little apparent action,” he said.

Estimated money laundering in Canada

Money laundering in Canada is currently

in the tens of billions of dollars. Estimated

amounts of money laundering in Canada,

in billions of dollars.

B.C.

Alberta

Prairies

 

 

 

 

Atlantic

Ontario

Quebec

 

 

$45

40

35

30

25

20

15

10

5

0

2011

2012

2013

2014

2015

THE GLOBE AND MAIL, SOURCE: MINISTRY OF FINANCE

Estimated money laundering in Canada

Money laundering in Canada is currently in the tens

of billions of dollars. Estimated amounts of money

laundering in Canada, in billions of dollars.

B.C.

Alberta

Prairies

 

 

 

 

Atlantic

Ontario

Quebec

 

 

$45

40

35

30

25

20

15

10

5

0

2011

2012

2013

2014

2015

THE GLOBE AND MAIL, SOURCE: MINISTRY OF FINANCE

Estimated money laundering in Canada

Money laundering in Canada is currently in the tens of billions of dollars.

Estimated amounts of money laundering in Canada, in billions of dollars.

 

 

 

 

B.C.

Alberta

Prairies

Ontario

Quebec

Atlantic

 

 

$45

40

35

30

25

20

15

10

5

0

2011

2012

2013

2014

2015

THE GLOBE AND MAIL, SOURCE: MINISTRY OF FINANCE

FAST CARS, CLEANED CASH

Mr. German singled out luxury vehicles for scrutiny. He found that the province’s inability to crack down on money laundering through car sales can be traced to the absence of financial tracking by provincial and federal watchdogs. Unlike banks and casinos, car dealerships aren’t required to report large or suspicious transactions to FinTRAC.

Mr. German found that the provincial authority, The Vehicle Sales Authority of BC, is focused on consumer protection, and that vehicle industry associations don’t view cash-based sales as a significant concern. Because dealers deposit the cash from vehicle sales into mainstream financial institutions, there’s a complete lack of visibility.

Interviews with a number of B.C. car dealers reveal the way their businesses handle suspect transactions, ranging from accepting six-figure, no-questions-asked cash sales, to a policy of not accepting cash in amounts exceeding $9,999. The German report called the latter amount curious, as it’s the maximum amount a FinTRAC reporting entity, such as the financial institution receiving the dealer’s deposits, can accept without submitting a large cash transaction report.

German Report reveals extensive money-laundering in B.C.'s luxury car market

The German report cited one scheme operated by a high-level drug dealer who functioned as a broker to steer buyers to a particular company. He would accept a large cash deposit on a car from a lessee and the individual would sign a multiyear lease. Within six months, the lessee would return and lease a more expensive car with an additional deposit. According to the report, the lessee could repeat the process multiple times and simply return to the dealership and ask for some of his deposits to be refunded by company cheque, rendering the cash clean.

In other cases, gangsters would take advantage of B.C.’s rapidly growing grey market of overseas exports. More than 4,400 vehicles were exported to China in 2018, according to data from the provincial Ministry of Finance. Straw buyers were hired to purchase the vehicles for domestic use. Then, the report says, the vehicles would be shipped overseas where the international market ensures massive profits.

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Due to the fentanyl crisis, too much attention has been placed on monitoring goods imported from overseas, while exports such as stolen vehicles could be slipping through as a result, according to the Insurance Board of Canada. Earlier this year, Inspector Brian MacDonald − the officer in charge of the Integrated Municipal Provincial Auto Crime Team (IMPACT) − said he remains concerned that “no one is working our ports like they should be.”

A ‘LIGHT TOUCH:’ REGULATING REAL ESTATE

A host of local professionals working in B.C.’s real estate sector inevitably end up as gatekeepers that facilitate the laundering of dirty money by organized criminals, the reports released this week concluded.

The real estate industry as a whole was characterized as being subject to “light-touch regulation” with some professionals subject to heavy provincial and federal oversight while others were not, Mr. German’s report stated.

“The result is that we can view the rat as it burrows through parts of the industry but lose sight of it in other parts, only to find it emerge in yet another,” his report stated.

