Kim Marsh is interviewed by ACAMS MoneyLaundering.com | Originally Published August 31, 2015
Lax enforcement of Canada’s anti-money laundering laws and regulations have helped make British Columbian property an attractive investment for criminals, according to Kenneth Marsh, a former investigator of organized crime for the Royal Canadian Mounted Police.
Because prosecution rates remain low and the real estate sector as a whole has reported few suspicious deals to the Financial Transactions and Reports Analysis Centre (Fintrac), the province has become a “pretty risk-free place” for money launderers, said Marsh, now an executive vice president with IPSA International in Vancouver.
In a recent interview with ACAMS moneylaundering.com reporter Larissa Bernardes, Marsh advocated for tougher money-laundering measures and discussed Canada’s upcoming evaluation by the Financial Action Task Force (FATF). What follows is an edited transcript of their conversation.
A recent report drafted by Grant Thornton for Fintrac concluded that real estate in British Columbia is particularly vulnerable to money laundering. What makes the province an attractive destination for dirty money?
It’s become attractive to people from outside of the country as a good place to live in, over probably the last 20 years. The laws are pretty lenient when it comes to money laundering. There have been very few prosecutions that have happened since 2007, when the new legislation came into place. The penalties are also very low compared to the U.S., where there are hefty fines. So I think overall it’s a pretty risk-free place for people wanting to put money into the market.
There are a lot of residential building going on—condos similar to Miami—and that’s attractive to people wanting to get money into the market and not necessarily live there. A lot of the money is coming from offshore and there’s no understanding of where the money may have come from. So that’s a big part of the issue with prosecutions.
What should be done to curb illicit activity?
The fines have to be increased and the legislation has to be strengthened so that [an individual] loses money if [he or she] can’t give a legitimate reason for bringing in cash. But there’s a reluctance to do that in Canada and our courts and Supreme Court seem to be reluctant to allow tougher penalties and legislation.
The Supreme Court of Canada has given the legal industry an exemption from [anti-money laundering regulations] so the law doesn’t pertain to their profession. The legal societies have said they will be handling and administering money-laundering compliance, but there is no transparency. There is no accountability for them outside of their own professional associations.
What do you attribute the reluctance to?
It’s part of our culture. We used to have a minimum sentence for certain crimes, but when our constitution came into place in 1982, that type of penalty was found to be unconstitutional. Our courts do not like legislators to give them sentencing guidelines. They won’t accept it.
Generally, Canadians as a society are forgiving. That’s until you get a situation like Vancouver, where the real estate market is out of control and where prices are being compared to the likes of New York and London. Canadians are now asking themselves, how did that happen?
Also, it’s pretty well known that if you have the right amount of money and legal assistance, things like extradition can be delayed for years. It’s taken 10 or12 years to extradite people.
There are reports that Chinese nationals are buying real estate with illicit proceeds. What types of property are we talking about and how are the purchases typically made?
From what I’ve seen from my own cases, they are residential, high-end residential properties, with some commercial buildings as well. They will set-up offshore entities and, historically with the Chinese, the British Virgins Islands have been popular [as well as the use of] international business corporations. I’ve been told [there’s a new trend to use the] Cook Islands out in the Pacific. Often, they will list family members as the registered owner of the property.
What should banks look for?What should banks look for?
In my own experience, trust accounts don’t get a lot of attention by the banks. So I would be focusing on the money coming into trust accounts that have been set up by lawyers and law firms. I don’t think people are coming in with a bag of cash to buy a house. [That money will probably] be arriving through wire transfers.
The Grant Thornton report claims the real estate sector as a whole is not meeting its AML obligations. What evidence is there of that?
According to Fintrac, there have been seven disclosures [by firms] since 2007
Do you believe the government will levy sizeable fines against noncompliant firms?
I hope so. I’m not optimistic. We have an election at the end of the year. If the conservatives win, they would be more likely to put in tougher legislation, but they will have a tough time making it stick. The Supreme Court has previously struck down nine portions of [financial crime laws, citing constitutional issues].
How do you think Canada will fare in its next FATF evaluation?
I can’t see [Canada] faring very well. It will probably get a bad score on many levels and I hope that will change things. But the changes can’t be as cosmetic as they have been in the past. That was what happened in 2007 and since then there’s been almost zero prosecutions.
What do you believe FATF would cite?
I think there has to be a more effective regulator. Why has the real estate industry only made seven disclosures so far? Industries need to be compelled to be compliant. [Regulators] need to loosen up on what information can be disclosed. Law enforcement needs this information, so how the information is shared should be looked at.
Then pressure also has to be put on law enforcement. I think they have lost a lot of their expertise on financial crimes. There has been a shift from investigating organized crime and financial crime to public safety issues because of gang activity. These gangland shootings are happening regularly in Vancouver, so [law enforcement] has been focusing on that. I would put the prosecutors in the same categoryThen pressure also has to be put on law enforcement. I think they have lost a lot of their expertise on financial crimes. There has been a shift from investigating organized crime and financial crime to public safety issues because of gang activity. These gangland shootings are happening regularly in Vancouver, so [law enforcement] has been focusing on that. I would put the prosecutors in the same category.
You served for 25 years in the Royal Canadian Mounted Police. How have Canada’s vulnerabilities to financial crime changed over that time?
The police are not focusing on financial crime and they have lost a lot of their expertise. That’s gone to the private sector. [Financial crime] cases [are often] international and require a lot of travel and resources to pull it all together. It’s become not really feasible to prosecute and use the court system. As a result—and you won’t get people to say it openly but you have to look at the facts—there are very, very few prosecutions.
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