U.S. takes action on money laundering
Historic bill passes south of border while Canada lags far behind, Diane Francis says.
This week, the world celebrated the first western vaccination against the COVID-19 scourge, but another milestone should also be reached this week in the battle to halt the global money laundering plague.
On Tuesday, the U.S. House of Representatives handily passed a historic bill called the corporate transparency act (CTA), which bans the use of anonymous shell companies and requires full disclosure of their beneficial ownership so the people who ultimately control the companies can be tracked down by banks, tax officials and law enforcement agencies.
The bill is part of the National Defense Authorization Act, the annual omnibus defence bill that passed in the House of Representatives by a veto-proof margin, which means that neither the sitting nor future president can overrule it. The Senate is expected to follow.
The CTA defines beneficial owners as a person or persons, not simply another offshore shell or trust company that could be used to further obfuscate the true owners. Existing shell companies have two years to comply and disclosure is required immediately if ownership changes in the meantime. The law imposes serious fines and jail terms on shell directors or professionals, and provides a generous whistleblower provision to reward those who tip off or assist law enforcement.
The new law — which was spearheaded by a number of anticorruption organizations, along with senators Sherrod Brown and Sheldon Whitehouse — will be a big step forward in cracking down on money laundering in the United States. Unfortunately, Canada is lagging far behind.
Canada is a secrecy haven where the anonymous company was invented 50 years ago to hide wealth and to plug into the Caribbean secrecy and tax haven network. This has allowed crooks, despots, tax evaders and terrorists to hide and buy assets without detection.
The result of the Canadian government's inaction has been the growth of a gigantic shadow economy, which exacerbates corruption and economic disparity worldwide. Money is looted from countries illegally, sapping their governments of enough funds to provide adequate health, education and other social services. For instance, it is estimated that the flow of illicit funds out of the continent of Africa every year is greater than its collective annual economic growth.
Canada must follow America's lead, or risk becoming another back-door entry for bad actors who want to buy assets, companies or influence in the United States. This will create conflict. But it will also provide an incentive for the Canadian government to finally take action.
Canada should have cracked down on illicit money flows years ago, because they have caused untold damage to Canadians in the form of higher real estate prices and mortgage rates.
When it comes to cracking down on money laundering, Canada is ranked the lowest among developed nations. For years, I have railed that the skylines of Vancouver and Toronto are littered with condo towers whose units are owned by anonymous companies or proxies that are used to mask the identity of the offshore interests that are providing the funds. This has invited unsavoury influences into Canadian society.
Only beleaguered British Columbia — where “snow washing,” or “Canadian laundering,” has caused the most economic damage — has attempted reforms. But the registry of beneficial ownership that's now in place is, according to critics, a joke and almost completely unenforceable. To truly address the problem, the federal government must take action.
The American initiative will speed up efforts to adopt similar reforms in Europe, where oligarchs and kleptocrats own mansions and buy political favours, football teams and social status. Yet it took 10 years for the CTA to come to fruition. If our government doesn't start working on a plan to address this issue now, it will fall further behind its peer nations, which will have economic and diplomatic repercussions.
Most of Canada's shadow money has poured in from China to buy residences, visas and political influence. This dark money is funnelled through lawyers' trust fund accounts, casinos, real estate developers, brokers, crooked bankers, financial institutions and investment vehicles.
Finally, another global scourge is under attack. Canada must do its part at long last.