Beneficial Ownership Registry a Must for Canada: TI Canada

November 11, 2019

We at CaseWare RCM recently had the pleasure of hosting James Cohen, Executive Director at Transparency International Canada, for a discussion about beneficial ownership and the changes in Canada’s laws. The discussion was held at our CaseWare RCM office in Toronto where dozens of interested parties from FIs to the media turned out to hear what James had to say. Coming up you will see a Question and Answer session with James and me.

In short, James said Canada and other countries need to do more to make beneficial ownership information for corporations compulsory and available to law enforcement. Transparency International Canada is calling for a publicly accessible registry of beneficial ownership to be established in Canada.

James commented on the recent move to improve money-laundering regulations through the new rules under the Canada Business Corporations Act (CBCA). The amendments require private federal corporations to create and maintain a new and separate register showing “individuals with significant control” (ISC). However, he says this is just step toward increasing transparency around beneficial ownership transparency.

The following are Questions and Answers from the session:

Question: One of the phrases that came up in your presentation was “Snow Washing.” Can you tell us a little bit more about how “Snow Washing” relates to beneficial ownership and why should we care about this issue?

James Cohen: The term Snow Washing – we didn’t even come up with that, the crooks did themselves. You can find the term in the joint Toronto Star CBC series that came out about two years ago. It’s a way for people to grab onto something tangible that wraps around the complexity of the money-laundering subject. It’s a lot of money that people don’t necessarily see and a lot of it doesn’t come from Canada.

So why do we care about money laundering? One reason is property prices. I never say that money laundering is the reason property prices have gone up, but the B.C. government did commission a report on the effects of money laundering and property prices and found that on average it went up seven per cent across B.C. in total, that’s not just the lower mainland.

So to argue that money laundering doesn’t have an effect on property prices, I would say in a reverse way that is naïve. Money is not always coming from outside of Canada, money laundering is facilitated within Canada with drug dealers and crooks and tax dodgers in Canada that are using the loopholes here.

The RCMP found that the majority of money laundering cases do use beneficial ownership to purchase property anonymously. A lot of the focus has been on money from China and real estate and casinos, but it is also mixed in with the fentanyl trade in Canada, as the money has to be washed in some way. So it is domestic crime, domestic tax dodging and it’s international crime finding a parking place.

Question: The statistic I find staggering is from the CD Howe Institute as their latest report says $100 billion is their latest estimate on the amount of money being laundered in Canada each year. They highlight that the secret sauce of the recipe is the creation of legal arrangements that hide the beneficial ownership of that corporation. What are your thoughts on that?

James Cohen: The B.C. real estate panel put the number at about $43 billion and the CD Howe Institute put it at $100 billion – the money is significant and is relevant, but it is also the impact in corruption with the holes in our foreign aid system, the connection with drug pedaling and with zoning and empty properties. It’s that impact at the end of the day that hits people. The money, while staggering, you have to look at what is it doing to the average Canadian, what does it do to the people overseas who are losing the money to kleptocrats who want to find a safe hiding place here in Canada

Question: Your organization put out a report earlier this year on the Greater Toronto Area and one of the numbers that came out of there over the past decade or so was $28 billion dollars being laundered in GTA real estate. What were some of the key observations from the report?

James Cohen: A lot of people have asked were you surprised by the numbers? No, I wasn’t surprised. This basically trends when we say Canada is a global city. Global cities face this issue – Miami, New York, London, Doha are facing similar issues. It’s naïve to think that just by the grace of the good Canadian that we could avoid this issue.

What I would say about it was that it was a risk assessment and it’s not to say that a corporation owning property is illegal or should be illegal, it’s about the risk that’s there in the loopholes to buy this property and that’s what we want to close. That’s the warning sign we are trying to send to the governments both federally and provincially that this is not just a Vancouver issue even though they are making the news headlines on this.

Question: We would like to touch on some of the policy recommendations as the government has made some changes to the CBCA in June. Do they go far enough?

James Cohen: No. Absolutely not. The amendments to the CBCA is essentially a stepping-stone for businesses to get their houses in order on beneficial ownership information that hopefully will eventually lead to a registry.

With the CBCA amendment, they have to give over the beneficial ownership information to law enforcement within a reasonable time. And law enforcement has to make the request for that beneficial ownership information in person or by mail, so talk about giving the criminals quite the lead in to letting them know to scurry off and start a new business. We do hope that this is just the beginning, it doesn’t pause there, and the discussion goes forward.

Question: To go back to one of your points, we need law enforcement to have access to a registry. What are your thoughts on a registry that would be accessible for law enforcement and tax authorities, but not the general public?

James Cohen: All those actors need the access, but that doesn’t go far enough. I’d love for law enforcement/AML to have enough resources to do this, but let’s be realistic especially with our track record on anti-money laundering enforcement in this country. We still have to fill in the vacant seats in AML departments and there is the knowing where to connect the dots on the information.

Question: Are there lessons to be learned from the U.K. Companies House and their current registry?

James Cohen:  I’m sure a number of you have seen the critiques that have come out about Companies House, but the biggest problem is verification. There was no drop down menus for countries of residency, so you get a lot of United Kingdom, UK, U.K (variations). You also had people being born that were negative 100 years old. As we talked with our partners at Transparency International UK, don’t hold us up as the gold standard – hold us up as the guinea pig. Learn from our mistakes.

Question: We talked about some other jurisdictions like the Ukraine and the Cayman Islands, which are starting to implement registries. What are your thoughts on why Canada has lagged behind on this one?

James Cohen: There’s a little bit of politics of the day. Money laundering is now a national issue that three of the main parties have all talked about in their platforms and the prime minister himself addressed this year.

For a while it wasn’t on the top of the list and you only had international organizations that specialized on the issue talking about it. If even the Ukraine in the middle of an existential threat on their borders and even inside their country can implement this registry and if Cayman Islands – the default answer for everyone about how good can this really be as a global trend – If they are going for a public registry and the E.U. as a whole bloc is going to bring this in, then what’s our excuse?

The Americans don’t have a registry, but there is legislation going through Congress to make a registry. It will be a private registry but hopefully there will be enough pressure to make it public.

See below to view the entire presentation featuring Cohen and me and of course, contact us if you have any questions.

About Eric Hansen

Eric Hansen (CAMS) (LinkedIn) is a Senior Risk Specialist at Caseware RCM. He has been consulting clients globally on matters of Risk and Compliance for over ten years. Eric is a member of Transparency International where he serves on their working group for Beneficial Ownership transparency. Previously, he was a Director of Risk & Compliance at Dow Jones Canada where he advised clients on areas such as AML, Anti-Corruption and Economic Sanctions.

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