Written By Lincoln Caylor, Maureen Ward, Mark Jewett, David Gruber, Simon Grant, Nathan Shaheen and Jessica Horwitz
On June 15th, 2022 the Commission of Inquiry into Money Laundering in British Columbia released its highly-anticipated Final Report which comes after years of work and a review of extensive evidence, including testimony from almost 200 witnesses. Led by British Columbia Supreme Court Justice Austin Cullen, the Commission was established to inquire into and report on the extent of money laundering in British Columbia, the role and effectiveness of regulatory authorities and barriers to law enforcement.
The key message set out in the 1800 page Report was clear: money laundering is a significant problem in British Columbia and in the view of the Commission the federal and provincial governments have been largely ineffective at addressing it. The Commission specifically called attention to Canada’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for making a low number of disclosures to local law enforcement indicating that law enforcement entities in British Columbia cannot rely on FINTRAC to produce timely, useful intelligence about money laundering activity that they can put into action.
The Commission criticized the move by the federal government to disband the Integrated Proceeds of Crime (IPOC) units in 2012, a move that effectively left no enforcement body with primary responsibility to investigate money laundering or proceeds of crime in the province. The Commission described this as a "pivotal moment" which allowed money laundering in various sectors of the economy to grow unchecked for the better part of a decade. The Commission noted that without a dedicated unit, money laundering investigations that would have been pursued by the Royal Canadian Mounted Police (RCMP) were subject to the federal prioritization process and were weighed against other pressures and priorities, such as national security.
At a press briefing held shortly after the Report’s release, Commissioner Cullen stressed that the Commission was not in a position to comment further on federal agencies, but acknowledged that the recommendations set forth in the report depend on cooperation, and harmonization between Canada and the province.
Commissioner Cullen states in the report that "money laundering has, as its origin, crime that destroys communities-such as drug trafficking, human trafficking, and fraud … An overarching theme that emerged through the course of this inquiry is that money laundering is rarely afforded the priority it requires." Given the tenor of the Report and the anticipated political and public support for action to be taken in British Columbia it appears that there is a likelihood that change, at least at a provincial level along the lines of many of the recommendations, is coming.
The Report contains 101 recommendations and this posting is intended to identify those that are most notable. In particular, the Commission recommends that British Columbia implement two key reforms to better tackle money laundering in the province. These reforms are intended to bring greater visibility and focus on money laundering issues while simultaneously reducing what the Commission has described as a glaring enforcement gap that has allowed money laundering to proliferate since 2012.
- Establishing an Independent AML Commissioner in British Columbia
The Commission proposes the creation of an Anti-Money Laundering (AML) Commissioner to provide permanent and strategic oversight on money laundering in the province. The Report suggests that money laundering crimes have less visibility than other crimes can be neglected by law enforcement. The Commission asserts that establishing an AML Commissioner would keep the public informed about money laundering risks, provide the province with greater strategic oversight of AML initiatives and lead working groups to cooperatively address money laundering issues more easily.
- Establishing a Dedicated Provincial Money Laundering Intelligence and Investigation Unit
The Commission also recommends the establishment of a provincial money laundering unit within the Combined Forces Special Enforcement Unit. In his briefing remarks, Commissioner Cullen emphasized the inadequacies of federal agencies, following the collapse of IPOC, in relaying intelligence to provincial and local enforcement authorities. The Report further emphasizes the inherent limitations of existing specialized units with high levels of turnover. The proposed establishment of a dedicated provincial intelligence and investigation unit would be aimed at creating the specialized expertise needed to combat money laundering. Commissioner Cullen underscored the importance of giving the province flexibility to hire and retain officers and specialists and, when necessary, to work with and retain prosecutors.
- Pursuing Money Laundering and Proceeds of Crime Charges
The Commission recommends that all provincial law enforcement agencies, at the outset of investigations into profit-oriented criminal activity, consider money laundering and proceeds of crime charges and, where feasible, conduct financial investigations to identify seizable assets.
