While residents of Vancouver nestle in the neighborhoods of a city which has ranked third continentally for quality of living in 2019,¹ many have little idea of the nefarious criminal acts occurring on their streets. While intensifying international and domestic media reports² have begun to build public awareness about the sophisticated crime Vancouver draws, a reputation as a criminal hotspot seems ill-suited to the city’s tranquil and stunning physical landscape. Discussions often revolve around stark wealth polarity, an outrageous real estate market and an impossibly high cost of living. However, 2019 has been crucial in unearthing how these extensively discussed grievances are symptoms of a much larger problem: money laundering.

Canada’s Reputation Snow Washed

Canada—despite a general international reputation of being a clean and honest country—has begun to form a new identity for itself. After the release of the 2016 Panama Papers, the country was dubbed the world’s newest tax haven.³ Criminals were found to engage in what was coined “snow washing,”⁴ a way of exploiting the nation’s clean reputation to generate an air of legitimacy when conducting illegitimate transactions. Rules that legally allow a lawyer or nominee to appear on public filings of corporate documents⁵ have helped put the country on par with other jurisdictions that are known for secrecy and tax evasion, like the British Virgin Islands and Panama.⁶ It has been said that, “identity checks to obtain a library card are more onerous than those to form a private firm.”⁷ Along with the media attention spurred by International Consortium of Investigative Journalists’ data leak, Canada faced criticism from the Financial Action Task Force during its last mutual evaluation. This included noncompliance of Recommendation 25, which concerns beneficial ownership.⁸

The recent revelations and criticisms have resulted in a number of changes in the regulatory
landscape. Perhaps most notably, an April 2019 amendment to the Canada Business Corporations Act⁹ now requires companies to disclose beneficial ownership information, though the information is not available to investigators or the public.¹⁰ In addition, the Proceeds of Crime (Money Laundering) and Terrorist Funding Act was amended in June 2019 to update Canada’s anti-money laundering/anti-terrorist financing regime.¹¹ Since the Panama Papers and the Paradise Papers, a number of slow-moving investigations have also been launched by the Canada Revenue Agency.¹² In general, more Canadians have become aware of financial crime in their backyard, as a recent survey by Transparency International reveals three-quarters of Canadians consider money laundering as “an issue within their own province.”¹³ Consequently, money laundering has been a part of the political rhetoric in the last federal election¹⁴ and $10 million has been promised to combat it.¹⁵

Canada is a federation and requires cooperation between federal and provincial governments to tackle the borderless crime. In the province of British Columbia, a report authored and released by former Royal Canadian Mounted Police Officer Peter German examines the extent of money laundering within its borders. The findings reveal a distorting effect on Vancouver’s economy and a synchronicity with estimates by a separate expert panel that posit dirty money inflated the British Columbia real estate market by 5% in 2018.¹⁶ The vulnerabilities identified in German’s report have furthered the urgency for significant regulatory changes and new practices for the year ahead.

Vancouver—A Hub for Criminal Activity

German’s investigatory reports titled “Dirty Money” were released in June 2018 and March 2019. The first report examines casinos and money laundering in Greater Vancouver and the second concentrates on real estate, luxury vehicles and horse racing at the provincial level.¹⁷  The findings establish Greater Vancouver as the setting for “a complex network of criminal alliances”¹⁸ and, in particular, a hotspot for Chinese organized crime. The report identifies what has been called the “Vancouver Model,”¹⁹ coined by Australian professor John Langdale and typified in a 2018 typology report by FATF.²⁰ The Vancouver Model illustrates how mainland Chinese citizens can relocate their wealth to Canada by utilizing a massive underground banking system, which allows criminals to double their profits “by providing services at both ends of the same transaction.”²¹ Using underground networks and avoiding conventional means of physical or electronic money transfer, Canadian underground bankers settle “accounts between two bankers” while servicing drug trafficking organizations by laundering their money.²² The real effects of this are devastatingly exemplified by the fentanyl and overdose crisis, most especially felt in Vancouver’s downtown eastside area.

An analysis of the British Columbia real estate sector raised concerns regarding the frequent use of unemployed, student and housemaker “nominee owners” of expensive properties and the common use of all-cash transactions. The opaque ownership structures and service addresses, which include the use of post office boxes, were also identified as a vulnerability.²³ German’s investigation found cases where luxury vehicle dealers, who have no obligation to report suspicious transactions, routinely witnessed customers using bags of cash to purchase vehicles.²⁴ Also alarming was the reveal of a multi-million-dollar scheme involving straw buyers,
where nominee buyers purchase vehicles to be exported to China. The scheme has resulted in the $50 million provincial loss in the form of tax refunds, occurring in spite of “dubious documentation and explanations for why they engaged in these transactions.”²⁵ The breadth of these reports reveal just how pervasive money laundering is in British Columbia and Vancouver.

