Canada

Canada’s Largest Source of Money Laundered Funds For Real Estate Is… Canadians

Canadians are world-class when it comes to real estate… money laundering. Not just when it comes to laundering foreign capital, but the domestic stuff as well. That’s the take from the data shared by Global Financial Integrity (GFI). The Washington, DC-based anti-corruption organization found significant cash laundered through real estate. They only really scratched the surface of the numbers, but it’s pretty damning as is.

About The Study

The study looked at cases of money laundering through real estate in the news. The sample of information was then used to tally up the amount of laundering through real estate. They also looked at the source of the funds, and the method used to conceal it. It adds up to a huge number, but doesn’t tell the whole story.

Sampling is a common and frequently used method statisticians use to project trends. An example of this would be unemployment statistics, which are used around the world. It gives a good picture of things, but not the whole picture. In this case, the data may skew the origin of money, since they’re only looking at newsworthy cases. However, partial data is a good starting point to explore what may be a much deeper trend.

Canada Has Found Almost A Billion of Real Estate Laundered Recently

Canadians have been caught laundering almost a billion worth of real estate recently. From 2015 to 2020, the news ran stories on US$626.3 million ($822.7 million) of real estate bought with laundered cash. Over 88% of it was residential real estate. It’s a big chunk of money, but here’s the shocking part — only 35 cases were examined here. That averages out to $17 million per case, if you’re curious.

Over one in ten of those should have never been able to launder a single loonie. The study reveals they met the criteria of politically exposed persons (PEPs). These are people that have prominent roles in foreign governments. The Financial Action Task Force (FATF) warns PEPs are a high risk for laundering. They should therefore be subject to a higher level of vetting. Somehow that higher level of vetting doesn’t  mean much in Canada. One PEP laundered $8.6 million before they were caught. A little higher than the $10,000 threshold that is supposed to trigger more questions. 

The Source of Funds For Money Laundering With Real Estate Was Most Often Canada

Canada is the country where most of the laundered funds came from. The study revealed 48.6% of cases involved Canadian sourced funds being laundered. Just cracking down at the border won’t be enough, it would seem.

International sources were most often from China, and the US. The largest international source was China, representing 22.9% of cases — about half as many as Canadian sourced laundering. The US was the third with 11.4%, half the size of China. Remember, this is in the context of the study and major cases where people were caught.

Canadian Real Estate Money Laundering: Capital Origin

What country the capital laundered through real estate came from in the GFI study’s cases. Percent of cases, not dollar volume.

Source: GFI; Better Dwelling.

Canadian Real Estate Laundered Through Anonymous Companies, and Mortgages

The strategies used reveal it’s really hard to crack down on this sort of thing. The majority of money laundering is done through company structures, used in 51.4% of the cases. Third-party processing (45.7% of cases), and mortgage schemes (34.3%) round out the top three. The fourth is a booming business —  private lending (17.1%). At one point, one in ten dollars used to purchase a Greater Toronto condo was from private lenders

Canadian Real Estate Money Laundering: Method Used

The strategies used to launder the capital through real estate, expressed as a percent of cases.

Source: GFI; Better Dwelling.

A few years ago, Transparency International was generous enough to let me help with a report on how these issues work together. Canada doesn’t track the beneficial owner of a company, so it doesn’t know who owns it. They couldn’t figure it out if they tried, since the information was never collected. It only tracks the directors, who may or may not be involved with the company. 

Fun fact: This might be a callback to old British rule, designed to conceal the assets of the wealthy from scrutiny. Recently revealed documents show the Queen herself lobbied for an exemption from corporate disclosure laws when corporate transparency became a boiling point issue in the 1970s. But, that’s another story for another day. 

Private mortgages are also not subject to anti-money laundering rules. The unregulated lender is not required to identify the person beyond their own policies to avoid losing money. That typically involves just making sure they have enough equity to cover any losses in the event of a default. Some lenders are better than others, but strictly due to their own policies — not regulation. 

A shocking amount of companies use private lenders to buy homes. We found billions worth of transactions in just the Greater Toronto Area. To sum it up, Canada doesn’t know who bought billions worth of homes, or who borrowed the money to fund the purchases. It’s a great system, subject to no flaws, I’m sure. 

Canada’s housing minister recently shared that he had just stumbled upon our report. Though he also just announced he’s not seeking re-election this fall, so we might be back to square one. Funny how that always works out. Anyway, back to how people launder using real estate in Canada. 

