money on a clothes line

Canada’s Money Laundering Through Real Estate Risk

Money laundering is a growing problem in Canada, especially in Vancouver’s real estate market, according to several new studies.  Recommendations by the C.D. Howe Institute and Transparency International point to lack of enforcement of existing rules and privacy regulations that allow hiding of the beneficiaries and owners of companies.

In Canada, money laundering is estimated to be between $5 billion and $100 billion, according to a report by the C.D. Howe Institute.  The major cities for laundering money are Montreal, Toronto and Vancouver.

“In Canada, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act specifies the information that financial institutions, including insurance companies, and other organisations such as casinos and real estate brokers, must collect about their clients.” – Equitable.ca

In a recent local blog, BC Attorney General David Eby exposed a ring of Money Lauder’s a casino operation that is in Ontario and BC, read about it here.

Transparency International Findings on Money Laundering Risks in Canada:

In their 2017 report “Doors Wide Open” Transparency International found Canada has risks in 4 of the ten areas they identified as ways where legal loopholes or weak enforcement made it easier to launder money through the real estate sector. For comparison, the US had deficiencies in 9 out of 10,  and the UK only had one of ten.

  • Inadequate coverage of anti-money laundering provisions
  • Identification of the beneficial owners of legal entities, trusts and other legal
    arrangements are still not the norm
  • Foreign companies have access to the real estate market with few
    requirements or checks
  • Over-reliance on due diligence checks by financial institutions leads to cash
    transactions going unnoticed
  • Insufficient rules on suspicious transaction reports and weak implementation
  • Weak or no checks on politically exposed persons and their associates
  • Limited control over professionals who can engage in real estate transactions: no “fit
    and proper” test
  • Limited understanding of and action on money laundering risks in the sector
  • Inconsistent supervision
  • Lack of sanctions

While in Canada, only four of the ten areas had severe deficiencies, in the other six, there was either significant loopholes or severe problems in implementation and enforcement of the laws.

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[pullquote align=”normal” cite=”Jesse Ferreras, GlobalNews.ca”]”Stronger anti-money laundering rules could be particularly useful in a place like Greater Vancouver, where governments can’t identify the owners of almost half of the region’s 100 most valuable homes”[/pullquote]

The C.D. Howe report recommends the following steps to combat money laundering:

  • Reforming corporate registries. The federal government, in collaboration with the provinces and territories, establish a central publicly accessible beneficial ownership registry of corporations and certain trusts
  • Place the onus on corporations and trusts to truthfully and fully disclose beneficial ownership information
  • Require all reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to identify beneficial ownership information
  • Follow the European example by keeping Canada current with the international standards, commitments and trends on beneficial ownership transparency.