Ng Weng Hoong in Vancouver
May 20, 2019, Monday, 9.00 am
2,498 words, minus headline

To widespread applause, British Columbia’s New Democratic Party-led government announced on May 15 that it will be launching a full public inquiry into the scourge of money laundering. Premier John Horgan’s decision came days after the release of the final reports of his government’s sensational findings on the purported state of the problem in the province and Canada.

The moment capped a political high point and personal victory for David Eby, BC’s ambitious attorney general who has nurtured the public’s growing anger to engineer this inquiry. In delivering his latest “shocking” conclusion (1) about the scale of money-laundering in B.C., Mr Eby applied at least three lessons he has learned since the publication of the first report (2) last June.

Photo: May 15, 2019. B.C.’s Premier John Horgan, flanked by Attorney General David Eby and Finance Minister Carole James, announcing his government’s decision to launch a public inquiry into money laundering in the province.

The first lesson is to extend the coverage of the money-laundering problem beyond Metro Vancouver to all of Canada. This guarantees national and even international attention, sufficient to force the Prime Minister to publicly acknowledge the “extremely alarming” (3) level of money laundering in B.C. For months, Mr Eby had been complaining about Ottawa’s seeming indifference to his cries for help to deal with this existential threat. The reports could strengthen his hand in the grab for more resources and an expansion of his power base, ostensibly to fix Canada’s out-of-control dirty money problems.

Second, if you raise expectations about “mind-blowing” (4) amounts of dirty money contaminating the province, make sure the sums are truly mind-blowing. In the marketing run-up to the first report, Mr Eby had alarmed everyone about money laundering’s “large-scale” (5) impact on Metro Vancouver’s $50-billion/year housing market. But that claim was immediately shot down by Mr Eby’s own investigator, Peter German, who went off script with his finding that the amount of dirty money was a mere $10 million a year or 0.02% of the housing market. Mr German, a supposed money-laundering expert and a former second-highest ranking officer at the RCMP, and Mr Eby himself clearly had no appreciation for the importance of numbers to back up their hair-raising stories.

Under normal circumstances, this anti-climatic finding coming after months of warnings would have damaged the credibility of both officials. They would and should have been viewed skeptically for any future attempts to sell money-laundering tales. But they were spared as the mainstream media was and remains an active collaborator in selling Mr Eby’s “Dirty Money” message.

The latest reports by an expert panel (6) of three university professors and Mr German himself produced genuinely mind-blowing numbers that initially impressed even the Georgia Straight. (7) In releasing the experts’ speculative findings on May 9, Mr Eby and Finance Minister Carole James announced these numbers:

• – Criminals laundered $7.4 billion through the BC economy in 2018;
• – Of that, between $800 million and $5.3 billion were routed through real estate transactions;
• – Dirty money added between 3.7% and 7.5% to the cost of B.C. homes;
• – Laundered money accounted for $47 billion of Canada’s $1.9 trillion economy.
• – The number of luxury cars exported from B.C. to China surged from 100 in 2013 to 4,400 last year.

The third lesson that Mr Eby picked up was to recruit a few more experts to bolster Mr German in selling the money-laundering link to the politically vote-winning issue of unaffordable housing. Maureen Maloney, a School of Public Policy professor at the Simon Fraser University, chaired the panel that included Tsur Somerville, an associate professor at the University of British Columbia’s Sauder School of Business, and Brigitte Unger, a money laundering expert from the University of Utrecht in the Netherlands.

Ms Maloney, who held positions as deputy minister and deputy attorney general under an earlier NDP government, and German opined that money laundering added five percent (8) to the cost of B.C. homes. Their verdict was based purely on projections from questionable academic modelling (9). Nevertheless, it generated plenty of positive media coverage and the predictable public outrage as it aligned with many people’s belief that criminals caused Metro Vancouver’s housing crisis (or boom) of the past decade. How else to explain the doubling or tripling of house prices? Certainly not the region’s strong economy, prolonged low interest rates, the explosive rise in bank lending, and a host of other factors that influential voices in politics, the academia and media have already dismissed.

The threat of money laundering
Undoubtedly, money laundering by crooked politicians, criminal gangs and terror groups is a serious global threat to the security of nations and societies around the world. As experts have noted, this is not a victimless crime as it adds to our cost of living and undermines the rule of law.

The NDP government deserves credit for trying to tackle what has long been a scourge not just in B.C. but also in most countries around the world.

The challenge lies in the details of defining, quantifying and targeting the problem. Those baying for blood will soon find out that this is a near-impossible challenge that has confronted many governments and societies throughout history.

