Dirty money and the real es­tate busi­ness

Next phase of B.C’s fight against laun­der­ing ex­pected to go af­ter a sec­tor vul­ner­a­ble to crime

The Province - - NEWS - DAN FUMANO dfu­mano@post­media.com Twit­ter.com/fumano

Fol­low­ing the bomb­shell re­port de­tail­ing how Van­cou­ver-area casi­nos be­came hubs for in­ter­na­tional money laun­der­ing, the sec­ond phase of B.C.’s bat­tle against dirty money is ex­pected to tar­get real es­tate.

While the real es­tate sec­tor largely drives B.C.’s econ­omy, many mem­bers of the in­dus­try ap­pear to have sig­nif­i­cant work to do on this front. Ac­cord­ing to data ob­tained by Post­media News, Canada’s fi­nan­cial in­tel­li­gence watch­dog found “sig­nif­i­cant” and “very sig­nif­i­cant” de­fi­cien­cies in the anti-money laun­der­ing con­trols at 88 per cent of real es­tate en­ti­ties they ex­am­ined in B.C. over the last two years.

Be­tween 2015 and 2017, the Fi­nan­cial Trans­ac­tions and Re­ports Anal­y­sis Cen­tre of Canada (Fin­trac) con­ducted 343 ex­am­i­na­tions in the real es­tate sec­tor across Canada, 130 of which were in B.C. with 87 of those in Van­cou­ver and the Lower Main­land.

Fin­trac, Canada’s na­tional agency man­dated to de­tect and pre­vent money laun­der­ing, pro­vided data to Post­media show­ing that out of those 130 ex­am­i­na­tions, they un­cov­ered about 115 en­ti­ties with “sig­nif­i­cant” or “very sig­nif­i­cant” de­fi­cien­cies in their poli­cies and pro­ce­dures, risk as­sess­ment, record keep­ing, re­port­ing and client iden­ti­fi­ca­tion obli­ga­tions. That means Fin­trac found sig­nif­i­cant money-laun­der­ing vul­ner­a­bil­i­ties at 88 per cent of the real es­tate en­ti­ties they ex­am­ined.

The real es­tate in­dus­try has pre­vi­ously been flagged as vul­ner­a­ble to money laun­der­ing and ex­perts have been try­ing to raise alarms about Van­cou­ver in par­tic­u­lar for years. In Novem­ber 2016, Fin­trac pub­lished a 12-page op­er­a­tional brief on the Cana­dian hous­ing mar­ket, re­port­ing that through its com­pli­ance ex­am­i­na­tions the agency found “de­fi­cien­cies in most as­pects of the real es­tate sec­tor’s com­pli­ance pro­grams that ren­der it more vul­ner­a­ble of be­ing used by crim­i­nals to laun­der il­licit funds.”

That same month, The Van­cou­ver Sun re­ported the re­sults of an ac­cess to in­for­ma­tion re­quest, show­ing Fin­trac had ex­am­ined about 220 real es­tate com­pa­nies in B.C. be­tween 2012 and mid-2016, find­ing 117 com­pa­nies with “sig­nif­i­cant or very sig­nif­i­cant” lev­els of non-com­pli­ance.

It was just a few months ear­lier, in June 2016, the pre­vi­ous B.C. Lib­eral gov­ern­ment an­nounced, fol­low­ing in­tense pub­lic pres­sure and me­dia scru­tiny of mis­con­duct in real es­tate, they were over­haul­ing over­sight of the sec­tor and strength­en­ing con­sumer pro­tec­tions.

Asked if B.C.’s real es­tate com­pa­nies have tight­ened up their anti-money laun­der­ing op­er­a­tions in the two years since Fin­trac flagged the sec­tor’s vul­ner­a­bil­ity to dirty cash, the re­spec­tive heads of the Real Es­tate Coun­cil of B.C. and the B.C. Real Es­tate As­so­ci­a­tion both said they sup­ported Fin­trac’s ef­forts, but couldn’t an­swer.

Dar­lene Hyde, CEO of the B.C. Real Es­tate As­so­ci­a­tion, a pro­fes­sional or­ga­ni­za­tion that fo­cuses on ed­u­ca­tion and ad­vo­cacy, said in an emailed state­ment: “We do not have in­sight into or data re­gard­ing the vul­ner­a­bil­ity of B.C.’s real es­tate sec­tor when it comes to money laun­der­ing.”

Sim­i­larly, Mar­ilee Peters, spokes­woman for the Real Es­tate Coun­cil of B.C., the prov­ince’s en­force­ment and li­cens­ing body, said Fin­trac would be bet­ter po­si­tioned to an­swer whether B.C.’s real es­tate com­pa­nies have im­proved money laun­der­ing poli­cies since 2016.