Real estate brokers, realtors, developers and some 300-odd notaries in the province are required to report suspicious transactions to FinTRAC.

But mortgage brokers, private lenders and lawyers – key links in the chain of property ownership – do not have to report to FinTRAC and both reports recommended federal laws be amended to bring these professions under this regulatory regime.

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Dirty money driving up B.C. home prices as more than $40-billion laundered across Canada in 2018

The provincial regulator of mortgages told Mr. German’s team that it has a “less-than-optimum window” on how many unlicensed mortgage brokers, private lenders and mortgage-investment corporations are operating. These firms are targets for money launderers because there is “no oversight in terms of who acts as a lender and no oversight in terms of their funding source or the payment back of mortgages.”

Lawyers across the country have been exempt from reporting to FinTRAC since a 2015 Supreme Court of Canada decision in favour of the Federation of Law Societies, which successfully argued that doing so would infringe upon solicitor-client privilege. Parliament has yet to develop a workaround − such as developing a third-party database that merely records a client’s name and the amount of money they deposited – that could protect lawyer trust accounts from money laundering.

Provincial law societies have stepped in to impose rules to help their members counter this sophisticated crime, but B.C. has some of the strongest regulations in the country and still has several loopholes, Mr. German noted.

Bill McCarthy, a Burnaby-based real estate developer and long-time realtor with a host of other professional designations, said it is an open secret in his industry that clients often try to pay deposits or even purchase a home with cash. In the end, he said, any and all professions involved in buying and selling property should report to FinTRAC because, he said, bad elements can always find willing partners.

“I don’t think anything in the German report has surprised those within the real estate, legal and mortgage businesses,” Mr. McCarthy said. “The scope and scale maybe, but not the details of it and that’s a problem.”

CASH IS FLOWING IN UNEXPECTED PLACES

Closing gaps in enforcement and regulation to stop criminals from laundering their dirty money in British Columbia’s economy is akin to playing the arcade game Whac-a-Mole: Knock down one problem, and another pops up.

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In his final report on money laundering, Mr. German devoted a full chapter to what he calls the Wack-a-Mole phenomenon − when organized crime moves from one vulnerable industry to another.

The problem, Mr. German found, is that many sectors of the economy have no obligation to report suspicious transactions. When an individual walks into an auction house or law firm with large sums of cash, officials at FinTRAC don’t hear a thing.

Canada needs a uniform obligation to report large cash transactions, he concluded. “Universal reporting, as it exists in the U.S., is the simplest way to close this gap."

B.C. clamped down on money laundering in its casinos last year, but here are a few of the other creative ways organized crime can still launder bags of cash without question.

Buying sprees, obscured ownership: Report reveals red flags of money laundering in B.C.'s property market

Luxury toys and adornments: "Much the same as luxury vehicles, speed boats and other luxury craft are popular items in which organized crime can park its money and still have the use of the item, until recouping most of their cost when reselling. We were advised by one law firm that its lawyers handle $10-million per year in small-vessel sales,” Mr. German noted. He also noted that many high-end homes in Greater Vancouver contain pianos valued in excess of $100,000. Even if they are never played, they are an easy parking spot for money and will retain much of their value until resale.

Postsecondary institutions: The B.C. government set up a tip line on money laundering to encourage insiders to come forward. Some of the leads described tactics where international students sign up for programs, pay their fees in cash, and then cancel before classes begin. They then get a refund cheque. “On a recent occasion, one college was faced with a student who was required to pay a charge of $150. The student attended with $9,000 in cash in a duffel bag and asked to deposit that amount minus the $150 owing. In effect, the institution was being asked to act as a bank.”

Money service business: MSBs are informal banking systems that can move money electronically to distant locations − without international money transfers − by settling accounts through e-mail, WeChat or other informal means.

They have become a fixture of the urban Canadian financial system, Mr. German said, and “very little, if any, attention is being paid to unregistered MSBs, who are moving considerable money on a daily basis. Those that register are subject to regulatory oversight. Those that don’t register, are off the proverbial radar screen.”

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