On pages 10 and 11 of its report, Mr Eby’s team of experts refers to Section 462.31 (1) of the Criminal Codeof Canada to define money laundering (10):

While the topic is real estate, this definition is so broad that it covers all forms of financial transactions.

Canada’s stock exchanges, which handle hundreds of billions of dollars in transactions each year, should be a key target of any money-laundering investigation. Money from unknown sources as well as profits earned from questionable stock trades and financing can easily be recycled into real estate or other hard assets as part of the laundering process.

But Mr Eby’s experts make little mention of the stock market. Instead, their focus is on niche areas like luxury cars, horse racing, the consumer market for luxury goods, and the payment of school fees. Mr German, Canada’s best-known money laundering investigator, seems more interested in retail activities worth a few hundred million dollars at most.

As a study in contrast, the UK government’s 2017 national risk assessment report (11) on money laundering and terrorist financing focused attention on the capital markets that include the country’s stock and various financial exchanges. It warned of the “high risks” of money laundering in wholesale banking transactions between large institutions, capital markets that involve raising and trading equity and debt, and the high-speed, high volume transactions in derivatives, currency and commodities. These markets are worth trillions of dollars each year.

In a joint comment, the UK’s Home Office and HM Treasury said these activities (12) are “exposed to high risks of money laundering due to the known risks around correspondent banking, as well as the risks of large sums being laundered through capital markets and the relative lack of controls.”

If B.C. is to grasp the enormity and complexity of today’s money laundering economy, the inquiry, headed by B.C. Supreme Court Justice Austin Cullen, should start with the capital markets rather than real estate, casinos or luxury car exports. The Cullen Commission will need an army of forensic accountants and crime busters to look into the trillions of dollars worth of transactions undertaken by the financial markets for signs of money laundering. With a combined capitalization of over $3 trillion for its companies, the Toronto Stock Exchange dwarfs Metro Vancouver’s $50-billion housing market and the measly $400-million revenue base of the River Rock Casino, supposedly the epicenter of the province’s money-laundering operations. In 2017, the TSX said it enabled companies to raise a total of $54.5 billion in equity capital (13).  The gains from the mergers and acquisitions of listed multi-billion-dollar companies and stock trades are far greater than any that can ever be made through casino gambling using $20 bills, house flipping or the export of luxury cars. While the TSX has a sterling reputation and strong controls to check money laundering, can it guarantee that dirty money won’t find their way through the billions that it handles every year? Insider trading and stock manipulation, two perennial threats that no stock exchanges can eliminate, offer opportunities for criminals to make and launder huge amounts of money with much less effort than property speculation or school fee transactions.

Although Vancouver has a well-earned reputation for being a base for stock scams, it was barely mentioned by Mr Eby’s experts. Last year, the B.C. Securities Commission (BCSC) (14) cracked down on an alleged “corrupt, made-in-B.C. share distribution scheme that has left retail investors holding on to a significant amount of depreciated cannabis, cryptocurrency, mining and alternative energy stocks listed on the highly-speculative Canadian Securities Exchange (CSE).”

A recent update of the story states: “Vancouver’s Bridgemark stock scandal rocks B.C. capital markets” (15). The scheme, worth at least $50 million, is allegedly fraudulent with suggestion that some of the proceeds have found their way into Vancouver’s waterfront homes worth tens of millions of dollars. Is there a case for a money-laundering investigation?

Remember Bre-X (16), the listed Canadian company that falsely claimed to have found huge gold reserves in Indonesia in the 1990s? As Premier Horgan has promised to “go back as far as needed” (17), will the inquiry look into how much of the company’s vanished US$4.4 billion stock market value have washed into Vancouver’s housing market? The rumour on the street is that much of the old money of Vancouver and Toronto was earned from decades of drug dealing, vice, stock scams, and the laundering of the proceeds of crime. This old money was made long before the recent arrival of wealthy Chinese migrants. But it is the newcomers who are now being blamed for Metro Vancouver’s money-laundering, drug and housing affordability crises.

If Mr Horgan goes further back in time, he may have to contend with the theft and illegal sales of aboriginal land because money laundering and crimes of plunder are a major part of the province’s founding history. The Truth and Reconciliation efforts might even include an investigation into money laundered from the plunder of native resources by European settlers. Should we take the Premier at his word and press for a comprehensive inquiry going back to when B.C. joined Canada in 1871?

Another area that deserves scrutiny is the venture capital (VC) business, especially with B.C. seeking to jumpstart its innovation economy. Again, this appears to have escaped the attention of Mr Eby and his investigators even though VC funds are a major player in the multi-trillion-dollar Internet economy. Could organised crime have transformed some of their dirty cash into respectable VC funds for re-investment into high-tech and renewable energy projects that the NDP government and the Green Party are now courting?

