Money laundering was rampant in B.C. casinos. It appears to be increasing dramatically in the luxury-car market.
The next big reveal is scheduled for today, when proceeds-of-crime expert Peter German’s look at the real-estate industry is to be released.
Based on German’s previous reports, there’s no reason to suspect it will be any less disturbing. The only sector that has come up clean so far is horse racing, because it has shrunk so much there’s not much going on.
The recommendations arising from the findings will likely follow the same theme — major new regulatory powers and reporting requirements are needed to clean up the sectors.
Although the casino report came long after the biggest wave of dirty money had subsided, it still urged a host of new controls and policing procedures. The same was recommended in this week’s probe into the luxury-car market. The reason the racket works so well is that the control and regulation are so lax.
Anyone could tell in a nanosecond that a young man in the showroom with limited English, no B.C. ID and a shopping bag full of cash or an offshore money transfer is operating in the grey-verging-on-black market. That’s one of the vignettes German recounted after talking to dealers.
But there are next to no constraints on the individual closing a deal.
German’s report this week said organized crime figures are “unhindered” in their ability to launder money via luxury-car purchases. Far from curtailing the racket, authorities are bending over backward to support it.
They’re obligated to supply tax refunds to straw buyers who purchase vehicles, then export them overseas.
The startling amount of tax refunds supplied to suspicious individuals — $85 million in the past few years — got lots of attention when the report was released.
It’s the process of closing the gap between authorities and organized crime — usually several steps ahead — that needs sustained attention.
German said the fact dealers deposit the cash from those dubious buys in banks with no questions asked fails to provide any visibility on the transaction, particularly about the source of funds.
With the suspicious buyers moving to international credit cards, German said there’s no indication of the source of funds there, either.
One dealer told him: “It’s unequivocally money laundering. People who are not employed, don’t pay tax, showing bank statements with large sums being wired frequently into their accounts … but can buy expensive cars with money coming from out of the country.”
German’s report said: “The absence of financial reporting by vehicle dealers to FINTRAC [the federal tracking system] leaves this sector largely unregulated from a financial-crime perspective.”
German also said vehicle auction houses are also not a reporting sector to FINTRAC.
Vehicle transactions are tracked by provincial authorities, but the process is focused on consumer protection and not money laundering.
“Canada would benefit from universal cash reporting of cash sales over a threshold,” he concluded.
But the casinos routinely reported large cash transactions and it didn’t accomplish anything, so it’s hard to see what that massive new bureaucratic effort would achieve.
And one dealer told him that “would fix the problem from 10 years ago,” but not address the foreign-credit-card use.
German’s exposé on money laundering in the luxury-vehicle sector set off a mad scramble in government. It has been forwarded to ICBC, the vehicle sales authority and the police. The Finance Ministry is reviewing the PST refunds. New regulations and legislation are being prepared.
It will likely pale in comparison with what would be needed in real estate, if German’s batting record holds. The industry is much bigger, the dollar values are huge and officialdom is just as far behind.
It was only a few years ago that B.C. didn’t have any mechanism even to identify foreign buyers of real estate. The previous government brought one in, after much dithering.
The speculation tax has refined that, but curbing money laundering would require a lot more oversight of that market. Even with that, convicting people of money laundering is almost unheard-of now because it’s so complicated.
It’s likely to remain that way for a while.