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Think tank: Tough AML regulations needed to fight dirty money in Canada

 

A Canadian think tank is calling on the federal government to get tougher on money laundering, claiming as much as $130 billion in dirty money is laundered and hidden in Canada each year.

Currently, money launderers take advantage of loopholes in Canada allowing corporations to invest money and then hide behind privacy regulations that shield the identity of beneficial owners from law enforcement, says a report from the CD Howe Institute.

Canada’s anti-money laundering (AML) protections are among the weakest in western democracies, the report said, meaning Canada is likely being flooded with international dirty money.

“A realistic estimate of the magnitude of dirty money laundered in Canada each year likely lies in range of $100- $130 billion,” says report author Kevin Comeau.

Comeau, a member of Transparency International Canada’s working group on beneficial ownership transparency, told CBC in an interview that it is not the fault of law enforcement because they do not have the regulations they need to ensure transparency of ownership.

“It’s highly unfair to law enforcement agencies to say that they’ve been ignoring it,” said Comeau. “The problem is that they don’t have the tools to address it.”

Real estate markets such as Vancouver and Toronto attract unknown funds and dirty money and are usually invested through companies, where the identity of the true owners is legally shielded.

One study estimates that $5.3 billion in real estate changed hands in B.C. in 2018 largely due to suspected dirty money.  The provincial report concludes house prices have risen by about five per cent directly as the result of money laundering.

In another recent report, Transparency Canada pointed to the Toronto real estate market as a haven for billions from corporations who “snow-wash” their money in Canada.

Graphic from Transparency International Canada report on Toronto real estate funds

Individuals can own property in Canada and hide it from law enforcement, tax authorities and institutions with AML obligations.

That makes Canada attractive to launderers because once they invest in property, the law firmly protects your right to legal ownership. That guarantee is seen as a reason launders don’t mind paying over asking price for real estate as it means they can launder millions.

Financial Institutions should look for red flags, as pointed out in the following examples from the insights guide to AML requirements by Protiviti:

Mortgage and Real Estate Red Flags

  • Borrower arrives at a real estate closing with a significant amount of cash
  • Borrower purchases property in the name of a nominee, such as an associate or a relative
  • Borrower negotiates a purchase for market value or above asking price, but records a lower value on documents, paying the difference “under the table”
  • Borrower sells property below market value with an additional “under the table” payment
  • Borrower or agent of borrower purchases property without much knowledge about the property inspection or does not appear sufficiently knowledgeable about the purpose of use of the real estate being purchased
  • Borrower purchases multiple properties in a short period of time or appears to be buying and selling the same piece of real estate for no apparent legitimate purpose
  • Seller requests that proceeds be sent to a high-risk jurisdiction or offshore bank
  • Borrower makes payments with funds from a high-risk jurisdiction or offshore bank

 

To find out how Alessa can be help flag these indicators, please contact us.

 

About Andrew Simpson

Andrew Simpson (LinkedIn | Twitter) is Chief Operating Officer at CaseWare RCM and has more than 20 years of experience building businesses in the fields of information systems audit and security, data analytics, Anti-Money Laundering and forensics. He is a regular contributor to conferences and a recognized thought leader in financial crime management.