The international real estate market is a well-worn tool for laundering illicit cash. Terrorist organizations and conflict financiers launder millions of dollars through high-end luxury real estate purchases in Dubai to evade U.S. sanctions, according to a 2018 report from the Center for Advanced Defense Studies. But even in purportedly transparent democracies such as Canada, real estate has become a tool for evading government scrutiny—a concern Vcheck Global is constantly vigilant of when investigating real estate transactions.
The real estate markets in Vancouver and Toronto have become hotbeds for money laundering activity. Transparency International Canada reported finding $28.4 billion in opaque investments in greater Toronto housing since 2008. According to a C.D. Howe Institute report from May 2019, 99.9 percent of money launderers in Canada are never caught. Ironically, Canadian real estate has become so popular with money launderers because of its strong legal regime.
Canada’s privacy laws tend to create incentives to launder money through Canada instead of more autocratic regimes. While jurisdictions like the British Virgin Islands and the Cayman Islands have been criticized for shielding the beneficial owners of their corporations from scrutiny, Canada’s regulatory regime does the same. Moreover, Canada’s financial intelligence agency, FINTRAC, is hamstrung by its inability to demand further information from financial institutions about reported suspicious transactions. Unless a law enforcement agency seeks information about a specific target from FINTRAC, those suspicious transactions may go uninvestigated.
Canada’s regulators have also failed to apply sufficient scrutiny to cash purchases of real estate. While mortgage lenders and other financial institutions are required to conduct due diligence on counterparties, cash and privately financed purchases are almost entirely ignored.
The Canadian federal government has committed to cracking down on money laundering. The most recent budget, passed in April, committed nearly 200 million Canadian dollars to anti-money laundering efforts, including a dedicated real estate monitoring task force. The government has also placed additional pressure on financial institutions to provide financial intelligence to FINTRAC and law enforcement. Additionally, some provinces have gone even further—British Columbia created a transparent land registry, requiring anonymous corporations and trust funds to register their beneficial owners prior to purchasing real estate.
While these reforms may help stem the flow of illicit money into Canada, they create additional compliance hurdles for anyone transacting in Canada’s real estate market. With the government’s newfound focus on catching and prosecuting money launderers, it is more essential than ever for anyone selling or purchasing real estate in Canada to conduct due diligence on the beneficial owners of corporations involved in the transaction.
Ishan Sawai is an investigator at Vcheck Global LLC, specializing in the Middle East and North Africa. Prior to joining Vcheck Global, he worked as an intern at the Treasury Department’s Office of Foreign Assets Control, investigating sanctions evasion.
- http://www.fintrac-canafe.gc.ca/fintrac-canafe/definitions/money-argent-eng.asp
- https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Canada-2016.pdf
- https://business.financialpost.com/diane-francis/canada-ignored-its-gigantic-money-laundering-problem-for-years-and-lawyers-fanned-the-flames
- http://www.transparencycanada.ca/news/billions-unknown-funds-flow-toronto-real-estate/
- https://www.cbc.ca/news/business/money-laundering-canada-1.5138346
Previous
