What do Afghanistan, The U.S Virgin Islands, and Canada have in common? In 2019, all three were named in a scathing report by the US State Department; a report on nations with the most rampant occurrences of money laundering. Canada has become so synonymous with the efficient cleansing of cash that the term “snow-washing” is used to describe dirty money scrubbed clean through Canadian real estate. But just how is a country with one of the most reputable justice systems in Western democracy so woefully inadequate at defending itself against these instances of financial crime?

International criticism on financial regulation is far from new for Canada. Weak rules have made it easy to set up tax havens in the country long-before the proliferation of money laundering. However, in the case of money laundering it is not the absence of strong penalties alone that makes Canada an attractive suitor. Instead, it is Canada’s strong rule of law that makes the country appealing. Once dirty money makes its way into the country undetected and is invested the legal right of ownership is fiercely protected. Although ill-gotten gains can originate from any corner of the globe, much of it makes its way from autocracies and less developed countries. There, money is vulnerable to arbitrary confiscation, but this can be prevented by using the cash to purchase a Canadian asset, where the wealth would be legitimized and guarded by the rights of ownership.

Peace Tower: Ottawa, Ontario

It follows that avoiding the abuse of Canada’s strong rule of law by money laundering schemes rests in the identification of suspicious transactions. But in this regard, Canada’s legal system falls short. A national public registry of beneficial ownership is non-existent, and trusts and companies have no obligation to reveal the beneficial owner of a purchase when buying or selling property. Furthermore, while self-regulating professions such as banking and accounting are legally required to report suspicious activity, Canadian lawyers are exempt from this kind of liability. To nail home the relevancy here, this exemption is under the Proceeds of Crime (Money Laundering and Terrorist Financing Act). Affirmed by a 2015 supreme court ruling, this decision offers little incentive to Canadian lawyers to report suspicious transactions by allowing them to operate at their own standards of disclosure. Dirty money is already shrouded in anonymity by the time it reaches Canada. Instead of requiring verification and tracing on suspicious transactions, Canadian laws add an extra layer of protection, making it nearly impossible to identify the sources of funds.

While Canada has a moral obligation to the international community to crackdown on money-laundering, the problem has worsened to the point that there are now domestic incentives to increase policing. In B.C, it was estimated that $5B was laundered through real-estate in 2018. These developments, financed by a myriad of foreign shadow corporations, have played a significant part in the inflation of housing costs and rent for British Columbians. Due to the covertness of money laundering the extent of its economic distortion is difficult to quantify, but surely the mere presence of an impact compounds the need for attention to be paid by legislators to the consequences of Canada’s favorable environment for financial crime.

Vancouver, British Colombia

To their credit, B.C has since implemented a beneficial ownership registry. Beginning with public registries like these, there is hope yet to close loopholes being abused by criminal enterprise. Laws must be enacted that punish false declarations, allowing authorities to seek the origins of funds through “unexplained wealth orders”. Additionally, punitive measures must be expanded to include prison time. An author at policy thinktank C.D Howe, Kevin Comeau explains that levying sentencing “would give enforcement agencies leverage from the beginning to demand the identity of the beneficial owner, otherwise they’ll charge you.”. Negotiating with individuals within Canadian jurisdiction to unveil the identity of perpetrators poses a useful risk to the clandestine necessities of money laundering.

According to an independent panel, just over $46B was laundered through Canada in 2018. This is a conservative estimate. Although the measures suggested above may appear harsh and potentially intrusive for what is technically a white-collar offense, money laundering is anything but a victimless crime. Legislative action must be taken to mandate the registration of beneficial ownership, and to amplify information channels in order in to detect and prevent the washing of tainted assets. A halt needs to be put to the cold cycle of money laundering in Canada.


Sources

Cooper, S., Russell, A., & Hill, B. (2020, January 30). Money laundering in Ontario: Suspicious cash transactions spike after B.C. casino crackdown. Retrieved October 23, 2020, from https://globalnews.ca/news/6472635/money-laundering-ontario-cash-transactions-bc-casino-crackdown/

Francis, D. (2020, October 15). Diane Francis: Canada’s embarrassing money laundering problem. Retrieved October 23, 2020, from https://financialpost.com/diane-francis/diane-francis-canadas-embarrassing-money-laundering-problem

Kane, L. (2020, February 24). Dirty money has warped the economy, B.C. government says as laundering inquiry starts. Retrieved October 23, 2020, from https://nationalpost.com/news/canada/b-c-tells-inquiry-money-laundering-has-warped-economy-fuelled-opioid-crisis

Pittis, D. (2019, May 07). How to shake off Canada’s reputation as a money laundering destination. Retrieved October 23, 2020, from https://www.cbc.ca/news/business/money-laundering-canada-1.5125078

The Canadian Press. (2019, May 10). Why criminals look to Canada to launder their money through real estate – BNN Bloomberg. Retrieved October 23, 2020, from https://www.bnnbloomberg.ca/why-criminals-look-to-canada-to-launder-their-money-through-real-estate-1.1257304

Zussman, R. (2019, May 10). Report finds $5B laundered through B.C. real estate in 2018. Retrieved October 23, 2020, from https://globalnews.ca/news/5259196/home-prices-in-metro-vancouver-increased-by-5-due-to-money-laundering-report/