The Decibel - Gold bars, millions of dollars seized by police...is that legal?

Episode Date: September 19, 2024

Back in March of this year, authorities in British Columbia filed an “unexplained wealth order” to seize a safety deposit box that belonged to Michael Patryn, the co-founder of the now-defunct cryptocurrency exchange, Quadriga. That box contained over $250,000 in cash, 45 gold bars, luxury watches and jewellery. The unexplained wealth order compels Mr. Patryn to prove that he obtained those assets legally — or else, he could lose it.Alexandra Posadzki is the Globe’s telecom reporter. She’s on the show to talk about this new legal tool that targets criminal rings and money launderers, and why critics say it could be a violation of Charter rights.  Questions? Comments? Ideas? Email us at [e-mail]

Quadriga was a cryptocurrency exchange, at one point the largest cryptocurrency exchange in Canada. It was co-founded by these two guys, Gerald Cotton and Michael Patron. That's the Globe's Alexandra Pazadsky. And in late 2018, we started hearing reports that investors were not able to get their money out of the exchange. And then shortly after, we found out that Gerald had actually died while he was overseas in India on his honeymoon. Quadriga filed for creditor protection. And soon after, the Ontario Securities Commission found that Quadriga had operated like a Ponzi scheme. Gerald Cotton had died, but his co-founder, Michael Patron, was still around.

So Michael Patron apparently left the company several years in over a dispute with Gerald over a failed attempt to take the exchange public. The latest on Michael Patron is actually a civil forfeiture case out of British Columbia, where the BC Civil Forfeiture Office is attempting to seize the contents of a safety deposit box belonging to Mr. Patron in downtown Vancouver. And inside the box, they found more than $250,000 of cash, 45 gold bars, four luxury watches and other fancy jewelry, as well as two name change certificates. And they're claiming that this is linked to Mr. Patron's involvement in Quadriga. BC authorities are alleging that those contents are connected

to unlawful activity linked to Quadriga. So as part of that civil forfeiture proceeding, the B.C. Civil Forfeiture Office has asked the court for what's known as an unexplained wealth order. And so essentially what they're asking Michael Patron to do is to prove that the contents of that safety deposit box were not obtained through any unlawful activity. BC and Manitoba can now use unexplained wealth orders.

But some critics are worried that they're a violation of charter rights. So today, Alexandra's here to talk about how unexplained wealth orders work, how they help target financial crimes like money laundering, and why they might face legal challenges in the future. I'm Mainika Raman-Wilms and this is The Decibel from the Globe and Mail. Alex, thank you so much for being here. Thank you for having me. Okay, so BC and Manitoba have now brought in this new legal tool, Unexplained Wealth Orders, that BC used against Quadriga co-founder Michael Patron. Before we get into the details of money that's been laundered through various trust accounts and offshore accounts is very, very challenging. And so this is supposed to be

sort of a sophisticated investigative tool that can help authorities trace illegal funds and gain access to them. And in so doing, hopefully disrupt the operations of organized crime groups. Okay, so this is actually a tool, taking assets is actually a tool that kind of effectively targets criminals then. That's right. Okay. Is it also kind of related to, I wonder, I guess money laundering? It sounds like this is part of the issue here. Absolutely.

And so that's kind of the problem is that, you know, these organized crime groups, they're so good at laundering money, like the sophisticated ones. And that's what makes it really hard to follow that trail of money to these, you know, sophisticated techniques of essentially obfuscating the source of the funds. And so, yes, the idea is essentially a new tool to tackle money laundering. So how bad are the money laundering problems in these provinces in B.C. and Manitoba? So we've seen a lot of headlines coming out of B.C. about money laundering, specifically through casinos and real estate. And several years ago, the B.C. government actually struck up a commission to study this issue, which was called the Cullen Commission. And so the Cullen Commission conducted this inquiry into money laundering in the province.

