B.C. Launches Registry To Combat Money Laundering – But It’s Flawed, Says Critic

Written by Posted On Tuesday, 24 November 2020 00:00

“Domestic criminals have known for decades that Canada is ‘la la land’ for financial crime” such as money laundering, said a Transparency International Canada report in 2016. To combat money laundering, British Columbia is set to launch a publicly accessible registry of beneficial ownership of land, which Transparency International (TI) says is the first of its kind in the world. 

But a recent report by the C.D. Howe Institute says the B.C. government has “stripped the highly touted public registry of almost all its potential power and functionality.” It says the registry, scheduled to be launched on November 30, will “likely do little to stop money laundering in B.C. real estate. And, once again, Canada will have failed to show it is serious about combating money laundering.”

FINTRAC, the federal government’s agency responsible for combating financial crimes, describes money laundering as “the process used to disguise the source of money or assets derived from criminal activity.”

“Dirty” money obtained from drug trafficking, fraud, tax evasion, corruption and other criminal offences is used to buy and sell property. 

“With these types of crimes, there is often violence, and there is real social harm,” says FINTRAC.

The TI report says the Canadian real estate market “has other conditions that particularly appeal to money launderers: weak regulation, lax enforcement and the ability to hide in plain sight through anonymous ownership structures.”

It says, “To make matters worse, our enforcement record advertises that laundering dirty money is a low-risk endeavour in Canada. Money laundering cases rarely go to trial, and often collapse when they do. This appears to have contributed to a rise in professional money laundering operations across the country.”

B.C.’s registry was lauded as a step in the right direction when it was announced, and it prompted calls for a similar registry to be implemented elsewhere.

“Money laundering is a multimillion dollar problem in Ontario’s housing market, crowding out hardworking families looking to their dreams of one day owning a home,” says Ontario Real Estate Association CEO Tim Hudak. The province announced in its Fall Economic Statement that it would commit to combat money laundering. 

“Realtors are calling on the province to create a beneficial ownership registry using the land title system. A beneficial ownership registry would help stop the practice of criminals using shell companies to buy up Ontario homes, giving law enforcement and government an important tool to keep dirty money out of the province’s housing market,” says Hudak.

But the C.D. Howe report, written by Kevin Comeau, who is also a member of Transparency International’s Working Group on Beneficial Ownership Transparency, says that B.C.’s new registry has a number of fatal flaws.

The idea of a beneficial ownership registry is that is shows who actually owns the property. The land registry shows who the legal owner is, but that is often a company and the actual owners can remain anonymous. B.C.’s Land Owner Transparency Act (LOTA) will require companies, trusts and partnerships to publicly disclose their beneficial owners.

“The biggest flaw in the LOTA registry is that there is no requirement that registry officials, or any other persons, independently verify all identification information filed on the registry,” says Comeau. “There is not even a requirement that filers submit copies of government-issued photo identification documents such as passports or drivers’ licences. In other words, money launderers can avoid detection by simply making up a name and creating a non-existent beneficial owner with no connecting factors to the true beneficial owner or his criminal organization. The chances of getting caught will be minimal because no one at the LOTA registry office will be proactively verifying the identification information being submitted.”

Law enforcement will be able to use the registry to find information about honest beneficial owners, but they won’t likely find anything about criminals who are laundering money, Comeau says.

He adds that new regulations coming in June 2021 will require real estate agents and brokers across the country to verify the identify of beneficial owners, making it more difficult for criminals to invent a person. But he says money launderers can avoid this issue by not using the services of a Realtor. And since agents and brokers have no expertise in verification of identification, they are “a weak substitute for the LOTA registry staff conducting its own expert verification of all identify information filed on the registry.”

Comeau also says the “searchability and discoverability of information files on the registry is unreasonably restricted, which deters use and limits searchers’ ability to connect falsely declared beneficial owners with perpetrators of predicate crimes.”

There’s also a fee of $5 for each search, which also apply to law enforcement agencies and government regulators such as the RCMP, Canada Revenue Agency and the Canada Border Services Agency.

“The fee also applies to members of the general public. A principal purpose of a publicly accessible registry of beneficial ownership is to enable members of the public to help combat money laundering by identifying falsely declared beneficial owners,” says Comeau. “Charging user fees, even small ones, to search a registry of beneficial ownership makes about as much sense as charging fees for providing assistance to our police departments. ‘I’d like to report a crime.’ ‘That will be five dollars please.’”

Comeau says there should also be a tip line established so people can send information and evidence to law enforcement and regulatory agencies. He also is calling for prison sentences for those who file false information.

He says all of these flaws can still be fixed. At the very least, it gives food for thought for other jurisdictions across the country that are contemplating setting up a beneficial ownership registry.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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