A major inquiry has revealed what I and many others in the fraud space have long said: money laundering is rampant in one of Canada’s main provinces, British Columbia (B.C.), and the few cursory efforts made by the federal and provincial governments to tackle it have been largely ineffective.
In a final report released June 15 by the Commission of Inquiry into Money Laundering in British Columbia, Supreme Court Justice Austin Cullen said that British Columbia needs to establish a dedicated provincial money laundering intelligence and investigation unit and appoint a commissioner to oversee the government’s approach to the problem.
In his more than 1,800-page report, Cullen said: “The public was rightfully disturbed by the prospect of criminals laundering their cash and parking their illicit proceeds in this province.”
He said it was impossible to know just how much criminal cash was laundered in B.C. every year, but some estimates put the amount “in the billions.”
A recurring theme throughout the report was the federal government’s failure to prioritize tackling money laundering. Money laundering is a national problem in Canada, requiring earnest coordination between all levels of government.
Media reports of drug traffickers and organized criminals “washing” money through B.C. casinos were one of the main reasons the Cullen Commission was established by Premier John Horgan in May 2019, after myself and many other Canadians involved in combating fraud drew attention to the scandal of such “snow washing.”
“The illicit cash used by these casino patrons played a central role in fuelling extraordinary growth in large and suspicious transactions in Lower Mainland casinos,” Cullen’s report said.
“In 2014 alone, British Columbia casinos accepted nearly $1.2 billion in cash transactions of $10,000 or more, including 1,881 individual cash buy-ins of $100,000 or more — an average of more than five per day.”
Cullen’s report specifically criticizes the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the nation’s financial intelligence unit responsible for identifying and reporting money laundering threats to law enforcement, as being ineffective and unreliable. Defensive reporting practices led to a high volume of low-quality reports, and the number of those reports that FINTRAC subsequently disclosed to law enforcement was disproportionately low.
The federal government was also criticized for disbanding the RCMP’s Integrated Proceeds of Crime (IPOC) units in 2012. The expertly staffed units in each province handled complex money laundering cases, and their absence enabled an “unchecked growth of money laundering.” A prime example of this exponential growth was in the gaming industry, where the “Vancouver Model” laundered hundreds of millions of dollars worth of dirty cash through casinos following IPOC’s demise. At the practice’s peak in 2014, the British Columbia Lottery Corporation reported to FINTRAC an average of over $500,000 in suspicious transactions per day.
The federal government’s failures demonstrate a need for a provincial unit dedicated solely to money laundering. Otherwise, the report warns, money laundering investigations will have to compete with other concerns, such as national security, for personnel and resources. This finding is hardly a surprise. As I have written previously, fraud investigation wrongfully takes a back seat to other crimes in Canada and globally.
Cullen’s report offers two key recommendations aimed at prioritizing anti-money laundering efforts. The first is the establishment of an independent Anti-Money Laundering (AML) Commissioner, who would be tasked with understanding current trends in money laundering and advising the legislature on how best to respond. The AML Commissioner’s duties would include:
- Producing annual reports on money laundering risks, activity, and responses in the province to keep the public informed.
- Researching emerging trends in and international responses to money laundering.
- Advising government, law enforcement, and regulatory bodies.
- Coordinating anti-money laundering efforts between groups.
The second recommendation is to establish a dedicated provincial money laundering intelligence and investigation unit to lead law enforcement’s response to money laundering. The unit’s duties would include identifying, investigating, and disrupting money laundering operations and training and supporting other investigators in money laundering investigations. Although creating such a unit would require upfront investment, the commission predicts substantial financial benefits to the state by targeting additional assets for forfeiture.
The report also provides industry-specific analyses and recommendations. In the corporate sector, the Commission criticizes “the ease with which criminals are able to establish anonymity through legal contrivances when compared to the considerable challenge to law enforcement in unraveling them.” To combat this anonymity, the report strongly supports the federal government’s commitment to create a publicly accessible beneficial ownership register. Instead of continuing to work on a provincial registry, the Commission advises the province to work with the federal government and other provinces to create a comprehensive pan-Canadian registry by the end of 2023.
The report emphasizes the need for this register to be publicly accessible. The crucial issue will be the resourcing and effective verification of the register, unlike the toothless system championed by London – Companies House – which is open to all but very loosely policed.
Crucially, the report acknowledges that “a beneficial ownership registry is only as good as the quality of the information it contains” and rebukes the UK’s lack of verification:
The United Kingdom’s People with Significant Control registry has been criticized for relying on self-reporting and not verifying the information submitted by companies.
The report proposes three categories of measures to police the register’s accuracy: validation, verification, and authentication.
Validation refers to measures intended to prevent obvious errors, such as having drop boxes instead of open answers. Verification measures include making it easy for users to report suspicious data, requiring registry employees to follow up on each report, and requiring reporting entities under FINTRAC to report discrepancies between their data and information on the registry. Finally, authentication measures include steps such as requiring the disclosing entity to provide proof of accuracy and imposing a duty on the registry to check the accuracy of information disclosed.
Although acknowledging the deficiencies of the UK system is an important first step, I reserve judgment on how effectively the measures listed, while sensible, in theory, would work in reality. For instance, the Commission criticized FINTRAC for not reliably reporting, yet here proposes relying on the scheme for reporting purposes. And even if the proposed measures are effective, they might not be economically feasible – the Commission admits that costs are largely unknown but likely to be substantial.
It is my hope, however, that the Cullen Commission report will serve as a reality check that spurs not only British Columbia but the Canadian government and the other provinces to adopt aggressive anti-money laundering measures and tackle the scourge of economic crime.
With thanks to Olivia VanBennekom, a member of Harvard Law School’s Class of 2024 and Martin Kenney and Co.’s 2022 summer internship program.
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