The Cullen Commission should look into how much dirty money is being laundered through e-gambling, fintech, digital currencies, crowdfunding and other dark corners of the innovation economy. While Bill Gates and Mark Zuckerberg are the respectable faces of the Internet, many dotcom tycoons are no different from the robber barrons, con artists and scamsters of the past. As the French novelist Honoré de Balzac observed, “Behind every great fortune there is a crime.”

Charities and foundations? Why not, as successful criminals, businessmen and politicians want to be remembered as noble, selfless people who served humanity. Foundations linked to US President Donald Trump (18) and former president Bill Clinton (19) have been suspected of involvement in money-laundering activities. America’s powerful pharmaceuticals-owning Sackler family (20), which runs a major foundation and supports international charities, has been linked to the opioid crisis that is ravaging many cities across the US and Canada.

Canada is home to many charities and foundations, some tied to the country’s elite and leading families. Will the Cullen Commission risk the wrath of Canada’s establishment in its quest to ferret out suspected money laundering in such respectable places?

Three popular Canadian pursuits, missed by the Eby Reports that warrant attention for their money laundering potential, are the booming cannabis, sports and film-making businesses. The multi-billion-dollar cannabis industry, possibly with deep ties to organised crime, has long been a foundation of Vancouver’s economy. When Canada began moving towards legalization a few years ago, cannabis shops quickly mushroomed across Metro Vancouver and elsewhere. Who funded their overnight expansion, and how much of the proceeds of this largely illegal lucrative business have helped fuel the region’s real estate market? Strangely, the high-profile supporters for the money laundering inquiry have barely mentioned the need to investigate cannabis’ dirty money links. Why the omission of such a vital part of the B.C. economy by Mr Eby and his supporters?

In May 2018, the United States Supreme Court issued a decision (21) striking down the federal ban on state sponsored sports betting. The decision allowed for the rapid emergence (22) of a new multi-billion-dollar industry with a network of physical betting outlets and online gambling presence. Where did all these investments come from to fuel the expansion, and how are sports and the sports-betting business channelling cash from unknown sources into the real world? How big is the online sports gambling business in Canada, and how much of those proceeds have been re-invested into the housing markets in Vancouver and Toronto over the past decade?

In the UK, the family of Osama bin Laden was recently found to have helped finance the operations of soccer club Sheffield United (23) while at least one other club (24) has been investigated for possible money laundering. In 2010, the FBI (25) began looking into the shady finances of international soccer, targeting the sport’s governing body, FIFA, for corruption that led to the discovery of money laundering activities (26).

If global sports have been so infiltrated by dirty money, should we expect anything less of B.C. and Canada? Will the Cullen Commission look into the possibility of money laundering in ice hockey, soccer, football and the country’s other popular sports?

The list could go on to engulf every sector of the economy: BC’s booming sea and airport traffic, infrastructure building, military contracts, public projects, the tourism industry, culture, and so on. Everything is infected.

As the panel of experts warned on page 58 (27):

“There is the absence of a data bank of money laundering activities and characteristics of transactions proven to be related to money laundering, from which predictive models can be developed.”

If the inquiry were to fulfil its mission, it will uncover money-laundering activities beyond the all-too-obvious sectors of real estate, casino gambling and high-end retail that Mr Eby is narrowly focused on. And, if the NDP government is still in power in 2021, what will it do with the new evidence of money laundering infestation throughout the B.C. economy?

Mr Eby, who has eyes on becoming B.C.’s next Premier, has raised public anger and fear to an unprecedented level over the purported state of our rot. Bigger and more bombshells lie in wait as the Cullen Commission drags out the drama for another two years. Some of us will realise that there really is no end to this story. Most likely we will be treated to further instalments of Mr Eby’s “mind-blowing” script.

FOOTNOTES:

1. https://globalnews.ca/video/5259870/b-c-attorney-general-shares-shocking-examples-of-money-laundering
   B.C. attorney general shares shocking examples of money laundering, May 9 2019
2. https://news.gov.bc.ca/releases/2018AG0052-001297
   Province cracking down on money laundering, June 27 2018
3. https://vancouversun.com/news/local-news/trudeau-says-b-c-money-laundering-report-is-extremely-alarming
   Trudeau says B.C. money laundering report is ‘extremely alarming’, May 10 2019
4. https://theprovince.com/news/bc-politics/mike-smyth-eby-set-to-tackle-mind-blowing-money-laundering-in-b-c
   Mike Smyth: Eby set to tackle ‘mind-blowing’ money laundering in B.C. June 23 2018.
5. https://news.gov.bc.ca/releases/2018AG0093-002178
   Attorney General puts money laundering, opioid litigation on agenda with justice ministers, November 9 2018
6. https://news.gov.bc.ca/releases/2018FIN0078-002049
   Experts on money laundering appointed to anti-money laundering panel, October 22 2018
7. https://www.straight.com/news/1099146/open-letter-attorney-general-david-eby-and-investigator-peter-german-bcs-dirty-money
   An open letter to Attorney General David Eby and investigator Peter German on B.C.’s Dirty Money report, July 5 2018
8. https://www.cheknews.ca/5-billion-in-dirty-money-hikes-bc-housing-prices-by-5-in-2018-559426/
   $5 billion in dirty money hikes BC housing prices by 5% in 2018, May 9 2018
9. https://business.financialpost.com/real-estate/when-it-comes-to-money-laundering-in-real-estate-there-are-more-unknowns-than-knowns
   When it comes to money laundering in real estate, there are more unknowns than knowns, May 16 2019
10. https://news.gov.bc.ca/files/Combatting_Money_Laundering_Report.pdf
    Combatting Money Laundering in BC Real Estate, March 31 2019
11. https://www.gov.uk/government/publications/national-risk-assessment-of-money-laundering-and-terrorist-financing-2017
    National risk assessment of money laundering and terrorist financing 2017, Page 30. See also: https://rusi.org/commentary/securing-securities-money-laundering-capital-markets
12. https://www.gov.uk/government/publications/national-risk-assessment-of-money-laundering-and-terrorist-financing-2017
    National risk assessment of money laundering and terrorist financing 2017, Page 30.
13. https://www.tsx.com/listings/listing-with-us
    Toronto Stock Exchange (TSX)
14. https://www.nsnews.com/massive-corrupt-b-c-cannabis-crypto-mining-and-energy-shares-scheme-alleged-by-bcsc-1.23520420
    Massive, corrupt B.C. cannabis, crypto, mining and energy shares scheme alleged by BCSC
15. https://www.nsnews.com/investigation-vancouver-s-bridgemark-stock-scandal-rocks-b-c-capital-markets-1.23624452
    Investigation: Vancouver’s Bridgemark stock scandal rocks B.C. capital markets, February 5 2019
16. https://en.wikipedia.org/wiki/Bre-X
    Bre-X
17. https://globalnews.ca/video/5280299/money-laundering-investigation-will-go-back-as-far-as-needed-horgan
    Money laundering investigation will go back as far as needed: Horgan, May 15 2019
18. https://www.nytimes.com/2019/05/19/business/deutsche-bank-trump-kushner.html
    Deutsche Bank Staff Saw Suspicious Activity in Trump and Kushner Accounts
19. https://moneymaven.io/mishtalk/politics/clinton-foundation-involved-in-bribery-kickbacks-money-laundering-to-grow-russia-s-energy-program-lD9BsDgll0uAVBSlvhXTTQ
    Clinton Foundation Involved in Bribery, Kickbacks, Money Laundering to Grow Russia’s Energy Program, October 17 2017
20. https://khn.org/morning-breakout/opioid-crisis-in-court-sackler-family-made-billions-off-oxycontin-sales-rep-says-insys-used-speaker-gigs-as-bribes-nationwide-lawsuit-heats-up-in-ohio
    Opioid crisis in court: Sackler family made billions off OxyContin
21. https://www.lawinsport.com/topics/articles/item/what-the-supreme-court-s-murphy-v-ncaa-decision-means-for-fantasy-sports
    What the Supreme Court’s Murphy v. NCAA Decision Means for Fantasy Sports, August 10 2018
22. https://www.kroll.com/en/insights/publications/sports-betting-and-anti-money-laundering-compliance
    Sports Betting and Anti-Money Laundering Compliance, September 28 2018
23. https://www.dailymail.co.uk/sport/sportsnews/article-7036609/Family-Osama-bin-Laden-helped-finance-Sheffield-United-details-3m-loan-revealed.html
    Family of Osama bin Laden helped finance Sheffield United as details of £3m loan are revealed in court, May 16 2019
24. https://www.bbc.com/sport/football/46039035
    ‘Club or clubs’ investigated for money laundering says security minister, October 30 2018
25. https://www.buzzfeednews.com/article/kenbensinger/world-cup-soccer-fifa-corruption-investigation
    As FIFA bribes flowed, one official’s cash was put in Georgia real estate, June 13 2018
26. https://www.themetric.org/articles/fraud-racketeering-and-money-laundering-the-rabbit-hole-of-corruption-in-international-football
    Fraud, Racketeering and Money Laundering: The Rabbit Hole of Corruption in International Football. 2018.
27. https://news.gov.bc.ca/file/Combatting_Money_Laundering_Report.pdf
    Combatting Money Laundering in BC Real Estate, May 2019