Other interesting methods cited in the report also appear to be highly unregulated as well. Renovations were used in 5.7% of cases, where the cost is often inflated. This is a common method in kleptocracies, typically using government projects. Leasing schemes (5.7%), immigrant investors programs (2.9%), and overvaluation (2.9%) were also found. These are all extremely difficult methods to crack down on. They also happen to be harder to identify in markets with faster-rising prices. Though they ironically can also accelerate home price growth itself. It depends on how much wilful blindness exists.

The Study Greatly Under Estimates Canada’s Laundering Problem

The study highlights gaping holes in the system and significant activity, but only scratches the surface. Don’t just look at this number and think, “oh, that’s a drop in the bucket considering all activity.” Once again, they only measured cases where the issue was identified, and big enough for the news. Areas without enforcement, due to a lack of resources or desire, are not captured.

For example, Canada is known for laundering money from countries with capital export controls. Places like China, Iran, and (to a lesser extent) India are a few of the big ones. In order to transfer money in excess of the capital controls, it needs to be laundered into the country. There’s even evidence of Canadian banks helping with this process. Not just turning a blind eye to the income, but actually helping to conceal transfers.

Sidenote: I say India to a lesser extent only because the controls are much higher than most other countries. Indians rules allow exporting 5x more than the amount one can export from China. However, I still have a lot of questions when someone buys a mansion in cash.

It’s important to specify all cash laundered is illegal, but it’s not all nefariously earned. Laundering the proceeds of criminal activity using the Vancouver model? Bad laundering. Laundering your legally earned life savings out of Iran because you don’t want to live there anymore? A little more grey.

The problem is both of these systems use the same method of concealment. When you’re hiding the true source of income, it’s impossible to determine what’s legit and what isn’t. Is that a student laundering cash? Or is that student one of El Chapo’s generals using fake IDs at a small BC college? Hard to tell, especially if vetting slows a political agenda to import capital.

That said, the numbers provided are pretty damning. Just the big cases add up to a sum large enough to get global attention. That’s before even looking at the amount of capital that slips through poor AML measures. Problematic, considering a small amount of money laundering can impact home prices.

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46 Comments

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  • Jacob 2 months ago

    “vetting slows a political agenda to import capital.”

    🎯

    Are Canadian politicians corrupt? I don’t know. If your economy is 10% real estate though, it’s in your best interest to let people buy it however they can. It’ll show GDP growth, which is the holy grail of progress for people.

    They have no idea what it means, or that more expensive real estate means more GDP growth but not more productivity. They just see growth and think it’s better.

    • Peter Hyde 2 months ago

      To be fair most countries have an agenda to import capital from other countries. The issue is those countries want jobs, and it would appear Canada is just drumming up fixed income payments for pensions.

      I wonder if this situation would be the same if mortgages were like in the US, and didn’t have to renew at a higher rate in many instances.

  • Lahdeedah 2 months ago

    “Hey, I know a Chinese/Iranian/Indian guy at CIBC, he’s cool, he’ll do this for us…”

    Here is where our “diversity” is making us a b*tch for global laundering. Everyone’s got that special contact in a bank that speaks their language, and is willing to do a $pecial favor. Nobody respects our laws, if they even exist. And when people try to question it, they will be called a racist or a nationalist. Ridiculous. This is why Canadians living and paying taxes in Canada, are being priced out of the housing market. Because financial institutions just care about the bottom line. And the government does nothing because they are afraid of looking like nationalists. “But that will go against our credo of being politically correct”. So dumb.

    • Peter Hyde 2 months ago

      Let’s not pretend this is an immigration issue, because it isn’t. The issue isn’t diversity. It’s an issue of people willing to break the rules without an alternative method of verification to ensure the funds have been properly vetted.

      • Lahdeedah 2 months ago

        Yes, but why haven’t they instituted those rules yet? Because they don’t want to “offend” people, and block out the offending countries who are abusing this lack of oversight.

        • Peter Hyde 2 months ago

          The amount of domestic sourced cash going to the laundry shows the “offended” card they often play has little to do with actually offending anyone, but more to do with preventing any slow down to real estate activity.

          • Lahdeedah 2 months ago

            “Domestic-sourced cash” is a misnomer. Just because it’s “in” Canada doesn’t mean it was made in Canada, or originated here. It’s foreign money.

            And no, Canada doesn’t have it’s residents’ best interest in mind by overlooking this, for the sake of pumping up it’s GDP numbers.

