CLOSE THE LOOPHOLES
Canada, B.C. allow criminals to clean dirty money in real estate deals
Stronger anti-money laundering rules are desperately needed for B.C. and especially Metro Vancouver, where governments can’t identify the owners of almost half the region’s 100 most valuable homes.
ADAM ROSS, Vancouver-based financial researcher
Canada has enjoyed a reputation as an open, transparent, trustworthy society that operates on the principles of “peace, order and good government.”
But when it comes to stopping billions of dollars of illicit money funnelling into Canadian real estate, our elected officials don’t deserve their status.
The governments of Canada and B.C. have consistently failed to protect Canadians from unsavoury, tax-evading speculators in real estate, who have made Metro Vancouver housing unaffordable.
Even though most Canadians remain unaware of the complex world of dark money, Vancouver-based financial researcher Adam Ross makes it clear Metro Vancouver and Toronto have become hot spots for shady global real estate deals.
Because of lax rules in Canada and B.C., it’s easy for rich investors in real estate to hire accountants and lawyers to hide their identities.
Offshore speculators can therefore avoid detection by their own governments, including the rising giant of China. And they can avoid or evade taxes in Canada.
Specifically, they can also dodge the 15 per cent tax on foreign buyers of residential properties in Metro Vancouver and Toronto.
Ross believes ending runaway money laundering in real estate is an election issue for British Columbians.
Even though the illicit money transfers could be greatly reduced, elected officials have turned a blind eye. The problem is worse than most think, suggests Ross, who consults for Transparency International, a renowned anti-corruption organization.
The Berlin-based agency recently released a report that pinpoints Canada, and especially Metro Vancouver, as hot spots for a global “corrupt elite” intent on cleaning their dirty wealth by laundering it through real estate.
“Governments must close the loopholes that allow corrupt politicians, civil servants and business executives to be able to hide stolen wealth through the purchase of expensive houses in London, New York, Sydney and Vancouver,” said Jose Ugaz, chair of Transparency International.
The report on money-laundering in Canada, the U.S., Britain and Australia recognizes housing is becoming out of reach for locals in large part because real estate has become an easy place to hide hundreds of billions in dirty money from police and tax authorities.
Real estate accounted for 30 per cent of criminal assets confiscated worldwide between 2011-13, says the Financial Action Task Force (FATF).
Transparency International criticizes Canada and other English-speaking countries for failing “to deliver on their anti-corruption commitments … (which) feeds poverty and inequality while the corrupt enjoy lives of luxury.”
Stronger anti-money laundering rules are desperately needed for B.C. and especially Metro Vancouver, where governments can’t identify the owners of almost half the region’s 100 most valuable homes, according to Ross, owner of White Label Insights, which specializes in corporate risk management.
Attempts by police or immigration authorities to track down illicit financial transactions in Vancouver, Toronto and other parts of Canada consistently lead to “dead ends,” says Ross.
The lack of data and vigilance provided by both Ottawa and Victoria frustrates countries such as China, which is trying stop waves of new multimillionaires from illicitly removing currency from the country.
The Chinese government is zeroing in on Metro Vancouver real estate to recover the proceeds of corruption, according to FATF. Indeed, China appears to be doing more to track corrupt property speculators in Canada than Canada.
Last week China’s anti-corruption authorities published foreign addresses for 22 of its “most-wanted” suspects, reported the South China Morning Post. China’s list includes five graft suspects in Canada, all in B.C.
Even though the federal Liberal government recently vowed to increase efforts to stop international money laundering and tax evasion, Ross said elected officials have far to go to provide police with the basic data required to stop corruption in real estate.
Because the federal and B.C. governments make it a piece of cake for wealthy buyers to remain anonymous, Ross says it’s highly likely the 15 per cent tax on foreign property buyers in Metro Vancouver is routinely sidestepped. Prices remain astronomical.
Ross’ study of 100 of Vancouver’s most expensive mansions — those worth $20 million and more — found one in four of those sold in recent years were owned by proxies, known as “nominees.” They are typically students or spouses.
“As long as the status quo persists with respect to opaque ownership here in B.C., efforts to curb foreign real estate investment will fall short. If the provincial government is serious, it needs to regulate the use of nominees and holding companies as a means of indirectly owning property,” says Ross. “We know it is dead easy to bring dirty money into Canada. Canada is being touted abroad as a great destination to park money out of the reach of the taxman and local authorities.
“If we introduced and enforced rules that made it harder to bring dirty money into the country, and that made it harder to buy property anonymously, it would deter those looking to launder money from choosing Canada as a destination for their cash. That should be a no-brainer for a government looking to get a handle on an affordability crisis.”
Even though money launderers usually prefer to stream their ill-gotten gains into real estate, Ross adds many also divert currency into luxury goods, such as ultraexpensive cars, art and fine wines.
It’s not a coincidence Metro Vancouver is earning a reputation as the super-car capital of the world, with 3,000 vehicles valued at more than $150,000 insured in B.C. last year. That’s double the number three years earlier.
“People who become rich through crime and corruption often seem to have affinity for flashy cars and luxury goods,” Ross says.
What reforms should Canada and B.C. institute to stop the flow of dirty money, especially into dwellings?
First, both governments should provide more data to the public, and especially to police and tax auditors, about who actually controls the opaque companies and trusts often used to buy high-end real estate in Metro Vancouver and elsewhere.
Unlike average buyers, the so-called “beneficial owners” behind shell companies and trusts are allowed to hide their nationalities, allowed to avoid paying property transfer taxes and allowed to fake how many “homes” they actually own, thus avoiding capital gains taxes.
Canadian and B.C. politicians should also require “nominee” owners of real estate to identify who they represent. That would lead to fewer “students” buying $30-million Vancouver mansions.
The recent spike in the use of nominees, Ross says, protects behind-the-scenes owners from paying the foreign buyers tax and allows them to claim “principal-residence” tax breaks.
Global money laundering and gaping tax loopholes aren’t things that tend to makes headlines in Canada, even during elections.
Most busy Canadians like to think, naively, such complicated financial issues and money-transfer scams are being taken care of by our elected officials, bureaucrats and law enforcement agencies. They’re not.
If Metro Vancouver and Toronto are ever to become remotely affordable cities, where local wage earners have a chance to enter the real estate market, there are few injustices more important for the public to force politicians to confront.