The Battle Against Money Laundering in the Great White North

A government in deep turmoil reeling from allegations that it’s trying to protect a company charged with corruption; an inflated housing market on the back of massive amounts of money being washed in the real estate market; casinos accepting suitcases of cash with questionable origins. Canada, a G8 country with an annual GDP of 1.8 billion, has been besieged with a series of money laundering allegations.

A March 2019 US State Department International Narcotics Control Strategy Report on Money Laundering, declared Canada as a “major money laundering country.” Indeed, such adverse reports prove that even the most developed democracies with strong institutions, and regulatory oversight, isn’t insulated from the pernicious effects of money laundering.

For all the efforts of Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), there are apparent gaps in Canada’s Anti-Money Laundering (AML) laws and enforcement, that have been exploited by organized crime.

The Vancouver Model

Few reports on money laundering in Canada fail to mention The Vancouver Model. Often, money is funneled through Vancouver-based casinos, which, allegedly, are deliberately lax on running checks on incoming and outgoing cash.

Another big part of The Vancouver Model is the massive investment into the city’s real estate market, which allows property purchases to be made anonymously, using tools such as bare trusts, anonymous corporations or nominee shareholders – techniques typically deployed to hide the ultimate beneficial owner. Unsurprisingly, Vancouver’s real estate prices have skyrocketed, with the median cost of a detached home tripling since 2005, making the city one of the most expensive real estate markets in the world.

Often, the casino and real estate schemes are orchestrated in concert, with bad actors using the payouts from casinos to park money into Vancouver’s booming housing market.

Even as it has made the city unaffordable for many, The Vancouver Model has brought massive amounts of cash to the city, benefiting real estate owners, lawyers, luxury goods retailers, and has even enriched the government’s coffers with tax revenue. It’s a burning issue with politicians of all stripes promising investigations and various measures to curb the problem.

New AML measures

To counter growing concerns, Canada is taking various actions to toughen its AML measures. In the 2019 budget, the federal government is proposing a new anti-money laundering task force: the ACE (Anti-money laundering action and co-ordination) Team. This task force will bring multiple federal agencies together, including FINTRAC, Canada Revenue Agency, the RCMP, Canada Mortgage and Housing, and the justice department. The budget calls for earmarking CDN $200 million for ACE and other AML initiatives.

The British Columbia (BC) government, which has provincial jurisdiction over the city of Vancouver, is creating a government registry of beneficial property ownership. This will require the beneficial owners of corporations, trusts and numbered companies that own BC property to provide their information to public registries. BC Finance Minister, Carole James, states “We need to make sure the opportunity is there to know who is behind those companies … Because shining light on transparency is one of the best things you can do when you talk about money laundering or bad action when it comes to housing. We know that drives prices up.”

In February, FINTRAC announced new tools to help reporting entities meet their AML obligations. This includes a Compliance Framework, along with an Assessment Manual which details how they conduct examinations, and revisions to the Administrative Monetary Penalties (AMP) program, among other measures, to encourage compliance. According to Nada Semaan, Director and CEO of FINTRAC, “The commitment of businesses is critical to protecting Canada’s financial system. With these new tools, we intend to open up our programs to help businesses understand how we work with them to achieve compliance with the Act and to better inform Canadians of our collective efforts in helping to combat money laundering and terrorist activity financing.”

Enforcement issues

According to the inter-governmental AML body, the Financial Action Task Force (FATF), Canada’s “AML/CFT cooperation and coordination are generally good at the policy and operational levels.” The US state department’s money laundering report cited earlier, states that Canada “has a rigorous detection and monitoring process in place but should further enhance its enforcement and prosecutorial capabilities.”

One study found that conviction rates for money launderers in Canada is only 27 percent. Compare this to the UK, where the rate is around 50 percent, and the US, where the rate is 85 percent.

One problem is that, under Canadian law, conviction is contingent on proof that the money laundered was illegally obtained in the first place. Now, however, new federal proposals have called for an amendment that would allow charges based on “recklessness”, which, budget documents, state “would criminalize the activity of moving money on behalf of another person or organization while being aware there is a risk … it would provide law enforcement with an important, practical tool in the fight against professional money launderers.”

Unfortunately, money launderers are sophisticated, well-funded and are able to take advantages of opportunities across the globe. Only through vigilance and consistent updates to AML laws, enforcement actions and compliance processes, can countries hope to fight the scourge.