Well back to beautiful BC and the city of Vancouver, oh that's British Columbia to you and me, or Bring Cash to the bad guys. I hear the weather has been glorious but haven’t felt the sun since I fell down the dirty rabbit-hole, I’m still wandering around the warrens of Vancouvers Moneyland - in a Gucci tracksuit naturally. Disclaimer, I'm going to omit the horses as it's not particularly interesting or as important in the grand scheme as the other two sectors at play, nothing against horses I just haven't seen any blinged out ones as I have houses and cars.
The second report was release last week and has a long and meaningful title - DIRTY MONEY - PART 2; Turning the Tide - An Independent Review of Money Laundering in B.C. Real Estate, Luxury Vehicle Sales & Horse Racing’. Again it’s comprehensive and interesting, shocking, enlightening and fascinating in equal measure, a job well done and a very necessary one. It’s hard to imagine drastic change not taking place after such information is brought to light, but easy to let it go when it doesn’t happen, sometimes money talks and regulation walks, maybe that’s the way BC is, and is meant to be. Maybe that’s its purpose, what it’s here for besides its natural beauty - to provide balance, good and bad, pretty and ugly. Hopefully not, but it's got a long way to go to get clean.
| “Vancouver: $560,000 and 95 kilos of coke. Winnipeg: $275,000 and 48 kilos. Toronto: $2 million and 150 kilos...”
The Canadian nexus to global organised crime is deep-rooted and settled, with organisations that are globally known, notorious and scary being heavily influential and prominent all over Canada. The Chinese Triads are a given in the scope of things as we have seen, but I’m talking about the Sinaloa Cartel, El Chapo and his boys have been running amuck in North America for a while and it seems Canada has been a buyer of choice for these Narcos. Then you have super sanctioned nation of Iran and their criminal representatives in the extended cohort alongside motorcycle and regular gangs. It’s quite the scene, and quite a lot of dirty money that links these Transnational Criminal Organisations (TCOs). It’s said that money is the ‘golden thread’ that is the link between banks and TCOs, but I call it a ‘dirt string’ obviously.
Certain details in report 2 - I believe sourced solely from a book, written by the lead Drug Enforcement Administration (DEA) El Chapo investigator, Andrew Hogan (1) - are eye-opening and smack you across the face with the real connection to the cartels and their activity; “Vancouver: $560,000 and 95 kilos of coke. Winnipeg: $275,000 and 48 kilos. Toronto: $2 million and 150 kilos...” It’s business as usual for drug traffickers around the world, but adding detail like this to the bigger picture is key, as that’s where devil is, literally in this case. That stock-take of drug takings in Canadian cities was created by a 22 year old individual “who was headquartered in Vancouver, allegedly enrolled at a private college, and living in a luxury loft apartment.” Referred to as a 'Narco-junior', no doubt he also has a nice car at his disposal and there are many more like him.
So the next series of Narcos on Netflix might be set in Vancouver, where drug money is rife, laundering is prolific, Lamborghnis are everywhere and all is doomed. Are there industries in Vancouver creating revenues that can be kept out of the dirty money conversation? Let's speculate. Fishing, but they might transport bags of money. Retail - coffee shops and restaurants, they might be funded by dirty money. Nail salons, massage studios, and brothels (legal in Van) known as fronts for criminal activity. I guess there’s a big film and TV production industry, corrupt and lacking equality, users of drugs maybe but a haven for money laundering, erm, maybe. This was very evident recently when Jho Low of 1MDB scandal infamy defenestrated the idea of Hollywood just telling the dirty money stories (2), when it became part of one. It is now known that the dirty money stolen from the Malaysian 1MDB investment fund was used to fund the Wolf of Wall Street amongst other things. It's the glitz and glamour, the luxury lifestyle that criminals often want to buy their way into, they just want to be loved and important - don't we all. Anyway we’ll put that aside for now as minor and move down to ground zero.
Cars as vehicles for money laundering.
I pinched the idea for the title from the Starmetro on the the same subject, it’s obvious but it’s a cracker. I believe Vancouver is known as the city with the highest rate of exotic/supercar ownership in North America, it was official at one point but I can’t find the article, can’t see how it would have changed - anyway, trust me I’m a blogger now.
The conversation has continued and escalated in the media with the BC regional finance minister, and the once almighty Prime minister of Canada sharing their opinions and advice. Like I said in part 1, this movement has traction and the government, both provincial and national need to take deliberate and significant action.
| “…gangsters bringing bags of money into dealerships to purchase cars. The dealers then had to transport that cash to their bank, where it was accepted without hesitation.”
