Audits by Canada’s anti-money laundering watchdog have plummeted during the COVID-19 pandemic, new figures show, a deeply ‘troubling’ sign for authorities tracking dirty money, according to financial crime experts.
Data from the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) showed real estate money laundering audits fell from 146 in 2019-20 to just 53 in 2020-21, a drop by 64%. This is down from nearly 200 audits of real estate entities in 2018-2019.
The new figures, obtained through a freedom of information request, come as the Canadian housing market has been on fire for two years, with prices reaching historic highs fueled by ultra-low interest rates and a lack of supply across the country.
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The average national house price in Canada was $713,500 in December 2021, up 17.7% from the same month last year, with nearly 667,000 residential properties – or $459 million – traded between hands last year, according to the Canadian Real Estate Association.
And with hundreds of millions of dollars floating around in Canadian real estate, financial crime experts said the drop in examinations by the federal watchdog was ‘stunning’ as law enforcement could run out of intelligence. vital when it comes to tackling illicit money circulating in the housing market.
“These are disturbing numbers,” said Matt McGuire, a financial crime expert at the AML store in Toronto. “There is less scrutiny, less guidance for reporting entities…in terms of pushing them towards the intelligence purposes that (investigators) need to prosecute these criminals.”
According to the new figures, investigators uncovered nearly 230 issues related to anti-money laundering and anti-terrorist financing obligations in the 53 real estate investigations it conducted last year. The high level of deficiencies has been a consistent trend since 2016, according to the data. In 2018-19, FINTRAC uncovered over 750 issues in the approximately 200 audits it conducted.
And it wasn’t just real estate. Exams in all financial sectors – such as banks, money services businesses or securities dealers – have dropped significantly, from nearly 400 in 2019-2020 to 151 in the last fiscal year, an overall drop of 62%.
FINTRAC works with banks, real estate brokers and other players in the financial sector to help identify cases where criminals may be laundering money illicitly. Its agents verify that they are correctly reporting all transactions, correctly identifying customers and implementing a compliance program.
Cited problems with real estate audits include dozens of instances of non-identification of customers or failure to report suspicious transactions on transactions involving more than $10,000 in cash or multiple cash transactions in a 24-hour period.
Law enforcement across the country should be alarmed, McGuire said, especially given the failing grades the industry has received in the past when it comes to money laundering compliance.
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“If we don’t know who is making a transaction, we don’t know where the money is coming from, where it is going or who is behind the transaction,” he said.
“It allows networks to operate anonymously and escape the consequences of their criminal actions.”
For years, several reports and even a BC provincial commission have highlighted the problem of criminals laundering the proceeds of crime through homes or apartments, driving up prices.
A 2020 report by the federal agency, Criminal Intelligence Service Canada, said between $45 billion and $113 billion is laundered each year across the country.
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And just as Canada was battling the first wave of COVID-19, FINTRAC issued a special bulletin warning of the potential for criminals to take advantage of the pandemic.
“Certain individuals may attempt to take advantage of the current situation to undertake or facilitate money laundering,” the agency said in a special bulletin last summer.
A FINTRAC spokesperson said the drop in investigations was caused by pandemic-related disruptions and a decision by the agency to conduct “more complex, lengthy and in-depth examinations.”
“(FINTRAC has) focused on large brokerages in Vancouver and the Lower Mainland, as well as those in the Greater Toronto Area and Montreal. Large companies represent a larger share of the market, and some have several dozen or even hundreds of agents,” spokeswoman Mélanie Goulette Nadon said in an email. The agency said it had issued 26 violations since 2019, including 14 in the real estate sector.
The anti-money laundering watchdog said it temporarily suspended new exams in April and June 2020 as companies faced new public health restrictions, but has moved to fulfillment distance exams by July 2020.
But financial crime experts say the trend of audit shortcomings is part of an ‘astonishing’ pattern and that Ottawa must urgently mobilize more resources to combat and prosecute white-collar crime, especially during the pandemic, amid reports that criminal networks may be seizing the chaos caused by COVID-19 restrictions.
“COVID has taken many departments by surprise, and there has been a lot of scrambling,” said Sasha Caldera, campaign director for advocacy group Publish What You Pay Canada, a group that advocates for greater transparency among resource companies. “It is very worrying to see a drop in audits at all levels.”
With more money flowing into “highly vulnerable sectors” like banking or real estate and a dwindling number of exams, it’s a “recipe for disaster”, Caldera said.
“(Money laundering) causes significant changes in house prices, making them less accessible to those not involved in crime,” he said.
At the center of Canada’s real estate dirty money problem are lax financial reporting laws, which allow people to hide their identities behind numbered or shell companies.
“This has been abused globally to launder money into Canada. This affects ordinary Canadians who want to enter the housing market,” Caldera said.
After years of calls from anti-corruption champions and white-collar crime experts, the Liberal government committed in its last federal budget to creating what is called a register of beneficial owners – scheduled for 2025 – which would provide details on who actually owns and controls a private company. The Liberal government also announced $100 million for new anti-money laundering units in Ontario, Quebec, British Columbia and Alberta.
Transparency experts say, however, that the registry will be without strength if it is not publicly searchable and if it is not supported by the provinces and territories.
“This could be one of the most important pieces of legislation that can impact the amount of dirty money entering the country,” according to Caldera.
The scale of illicit money flowing through the Canadian economy is often difficult to grasp for those outside of law enforcement or finance, McGuire said, but the impact is felt across all communities.
“It’s not just a theoretical game,” he said. “What we are trying to achieve as a country should be to profit from crime. If crime is less profitable, they will be less criminal and we will have safer communities.
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