Real estate secrecy in Canada panned

Money-launder, tax evasion vulnerabilities

Almost half of Vancouver’s 100 most-expensive homes are bought using shell companies or other financial tools that obscure the identity of the true owners, a report from anti-corruption group Transparency International says.

The report, which focuses on money-laundering and tax evasion vulnerabilities in Canadian real estate through a study of Vancouver luxury homes, slams Canada for failing to close home-ownership loopholes related to shell companies, trusts and nominees.

The report also concludes the prevalence of non-transparent ownership in B.C. luxury real estate makes it impossible to measure how much offshore cash is invested in B.C. homes, even though B.C. is attempting to collect data on foreign ownership.

“An influx of overseas capital is one of several causes of rising property prices (in Vancouver and Toronto), but the extent and impact of foreign investment remains unknown since very little data is collected on property owners,” the report says. “Individuals can use shell companies, trusts and nominees to hide their beneficial interest in Canadian real estate.”

Compared to other advanced economies, Canada has weak transparency laws, the report states. Transparency International is a nongovernment coalition that studies global corruption and advocates legal reforms to fight financial crimes.

“Though Canada is not known as a global hub for money-laundering and tax evasion, our legal framework and lax enforcement environment make it easy for individuals to misuse private companies and trusts,” it says.

“Anonymous companies and trusts are the getaway cars of financial crime . ... Canada is an increasingly attractive destination for those looking to park and invest the proceeds of crime.”

The report notes that Canada has for unknown reasons failed to live up to its international commitments to close loopholes that are abused by financial criminals, and a resulting “secrecy regime” has emerged.

To illustrate the point, the report notes that “as a testament to the secrecy afforded in Canada, the law firm at the centre of the Panama Papers leak, Mossack Fonseca, marketed Canada to its clients as an attractive place to set up anonymous companies.”

In examining Vancouver’s 100 most valuable homes, the report found that 46 per cent — amounting to more than $1 billion in assets — have opaque ownership. Of the 100 properties, 29 are held through shell companies, at least 11 are owned through nominees (listed as students or housewives on land titles), and at least six are disclosed as being held in trust for anonymous beneficiaries, the report says.

Trusts are private contracts — which are sometimes voluntarily disclosed to protect the owner’s interests — but they do not have to be registered in Canada or listed on land titles, report author Adam Ross said in an interview with Postmedia. Therefore, it is impossible to know how many of the 100 homes examined are owned through undisclosed trusts, Ross said.

“Looking at these 100 homes is a good indication that we have no way of knowing who really owns property in B.C.,” Ross said. “It should be ringing alarm bells for most Canadians … this is the perfect storm for people outside Canada to come to the weakest link for potential money-laundering in real estate.”

Trusts and shell companies can be used in B.C., the report states, to avoid property transfer taxes. Ross said there are legitimate reasons for commercial real estate to be transferred through companies without triggering property tax. But this “tax loophole is also available to owners of residential property that is held through shell companies,” the report states.

The report recommends the federal government establish a central registry of companies and trusts and their true beneficial owners, which is a measure already taken in the United Kingdom and due to be established in other first-world economies.

“Anonymous companies and trusts deprive treasuries of billions of dollars in tax revenues each year, add considerable cost to law enforcement, and hinder asset recovery,” the report says. Establishing a registry of hidden owners would save the government money and “would also help to level the playing field, ensuring that responsible taxpayers do not shoulder the burden for those seeking to skirt the system.”

The report recommends that “beneficial ownership information should be included on property title documents, and no property deal should be allowed to proceed without that disclosure. In cases where a property is held through a nominee, this should be explicitly stated and the identity of the beneficiary should be disclosed.”

ANONYMOUS COMPANIES AND TRUSTS ARE THE GETAWAY CARS OF FINANCIAL CRIME . ... CANADA IS AN INCREASINGLY ATTRACTIVE DESTINATION FOR THOSE LOOKING TO PARK AND INVEST THE PROCEEDS OF CRIME. — ANTI-CORRUPTION GROUP TRANSPARENCY INTERNATIONAL

ALIX BROWN / SHONA HURST Of Vancouver’s top 100 most-expensive properties, 29 are held through shell companies, at least 11 are owned through nominees and at least six are held in trust.