Front Burner - B.C.’s ‘staggering’ money laundering problem

Episode Date: June 20, 2022

B.C.’s ‘staggering’ money laundering problem

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. So after a three-year public inquiry, former Supreme Court Justice Austin Cullen released his report on B.C. money laundering last week. And some of its over 1,800 pages tell us what we've known for years, that billions of dollars are flowing illegally into the province, especially into casinos and the real estate market. Sophisticated money launderers have used British Columbia as a clearinghouse

or a terminus for laundering an astounding amount of dirty money. But the scathing report also has a lot to say about where to lay the blame for this problem. For too long, money laundering has been kept on the sidelines for police, for law enforcement, for regulators, and for governments. Too often, it has been largely ignored. It's time for that to change. Today, we're talking to Eric Rankin, a former investigative CBC reporter who's been following this story for years. He's going to take me through why BC has become

a money laundering hub and why governments and law enforcement have been so ineffective at stopping it. Hey Eric, welcome back to the podcast. It's great to have you. Hey, Jamie, great to be here. So we last spoke, of course, in 2019 about this, and I'm hoping maybe we could do a bit of a recap here. How big is the money laundering problem in BC right now? Like, what are we talking about here? Well, I mean, that's the multi-billion dollar question, right? You know, as you mentioned, the Cullen report has come down and, you know, it says that it needs serious attention and it's, you know, unprecedented amounts.

Doesn't really give a precise figure on the volume of dirty money laundered in B.C. Just sort of says, you know, it's billions each year. dirty money laundered in BC. Just sort of says, you know, it's billions each year. You know, there have been previous reports done since the BC NDP government came to power in 2017. Even with many red flags, the problem of money laundering in BC is bigger than we thought and is more entrenched than we'd hoped.

And, you know, those series of investigations and reports have resulted in changes to casino operations and a little bit to real estate. But one report noted, you know, it's a whack-a-mole problem. You pound it down in one place and who knows where it can pop up again. And we saw that with real estate here in B.C., especially the greater Vancouver area. in BC, especially the greater Vancouver area. So the feeling is that the heat is on, but as this latest report points out, much still needs to be done. Yeah. I want to come back to real estate in just a minute, but first, why BC? Why is BC such a hot bed for money laundering versus anywhere else? Well, the problem is happening probably across Canada.

It's just especially bad in BC. And I hate to use the term, but it was kind of like the perfect storm occurred here in the past 20 years or so. And that's because, you know, there's always been a very strong connection between China and British Columbia, especially Hong Kong, like the Hong Kong handover. The entire world will be watching when Hong Kong is handed over to China on July 1st, 1997. For more than 150 years, Hong Kong has been under British control. There was a huge influx of people that coming from Hong Kong that were worried about what was happening. But there was also a

natural kind of bridge to people from mainland China as well. And what's been happening, you know, of course, over the past couple of decades in China is that the economy has taken off like crazy. Huge amount of money has been made by individuals. You know, most of it legally, much of it also illegally. And also a lot of people just wanted to get that money out of China. China has a restriction on how much currency can leave the country. It's like $50,000 a year, which is nothing compared to what some people were trying to move.

So quite naturally, some underground banking systems illegally started to develop. Money started to come into Canada through some of these underground routes. Some of the chartered banks of Canada turned a blind eye to it, basically saying, well, we don't have the rule in China that limits the amount of money. We'll take the cash in. And so a lot of that wealth was transferred to BC. A lot of investment was made into real estate, people moving into multimillion-dollar mansions. But then what started to happen too is that in China, there is a fondness for gambling. And so that started to pick up in British Columbia. And then people started to borrow money against the value of their homes from illicit sources, a lot of the time gangsters.

And so that's how it sort of happened in BC. Tell me a little bit more about that. You borrow money from a gangster and you do what with it? Well, yeah. So, you know, you've brought your cash over or as much as you possibly can. You've invested in a home. So, you know, you need money. You want $150,000 to go gambling.

And believe me, that sounds like a lot of money, but, you know, that was, you know, not atypical. So what would happen is that people in effect would borrow against the worth of the home they were in with these illicit sources. You know, you'd get the money and basically the illicit source would say, okay, so I've got $150,000 stake on your home. And what we found through court documents, and it wasn't just me doing this, there were some excellent reporting by former colleague, CBC colleague, Kathy Tomlinson, gone to the Globe and Mail and to Global's reporter Sam Cooper, they showed just how oftentimes these illicit lenders would have the audacity to go to court when they weren't being paid and demand payment through the court claiming, you know, we've given these people a mortgage.

