Ottawa leery of approving Globalive Capital takeover of Wealth One Bank of Canada

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Federal banking regulators and national-security agencies will insist on a high bar before Ottawa approves the sale of Wealth One Bank of Canada to Globalive Capital Inc., one that must entail the removal of a trio of Wealth One’s founding shareholders, according to a source with direct knowledge.

The Globe and Mail reported last week that former chair and chief executive officer of Wind Mobile, Anthony Lacavera, is leading a bid through his investment firm Globalive Capital to acquire a majority of Wealth One in a structure that would see a special purpose vehicle (SPV) take over the small lender, which caters to Chinese-Canadian clients.

Globalive and partners would acquire 54 per cent of Wealth One for about $51-million, with existing shareholders remaining as a minority.

A source in Ottawa told The Globe that the proposal would have to meet a high threshold that includes the Office of the Superintendent of Financial Institutions (OSFI) and the Canadian Security Intelligence Service (CSIS), which has national-security concerns about three principal Wealth One investors: Toronto insurance executive Shenglin Xian, Vancouver property developer Morris Chen and Toronto grocery tycoon Yuangsheng Ou Yang.

The proposal being led by Globalive would see all of Wealth One’s current investors divest their shares and the ownership of the bank move into an SPV, according to the document and one of the sources. An SPV is a legal entity that allows multiple investors to pool their capital and make an investment in a single company.

The deal is structured in such a way that Globalive would be responsible for governance of the SPV, while other investors would be limited partners with only an economic interest in the bank.

That could allow some of Wealth One’s existing shareholders to retain an economic stake and even invest additional funds, subject to government approval, the source said. Only three of the bank’s 10 existing shareholders are covered by the minister’s order, according to the source. The Globe is not identifying the source, who was not authorized to discuss the matter.

A separate source in Ottawa said it is unclear from the proposal put forward by Mr. Lacavera that the three men would be “completely divested” from the transaction and that any deal would require the approval of CSIS and OSFI, Canada’s banking regulator, which has serious concern about the ownership of Wealth One. The Globe is not identifying the source, who could face prosecution under the Security of Information Act for discussing national-security concerns about Wealth One.

The source said Globalive Capital’s bid must pass the smell test of CSIS and OSFI before it could seek the approval of Finance Minister Chrystia Freeland, who has told the bank that the three principal shareholders must completely divest.

When reached for comment, Mr. Lacavera said he could not discuss the details of the proposed deal because it is in front of the government and the banking regulator.

“We have made every effort to address the minister’s concerns and we are working toward the best outcome for all of the bank’s stakeholders and customers, and toward putting the bank back on the solid growth trajectory it had before the current regulatory challenges,” Mr. Lacavera said in a statement to The Globe.

Last September, The Globe reported that Ms. Freeland instructed the three founding investors to divest their shares, and ordered Wealth One to comply with extraordinary national-security conditions intended to firewall its operations against the trio, who have faced federal scrutiny over alleged links to the Chinese government.

In April, Ms. Freeland instructed the three men to sell their shares in the bank. Wealth One was also ordered to sever all ties with the three, and to put in place stringent security measures to guard against money laundering and unauthorized sharing of sensitive information.

Wealth One was founded in 2016 and is based in Toronto. The federal government approved it as a Schedule 1 bank, meaning it is considered a domestic institution, not a subsidiary of a foreign bank, and is authorized to accept deposits and provide mortgages. In a 2021 news release, it said it had grown into a financial institution with more than $400-million in assets. It was established with an initial investment of $50-million.

Ms. Freeland’s restrictions on Wealth One are unlike any others placed on Canadian banks in recent history, and are being imposed at a time of heightened political tension over Chinese interference in Canadian domestic affairs. Her orders rely on powers outlined in the federal Bank Act that are designed to protect against threats to national security, international relations or the integrity of banks.

The government’s warnings to the three shareholders stretch back at least as far as late 2022, when Ms. Freeland sent a letter telling them they could be susceptible to Chinese government pressure. She also raised concerns that the bank might have engaged in money laundering. Shortly after receiving the letter, the three men resigned as directors of the bank, but did not divest their shares in Wealth One.

The Globe reported last February that the bank and the three shareholders had been under investigation by CSIS since 2021 and, more recently, by officials in the federal Finance Department. The exact substance of these investigations, and the nature of any conclusions they may have reached, are not publicly known.

On April 24, Ms. Freeland issued amended letters of patent – or written orders – to Wealth One, which The Globe obtained through an access to information request with OSFI. In those documents, Ms. Freeland ordered the bank to “sever as soon as reasonably practical, all banking relationships” with the three men, and with parties they control or are related to.

This includes prohibiting the named individuals from holding formal or informal positions within the bank, such as employee, director, contractors or consultants, Ms. Freeland’s orders say. The three shareholders are also prohibited from providing goods or services to the bank “including funding, marketing, supplies, corporate services, leasing of office space, etc.”

In a separate letter also dated April 24, Ms. Freeland ordered the three men to divest their shares in Wealth One. It is unclear whether they have done so, or whether they will challenge the order in the court.

Other requirements Ms. Freeland imposed on Wealth One include stringent national-security measures, such as vetting of all the bank’s employees, relocation of its Toronto headquarters to new secure premises and sweeps of its corporate property for surveillance devices. The institution is also prohibited from using the Chinese social-media messaging app WeChat for banking business.

In addition, Ms. Freeland instructed the bank to appoint an independent third-party monitor and hire two compliance officers: one for security compliance, with a valid national-security clearance, and one for anti-money-laundering and anti-terrorist compliance. Bank employees are being required to undergo what the Finance Minister’s directive calls “advanced training” in compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, a federal law designed to stop terrorist financing and the illegal concealment of the origins of funding.

In 2013, national-security concerns led Ottawa to hold up approval for a Russian entity’s bid for control of wireless operator Wind Mobile, the company Mr. Lacavera helped found and led for years. Orascom Telecom, an Egyptian company that is majority-owned by VimpelCom, withdrew its bid in mid-2013. VimpelCom’s major shareholder at the time was a company controlled by Russian billionaire Mikhail Fridman.

Later that same year, a $520-million bid for Allstream, a division of Manitoba Telecom Services, by Egyptian billionaire Naguib Sawiris was rejected by Ottawa over national-security concerns. Mr. Sawiris had played an important role in bankrolling Wind Mobile’s early expansion. Wind was sold to Shaw Communications Inc. in 2016.