Risks, Recommendations, and Observations
On June 15, 2022, the Honorable Austin Cullen of the Commission for Inquiry into Money Laundering in British Columbia (Commission) released its final report (Report).
The Report discusses the money laundering risks by industry in British Columbia (B.C.), the effectiveness of the federal authorities to address those risks, and recommendations that B.C. should implement to address the observations made by the Commission.
The Report highlighted several industries in B.C. of money laundering concern. Notable industries and relevant concerns include:
A money laundering typology known as the “Vancouver model” was used at B.C. casinos. In the Vancouver model typology, “cash facilitators” with criminal affiliation provided cash advances to wealthy casino patrons who repaid the advances using transfers from their overseas bank accounts. These casino patrons were seen using their accounts in higher risk money laundering and drug trafficking jurisdictions, such as China, Mexico, and Colombia.
The strong real estate industry in B.C. makes it attractive for money launderers. Realtors, however, have a poor record of anti-money laundering reporting and related compliance requirements. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reported that between 2015 and 2021, B.C. real estate licensees submitted between seven and 37 suspicious transaction reports per year to FINTRAC. Further, mortgage brokers are not included as reporting entities under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), despite their potential to see money laundering and other suspicious activity.
The money services business (MSB) industry has multiple money laundering risk exposures. One risk is that many do not register with FINTRAC as required. Another is that FINTRAC will only refuse to register an entity if an applicant has a criminal conviction for a specified offence, meaning those who are the subject of an investigation by law enforcement or have criminal charges pending, will still be registered. Further, FINTRAC conducts relatively few compliance examinations for MSBs, and the examinations only occur within the first few years of the MSB’s existence.
The nature of lawyers’ and accountants’ work, paired with their ability to establish corporate entities, trusts, and special purpose vehicles, presents risks for being potentially exploited, both knowingly and unknowingly, by money launderers and other criminals. Further, such structures can obscure the true beneficial ownership and relationships, which frustrates law enforcement investigation efforts.
Luxury goods are vulnerable to money laundering, due to their ability to be purchased in cash, high value, ability to hold or appreciate in value over time, transportability, and liquidity. The risk is heightened in B.C. due to the retailers being subject to little or no regulation.
Trade-based money laundering, information value transfer systems, and bulk cash smuggling are money laundering typologies that frequently rely on misreporting of activity or evading reporting requirements, particularly for cross-border requirements. Due to B.C. being a major international travel and trade jurisdiction, these typologies are prevalent.
In the cryptocurrency industry, many government agencies, law enforcement, and regulators lack expertise and are slower to respond with guidance, regulations, and laws due to its newness. An example is PCMLTFA, which started to include cryptocurrency regulation only in 2020. This has attracted potential criminal activity, exploitation, and money laundering.
The Report stated that the federal anti-money laundering (AML) regime is not effective due to FINTRAC not sharing enough intelligence with law enforcement, and defensive filing by reporting entities that results in high volume yet low value reports. The Report recommends B.C. create its own AML agency and an independent AML commissioner to provide oversight of the province by:
Canadian covered entities in high-risk industries, both within and outside of B.C., should consider proactively assessing their exposure based on the Report’s observations and identify opportunities to improve their financial crime compliance programs. This includes identifying and assessing any operational or technical limitations that would inhibit enhancements and evaluating their current policies, procedures, and controls relating to the Report’s observations and recommendations that provincial or federal authorities may put into effect. Banks and nonbank financial institutions should also consider developing a plan to implement necessary changes, including additional costs and resources required.
Guidehouse can help financial institutions and virtual asset service providers assess their compliance programs in light of the Commission’s Report and identify opportunities to improve their program. Guidehouse has expertise in many areas within compliance, including the following:
Guidehouse can quickly review and assess your financial crime program to determine whether it is sound, identify gaps or weaknesses, or conduct training on AML and Sanctions compliance, including blockchain tracing and analytics. Guidehouse is well-equipped to make an individualized assessment of your unique circumstances and offer innovative advice and solutions for responding to the Report’s observations.
Special thanks to Ji Kang for co-authoring this article.