How gangs used the Vancouver real estate market to launder $ 5 billion

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The Canadian city of Vancouver had one of the most fashionable real estate markets in the world. Is organized crime to blame?

The bustling city on Canada's west coast was renowned for its breathtaking views of the mountains and the Pacific Ocean, its lush, old-growth forests and skyscrapers of historic downtown.

It is no surprise that its real estate market is in full swing: nature lovers, businessmen and entrepreneurs wanting to set up shop in the West, near Asian markets, want to participate in the market. action.

But new reports suggest that Vancouver's real estate was as attractive as laundromat for some of the world's most notorious criminals.

A group of experts estimated that C $ 5.3 billion ($ 4 billion, £ 3 billion) had been laundered in real estate in British Columbia, with most being channeled through Vancouver , its largest and most expensive city.

This represents about 5% of real estate transactions and the panel estimated that these purchases – often overvalued – had the effect of raising the overall catch by 5%.

In short, organized criminals fueled the flames in the already hot Vancouver real estate market, making the city even more unaffordable for its residents.

Why Vancouver?

The committee, commissioned by the BC government, believes that the province, particularly the city of Vancouver, is a money laundering center in Canada.

With the help of economic analysis and models, the committee estimated that approximately $ 46.7 billion of Canadian dollars were laundered across the country in 2018.

About C $ 7.4 billion has been laundered in British Columbia, with real estate accounting for most of the pie.

To put it in perspective, British Columbia accounts for about 13% of Canada's total GDP, but about 17% of total laundered funds.

The panel warns that their analysis is likely to distort the spirits.

In a companion document, former Deputy Commissioner of the RCMP, Peter German, speculated that Canada in general, and Vancouver in particular, was attracting international organized crime for a number of reasons.

Canada is attractive because its justice system makes it difficult to launder money, says German. It has some of the most lax financial reporting rules in the developed world and few police resources and prosecutions for white-collar crime.

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Even if they are caught, Canada is a country of the rule of law that believes in due process and rehabilitation. A criminal who is the subject of a lawsuit in Canada will be treated much better than in the People's Republic of China, for example.

Vancouver is particularly appealing because it is a multicultural city with several ethnic communities, which greatly facilitates international business.

The German notes that the El Chapo Sinaloa cartel, the Big Circle Boys gangs in mainland China and the Iranian gangs in Dubai and the Persian diaspora in North America all have close ties to Vancouver.

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Finally, while Canadian housing prices have remained relatively stable, the Vancouver real estate market has exploded over the last decade. In mid-2016, prices rose by 30% per year.

This led to what the Germans describe as a "gold rush", with many investors struggling to enter the market, return property and make a massacre. This meant that there were many exchanges of money and transactions, which made it even more difficult for the authorities to detect obscure transactions and suspicious resellers.

How did they do it?

According to the report written by retired lawyer Kevin Comeau and published by a Canadian think tank, the CD Howe Institute, it is extremely difficult to catch money launderers in the act. offense.

They often rely on a mix of lawyers, front companies and intermediaries to be the "face" of their illegal transactions.

In the real estate sector, this means that criminal organizations can invest in a development project, pay their building bills in cash or even lend themselves a mortgage through an empty shell.

Others buy rental properties, especially low-income rooming houses, and over-declare their rental profits to the government.

Often a family member, or even a stranger, buys the property when he or she is actually the financial beneficiary. These different patterns are difficult to follow alone. When combined, they form what Comeau called the "money-laundering terrier".

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Different international jurisdictions are complicating the situation, he says, as is the fact that the original alleged crime may have been committed in another country.

Even if a law enforcement officer identifies the source of a shell company, the organization can easily create multiple layers of trusts, in more jurisdictions, through more than one intermediary.

"You have to work your way home, and it's almost impossible work to do," he told the BBC.

Who is it hurting?

It's a mistake to think that white-collar crime is victimless, says Comeau.

"People think it's money laundering that it has nothing to do with me," he says.

"Money laundering … is forcing a generation of Canadians out of the real estate market, millennia are being killed."

Real estate is not like casinos or luxury cars – two other German industries identified as conducive to scams related to money laundering. With the lack of land to develop and the growth of the population, which still needs new housing, the fluctuations of the real estate market do not only affect the economy as a whole, but also the daily life of the inhabitants.

The panel estimates that money laundering in the real estate sector has inflated the cost of real estate by about 5%, compounding the housing crisis in the province.

From an international point of view, money laundering in Canada committed by international cartels like Sinoala contributes to the violence in the world. He estimates that for every dollar of aid sent abroad, Canada lapses 10.

"We are complicit in all these crimes … drug trafficking, human trafficking, corruption – we are part of it because of the weakness of our laws," said Comeau.

How do you stop this?

Although the formal banking sector in Canada imposes heavy reporting requirements on beneficiaries, many sectors – including real estate – do not have one.

Comeau, German, and many others are calling on Canada to create a national beneficial ownership registry so that the beneficiary of the purchase or sale of real estate can not hide behind a trust or business.

The UK created a public registry in 2016, but struggled to extend the rules to overseas territories, such as the Cayman Islands.

The expert panel mandated by the BC government has also called for better information sharing between law enforcement agencies and increased regulation among real estate professionals. like mortgage brokers.

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These calls for action have made waves. The Government of British Columbia has introduced a new law that would create a public registry of real property.

Failure to do so could result in a $ 100,000 fine, or 15% of the value of the property, whichever is greater. Comeau believes that there should also be a prison sentence.

If it is impossible to locate the source of the funds in the burrow, he explains, we must first make the obscuration of their source illegal.

But Ottawa has not yet announced its willingness to create a national public registry. Otherwise, money-laundering activities in Vancouver could simply move to a more favorable jurisdiction.