What Level Of Money Laundering Exists In The Ontario Real Estate Industry?


There was a lot of talk about this subject in the comments section of Monday’s blog, and even a couple of readers who asked me to weigh in.

I hesitated to opine about the topic for one really, really big reason: everything we discuss in merely speculation.

Sure, those of you who post anonymously can rest on your impossible-to-prove laurels, and claim, “I happen to know for a fact that X, Y, and Z individuals are responsible for $Q amount of money laundering each year,” but this conversation really has no definitive answers, and finite endings.

Not only that, I honestly don’t know if we’ll come to a consensus, or be able to offer any potential solutions.

Having said that, I do want to make one thing abundantly clear before we move on: I was wrong.

I was wrong, oh-so-wrong, about FINTRAC.

On November 30th, 2018, I wrote a blog post called, “The Friday Rant: Forget FINTRAC!”

Now to be honest, I still stand by most of what I wrote in that blog post, because I believe that governmental waste, inefficiency, over-spending, bureaucracy, and make-work projects are at an all-time high in Canada, and I don’t see any preventative measures in place with the FINTRAC regulations in real estate.

However, I will freely and humbly admit that I was wrong when I suggested that there was “zero evidence” of rampant money laundering in real estate.

It didn’t take long for my readers to jump all over that with press releases to the contrary.

But last week, the story absolutely blew up.

Most of the news came out of British Columbia, and it started with an article about luxury car sales:

The Vancouver Sun, Tuesday, May 7th, 2019: “‘Bags Of Money’ Being Used To Buy Cars In B.C., According To New Money Laundering Report”

From the article:

In one instance, a luxury vehicle was purchased from a dealer with $240,000 in cash. Several staff took the money to the car dealer’s bank because of safety concerns.

The bank accepted the money because it is not illegal to do so from a business such as a luxury car dealer, said former deputy RCMP commissioner Peter German, the author of the report.

Presumably, the bank made a large money transaction report to Canada’s financial intelligence gathering agency, the Financial Transactions and Reports Analysis Centre (Fintrac), added German.

Federal laws do not require that luxury car dealers make suspicious or large money transaction reports to Fintrac, something that needs to change, said B.C. Attorney-General David Eby.

Upon reading this article, a colleague of mine remarked, “Just watch – the next article will be about real estate.”

And he was right.

It only took two days, but the newspaper followed up with this:

The Vancouver Sun, Thursday, May 9th, 2019: “$5 Billion Laundered Through B.C. Real Estate, Inflating Home Prices: Report”

From the article:

The cost of buying a home in B.C. increased by as much as five per cent last year due to more than $5 billion in dirty money from organized crime laundered through the province’s real estate sector, according to a new expert panel report.

Former deputy attorney general Maureen Maloney chaired the panel on money laundering, which released a report Thursday that concluded it “cautiously estimates that almost five per cent of the value of real estate transactions in the province result from money laundering investment.”

In addition, she concluded: “The estimated impact of that would be to increase housing prices by about five per cent.”

“Successfully reducing money laundering investment in B.C. real estate should have modest but observable impact on housing affordability,” read the Maloney report.

She said actual figures are difficult to calculate — at one point dubbing them “estimating the inestimable” — but that the prevalence of dirty cash and organized crime trying to avoid taxes has distorted the economy.

However, her report concluded $47 billion in money laundering occurred in Canada in 2018.

Of that, $7.4 billion was in B.C., making it only the fourth-highest in the country behind Ontario, Alberta and the Prairies.

Wait a minute…just wait…

Did I read that correctly?

“Of that, $7.4 Billion was in B.C., making it on the fourth-highest in the country behind Ontario, Alberta, and the Praries?”

I find this fascinating for two reasons:

1) I can’t believe British Columbia is not first on the list, and yes, it’s for reasons that I believe some might find culturally-insensitive, but I would find it irresponsible not to have this discussion.

2) I can’t believe Ontario is first on the list!  What in the world…

Now if you read the rest of the article, you’ll see that they have provided this helpful, yet not entirely helpful graph:

(credit: Vancouver Sun)

This is great, except that it only goes up to 2015.

And the article is referencing $7.4 Billion in laundered money in B.C. in 2018, not to mention $47 Billion in Canada in total.

Later in the article, we’re given this beauty as well:

(credit: Vancouver Sun)

“No available estimates” plays right into my point, which is simply that I don’t know how accurate we can be when it comes to estimating money laundering, and that none of us really know how big the problem is.

I’m not downplaying this, but rather I question the accuracy, and attempts at attaining it.

The same goes for these never-ending conversations that took place from 2015 to 2018 about “foreign buyers.”

Remember when the evil, faceless, nameless foreign buyer was to blame for rising real estate prices?  Estimates on how much of a role they played ranged from as little as 3-5% from more credible sources (economists, CMHC, et al) up to 10-15% from those of us, myself included, that would go on feel more than anything else.

In markets like Toronto and Vancouver, in periods like the spring of 2017, foreign buyers were snapping up just about everything in sight.  An estimate of 10-15% during that period would have been low in the eyes of many.

I can’t find the article, but I do remember reading a quote from somebody at CMHC saying that while best efforts are made, the estimates were exactly that: estimates.  They couldn’t say for certain how close their numbers were to reality.

When it comes to the data the government has collected on money laundering, I actually think that these numbers may be more accurate than even a cynic like me would believe.

