Real estate bought with offshore cash raises money laundering concerns
Investigator says Canadian real estate market has developed reputation as a place to launder money
A report prepared for Canada’s anti-money laundering watchdog points to offshore cash in the real estate sector as a “significant risk” for criminal wrongdoing.
The Financial Transactions and Reports Analysis Centre of Canada, commonly known as FINTRAC, commissioned a profile of the sector’s vulnerabilities by accountancy firm Grant Thornton.
“The purchase of Canadian real estate assets with offshore money and/or by offshore persons was noted as a significant risk factor,” says an overview of the report, released through access to information.
The report also flags a lack of “quality and ethics infrastructure” in the sector as a concern of “critical importance.”
The warning comes as FINTRAC claims to have significantly increased enforcement around activities in Vancouver’s overheated real estate market.
The agency says it has conducted more than 200 compliance examinations in the real estate sector in Western Canada in the past three years.
By law, real estate brokers, sales representatives and real estate agents have to report suspicious transactions and transactions involving the receipt of $10,000 or more in cash.
But according to FINTRAC’s records, the agency has only received a total of eight reports from January 2012 to June 2015 involving either suspicious or large cash transactions.
‘They’re not transparent’
The Grant Thornton report notes the use of legal trust accounts as a specific area of concern for the real estate sector; lawyers are exempt from FINTRAC’s requirements because of solicitor-client privilege.
Kenneth (Kim) Marsh is a vice-president with IPSA International, a company that works with foreign governments and banks to recover funds and investigate fraud.
He says he has recently been hired by a number of defrauded Chinese banks trying to track down cash laundered into the markets in Vancouver.
“The real estate market is one of those methods that is used fairly extensively,” he said.
“I’ve seen a number of cases now where large amounts of high-end real estate have been purchased over a short period of time, and people are on the run.”
He says the Canadian real estate market has developed a reputation as place to launder money.
“We’re not seeing a lot of disclosures from the real estate industry and who knows what’s going on with the legal industry,” he said.
“They don’t have to comply. They’re not transparent. They’re basically unaccountable.”
Marsh says there is a danger the flight of cash out of China may intensify with current turmoil in the country’s economy and stock market.
In addition to commissioning the Grant Thornton repot, FINTRAC says the agency also recently gathered information from 1,000 realtors across the country with a view to tailoring its compliance strategy to the sector.
