A cornucopia of anti-money laundering regulations and legislation has been introduced this week by the federal and B.C. provincial governments, to counter the country’s growing reputation as a breeding ground for scrupulous criminal financial activity with few repercussions.
This week, the Canadian government introduced new measures in its budget to combat financial crime, by, among many measures: criminalizing unregistered money service businesses; improving information sharing between police and Canada’s monetary transaction reporting agency, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC); and creating a publicly accessible federal beneficial ownership registry for companies.
Meanwhile, the B.C. government has announced it will: register and regulate money service businesses (already registered with FINTRAC) at the BC Financial Services Authority; create its own provincial beneficial ownership registry for companies; and introduce unexplained wealth order (UWO) legislation.
All these tools are recommendations of the Cullen Commission of Inquiry into Money Laundering in B.C. and, in part, a response to two major money laundering investigations in B.C. that failed to produce charges from Crown prosecutors partly on grounds the Criminal Code is too onerous when weighing the prospect of conviction.
Last month, the BC Prosecution Service, as well as a special prosecutor, declined to lay charges against Paul King Jin, a suspect in an alleged large-scale money laundering ring. The ring involved casino gamblers and real estate purchases utilizing offshore accounts transacting with an unregistered money service business that handled suitcases full of suspicious cash. Jin is now subject to civil forfeiture claims from the B.C. Director of Civil Forfeitures, totalling over $10 million, after the “E-Nationalize” investigation he was subject to fell off at the prosecutors’ table.
Prosecutors claimed the disclosure of investigation materials, such as over 40,000 communications in Mandarin, would not be worth the endeavour. And, proving a predicate crime (the source of the cash) was not a clear-cut case.
The changes introduced this week are supposed to alleviate some of those roadblocks for investigators, says Sasha Caldera, a lobbyist for Publish What You Pay Canada, a group advocating for financial regulation reform alongside Transparency International Canada — both of which dub Canada the home of “snow washing.”
“Police didn’t have much information to go on prior to these announcements, other than suspecting a person was engaging in criminal activity. There wasn’t much for law enforcement and other regulators to understand to what extent a criminal controlled assets and companies in B.C.,” said Caldera.
“Canada has been really, really behind on all of this stuff for a decade and this has placed us at a huge disadvantage. Information sharing within these institutions is a good first step,” said Caldera.
In theory, a criminal is going to face more barriers to conceal their assets: those money service businesses should track all transactions with FINTRAC, which will now be more open to sharing with investigators; the corporate vehicles used to buy assets, such as homes, will be more transparent; and when criminal activity is suspected, unexplained wealth orders can be used to clear up the source of money that led to such property acquisitions, said Caldera.
UWOs a slippery slope, says civil liberties association
The UWO legislation is not without its critics, however, as the BC Civil Liberties Association, which argues it’s a slippery slope to unfettered state power.
“UWOs undermine privacy rights, the presumption of innocence, and the right to silence. They have only been adopted in a few countries, and there is no credible evidence that they have been effective,” the association has argued, as it continues to appeal its challenge against UWOs at the B.C. Court of Appeal.
But UWO expert Jeffrey Simser, an Ontario-based lawyer who worked for over 30 years for the Ministry of the Attorney General of Canada, welcomes UWO legislation by B.C., which will precede any potential likewise federal legislation.
“I’m sure there’s talk of a slippery slope. To me, I don’t agree with that position because this is a process that respects the court and respects the rule of law. It brings into the court the issues fair and square. And the onus will be on the [Director of Civil Forfeiture] to prove the case,” said Simser.
The province’s new UWO regime, explained B.C. Minister of Public Safety and Solicitor General Mike Farnworth Thursday, will lean on the courts for it to be imposed properly and transparently (applications will be made at the court’s public registry). Farnworth added he's confident the legislation will be ruled constitutional in the event of a court challenge, which most experts consider an inevitability, as it has been done in other countries.
“There are guardrails in place to make sure UWOs are fair,” said Farnworth.
In essence, if the government (by way of the Director of Civil Forfeiture) has reason to suspect criminal activity led to acquisition of assets over $75,000, it may apply to the court to have the owner explain how the assets were obtained.
The director must first prove there is reasonable proof of criminal activity, or the asset was used as a conduit of criminal activity (perhaps a meth lab or illegal gambling den or human trafficking site). Or, the government must show the asset owner is a politically exposed person. In the latter example, this may involve a politician or foreign government official, or someone affiliated to such a person, who exhibits wealth beyond their known source of income. If the asset owner cannot provide an explanation, the process then moves to an application to forfeit the asset.
The B.C. UWO legislation is based on the United Kingdom UWO regime, but with some key changes that make the process easier for the director, including: allowing the director to access information from any public body, including, for example, real estate boards; eliminating the 10-year limitation period for forfeiture proceedings; and making it easier to target financed vehicles.
“We’re becoming more agile,” said Farnworth.
A UWO allows the director to attempt to seize assets linked to suspected criminal activity or a criminal, said Simser. For example, if a gangster dies and there is hence no prospect of conviction, the director may apply to have the gangster’s family home forfeited. In such an example, forfeiture is likely unless the gangster’s spouse can prove the property was obtained with proper funds, say an inheritance or reported income.
“Just because the mob boss’s spouse isn’t involved in illegal activity doesn’t mean they get to keep the house,” said Farnworth.
Simser notes neither police nor the B.C. civil forfeiture office has access to tax records, so the onus of evidence of unexplained wealth still remains high for the director.
“You know, unless the person has made some sort of public statement they don’t work, or they receive a benefit …that might be a hard ground to establish,” explained Simser, who expects UWO applications will be rare.
B.C. 'not waiting' for federal registry
Simser and Caldera agree the new regulations will hinge on enforcement and resources.
Farnworth said more money will be invested into provincial RCMP investigative units.
Caldera and Transparency International Canada say the new regulations all overlap with one another, particularly the UWO regime and the corporate registry.
Caldera said his group is satisfied with the federal corporate registry proposal as it meets “95 per cent” of its requests. Caldera said the thing to look for is whether B.C.’s registry can be easily streamlined into the federal one, in due course. And Farnworth said this will be so but noted B.C. is “not waiting” for the federal registry.
Farnworth also said there are many federal Criminal Code amendments that are needed to address money laundering violations, although one tabled proposal — the criminalization of unregistered money service businesses — will eliminate one of the hurdles faced by prosecutors analyzing the E-Nationalize case (as the unregistered business activity alleged against Jin was not technically criminal).
In another matter of enforcement and resources, Caldera says the corporate registries must be properly monitored and violators must face stiff penalties, including jail time.
As it stands, the B.C. registry will only show beneficial owners of 25 per cent of the company’s shares. This, said Caldera, means it’s possible for criminals to hide ownership with large groups although he notes nominees (those who hold shares in name only and no de facto ownership) must declare their status.
“I expect the threshold to drop in the years to come. It will take five years to connect the whole country to these registries and for searches to be scaled out,” said Caldera.
The web of corporate structures that alleged criminals can hide assets with has been prominently shown in a multiple-indictment process brought forth in 2021 and 2022 by the U.S. Securities and Exchange Commission against nearly two dozen British Columbians, some allegedly linked to organized crime and B.C.-registered companies.
The case involves $1 billion worth of alleged illegal stock transactions “masterminded” by former B.C. lawyer and West Vancouver resident Fred Sharp, an offshore shell facilitator who has been found guilty of securities fraud in a default judgment last year and who still faces related criminal charges in the U.S.