And what they found was what they described as an enormous volume of money being laundered through the B.C. economy every year. They said that it was not possible to put a precise number on just how much money, but they did describe it as a staggering amount. And so one of the things that they pointed to, for instance, was that a single money services business had been involved in laundering more than $220 million per year. And so they do say estimates are in the billions of dollars per year just in BC alone. Wow. And why is this an effective way of targeting criminals? The idea is that you're disrupting the operations of organized crime by going after their cash flows and their assets. And so one of the problems that this is hopefully going to solve, according to people like Manitoba's Minister of Justice and Attorney General, is tackling things like fentanyl, which is obviously harming members of the community

and other harmful drugs. And from what I understand, Manitoba has this law in the books, but they haven't actually used it yet? That's right. As far as I know, they have not issued any unexplained wealth orders just yet, whereas in BC, so far there have been four. All right. Let's, I think, get into some of the details here then, Alex. So in order for us to understand this, when we say civil forfeiture, what does that mean? Civil forfeiture essentially gives authorities the ability to seize assets that they believe were acquired through crime without having to prove that a specific crime occurred. So we already have civil forfeiture in Canada, and there have been a number of legal cases where the courts

have actually backed the civil forfeiture regime and said this is okay. And unexplained wealth orders are sort of a new aspect of that that kind of push the envelope a little further in terms of making it easier for that civil forfeiture to occur. How does an unexplained wealth order actually work? So an unexplained wealth order is part of a civil forfeiture case. And so you'd have the civil forfeiture office launch a case against an individual or individuals who essentially are linked to a crime in some way. And as part of that case, they could then ask the court for an unexplained wealth order. And so the civil forfeiture office would actually have to demonstrate to the court that, you know, there's a good reason to believe that whatever asset they're looking to seize is actually linked to that crime. And if the court agrees and grants the unexplained wealth order, then it introduces this sort of reverse onus in which the owner of that asset has to come

forward and demonstrate that they did not acquire that asset through any unlawful activities. So essentially, they're being asked to prove that they haven't committed a crime. And so that's where the sort of reverse onus kicks in. But it is important to note that, you know, the civil forfeiture office does have an onus as well in order to get the unexplained wealth order in the first place. And then if the court grants it, the person who's the subject of that order could either choose to come forward and say, here's proof that, you know, I acquired this asset through lawful means. Or they could try to fight that unexplained wealth order and say, you know, I disagree with this and it's unconstitutional. Once the assets are successfully seized, what happens to them? Like this is a large amount of money, I would assume, right? So what happens with that money? Well, the idea is the jurisdiction would decide. So in the case of BC, what the government has

said is that they would use these funds for social programs. So things like victim assistance or crime prevention. And can unexplained wealth orders be used against literally anyone? No. So there are limitations to how these orders can be used. They're only to be used for larger assets and they're only to be used in cases where there are actual links to some sort of a crime. So they're not going after Joe Blow's car. It has to be assets that are worth at least $75,000. So for example, in some of the ones that we've seen, they've been requested, you know,

in the case of Michael Patron, as we've discussed, because of his connection to Quadriga. There's two others that were issued before that. One of them was linked to a massive global pump and dump scheme known as the Silverton Exchange. And when you say pump and dump, I think that's having to do with stocks, right? Yes, it's a type of stock fraud. Okay. And then in the other, it was linked to a pump and dump scheme of a company called Jam and Java, which is a coffee venture that uses trademarks relating to the late reggae artist Bob Marley. And then we've also seen one where police were actually responding to a shooting

and stumbled upon a large scale illegal marijuana grow operation. And so they're attempting to seize those assets. And so there does have to be a connection to a crime. We'll be right back. We talked about this being in B.C. and Manitoba. Is this also in place in other parts of the world? Absolutely. So in designing the unexplained wealth order regime in British Columbia, that province took a lot of lessons from the U.K., which has had unexplained wealth order regime in British Columbia, that province took a lot of lessons from the UK, which has had unexplained wealth orders for some time. And that regime has had, you know, some high profile successes and some high profile failures. And so British Columbia, of course, had the benefit of hindsight of being able to see, you know, what the courts had said in some of those cases in the UK. And what I'm told is that they took all of that to

heart in how they have crafted the BC legislation. Can we talk a little bit about what they learned then? Like you said, some, you know, high profile success, but also failure. So what did we learn from the UK examples? Sure. So in the UK, you know, one of the higher profile failures was a case in which the court actually struck down the unexplained wealth hoarders and said that the National Crime Agency's arguments that, you know, because offshore trusts were used, it looked like money laundering, that was not enough. That just because a complex holding structure involving offshore companies was used was not enough to prove, you know, that money laundering was happening. And so the court actually ended up ruling against the crime agency in that instance. And then in terms