“Combatting Money Laundering in B.C. Real Estate” is a 184-page report that was put together by three professors at B.C. universities for the Minister of Finance and Deputy Premier, Carole James.

I don’t have time to go through 184 pages, but I did spend a solid 20 minutes reading through this on Tuesday.

Of note:

The amount of money laundering is significant, but it is difficult to measure.
The Panel conservatively estimates annual money laundering activity in 2015 in Canada at $41.3 billion ($46.7 billion for 2018) and in BC at $6.3 billion ($7.4 billion for 2018). This is the first money laundering estimate for Canada or a province generated on the basis of economic analysis and modelling and the first estimate of money laundering over time. However, it must be stressed that the inherent secrecy of an activity designed to hide the true nature
of financial transactions, together with the lack of reliable, internationally consistent data, means that there is no definitive way to measure money laundering activity. The methodology used is likely to generate an estimate of money laundering near its lower bound.

Money laundering investment in BC real estate is sufficient to have raised housing prices and contributed to BC’s housing affordability issue.
The data limitations that make it difficult to estimate the level of money laundering make it even more challenging to estimate the allocation of money laundering to specific economic sectors, such as real estate and the impact of that investment on house prices. The Panel cautiously estimates that almost 5 percent of the value of real estate transactions in the province result from money laundering investment. The estimated impact of that would be to increase housing prices by about 5 percent. Successfully reducing money laundering investment in BC real estate should have a modest but observable impact on housing affordability.

Most of the proposed solutions, of course, have to do with more government regulation, oversight, and undoubtedly new jobs created.

The authors of the report offered twenty-nine recommendations on how to combat money laundering, and transparency seemed to be the running theme.

This week, the articles in the Vancouver Sun continued to run:

Monday, May 13th: “Attorney General Wants To Name Names In A Public Inquiry On Money Laundering”

Tuesday, May 14th: “The Power Of Public Inquiry Into Money Laundering: How Much Will B.C. Have?”

And finally this week, the conversation turned to Toronto:

Tuesday, May 14th, 2019: “Realtors Call For Land Registry To Crack Down On Money Laundering”

On the surface, this is more P.R. by the Ontario Real Estate Association and the Toronto Real Estate Board to act as though Realtors care.

But a bit deeper lays the fact that there’s a fine line between “protecting privacy” and “assisting money launderers,” or at least that’s how I perceive all of this.

Let’s not forget that if you want to know the directors of any numbered Ontario corporation, you can pull those records.  The more sophisticated individuals will use shell companies, offshore accounts, and anything you can dream up in movies or TV shows.  But not every money launderer is so sophisticated.

A very important part of the Toronto Star article says the following:

Registries have proven effective in discouraging criminals, who buy homes through numbered companies and with cash to make it difficult or impossible to trace the origin of funds. Cash purchases of luxury real estate by anonymous companies plummeted 70 per cent in areas where the U.S. Department of Justice imposed a requirement that purchasers reveal their identities.

Great, so sign us up.

British Columbia is the first province in Canada to institute such a registry, and it won’t (or shouldn’t…) be long before the province of Ontario follows suit.

The one part of the article I took issue with was this:

Garry Clement, former national director of the RCMP’s proceeds of crime program, now trains bankers and other professionals — including real-estate agents — on how to catch money laundering.

He said he was shocked when he asked a room full of real-estate agents how many of them had ever accepted cash payments.

“The hands shot up,” he said. “They just didn’t see anything wrong with it.”

Even when they suspect something is fishy, real-estate agents don’t want to turn down big commissions.

“They haven’t taken (the money laundering rules) seriously,” he said. “This plays into the hands of organized crime.

“They’ll never get it right until some prominent agent or broker is walked out in handcuffs,” he said. “At some point, everyone has an obligation to put ethics ahead of profit.

A few points:

1) I have never seen cash in a transaction, through 15 years in this business.  Not a dollar, let alone $100,000.

2) I would never accept cash in any form, so the quote, “They just didn’t see anything wrong with it” can’t be taken at face value.

3) “Turning down big commissions” has nothing to do with this, or at least, not for agents like myself.

As I write this, I have two listings for which the general public is clamouring for me to represent them in a multiple-offer situation.  There’s a lineup at the door, for real.

I have told every single one of these people who I will not, under any circumstances, represent both buyer and seller.

I even have people – in this area, many of them Bay Street lawyers or financial service employees, explaining to me, “You stand to make $XX more if you double-end this, what’s the problem?”

I value my reputation and good standing above all else, because it’s how I got to where I am.

So these quotes above, about agents “not seeing anything wrong with it” and “not wanting to turn down big commissions” are ones that I find insulting.

I don’t believe this quote is accurate.  Yes, there are bad apples in our industry, but most agents wouldn’t know what to do with $10,000 in cash, and somewhere in their brokerage, management and/or ownership would advise them to proceed in a different direction.

If somebody showed up to my brokerage with $100,000 in cash, I would turn them away.  I’d like to believe that so too would every other agent in my firm.

So in the end, I offer zero solutions here, folks.

But I was honest about this in the beginning.

Discuss, debate, opine, but what’s the solution?  Do any of us have one?  Do any of us trust the government to figure this out?  Or do we believe that a notably-reactive government can never expect to stay one step ahead of the sophisticated money launderers?

One thing I believe we can all admit, however, is that the data provided in the reports referenced above, even if slightly inflated (when in fact they could be conservative), are cause for concern for all Canadians.

I, for one, am in favour of anything that OREA or TREB suggest we implement, as an industry.





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