They're not paying. Give us the money. Also distorting it even to, you know, we helped build the house and so we erode money. And so sometimes the courts were actually helping the illicit lenders get their money back with the court system being in a way abused. What kind of impact would all of this have on the housing market in Vancouver? Well, you know, that's a really, really interesting question. So Austin Cullen, the commissioner who brought down this latest report, you know, he says that there's no real clear indication that it did have an impact on the real estate market.

Though he does says that, you know, it begs further study. Other reports have been more specific. Well, we got two jaw-dropping reports yesterday from the provincial government that tell us just how much money laundering contributes to the high prices. Here is the figure. Five percent. Money laundering increases the cost of housing an additional five percent. Which doesn't sound like much, but like on a 1.3 million dollar home, which is practically the average here now, you know, that's an extra $65,000. But, I mean, others would argue that the whole market has been distorted year after year after year because so much money has flowed in.

Many times homes are purchased over asking that people buy homes sight unseen, no inspections. You know, though Cullen says there's no clear evidence, I think others would say it's a case of being sort of in a pot, being slowly boiled to death here in BC, that it's been a slow, inexorable change. Yeah. And I guess the question I have is, what other tangible impacts, why should we care about all of this money coming from China through BC? Well, it's not just some of the things we've been talking about, whether it be casinos were used and abused, and sometimes willingly by the casinos and also by the government that was making an awful lot of money. But I mean, there's also been blood on the streets here because a lot of the money

that's been generated that has been lent to use in gambling and to use in real estate, that money is illegally obtained. I mean, it's from the sale of illicit drugs. And so it's this vicious circle basically of gangs making billions of dollars and then pouring it into having to clean it up. So if you've seen Ozark or Breaking Bad, you know, you've seen the scenes where the protagonist is sitting in their home, stuffing wads of bills into the floorboards or into the wall.

Where is it? Where's the rest? The money, Skyler. Where is the rest? There's so much money that's been made that it can't be spent without raising suspicions. You know, banks and credit unions have very stringent, suspicious money reporting provisions. They've got to flag anything over $10,000. So the gangs have got to find ways to try to make the cash look legitimate. And one of the ways was by lending money to these people who

were gambling, then being paid back. And the money would often be paid back in China to gang connections there. So it's not so much that the money was transferred here, but it was going back into the drug trade back in China. But also with casinos in the early days, you could lend money to a gambler. The gambler would get a cashier credit, would gamble just a little bit, cash out, and then the money would be paid back in a cashier check to the individual.

And thus it would appear to be legitimate. It would be like back in a cashier check to the individual, and thus it would appear to be legitimate. It would be like casino winnings. Why don't you guys count the cash? So we take $15,000 and split it three ways, going undercover to see if we'll be caught using money laundering techniques. Ready to go. Within an hour, we have credits for the thousands of dollars not played and proceed to the cashier asking for

an official casino check not cash 15 000 now laundered clean right you go in with illegitimate money you come out with with a cashier's check yes and and also real estate is like that too you know if you find a way that you can you can get your money into real estate, then that real estate where Vancouver's market was going insane there for a while, and it's a little quieter right now. But you were watching your money exponentially grow in the real estate market here and the homes could be resold. And then that would, again, be legitimate money. You've just sold property. You may have bought the property with dirty money. But then when you sell it, it's clean again.

And so what kind of impact would this have on the economy in British Columbia? when a lot of this stuff took off was making an awful lot of money from casinos and also, you know, through other aspects of the economy. And so there was a certain addiction to that amount of money that was going into provincial coffers. And so the question is raised, was the government truly completely unaware of what was going on? And there were lots of reports internally that were saying, look out. And I was doing tons of reports on the CBC year after year showing there was a problem. So were they really completely unaware? Did they think that they were dealing with it, which they'll argue that, you know,

they thought they had the best safeguards in place? Or, you know, was it a case of willful blindness, which they've also been accused of, where it was just, you didn't want to kill the goose that was laying the golden egg. There was too much money flowing into the economy and into provincial coffers. I know the new report lays the blame in a few different places. And what does it say about how BC politicians responded to the problem? Well, you know, that to me was something

that really stood out. Now, you know, Commissioner Cullen, I think was being very diplomatic in his language, being very careful, but he did point to the previous BC Liberal government where this all happened kind of on their watch, saying that there was a lack of will, there was a lack of coordination, there was an ineffective response, an inadequate response,

there were missed opportunities, the government didn't meet the challenge. The information was there to draw different conclusions about what was transpiring within the casinos, but I think there was a failure of will to deal with it. You know, he mentions the former premier, Christy Clark. He mentions the former minister responsible for gaming, Rich Coleman, and a couple of other successors in that position. You know, he very clearly says there were failures by elected officials, but he also says there was no evidence of corruption.