of one of the successes, there's actually very recently been a settlement in which the wife of a jailed foreign banker has actually agreed to forfeit two luxury properties in London. And so in the case of the failure, there was a belief within sort of the civil forfeiture community that that could cause a chilling effect in terms of preventing the National Crime Agency from wanting to bring cases forward using unexplained wealth orders. And now with the settlement, that's a bit of a feather in their cap. So maybe that's going to incentivize them to use the tool more. The UK did actually end up modifying the regime a little bit in response to that first case I mentioned. Let's talk a little bit about, I guess, the mechanisms here at work, Alex. What seems to

be really unique about an unexplained wealth order is that the burden of proof is flipped, right? Like it's not innocent until proven guilty. It's actually the other way around. You have to prove your innocence, essentially. So what does that mean for the person who's having that order brought against them? Well, this is the reason why a number of people I spoke to are actually opposed to this regime because of, like you say, it removes the presumption of innocence, which is something that's enshrined in our Charter of Rights and Freedoms. And so they've argued that these unexplained wealth orders actually violate the Charter because you're removing the presumption of innocence and you're also essentially lowering the burden of proof. And so instead of beyond a reasonable doubt,

now it's reasonable grounds to believe. And so the issue, as it's been explained to me in the eyes of some of the people who are concerned about this, is that you're essentially taking something that is a crime, which is money laundering, and then instead of prosecuting it as a crime in the criminal justice system, the case is being moved into the civil courts. And so now you don't have the same criminal protections that you would have if it was being prosecuted as a criminal case, like the presumption of innocence. And so this is where a lot of the concern stems from. Okay, yeah. So that actually seems like a big concern, then I guess, is there the potential that these could really be abused? I mean, there are these safeguards

that we've already kind of spoken about that are intended to prevent abuse. But you know, there are these safeguards that we've already kind of spoken about that are intended to prevent abuse. But, you know, there are always going to be folks concerned that they could potentially be abused depending on who's in power and how they're using them. And so this is very much a live issue that is ultimately going to have to be decided by a court. When you have a new legal tool like this, there are going to be charter challenges. And, you know, the courts will have to decide whether or not this is in contravention of the Charter of Rights and Freedoms or not. And so it will take some time for us to know.

And so I do wonder if perhaps other provinces haven't introduced the tool because they're waiting to see how that all shakes out and whether or not the courts will be on side of these or not. OK, yeah. So like you said, we probably will see a charter challenge. I guess we don't really have a timeline, though, because we don't know when that challenge will be brought. Yeah, though, I will say that in, you know, the three unexplained wealth orders that I have looked at, in the responses that have been filed in court, they all raise some sort of issue around the charter and or constitutionality. So we have talked a little bit about how other provinces are maybe waiting and seeing how this works in BC and Man constitutionality. So we have talked a little bit about how other provinces are maybe waiting and seeing how this works in BC and Manitoba. Do we know, though, if there's anything in the works anywhere else in Canada? Not that I'm aware of, but there were some comments from

the federal government about encouraging provinces to do this. And I think the reason for that is Canada is due for an evaluation by the Financial Action Task Force in terms of how good we are at addressing money laund the ability to deprive criminals of their assets. And so the federal government has encouraged the provinces to tackle this. Okay. And we'll probably see a challenge, it sounds like, with the unexplained wealth order. I just wonder, if we go back to civil forfeiture in general, I mean, that must have raised questions too when that was initially brought in? Yes. And we have had a couple of decisions that have backed that regime. So the courts have said that civil forfeiture broadly, as we have it now, is OK. Obviously, this is still hypothetical at this point, but do we have any idea how a court might rule on this? there was actually a legal opinion offered by a former Supreme Court of Canada justice named Thomas Cromwell. And he actually wrote that an unexplained wealth order regime that was modeled

after one in the UK would not constitute unjustified infringement of any charter right. And so there is, you know, that opinion that, you know, perhaps these will get the green light from the court, but not everyone is convinced of that. Just very lastly here, Alex, we started off by talking about Michael Patron, the Quadriga co-founder. Do we know what happened to the assets that they seized of his? It's still an ongoing case. So my understanding is that those assets are essentially frozen while the case plays its way through the courts. And I would also like to note that as far as we know, Patron is not in Canada.

We actually don't know his whereabouts. His last known whereabouts were in Thailand. But he was recently involved in a cryptocurrency that was advertising a yacht party in Dubai. Wow. Alex, thank you so much for taking the time to be here and explain all of this. Thanks for your interest. That's it for today. I'm Mainika Raman-Wilms.

Today's episode was edited and mixed by Ali Graham. Our producers are Madeline White, Michal Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer. And Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you tomorrow.