A Canadian Politician Wants Harsh Penalties To Deter Money Laundering, But Do Others?

Canada’s reputation as a money laundering haven dug its heels in last week. Despite big talk on tackling money laundering, Canada isn’t making much progress. That was one of the findings from BC’s inquiry last week. Increasingly complex laws aren’t acting as a deterrent, and appear to be designed to catch no one. Tracking beneficial ownership is quickly becoming one of those issues.

Canadian Member of Parliament (MP) Adam Chambers hopes to fix that with a new members’ bill. The MP proposes severe criminal penalties for those who knowingly provide false beneficial ownership information. If adopted, Canada might go from one of the easiest places to hide money, to having some of the strictest penalties for non-compliance. Will partisanship get in the way of progress in fighting Canada’s laundering problem? Here’s a quick primer on the issue.

Canada’s Has A HUGE Money Laundering Problem

For those that haven’t been paying attention, Canada has a bit of a money laundering problem. Testimony at the Cullen Commission, BC’s inquiry into laundering, estimated ~$100 billion is laundered in the country annually. That sounds like a huge number, but it’s hard for most people to wrap their head around it. The average person, after all, tends to treat a billion as a rounding error when it comes to the economy. It’s not.

The estimate is the equivalent of 5% of Canada’s gross domestic product (GDP). Using average capital velocity, it would support over 6% of GDP. If someone told you money laundering is equally important to Canada’s economy as housing was to the US economy in 2006, you would assume it was a joke. In reality, that’s what the estimate works out to — it’s just a mind-blowingly large number.

Canada’s Opaque Ownership Laws Make It A Haven For Laundering

Why Canada? A lot of reasons, from one of the country’s top spies being alleged to have played defense for “kingpin money launderer”, to a lack of anti-organized crime laws like RICO in the US. More importantly, Canada is designed like a giant and cold Caribbean tax haven fostering anonymous ownership of assets. Until recently, the country intentionally made no effort to collect information on the ownership of things like companies and homes. It’s intentionally opaque.

After Canada landed on the US Treasury list of countries with suspected dirty cash, it decided it was time to clean up. BC implemented a beneficial ownership registry and planned to collect information on the ultimate owner of properties. Canada’s elected government has also embraced the idea and plans to implement a beneficial ownership registry.

There’s just one problem that also came up in the Cullen Commission: Canada’s anti-money laundering laws are designed to fail. Increasingly complex, with obvious loopholes — anti-corruption organization reporters at the Organized Crime and Corruption Reporting Project (OCCRP) recently concluded Canada is worse than some of the most notorious tax-havens.

Amongst their key findings? While a step in the right direction, BC’s beneficial ownership registry doesn’t validate the information. It’s required, but no one is checking any of it. In a few years, Seymour Butts (no relation to Gerald) and Ben Dover might be the most prominent landholders in the province. No criminal record or known associates, so it should be fiiine.

Caught lying? Don’t worry about it. Existing laws make it a reasonably innocuous incident, subject to a relatively small monetary fine. If you’re a money launderer or transnational criminal, having some cash go missing here or there is just the cost of doing business. This limitation is also likely to occur with the Federal beneficial owner registry.

Canadian MP Wants Harsh Penalties For Hiding Assets

Chambers, the MP for Simcoe North and Deputy Shadow Minister of Finance, wants that changed soon. His latest private member’s bill seeks to make falsely submitting information to the beneficial ownership registry subject to harsh penalties. These include: 

  • a) a fine of not more than $1,000,000 or to imprisonment for a term of not more than 10 years, or to both; or
  • (b) an offense punishable on summary conviction and liable to a fine of not more than $10,000 or to imprisonment for a term of not more than two years less a day, or to both.

“The Bill will complement the publicly accessible beneficial ownership the Liberal Government committed to in budget 2022 by imposing strict criminal sanctions on those who lie about their identity or corporate structure to Reporting Entities,” says Chambers.

Currently, in BC, the penalty is a maximum of $25,000 for an individual and $50,000 for other entities, such as corporations. In 2019, Canada passed a law requiring corporations to track beneficial ownership, but it was a summary offense subject to a maximum fine of $200,000 for corporations. Think of it like a very expensive parking ticket, where the breakeven of being caught is $1 million since illicit washing fees are typical “20%” for illicit cash.

On a semi-unrelated note, those are typical washing fees. Former VP of quantitative research at JP Morgan previously told us that washing fees can be as low as 0.1% to 0.2% through hot money brokers in countries with extensive laundering infrastructure. The trick is it needs to go from one country with that infrastructure to another, and you need to know how to ask, or you’re stuck paying rack rates. Anyway, back to Canada potentially getting more strict penalties for money laundering.

“Criminals rely on dozens of people to launder their money. This bill will make their life more difficult and make it easier for authorities to hold criminals accountable for their actions,” says Chambers.

It’s impossible to stop laundering entirely, but the more hurdles put up, the more difficult it becomes. Just as Canada’s weak laws allowed the illicit cash to pour in, adopting stricter rules will send it elsewhere.

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  • Ron Bruce 2 months ago

    Canadian Member of Parliament (MP) Adam Chambers has the right idea. Unless you can indict, seize, or seek property forfeiture, tracking illicit money is a waste of taxpayers’ money. Relying on existing law enforcement entities shows just how poor law enforcement is. There could be charges of being COMPLICIT by not waving a red flag by Realtors, FINTRAC, CISIS, RCMP, Lawyers, notaries, accountants, money lenders, banks, etc.

    Willful Blindness is not a defence. But it seemed to work for politicians testifying before the Cullen Commission. The recommendation by the Cullen Commission to have an independent AML (anti-money laundering) Commissioner in each Province would be a good idea. Waiting for the Federal government to do anything about money laundering would be like waiting for the second coming.

  • Tiff 2 months ago

    When the Media broke the brief investigation they did and the BC government had to do something. Noticed a huge up tick in luxury real estate in Toronto. Money came here instantly check the data.

    • David Tran 2 months ago

      Good analysis kicking around from Andy Yan showing as soon as the foreign buyer tax was implemented the Bank of Canada had a surge of Ontario mortgages.

  • RM 2 months ago

    I fail to see why we would not enact this bill but I wouldn’t be surprised if we don’t.

    • Ian Brown 2 months ago

      It never ceases to amaze me how far polticians will go in their pursuit of partisanship. Very logical policies are often denied because of a bias against who proposes it, not the contents of the bill.

      Similarly very terrible policies are passed because of who proposes it, completely void an understanding of the predatory consequences.

  • Ron Bruce 2 months ago

    KYC means Know Your Customer and sometimes Know Your Client. KYC check is the mandatory process of identifying and verifying the client’s identity when opening an account and periodically over time. In other words, banks, stock brokers, and insurance companies must make sure that their clients are genuinely who they claim to be.

    Initiate the same process at the land registry office. Those not in compliance will have their property seized or forfeited. All legal expenditures to clarify ownership are to the Register’s account – plaintiff and defendant. There is a high probability if there is one illegal identity, there will be others with the same name shown on other registered properties. A National searchable database isn’t new. Anyone in Canada should have access to this database online.

    • RW 2 months ago

      KYC sounds like a more stringent process than it is. Canada’s banks basically swept it under the rug when it was revealed they were opening bank accounts for strangers and accepting deposits to help circumvent capital controls in other countries.

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