They definitely did take steps, but the steps weren't up to the task of abating money laundering in casinos, which was the major problem at that time. I know the report also talks about the failure of FINTRAC, the federal agency. I wonder if you could just explain what FinTrack is and what it was doing or not doing here. Yeah. Well, you know, FinTrack is a very quiet and secretive agency. I mean, I've had dealings with them and you really get the feeling that it's a, they're a bunch of very secretive accountants that are, you know, gathering information and they don't like to, then they don't like to talk about what they're finding. So FinTrack is the federal- Got a real CSIS vibe, yeah. Yeah, it kind of does.

Yeah, FinTrack is short for financial transaction, blah, blah, blah. It's the Federal Financial Tracking Agency and it receives and analyzes information from across the country. And it's any kind of transactions over $10,000 that are flagged as being suspicious. You know, the Cullen Report says that, you know, that Fintrack was overwhelmed and way too slow in terms of communicating that there were issues with provinces, especially with BC, that, you know, it was just ineffective. It'd be very strong words against Fintrack. You know, for an example, the Cullen report talked about 31 million reports that were coming into FinTrack

in one year of suspicious transactions across the country. Only 2,000 of that 31 million were passed to law enforcement in Canada, and just 355 reports were given to BC. So it just seemed to be too slow, according to Cullen. And so Cullen is now calling for BC to create its own agency. Like, forget about FinTrack now. We should just do our own thing here. Okay. And what about law enforcement, I guess? Like, where's the RCMP in all of this?

Yeah. You know, Cullen also really chastised the RCMP for just not making this a priority. I think he finds that there was a lack of priority and a lack of resources dedicated to the investigation of and ultimately fight against money laundering by law enforcement in this province for a significant period of time. I think it was just a case of the RCMP having cuts to deal with and manpower shortages and just making other things a priority. I mean, there was an infamous case here where there was a massive investigation called E-Pirate that was looking at a very specific money lending institution, one of these illicit kind of mortgage lenders and currency conversion

places. And they did a massive, the biggest anti-money laundering investigation in Canadian history looking at this particular place. And they brought charges against the operators and the whole case collapsed in court a short time later. The charges had to be stayed because it turned out, the indication is, that the lead investigators from the RCMP, a new boss came in, basically said, what are we doing here? I'm going to reassign all you guys to two different files. And there was no adequate oversight of what was being done in the case. And there was a clerical error that was made that wasn't checked. And there was a clerical error that was made that wasn't checked.

And information was shared with defense lawyers that should have been redacted, that wasn't redacted. And information about witnesses and, you know, secret people who had provided information had been provided to the defense. The Crown and the police made a mistake vetting this information. And so this showed the identity of an informant. The fear was that if the case went forward, the informant could be killed. And so this massive investigation collapsed. So there's an example of how cuts and deciding that this is not the first report that we've talked about and also that has been written, right? Yeah. And so do you think that there are any recommendations in this report that might actually move the needle here, that might actually make a difference?

Yeah, you know, when the new NDP, BC NDP government came into power, the Attorney General, David Eby, you know, really made this a priority. Now, you can claim that there were politics involved, that, you know, that there was an attempt here to make the previous BC Liberal government look really, really bad. But there is obviously a need, as I'd been reporting, that this problem was just snowballing. The Liberals will argue that they did make some changes, that they did hold their own kind of inquiries. They did bring in some of the recommendations that were made. But really, it was too little too late. A lot of the stuff was being done like in the last year of their reign in power. So the recommendations that the Cullen report have

brought down, I think, are going to really make a difference. And David Eby has said that he's going to accept the 100 or so recommendations. One example is that Cullen is calling for the creation of an independent anti-money laundering commissioner. And Cullen said, I don't want the job, but we need a commissioner appointed that has tremendous powers. That individual, he or she can bypass the minister, the responsible for gaming, and just bring in changes, can order the BC Lottery Corporation, which oversees casinos and gaming, can just order them to make changes. So, and also the, the, the other bottom line is that there have to be better checks and balances for mortgage brokers and luxury goods sales and lawyers and chartered accountants and all sales,

all cash sales for anything, luxury goods, real estate, whatever, any sales over $10,000 have to be reported. The source of that income has to be revealed. Ha. Okay. Eric, thank you so much for this.

You're very welcome. All right, that is all for today. I'm Jamie Poisson. Thanks so much for listening, and we'll talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.