British Columbia’s hidden land ownership registry is scheduled to go live at the end of this month, but the soon-to-be-public database is already too flawed to deter those intent on evading taxes and laundering dirty money through the real estate sector, according to a new C.D. Howe Institute report.
Provisions in the Land Owner Transparency Act come into force Nov. 30 requiring anyone buying property or signing a lease longer than a decade to file a report declaring if they have hidden, or beneficial, partners in the deal, with corporations, trusts and partnerships also having to disclose their true identities of their ownership group to the registry.
But the rules buttressing the system – the first of its kind in Canada – will do little to stop money laundering in the province’s housing market because the penalties for lying about secret owners won’t include the potential for a prison sentence and it will not require photo identification, according to a report released Monday by C.D. Howe’s Kevin Comeau.
The legislation was passed last year by the NDP government shortly after a report from B.C.'s expert panel on money laundering in real estate said approximately $5-billion was laundered through that sector in 2018, increasing housing prices by at least 5 per cent that year alone. Transparency International Canada also highlighted Vancouver real estate in a 2016 report, concluding nearly one-third of the 100 most valuable residential properties in Greater Vancouver were owned by shell companies.
A Globe and Mail investigation published in February, 2018, also uncovered how 17 underground lenders had claimed a $47-million stake in more than 40 Vancouver-area properties, allowing people connected to the deadly fentanyl trade to park their unlawful gains in the real estate market.
Mr. Comeau, an anti-money laundering expert and member of Transparency International Canada, writes that people could file a fictitious name of a property’s beneficial owner and face a minimal chance of getting caught under the registry’s current design. He recommends tweaking the rules to require a passport or driver’s licence be provided to prove the beneficial owner exists.
Mr. Comeau, in his 24-page report, also recommends adding prison sentences to the enforcement regime to further deter organized crime groups from lying on these forms, as well as giving investigators more leverage to negotiate plea deals from frontpersons in order to pursue criminals behind the transactions. The province’s current rules state that anyone caught lying about who is buying the property could be fined up to $100,000 or 15 per cent of the assessed property value, whichever is greater.
The provincial Ministry of Finance did not respond to a request to comment on the report Monday. After last month’s snap B.C. election, the NDP government has yet to be sworn in.
Some information collected in the new registry will be made public in a searchable database at the end of April, 2021. But each search will cost $5, a user fee that will deter people from accessing the database, Mr. Comeau writes, and defeat the purpose of making this hidden ownership public. He also recommends a confidential tip line so the public can report possible fraudsters to police or the Canada Revenue Agency.
“As it currently stands,” Mr. Comeau, a retired lawyer, wrote in a news release, “the information on the registry will be unreliable, difficult to access, difficult to process and, even if it helps a searcher spot a falsely declared beneficial owner, the ability to communicate that discovery to Canadian law-enforcement officials and their ability to leverage it to catch criminals will be curtailed."
“The good news is that all these flaws can be fixed.”
B.C.'s hidden ownership registry is a good effort by the province to provide a massive amount of brand new information to the government, taxing authorities and the police, said Ron Usher, a lawyer for the organization representing 430 B.C. notaries public, who handle routine sale contracts in the province, similar to real estate lawyers.
Mr. Usher, who sat on the panel that led to the overhaul of B.C.'s real estate regulations, said notaries and lawyers handling these real estate transactions are already qualified to verify the identity of their clients and their partners and only accept valid ID. Mr. Usher added that whether the database searches should be free to everyone is a legitimate question, but as it stands the new system will enable the province and law enforcement agencies to better crack down on the sophisticated crime of money laundering.
“What this [C.D. Howe] report basically says is we give up on police, we give up on courts, what we really want is this personal information to be available to citizens around the world,” Mr. Usher said. “That’s their hope: that Bob sitting at his computer somewhere is going to be able to [catch money launderers]."
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