Housing plan no use on money laundering

On the campaign trail, Liberal Leader Justin Trudeau announced ways to clean up real estate practices to lower Canada’s sky-high housing costs. But in office as prime minister since 2015, he has done little to attack the underlying flaws that have facilitated massive money laundering for years, contributing to inflated prices.

Polls show that at least a third of Canadians believe the lack of affordable housing is an important election issue and they are correct. Ruinously high property prices have hurt the middle class and made Canadians among the world’s most indebted consumers, mostly due to high mortgages.

Last month, a sweeping report came out which underscores Ottawa’s failure. Entitled Acres of Money Laundering, it was published by Global Financial Integrity (GFI) in Washington, the world’s foremost think tank on illicit financial flows, corruption, illicit trade, and money laundering. It examines 35 cases in Canada, the tip of the iceberg.

Background to this is that I have written dozens of columns about “snow washing” or the flow of billions of dollars of dirty money into Canadian real estate. Ottawa has ignored these as well as recommendations made by GIF and the Financial Action Task Force (FATF) such as requiring lawyers, real estate professionals, mortgage brokers, or notaries to alert authorities to suspicious buyers, lenders, borrowers, or transactions. Canada, except for B.C., has also failed to require that beneficial owners of real estate assets are disclosed publicly. Only in the last budget was a registry announced but it was incomplete and postponed, strangely, until next year or so.

GIF’S report analyzed the 35 cases involving US$626.3 million in laundered funds over five years. (A 2019 report by the RCMP estimated that $46.7 billion (Canadian) was laundered in Canada in 2018 alone.)

“The laundered money came from drug trafficking in 58.5 per cent of the cases. Top foreign origins were China (22.85 per cent), the U.S. (11.4 per cent), Republic of Congo (8.5 per cent) and the rest divided amongst Chad, Mexico, Colombia, Malaysia, Russia and Libya,” read the report. “Enablers were: 22.8 per cent lawyers; 14.2 per cent real estate agents; 11.4 per cent real estate development companies and the rest scattered among financial institutions, cryptocurrency outfits, property managers, accountants, and mortgage brokers.”

Some 88 per cent of purchases were residential, 20 per cent commercial and, unique to Canada, five per cent agricultural land.

Money laundering “typologies” included 51.4 per cent anonymous company structures; 45.7 per cent third-party accessories; 34.2 per cent mortgage schemes; 17.1 per cent private loans; 5.7 per cent renovations; and 5.7 per cent leasing schemes. Also some used the immigrant investor program or overvaluation of property schemes (overpaying to pay off the seller tax-free), said the report.

Instead of cracking down on professionals or immigration investor scams, Trudeau announces he will ban blind bids, which keeps buyers from seeing others’ offers to “crack down on predatory speculators.” He’s also threatened to ban foreign buyers for two years which will be pointless given that Canada’s a secrecy haven, thanks to its legal, finance, and real estate professionals. Both ideas are useless.

The GIF report guessed that in 2020 alone between $32.8 billion and $82 billion was laundered through Canada. The skylines of Vancouver and Toronto are built to house laundered money.

Letting lawyers off the hook is the biggest single mistake because they are at the heart of most schemes and transactions. They set up the schemes through anonymous companies, real estate funds or offshore vehicles to hide their clients, then hide behind client confidentiality rules. And their escrow accounts are often used to transfer dirty money or cash.

Oblivious to all this, the Liberals have permitted fortunes to be made by those who facilitate these massive financial flows that have harmed all Canadians.