Discussed widely in the press, the vulnerabilities raised have already prompted a beneficial ownership registry for real estate properties under the Land Owner Transparency Act.²⁶ Premier of British Columbia John Horgan ordered the Commission of Inquiry into Money Laundering, which included a province-wide public inquiry that concluded in November of this year. Now, the province waits for an interim report by the commission, which is set to be delivered by November 2020, and a final report by May 2021.²⁷ As a testament to its complexity, this will require deep and tedious investigation. While the timeliness of this is uncertain, what is certain is the Canadian tolerance and ignorance for money laundering is drastically waning.

Victoria Sztanek, CAMS, content writer specializing in money laundering and financial crime,
Vancouver, British Columbia, Canada, victoriasztanek@gmail.com

1. “Canadian Cities Top North American Rankings for Mercer’s 21st Quality of Living Survey,” Mercer, March 13, 2019, https://www.mercer.ca/en/newsroom/quality-of-living-2019.html
2. Robin Levinson-King, “How gangs used Vancouver’s real estate market to launder $5bn,” BBC News, May 11, 2019, https://www.bbc.com/news/world-us-canada-48231558; Bethany Lindsay, “Money laundering funded $5.3B in B.C. real estate purchases in 2018, report reveals,” CBC News, May 8, 2019, https://www.cbc.ca/news/canada/british-columbia/laundered-money-bc-real-estate-1.5128769
3. Robert Cribb and Marco Chown Oved, “The Canada Papers,” The Toronto Star, January 25, 2017, https://projects.thestar.com/panamapapers/canada-is-the-worlds-newest-tax-haven/
4. “Canada Frets About Anonymously Owned Firms,” The Economist, January 4, 2018,
   https://www.economist.com/business/2018/01/04/canada-frets-about-anonymously-owned-firms
5. Robert Cribb and Marco Chown Oved, “The Canada Papers,” The Toronto Star, January 25, 2017,
   https://projects.thestar.com/panamapapers/canada-is-the-worlds-newest-tax-haven/
6. Ibid.
7. “Canada Frets About Anonymously Owned Firms,” The Economist, January 4, 2018, https://www.economist.com/business/2018/01/04/canada-frets-about-anonymously-owned-firms
8. “Anti-money laundering and counter-terrorist financing measures Canada Mutual Evaluation Report” Financial Action Task Force, September 2016, p. 10,
   https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Canada-2016.pdf
9. “Canada Business Corporations Act,” Government of Canada, https://laws-lois.justice.gc.ca/eng/acts/c-44/fulltext.html
10. Jen St. Denis, “U.S. and Canada closer to lifting veil on corporate ownership” The Star, June 28, 2019, https://www.thestar.com/vancouver/2019/06/28/us-and-canada-closer-to-lifting-veil-on-corporate-ownership.html
11. Kieran Beer, interview with Jacqueline Shinfield, Financial Crime Matters, podcast audio, September 24, 2019, https://soundcloud.com/financialcrimematters/jshinfield
12. Zach Dubinsky, “Panama Papers spur billion-dollar global tax windfall, with $15 M found in Canada” CBC, April 3, 2019, https://www.cbc.ca/news/politics/panama-papers-cra-tax-recovered-charges-1.5082058
13. “New Survey Says Majority of Canadians Concerned and Want Action About Money-Laundering, or ‘Snow-Washing,’” Transparency International, September 17, 2019, http://www.transparencycanada.ca/news/new-survey-says-majority-canadians-concerned-want-action-money-laundering-snow-washing/
14. Jen St. Denis, “Party Leaders Are Talking Dirty Money on the Election Trail,” The Tyee, October 9, 2019, https://thetyee.ca/News/2019/10/09/Dirty-Money-Election-Trail/
15. Laura Kane, “Ottawa announces $10M in RCMP funding to investigate money laundering,” CBC, June 13, 2019, https://www.cbc.ca/news/canada/british-columbia/bc-money-laundering-1.5173607
16. “Combatting Money Laundering in B.C. Real Estate” British Columbia, https://www2.gov.bc.ca/gov/content/housing-tenancy/real-estate-bc/consultations/money-laundering
17. Peter M. German, QC, PhD and Peter German & Associates Inc., “Dirty Money - Part 2,” British Columbia Government, March 31, 2019, p. 12, https://news.gov.bc.ca/files/Dirty_Money_Report_Part_2.pdf
18. Ibid, p. 47.
19. Ibid, p. 46.
20. “Professional Money Laundering,” Financial Action Task Force, July 2018, p. 34, http://www.fatf-gafi.org/media/fatf/documents/Professional-Money-Laundering.pdf
21. Peter M. German, QC, PhD and Peter German & Associates Inc., “Dirty Money - Part 2” British Columbia Government, March 31, 2019, p. 46, https://news.gov.bc.ca/files/Dirty_Money_Report_Part_2.pdf
22. Ibid.
23. Ibid, p. 51.
24. Ibid, p. 16.
25. Ibid, p. 16.
26. Wendy Stueck, “B.C. unveils Canada’s first beneficial ownership registry,” The Globe and Mail, April 2, 2019, https://www.theglobeandmail.com/canada/article-bc-unveils-canadas-first-beneficial-ownership-registry/
27. “Commission of Inquiry into Money Laundering in British Colombia,” Cullen Commission of Inquiry into Money Laundering in British Columbia, https://cullencommission.ca