New Report Calls for Increased Regulation to Address Money-Laundering in Canada

written on behalf of Feigenbaum Law

This week, CBC News is reporting that lax regulations have made Canada a prime location for money laundering. These headlines come in the wake of a recent report issued by well-known policy think-tank C.D. Howe Institute titled “Why We Fail to Catch Money Launderers 99.9 percent of the Time” in which the Institute highlights ways in which Canada has been deficient in fighting money laundering.

Why Money Laundering is Difficult to Investigate

The report, authored by Kevin Comeau- a member of Transparency International Canada’s working group on beneficial ownership transparency, posits that Canada’s anti-money-laundering provisions, especially in the realm of real estate, are among the weakest across all western liberal democracies.

The report notes that money launderers enjoy a number of advantages that propel them ahead of the police and others who are responsible for investigating and eventually prosecuting their actions. Namely:

• Money laundering is effectively invisible: it occurs at a different time and place from its underlying crime (e.g. tax fraud, tax evasion) and involves different actors;
• Money launderers are anonymous perpetrators; and
• There are legal obstacles and challenges in tracing “dirty money” to its source.

The International Monetary Fund (IMF) estimates that, globally, between 2-5% of world GDP is laundered money. If you apply these figures to Canada’s gross GDP in 2018, between $100 to $130 billion is laundered through Canada annually.

Key Problems with Anti-Money-Laundering in Canada

The report also notes that Canada has fallen behind other countries in terms of anti-money-laundering. For instance, Canada allows nominees, companies, and trusts to buy and sell property without revealing the person who is the beneficial owner of that property. Basically, its possible to conceal true ownership of, for instance, real estate, through creating a trust or a corporation.

This has been addressed by some levels of government. For instance, British Columbia recently introduced Canada’s first public land ownership registry after it was revealed that billions of dollars of laundered money was likely being funnelled through that province’s casinos for many years. British Columbia is also now investigating money being laundered through real estate.

The federal government recently amended the Canada Business Corporations Act (CBCA) to require all federally incorporated companies to collect and record specific beneficial ownership information about individuals who exercise significant control over the company.

However, this information is not available to the public nor it is accessible by law enforcement agencies and relevant authorities such as FINTRAC and the CRA. Only the Director, shareholders, and creditors of the corporation have access to this information. This is in direct violation of the international standard recommended by the Financial Action Task Force (FATF).

Previous Recommendations

A previous C.D. Howe report had made some key recommendations intended to ameliorate this weakness.

Two of these recommendations were:

• A publicly accessible registry of beneficial ownership; and
• Mandatory declarations of beneficial ownership with meaningful sanctions for false declaration.

Neither of these recommendations were included in a report on money laundering issues by the House of Commons in November 2018.

Re-Iterated Recommendations to Improve Canada’s Anti-Money-Laundering Regime

This new report re-emphasizes these recommendations and notes that their implementation would “fundamentally improve” Canada’s ability to combat money laundering.

Comeau calls for:

• The creation of a publicly accessible registry of beneficial ownership for corporations, trusts, and real estate, and a mandatory declaration of who the true owner of the corporation or trust is (this is similar to the registry that the U.K recently created, which we’ve previously blogged about);
• Strict penalties if individuals are caught making false declarations or providing false information on the registry (similar to the fines and potential jail time that result from tax evasion).

How Can We Help?

We will continue to follow developments in this matter and will provide updates as they become available. In the interim, if you have questions about personal tax planning or corporate tax planning contact Mark Feigenbaum. We can help you reduce your overall tax burden, shield your business from liabilities, and remain compliant and avoid pitfalls that result from improper tax planning. We provide full tax services with respect to your cross-border business initiatives. We offer services to clients in the US, Canada and around the world. Contact us at mark@feigenbaumlaw.com, or call us at (416) 777-8433 or toll free at (877) 275-4792 to learn more about how we can help.