What has part 2 brought to light? More dirty money of course, quite troubling examples of what has been going on in the Moneyland of Metro Vancouver. We knew it was happening, but it’s kind of bewildering when you hear the stories from report 2; “We heard stories from dealers, who described gangsters bringing bags of money into dealerships to purchase cars. The dealers then had to transport that cash to their bank, where it was accepted without hesitation. One dealer described large cash purchases occurring on a monthly basis.”. It’s quite outrageous behaviour from the gangsters, they’ve got some nerve. I find it strange that dealers would refer to them as such - but I guess a gangster is a gangster is a gangster - and then knowingly accepting the money, there is definitely some fear in the mix, as well as a healthy dose of greed. Let's go with a stereotype, they’re car dealers after all, salesmen, they sell and predicate crimes probably never entered their stream of consciousness because it was full of Canadian dollar bills. And then let’s balance it out, the car dealers are likely human, and the gangsters might not be. A tricky situation to be in without the backing of law.
Another dealer stated “It’s unequivocally money laundering. People who are not employed, don’t pay tax, showing bank statements with large sums being wired frequently into their accounts... Why is it multiple transfers being wired into accounts in relatively small amounts [to] several accounts? These are people who aren’t paying income tax, who don’t work, but can buy expensive cars with money coming from out of the country.”
And then you have the fact that, “There are no laws or regulations prohibiting the cash purchase of vehicles and, unlike banks and casinos, car dealerships are not required to report large cash transactions or suspicious transactions to FinTRAC. In fact, there is no mechanism for them to do so because they are not designated as reporting entities under the POCMLTFA.” You should be able to guess that acronym, Proceeds of Crime, Money Laundering & Terrorist Financing Act, that’s my guess anyway.
There are no dates given for some of this cash hauling but it must be reasonably recent as they talk of reductions in cash activity as laundering becomes an ever hotter topic. So if we put all that together we have a terrible state of affairs. On the bright side if some of the recent action has reduced the movement of cash into these dealerships, then there is hope for further controls and actual legislation to have an impact. This will also reduce the likelihood of any escalation from the criminal buyers as the decision will be out of the dealers hands, as it should be. If the bad guys know the car dealers can’t get the cash into banks they won’t take it there as they don’t want the attention.
More worryingly the banks have been/are taking this cash or facilitating payment with no real questions asked. From what has been stated in the report, banks in BC are allowing any transfers into banks to be labelled ‘income’ - with no further due diligence - that is something new to me. Banks should be verifying the source of income with KYC and suitable controls so they know/understand the source of the incoming funds and the source of wealth that generates those funds. Now no real scrutiny has been applied to banks in this whole sorry tale - though their failing in line with the flow of money out of dealerships has been noted. I think this needs to be addressed as there is definitely a grey area where banks aren’t concerned with the source of funds from China or with minimal due diligence.
If any bank, and if the above is bau then it’s many a bank, is taking that kind of cash without a Suspicious Activity Report (SAR)/Cash Transaction Report (CTR), then we have a bigger problem than anticipated as it shows the banks and their staff may have some shortcomings in their anti-financial crime training or they just don’t need to care, to put it a nice Canadian way. If the cashiers taking the money, their managers, or the analysts monitoring transactions and their superiors haven’t picked up on this then we have a much larger and systemic problem. The banks are meant to be the gatekeepers of the financial system, the 40 Recommendations (3) the Financial Action Task Force have been shoving down the throats of banks and regulators for last decade around the world may have taken a scenic detour in the land of the Maple Leaf. I am jumping to conclusions a little here, I refuse to believe it’s as simple or as troubled as I’ve laid out above, because if it is, I might have a nervous-breakdown.
Aside from the Narco and Gang links to luxury vehicles one of the most evident demographics in supercar space are the Chinese millenials. There is a serious amount of spending on AMG Mercedes, Porsches, Bentleys, Lamborghinis, and McLarens, that is from what I have seen over the last few weeks, it's also what I have heard as they storm around the streets of downtown. Of course many of the Chinese families in Vancouver are wealthy second and third generations, so there is plenty of legit local money being thrown at the luxury lifestyle, not to mention the plethora of young entrepreneurs and old school business folk. It's a wealthy place, and that's why the dodgy money came here and was able to find a home.
