Lawyer loophole hobbles efforts to stop money laundering: report
Canada has good anti-moneylaundering rules, but loopholes and lax enforcement leave Vancouver’s real estate sector vulnerable to transactions from criminals including corrupt Chinese officials, an international agency says.
In a new report, the Financial Action Task Force, a Paris-based intergovernmental group that makes recommendations for fighting money laundering, said Canada has improved standards since the agency’s last evaluation in 2007. But “law enforcement results are not commensurate with the money laundering risk, and asset recovery is low.”
The report highlights Vancouver for money laundering in the real estate sector.
And Canada was judged “noncompliant” with agency recommendations to increase oversight of the wealth sources and transactions of so-called international politically exposed persons.
“The real estate business is exposed to high risk clients, including politically exposed persons, notably from Asia, and foreign investors,” the report says.
“For example, there are cases of Chinese officials laundering proceeds of crime through the real estate sector, particularly in Vancouver. Canada may be particularly vulnerable to such laundering as there is no extradition treaty with China.”
A major theme of the agency’s report is that compared to other countries, Canada is at significant risk for money laundering because in 2015 Canadian lawyers won a Supreme Court case exempting them from financial reporting rules that professionals such as bankers and realtors must follow. The constitutional challenge was launched by lawyers in B.C., using client confidentiality arguments.
The agency report suggests that money laundering in real estate and services provided by lawyers, such as creating investment vehicles that can shield true ownership of property, go hand-in-hand.
“The legal profession in Canada is especially vulnerable to misuse for money laundering ... due to its involvement in activities exposed to a high money laundering risk, e.g., real estate transactions,” the agency said.
“The real estate sector is highly vulnerable to money laundering, including international money laundering activities, and the risk is not fully mitigated, notably because legal counsels ... are not required to implement anti-money laundering.”
The agency says that Canada has both domestic and international money laundering problems, but criminal money flowing out of Canada is “moderate” compared to international crime proceeds flowing in. Canada’s multicultural society is a factor in the influx of international crime proceeds, the agency said.
The agency also notes that privacy rules prevent free flow of information among various Canadian enforcement agencies and the country’s anti-money-laundering agency, Fintrac.
And federal police resources are geared toward stopping terrorist financing, the Financial Action Task Force said, even though money laundering presents a bigger risk in Canada.
Kim Marsh, a former RCMP international organized crime unit leader, said he and other critics have long been voicing the key criticisms made by the task force: that Canadian lawyers have opened a major hole in the anti-money laundering system, and that the RCMP does not focus adequate resources on money laundering enforcement.
“I think there are professionals that don’t care where the money comes from,” Marsh said. “I think lawyers are a significant cog in the process of sometimes illicit money flowing into B.C. real estate.”
Dave Jordan, spokesman for the B.C. Law Society, said in a statement that the society self-regulates and “has been actively engaged in the fight against money laundering and terrorist financing activities for over a decade.”
“Our profession is not engaging or assisting in money-laundering activities,” David Crossin, president of the Law Society of B.C., said in a statement.
“There have only been a few instances of lawyers violating Law Society rules concerning these retainer arrangements, but nothing that detracts from the overall integrity of our profession in this regard.”
Crossin said any information suggesting a B.C. lawyer is involved in money laundering or breaking rules will be promptly investigated by the society.
Kim Marsh said that since the 9/11 terrorism attacks in the United States, the RCMP has dedicated most of its federal crime resources to national security, at the expense of investigating money laundering and organized crime.
He said the RCMP has four national units focused on federal crimes, and that under the current “triage” system money laundering cases get little attention.
He said given the scope of B.C.’s money laundering problem, a dedicated federal money laundering investigation unit should be stationed in the province.
B.C. NDP Housing critic David Eby, who has proposed a B.C. money laundering and tax evasion unit to investigate crimes in real estate, said the agency’s report bolsters his case.
“Clearly Canada is not inspiring confidence internationally, and B.C. is clearly leading the pack in concerns around enforcing money laundering laws in real estate,” Eby said.
Dan Zitting, an executive with financial software firm ACL and an expert on catching fraud through technology, said the report shows that Canadian law enforcement agencies must share money laundering intelligence more freely in order to improve enforcement.
Risk is not fully mitigated, notably because legal counsels ... are not required to implement anti-money laundering.