Data Point to Money Laundering Vulnerability in BC Real Estate Sector

Posted in: ,

By Dan Fumano.  The Province, July 29, 2018  As quoted in the article:

Following the bombshell report detailing how Vancouver-area casinos became hubs for international money laundering, the second phase of B.C.‘s battle against dirtymoney 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 dirtycash, 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 complianceexaminations 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 crimefraud, tax evasion and money laundering.”