          • Lahdeedah 2 months ago

            “domestic sourced cash” is a misnomer. It’s foreign capital. Just because it has gotten “in” Canada doesn’t mean it was obtained or created here. Seems like an intentionally misleading choice of words.

          • Lahdeedah 2 months ago

            You do realize that this “domestic sourced cash” you speak of is not actually domestic, right? Hence the laundering.

        • Average Man 2 months ago

          They don’t want to “offend” the real estate industry who pay big money to call their own shots.

      • Lahdeedah 2 months ago

        And how is it not an immigration issue. It’s one way that Canadian government ensures high immigration rate, by ensuring that foreign money makes it’s way over, regardless of whether or not the person actually decides to live here, or just hoover up our houses.

        • Ksnn 2 months ago

          Calmdown you ugly angry little racist. Can you read or understand anything?

      • Bloemie 2 months ago

        Agreed, and its not limited to the city, Southern Ontario farm land according to more than one broker is 80% purchased by foreigners, many times site unseen or through proxy and often left unmaintained. Some thought was it was for grow-ops, and I am sure there are a few, but most is just “speculation” or more likely money laundering. I wonder what this cost really is longer term for Canada? But then real estate makes us all rich and more Canadians support the high house prices than reject them.

      • Axel McLion 2 months ago

        Immigration is a major component no matter how you slice it. More diverse society has internal fracturing of groups who are against each other and nobody ends up caring about the laws.

      • mark 2 months ago

        wake up.

  • Whiskey Foxtrot 2 months ago

    Wait until people learn Vancouver has so many super cars because you can buy them on credit cards, and sell it back for pure, clean cash. Pay the bill off overseas, and circumvented.

    Countries with capital controls allow this since you’re not actually taking their foreign reserves with you. You’re paying the bills in a foreign country using worthless cash.

  • Ian Brown 2 months ago

    At what point will we have to start writing articles about the rare occasion someone doesn’t buy it with laundered cash or their parents money? Starting to feel like that’s going to be a news event soon.

  • RWZM 2 months ago

    Considering that a majority of Canadians in Toronto are not from Canada, and almost half of those in Vancouver as well, this is not a surprising or illuminating statistic that meaningfully differentiates between foreign and domestic sources.

    • David Leham 2 months ago

      I think you’re saying in a prolix way that the definition of Canadian is malleable, since it’s one of the easiest and cheapest citizenship you can buy?

      I think the point is there was no elaborate scheme for these people to launder money. It was a complete lack of regard, since domestic borrowers have a higher level of scrutiny.

      • Sarah Lehman 2 months ago

        Hm, “since domestic borrowers have a higher level of scrutiny”? Care to explain how that factors into the “Canadian” amount then, if they have “higher scrutiny”? Contradictory for one thing.

      • Sammy 2 months ago

        If domestic borrowers have a higher level of scrutiny, then why is ‘Canadian’ the largest category for laundering? *shrugs*

        • Trader Jim 2 months ago

          I think that’s the point of the stat stressing these are people that are caught, and the “willful blindness” means we don’t look at legit or illicit capital inflow for the benefit of legit people.

          The more scrutiny a segment undergoes, the more likely they are to “find” that segment to have issues.

          Same thing with getting a mortgage. If you just moved here, you don’t have much documentation so they mostly take your income at face value. If you live here, it needs to be well documented where your income is from.

      • Xi Cheng 2 months ago

        Why are domestics the largest category if they apparently have so much scrutiny?

    • D 2 months ago

      Less than 20% of Canadians are anglos. And less than 5% are indigenous. Canada is an internationalist country by design.

  • Crisis Mode 2 months ago

    Less than two days before the national protest. Be there or be square. Have your voice heard, because it’s not okay for them to allow this with our shelter.

    https://www.canadahousingcrisis.com/protest/

    • Ben Demelo 2 months ago

      👍

    • Axel McLion 2 months ago

      Last I checked that protest was demanding more subsidized housing, not actually demanding anything sane or likely to address the real issues. Into the trash it goes. If that’s the best we have, Canadians are screwed (we probably are either way).

  • Average Man 2 months ago

    This is zero percent surprising. Foreign money launderers are only coming here because we set up a system that makes it easy for our elites to wash their own money domestically.

    People may come from China or Russia or Mexico to take advantage of our rotten system, but the source of the rot is as Canadian as maple syrup.