The government need to step in, if car dealers are included in reporting legislation then they don’t need to be afraid, the criminals/gangsters (as they are referred to in the report) will know they cannot use cash at car dealers over $10k, that reporting is required. The finger was pointed at independent dealers, and leasing companies as they are under less scrutiny able to operate a little more freely in their accounting than main dealers or franchises - it comes down to enforcement, make an example or two and others will fall in line - you can’t stop them all but you can stop some of them. Anything to do with car sales, hire and export can be dealt with reasonably easily in terms of applying a legislative approach, higher taxes, change in tax refund policy - let’s see how it develops. It may be the case they want to phase in these new AML measures to avoid the economic ramifications of total lockdown, that’s understandable, casinos were first, cars and then real estate as the bigger fish should follow.
Real Estate is really expensive and the cost is high.
“What matters isn’t that wealthy people are immigrating to Vancouver from China, or anywhere else, really. It’s that they continue to earn the vast bulk of their wealth outside of Canada and they use that wealth to invest in Vancouver real estate. As a result, housing prices have decoupled from the labour market, putting people who earn local wages at a major disadvantage “ Dirty Money report - Part 1.
Tellingly the real estate and casino sectors are amongst the major sources of tax revenue for the Metro Vancouver area, did somebody say, ‘that’s suspicious’. The more I read and discover, the more befuddling and interesting the situation becomes. The estimate is that one third of BCs GDP involves real estate, and there are a number of vectors or opportunities for getting illicit funds into the real estate market but the basics are development, rentals and sales - on the surface it's the same way anyone might make money from real estate. And generally this is the last phase of the traditional laundering process to some legit assets in your pocket that you can store a lot of value in, that may rise in value, that when you sell you may profit from and that give a legit source of funds for further purchases. That’s why KYC (Know Your Customer) and customer due diligence has to be more than what the source of funds are.
When it comes to real estate development in BC, it’s a multi-billion dollar industry, and the type of houses available reflect that (4). You only have to look across the skyline to see numerous developments, every road you drive down has a new apartment block going up, or renovations going on. It is a huge source of jobs and income for the region. And it’s a huge potential point of entry for, you guessed it, dirty money. In an unregulated real estate sector, what’s to stop drug lord El Genericos’ millions from funding a whole apartment block that’s funded through a company that’s owned by nominees/straw persons. Then all 50 apartments are sold to both real and false buyers, giving one of El Genericos companies legit funds that he can transfer into a bank or into other projects with no link to him whatsoever. It was reported that, “13,678 residential properties, with an aggregate value of $16.12 billion, are owned by individuals or entities with service addresses outside Canada, a fifth of which are in high- risk jurisdictions for money laundering.” While it’s not on the scale of London it's still very significant in this scenario.
How many people in Vancouver are paying rent to themselves in homes owned by a trust or a legal entity that they control? Probably a lot. How’s this for a move, buy a house with dirty money through an entity or nominee/straw man, then live there as a tenant at a high rental rate and pay the money to yourself through a letting agent/realtor. Everybody happy, especially you, the criminal - you might even get to pay in cash. It’s a lovely circular scheme, and the kind of thing that is probably happening a lot, not just in Vancouver. In London, I recall the number of properties owned by non-natural persons (trusts, companies etc) being over 40,000 a few years ago. By putting registries of company ownership and real estate in place this can be controlled to a certain extent.
There may well be money coming into the country which is legit, but is not being verified as such and hence being bundled into the same pile as the dirty cash that bought real estate. As money flooded into the market houses prices sky-rocketed, causing economic imbalance and pricing locals out of the market. As per the authors of a 3rd report, the Combating Money Laundering in BC Real Estate (CMLBCRE), "Maloney, Unger and Somerville say they estimate that money laundering contributed a five per cent increase to housing prices in 2018" (5).
When it comes to cleaning illicit funds and creating value, real estate is a key link in the chain. Alongside that there is the want for status, wealth and a luxury lifestyle, a luxury pad is the zenith of the show of wealth. There are many ways to fiddle the housing market as per the above example, and there are many routes into the market. Canada as a whole is vulnerable, and that hasn't gone unnoticed, “British Columbia’s finance minister says that province’s transparent land registry will push dirty money to real estate markets in other parts of Canada — and Toronto’s at risk.” From an article (6) posted last month, in which the BC finance minister speaks on the money laundering situation. I really hope that other unscrupulous people in other provinces of the country aren’t gearing up to take the money, and that the national government will try to encourage change and upkeep of regulation across the nation. She has missed a trick though as it’s likely that Toronto is saturated with dirty money, in line with it’s 1st city status and wealth profile, there will be a lot of drug use there and therefore the related earnings. I know it’s a big country and regulation is tricky when the provincial/regional differences cause friction and misalignment - but it has to be a nationwide movement.
