‘Dirty money’ in Vancouver laundering scheme proves tricky to tally
|Toronto Star 15 May 2019 at 12:54|
“Criminal activity has had a material impact on people, whether it be the rise of opioid addictions, the rise of opioid deaths as a result of overdoses, whether it was the extraordinary increase in housing costs, people were affected by criminal activity in British Columbia,” Horgan said to reporters on Wednesday. “We believe a public inquiry today will allow us to get an understanding of how we got to this point.”
The province is planning to set up a public registry of beneficial property owners by next year — the single most important step in peeling back the anonymity that enables dirty money, many experts agree. In the meantime, it’s working with educated guesstimates.
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“Our government is taking action to combat the money laundering that has been allowed to drive up housing costs for British Columbians for far too long,” Finance Minster Carole James told reporters Friday.
The study gauged that $7.4 billion was laundered through B.C. last year. By far the biggest source of dirty cash into Canada was the U.S. at $4.9 billion, six times more than from East Asia, including China. The second study, led by a former police chief, said it identified thousands of suspect properties — none of which were used to arrive at the $7 billion figure — and declared that “China figures prominently” in the flow of suspicious money.
The methodology in the first study, known as the gravity model, seeks to determine how much dirty money is floating around the world, what portion needs to be laundered, and how much each region is likely to attract. Launderers are expected to gravitate to safe havens and rich economies where it’s easier to hide ill-gotten gains. It assumes that criminals, like most people, channel most of their financial assets into real estate. Geographical and cultural proximity, including a history of migration, are thrown into the mix.
“There’s no way of proving it,” but it beats the impossible task of trying to tally up transactions you don’t know about, says John Walker, a former researcher with the Australian Institute of Criminology who first developed the model, said by phone.
The government trumpeted that $5 billion of the $7 billion washed in the province last year went into real estate — the study’s highest possible estimate. It may be as low as $800 million depending on how criminals save versus invest, according to the report. The study also indicates billions more are being laundered in oil-rich Alberta and Ontario.
James told reporters that dirty money was responsible for raising housing prices about 5 per cent in the province last year. The report said its best estimate was a range of 3.7 per cent to 7.5 per cent but noted “considerable uncertainty” about the figures.
“It’s a tremendous oversimplification,” says Matthew McGuire, a forensic accountant who previously worked for Canada’s financial intelligence unit. “There is money being laundered through real estate, yes, but the factors that influence the change in prices of real estate are far more complex and far greater than just criminality.”
B.C. Attorney General David Eby’s office didn’t immediately respond to a request for comment.
Vancouver has for years been riveted by stories of rich Asians moving cash into the region: students and homemakers declaring no income but owning multimillion-dollar homes, Chinese high rollers showing up at casinos with hockey bags brimming with cash, and most recently, a thriving grey market in Vancouver-to-China luxury car exports that sent millions of dollars in sales-tax refunds to overseas buyers.
That’s fed the perception that Vancouver’s money-laundering problem is in large part an Asian one.
“The big money, I’m still convinced, doesn’t come from China,” said Unger by phone from Vienna. “The big money comes from the U.S. and from Europe because these are the rich countries, which use Canada as a wide-open door because it has much lower restrictions on where to place your money and how to stay anonymous.”
The second report had also probed the luxury car sector and featured a dealer describing how foreign students come in 10 times a month with no credit and no income and get auto financing based on wire transfers as “unequivocally money laundering.”
Flamboyant displays of wealth by students may be unpalatable but not necessarily criminal. An international student who returns home periodically typically isn’t required to report or pay taxes on income from abroad, while cash gifts from family members aren’t taxable under Canadian rules.
The second study sifted through more than a million land titles looking for red flags such as overseas buyers, properties bought without financing, opaque addresses and unusual mortgage terms. More than 2,000 properties were classified high risk for simply having mailing addresses in China or Hong Kong.
Ultimately, it concluded the approach had limitations.
“The ‘suspicious properties’ analysis suggests that a scoring system may not be an effective way to detect properties linked to money laundering,” the study said.