    • Pleb 2 months ago

      I’m going to take a willlld guess here and say, this exists because of our high taxation rates (for all the plebs who live here, work here, and actually pay taxes). So, on one hand, we fund our generous public health care and our social programs through the poor and average working people paying their taxes, meanwhile, the elites, the monied foreigners, and their banker buddies get this other model to take advantage of, because they don’t like the high taxes, nice loophole. Having their cake and eating it too! And who gets screwed, the average locals, of course.

  • Peter Hyde 2 months ago

    Why would domestic Canadians living on Canadian soil have the need to launder domestic money through real estate? The theory doesn’t make sense, unless of course, that money isn’t actually made in Canada, and the amount labelled “Canadian” has also evaded scrutiny.

    If the majority of laundering was done through corporate structures, which are oblique in nature, then you cannot definitively say that this data is correct. It just means that’s as far as it’s going to let you dig to find the true origin.

    • Haha 2 months ago

      You uneducated idiot, do you know the history of money laundering??? It literally started because of domestic illegal money.

  • Bloemie 2 months ago

    Funny we clearly running up to an election and there is tough on crime and we spend more on low income housing and give more benefits campaigns to bread and circus you into voting for them, yet were is the opposition on this? Why is this not front page news in the paper, why is no-one calling for a full investigation… – of cause the Plutocrats would pull their gracious support for the parties campaigns.

  • Sarah Lehman 2 months ago

    Why would domestic Canadians living on Canadian soil have the need to launder domestic money through real estate?

    The theory doesn’t make sense, unless of course, that money isn’t actually made in Canada, and the amount labelled “Canadian” has also evaded scrutiny.

    This feels like Canadians are being gaslit into blaming themselves for this problem.

    If the majority of laundering was done through corporate structures, which are oblique in nature, then you cannot definitively say that this data is correct. It just means that’s as far as it’s going to let you dig to find the true origin.

    • Voltaire 2 months ago

      Because the country known for being the neutral ground for international crime heads has no illegal money to be laundered. Makes sense.

      This is philosopher level intellectualism you’re demonstrating.

      • Sarah Lehman 2 months ago

        Yeah, you realize you said “international crime heads” right? That means this Canadian money is really internationally-sourced. That’s logic, not philosophy. So essentially, you are saying the same thing I am.

  • WEXIT 2 months ago

    Your comments “ Canada doesn’t track the beneficial owner of a company, so it doesn’t know who owns it”

    This is happening to not only Real Estate, but everyday Limited companies. The company goes in the name of a proxy, at the Provincial Government Registration, and all it takes is a bare trust agreement to transfer the ownership to the true owners. This bare trust is kept at the lawyers office, and no one looking into this company structure knows who the true owner is.

    I have seen it done, and I know people who have worked in these structures. You want to know who you are dealing with in business. In Canada it can be hidden.

    • Trader Jim 2 months ago

      Been a business thing looong before it was a real estate thing. Vancouver was internationally known for this. Stephen has a good thread on his Twitter somewhere that covers it.

  • Mikey 2 months ago

    Just tax real estate capital gains at the highest rate if owned by a company or non-resident. Too bad our politicians really don’t care a flip about Canada

    • Opo 2 months ago

      Yup, that will do it. But we all know in a capitalist system this can never happen.

  • D 2 months ago

    Depending on your source, average income in CAD is between $54,000 – $60,000. Average home price is $800,000 cad. Most Canadians ain’t buying.

    • Ian Brown 2 months ago

      Sales represent the marginal buyer. That buyer has a lot more money in Canada. Sucks to be the average person and isn’t right, but that’s the reason so many people can buy.

      Does it last? Porbably not. Unless Canada shifts into a country where the majority of housing is owned by large institutions. It might happen with the way people vote though.

  • Neek 2 months ago

    Some dumb racist idiots will continue to blame Asians. You know, because they are racist idiots whos been blaming everyone else for their problems.

    • flipg 2 months ago

      Only a fool would blame Asians, Iranians or folks from India.

      Our Government is using manipulative monetary technics (MMT) to Rob Peter and Paul- and bribe that dummy Paul to vote them in again.

    • Axel McLion 2 months ago

      Can’t blame them for taking advantage of our corrupt system, but can still hate them for it.

  • RW 2 months ago

    Or someone that can do math, and understands what a marginal buyer is. Sometimes t he fool is the one that thinks they know it all, and everyone else is ignorant.

  • M.Bury 2 months ago

    I was waiting for the Wilful Blindness drop, then BAM! There it was. Albeit in lower case.

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