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B.C. government announces probe of money laundering

Public inquiry expected to produce report on extent and causes of problem by May 2021
Attorney General David Eby (left), Premier John Horgan (centre) and Finance Minister Carole James (right) announced Wednesday May 15, 2019, there will be a public inquiry into money laundering in the province. Horgan appointed Justice Austin Cullen as the inquiry’s commissioner

B.C. Premier John Horgan announced Wednesday his government will launch a public inquiry into money laundering activities across the province.

Speaking in Victoria, Horgan cited the province’s sharp rise in real estate prices and opioid deaths as primary reasons for a public inquiry.

“We have an obligation to British Columbians to get to the bottom of this,” Horgan said. “The proceeds of crime are distorting the lives of British Columbians.”

Attorney General David Eby announced Justice Austin Cullen has agreed to lead what will be known as the Commission of Inquiry into Money Laundering in British Columbia, which is expected to produce a report in May 2021.

Eby said Commissioner Cullen is to have the full powers under the Public Inquiry Act. For example, Cullen will be given the power to inspect any public space and seize records, as required. He will also have the right to order warrants and order individuals to co-operate with the inquiry or otherwise find them in contempt. He will also have the ability, with government support, to modify the terms of reference set out by the Horgan government and extend the two-year reporting period.

Examining regulatory authorities and barriers to effective law enforcement of money laundering activities will also be a key component of Cullen’s duties, noted the government.

The cost of the inquiry is not yet known.

Horgan said he has advised Prime Minister Justin Trudeau on his decision while Eby said Bill Blair, minister of Border Security and Organized Crime Reduction, has assured the inquiry of full federal co-operation. Eby said it is important the RCMP be able to contribute to the inquiry.

Horgan also cited the failed prosecution last November of alleged money launderers in a case involving Richmond-based money service business Silver International, which has ties to organized crime.

One hurdle Horgan expects is to have members of the former BC Liberal government waive cabinet privilege to provide access to what the previous government knew about money laundering at casinos and in real estate.

“That will be a challenge,” said Horgan, who asked all federal political parties to lend non-partisan support to the inquiry.

Horgan said he will waive privilege for any BC NDP government decisions made in the 1990s.

“If it’s appropriate and the commissioner calls for it then we’ll agree to see that happen.”

Michael Lee, BC Liberal attorney general critic, said following Horgan’s announcement that his party “will fully cooperate with the inquiry.”

When asked specifically, via email, if that means lifting past cabinet privilege, Liberal spokesperson Carlie Pochynok replied: “Michael Lee stated earlier today that it’s up to Justice Cullen to determine next steps in regards to actions in the inquiry and so we’ll await those next steps as they arise.”

There is no indication from government that the inquiry will look at municipal staff and politicians, who have played a significant role in advocating for expanded gambling facilities.

Horgan said when he took office one of the first things his government did was to examine the sharp rise in the real estate market over the past few years, as well as the opioid crisis. Some experts consider the two intertwined, and have dubbed methods of money laundering in B.C. as the “Vancouver Model,” for the way illicit drug proceeds flow from international and domestic criminal groups and through B.C. casinos and real estate.

“That criminal activity has had a material impact on regular people, whether it was a rise in opioid deaths … or the extraordinary increase in housing costs,” Horgan said.

In the Greater Vancouver area, real estate prices have risen 59.5% over the past five years, according to the Real Estate Board of Greater Vancouver.

Asked by media if she is concerned a crackdown on money laundering will hurt the provincial budget’s bottom line by causing a decline in property transfer taxes and gambling revenue, Finance Minister Carole James said: “The cost of money laundering … I believe, has much more of an impact than quick dollars coming into the budget.”

James cited figures produced in a recently released government-ordered report by Professors Maureen Maloney, Tsur Somerville and Brigette Unger, titled Combatting Money Laundering in BC Real Estate, which estimated $7.4 billion was laundered in B.C. in 2018, of which as little as $800 million or as much as $5.3 billion filtered into real estate.

James said she believes the estimates are conservative.

The methodologies and data used are far from accurate, however, as the report noted.

The Maloney report based its estimates on a formula that assessed the “attractiveness” of a jurisdiction to money launderers. This attractiveness was based on international country ratings (such as World Bank corruption ratings and International Monetary Fund financial data), provincial crime data and the gross domestic product, as well as distances to other countries. By this measure, B.C. ranked fourth for money laundering among six regions in Canada. Despite their relatively flat housing markets, Manitoba and Saskatchewan combined were said to have more money laundering than B.C.

The Maloney report was released alongside former RCMP assistant superintendent Peter German’s report, Dirty Money – Part 2, which goes into detail on some money laundering methods that appear to be employed in B.C. real estate, gaming and luxury goods.

While on their own they may not be an outright indication of money laundering, combined, German said some widespread activities, including nominee purchasers, unfinanced purchases, flipping, quickly discharged mortgages, overvalued and undervalued listings and buying sprees, present red flags.

German called B.C.’s real estate market “opaque” and took aim, in particular, at professionals such as lawyers and private mortgage lenders who handle financial transactions but who are not required to report suspicious ones to the Financial Transactions and Reports Analysis Centre of Canada.

Neither report looked into financial institutions or the securities sectors. However, these will be among Cullen’s terms of reference, along with inquiries into real estate, gaming, luxury goods and professional services, including legal and accounting.

Cullen may forward information to authorities for potential prosecution. He may not jeopardize  an ongoing criminal investigation or affecst the "the exercise of prosecutorial discretion.”

Cullen was apppointed associate chief justice in December 2011. He was assistant deputy attorney general for the Criminal Justice Branch from 1999 to 2001 and was appointed to the BC Supreme Court in March 2001.

James said the government’s plan to rollout a beneficial ownership registry via the Land Owner Transparency Act next year should assist government agencies in tracking property ownership. As well, the province is working more closely to share property ownership and income data with the Canada Revenue Agency, said James.


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