In an emailed state­ment, Fin­trac’s com­mu­ni­ca­tions team leader Jamela Aus­tria said Fin­trac moved from its pre­vi­ous au­dit-based ap­proach for com­pli­ance ex­am­i­na­tions to an “as­sess­ment ap­proach” plac­ing more em­pha­sis on a re­port­ing en­tity’s over­all ef­fec­tive­ness. The re­sults of Fin­trac’s ap­proach on com­pli­ance can be seen in the sig­nif­i­cant in­crease in re­port­ing “over the past few years,” Aus­tria said, “as well as no­tice­able im­prove­ments in com­pli­ance lev­els when (Fin­trac) con­ducts fol­lowup ex­am­i­na­tions.”

In 2015-16, Fin­trac con­ducted 79 ex­am­i­na­tions in B.C.’s real es­tate sec­tor, un­cov­er­ing 71 en­ti­ties — or 89 per cent — with “sig­nif­i­cant or very sig­nif­i­cant” de­fi­cien­cies. That rate im­proved marginally the fol­low­ing year to 86 per cent (44 B.C. real es­tate en­ti­ties with “sig­nif­i­cant or very sig­nif­i­cant” de­fi­cien­cies out of 51 ex­am­i­na­tions).

Money laun­der­ing, the “wash­ing” of ill-got­ten gains to dis­guise their source, is a con­cern be­cause it “gives or­ga­nized crime the funds it needs to con­duct fur­ther crim­i­nal ac­tiv­i­ties,” ac­cord­ing to Fin­trac’s web­site. And while it’s not clear ex­actly what ef­fect, if any, dirty money in the hous­ing mar­ket has had on Van­cou­ver’s af­ford­abil­ity cri­sis, it’s cer­tainly a ques­tion on many peo­ple’s minds.

Money laun­der­ing has been a hot topic in B.C., es­pe­cially this sum­mer.

In late June, for­mer RCMP deputy com­mis­sioner Peter Ger­man de­liv­ered a damn­ing re­port into how Lower Main­land casi­nos op­er­ated for years, he said, as “laun­dro­mats for the pro­ceeds of or­ga­nized crime.” The fol­low­ing week, B.C. At­tor­ney Gen­eral David Eby said the next phase of Ger­man’s work will fo­cus on mon­e­tary trans­ac­tions linked to the hous­ing mar­ket. Ger­man, The Cana­dian Press re­ported, “pre­dicts the sec­ond phase will be a ‘larger beast to tackle,’ be­cause he says real es­tate drives the econ­omy in B.C., while gam­ing has had less of an over­all im­pact.”

Real es­tate is vi­tal to the econ­omy of Van­cou­ver and B.C. The real es­tate and con­struc­tion in­dus­tries com­bine to rep­re­sent more than a quar­ter of B.C.’s gross do­mes­tic prod­uct, ac­cord­ing to Sta­tis­tics Canada, rep­re­sent­ing a big­ger por­tion of B.C.’s econ­omy than the oil and gas sec­tor ac­counts for in Al­berta.

B.C.’s econ­omy is a peren­nial leader among Cana­dian prov­inces and Van­cou­ver, as its fi­nan­cial hub, is of grow­ing global sig­nif­i­cance. But ac­cord­ing to Eby, “our in­ter­na­tional rep­u­ta­tion is on the line.”

At a speech to a con­fer­ence last De­cem­ber co-hosted by anti-cor­rup­tion group Trans­parency In­ter­na­tional Canada, Eby said: “Our prov­ince un­der the last ad­min­is­tra­tion has gained an in­ter­na­tional rep­u­ta­tion as a scofflaw. As a ju­ris­dic­tion where the rules do not ap­ply to white-col­lar crime, fraud, tax eva­sion and money laun­der­ing.”

There’s no time­line yet for Ger­man’s in­ves­ti­ga­tion into money laun­der­ing in B.C.’s real es­tate sec­tor and it’s too early to know if he’ll find a pro­lif­er­a­tion of dirty cash like he found in the gam­ing in­dus­try.

But Fin­trac’s find­ings sug­gest con­di­tions ex­ist in B.C.’s real es­tate busi­ness that could leave it vul­ner­a­ble to money laun­der­ing. And if a deep in­ves­ti­ga­tion into B.C.’s real es­tate — at once the prov­ince’s largest in­dus­try and a sec­tor that makes a dif­fer­ence in the life of any­one try­ing to live here — finds the hous­ing mar­ket is any­where near as rife with dirty money as its casi­nos, ex­pect the reper­cus­sions to be far greater.

Our prov­ince ... has gained an in­ter­na­tional rep­u­ta­tion as a scofflaw.”

At­tor­ney Gen­eral David Eby

NICK PROCAYLO

At­tor­ney Gen­eral David Eby is ex­pected to tar­get the real es­tate sec­tor in the next phase of B.C.’s bat­tle with money laun­der­ing.

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