- Vigorously Pursuing Asset Forfeiture
Among other recommendations regarding asset forfeiture, the Commission recommends that law enforcement entities implement a policy requiring that all investigators conducting investigations into profit-oriented crimes consider the criminal asset forfeiture provisions and, where feasible, develop the evidentiary basis necessary to support forfeiture applications.
The Commission further recommended that the Civil Forfeiture Office be transitioned from a self-funded agency to a government-funded agency with greater operational capacity to investigate unlawfully obtained assets. The recommendation is to focus on high value assets owned or controlled by those involved in serious criminal activity, even if the proposed funding change does not take place. The Commission notes that increasing the pursuit of assets that can be forfeited would recoup some of the costs associated with the establishing the AML Commissioner position and related recommendations.
- Utilizing Unexplained Wealth Orders
The Commission recommends introducing unexplained wealth orders (UWO) which would be utilized, where the beneficial owner of assets is suspected of links to organized crime, to compel production of documents concerning the provenance of an asset with a fair market value of more than $75,000. UWO's would be used in civil proceedings in respect of the forfeiture of an asset. The Commission asserts that this would discourage the movement of illicit funds through British Columbia.
- Regulating the Mortgage Lending Industry
The Commission urges the Minister of Finance to amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to introduce reporting requirements for mortgage brokers. It also urges the province to modernize the regulatory regime that applies to mortgage brokers in order to better deter unlawful activity. The Commission noted that the 2022 federal budget had already proposed extending anti–money laundering obligations to “all businesses conducting mortgage lending in Canada” within the next year—a change that was commended by the Commission.
- Money services businesses should be regulated by the Province
Money services businesses (MSBs) are non-bank entities that provide transfer and exchange services, such as transmitting or exchanging funds and issuing or redeeming money orders. The Commission indicates that FINTRAC conducts relatively few compliance examinations of MSBs and that, when they are done, it is not early enough after the MSB is established. The Commission proposes that the British Columbia Financial Services Authority (BCFSA) take on the role of regulating MSBs.
- Establishing a Corporate Beneficial Ownership Registry
The Commission recommends accelerating the already-planned implementation of a publicly accessible pan-Canadian corporate beneficial ownership registry before the end of 2023.
- Regulating Chartered Professional Accountants
The Commission proposed that the Chartered Professional Accountants of British Columbia to begin self-regulating members for AML purposes.
- Implementing Reporting Regimes for Cash Transactions Over $10,000
To address risks in the luxury goods sector, the Commission recommends implementing a regime where large cash transactions over the $10,000 threshold are reported to a central authority.
- Addressing Trade-Based Money Laundering
Trade-based money laundering is the process of disguising illicit funds and moving value between jurisdictions through international trade transactions. The Commission recommends implementing a trade transparency unit, utilizing data analytics and encouraging information sharing to assist in addressing what Commissioner Cullen described as arguably one of the largest and most pervasive money laundering typologies in the world.
- Regulating Cryptocurrency Provincially
Due to cryptocurrency’s vulnerability to exploitation, the Commission recommends that the Province enact legislation regulating virtual asset service providers. The Commission also recommends that the Province develop in-house expertise to improve investigations into cryptocurrency-based money laundering.
The long-awaited release of this Report marks a turning point in British Columbia. After many years, public concerns have accumulated into what is to be, if implemented, a radical shift in how the government, and industry tackle money laundering in the province. The impact of the Report will likely reach beyond British Columbia as the federal government and other provinces consider the Report's recommendations.
We will continue to assess this extensive Report and provide further updates. If you have any questions about the information in this blog post or need legal counsel regarding fraud litigation, financial crime, compliance or anti-money laundering related issues, please contact the authors or a member of the Bennett Jones Anti-Money Laundering group or Fraud Law group.
The authors thank Bennett Jones' summer students Mercy Liu and Julia Mogus for their contributions in drafting this blog.