Making amends in your steps to recovery.
I think regulating the construction and real estate market is key, as it is the endgame (ahem) in terms of the laundering trail, that's where the money is heading and if that is locked down a lot of that money will have to go elsewhere, Toronto perhaps, reducing the throughput in other areas. A beneficial owners registry is touted as an important measure against laundering, it certainly would be a boon, but if it isn’t given enough backing, and power or information isn’t verified and it's just a list of what people say, it will be a hollow victory. Case in point, see UK Companies House (7), which is quite frankly so bad it belongs in the Canadian story just to round it off as a complete mess. The UK government have announced plans to remedy the issues but I’ll believe that when I see it and search it. The UK is oft cited as having a very good AML framework but there are gaps, and Canada can learn from it - prevention over cure is the way forward for BC. It’s easier said than done, but it is very necessary for them to learn from their own and the mistakes of others if they want to implement a system that actually works.
Unexplained wealth orders (UWOs) were also proposed in the CMLBCRE report***, but again they need some real resource to be effective. This report is comprehensive and brings value in its data but is essentially academic - it provides figures that can be quoted but can't be verified. It contains a lot of valuable data sets and also states the obvious, but maybe that’s a good place to start seeing as the authorities and regulators have ignored the blatantly obvious for the last decade or so. The UK has made some moves with the UWOs but it took time, and their infrastructure is reasonable - UWOs are no good without some serious backing and clout behind them, just like anything else in the regulatory space. If ML investigations are to be carried out by the RCMP, they will need major funding and support for a dedicated unit.
The ideas are there, but whether the will is we will have to wait and see. As always the budget will be a huge barrier to success, the system is so messed up it needs a complete revamp from the regulator oversight to the operational process, it’s a massive task and scale is likely part of the reason it hasn’t been dealt with before. Calls for an inquiry should be considered but the scope should be wide, there is no need for an expensive and drawn out convolution covering the same points of the reports. There are problems, gaps and failures that have been identified for which the process to rectify can be started now, like when some of the casino procedure was changed post the first report - but it needs to be monitored continuously. A good idea would be to create a committee to ensure the implementation of changes and enforcement in the anti-financial crime space in line with these reports and also have them lead an inquiry into the whole picture, including the shipping and financial sectors.
I think the banks have missed a trick in this whole scenario and have been spared scrutiny as they weren't in the remit of the reports. They all need a visit from an external government auditor or panel or Judge Dredd maybe. We have a money laundering hotbed with numerous scandals and reports over the years but it’s still been ok for huge amounts of cash to be deposited. I’m struggling to get my head around how that has been acceptable. The FATF did a Canadian evaluation in 2016 and they stated some shortcomings but on the whole they deemed the regulation and controls to be robust on the whole. As has already been mentioned a dozen times by me and everyone, enforcement is the key. Let’s see what happens.
| Saying that Canada have been leading the fight against financial crime is like saying Donald Trump has been leading the fight for feminism.
After the release of report 2, the President, I mean Prime Minister of Canada, Justin Trudeau, currently embroiled in his own corruption scandal (8), let the criminals know he means business - “This is a real and pressing problem for Canadians and it’s a problem around the world that Canada is going to continue to lead in the fight against.” Good one, saying that Canada have been leading the fight against financial crime is like saying Donald Trump has been leading the fight for feminism. The PMs person in charge of reading the report for him obviously didn’t read the same report as everyone else - the PM would probably say the same thing even if he had read it himself though - politicians eh, reliably gaseous. On the bright side, if Canada is currently leading the fight then my job is safe for the unforeseeable future. I will follow up with some ideas on what was missed and the bigger picture, but first I need to pop my head above ground so I don't get recruited as a narco money launderer, saying that I'm partial to a Lamborghini and I do love it here...
Al.
#moneylaundering #aml #antimoneylaundering #kyc #realestate #financialcrime #luxurycars #crime #narcos #organisedcrime #dirtymoney #thedirtstring
Reference, Links and Related Articles.
3. http://www.fatf-gafi.org/media/fatf/documents/FATF%20Standards%20-%2040%20Recommendations%20rc.pdf
6. https://www.thestar.com/news/canada/2019/04/25/bc-says-its-money-laundering-reforms-could-push-dirty-money-to-toronto.html
7. https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/getting-uks-house-order/
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