Property sales spike sparks money laundering fears

Suspicions rising that ‘hot money’ is being washed through Vancouver real estate

David Mulroney: Canada should do more to track "hot money" pouring into Vancouver real estate | Nicolett Jakab Photography

As affluent Chinese buyers – spurred by relaxed regulations and a lower Canadian dollar – flood into British Columbia’s real estate market, warnings are rising that some cash deals may contravene federal money laundering rules.

A 2015 report from Colliers International, which looked at Chinese investments in real estate, estimated that US$18 billion had flowed from China into real estate in other countries, up from US$2.3 billion in 2010.

Major transactions in the Vancouver area over the past year include the purchase of 232 acres in the Port Moody-Anmore area by Brilliant Circle Group, which is based in Shenzhen, China; and the purchase of a downtown Vancouver hotel, office buildings and the Westwood Golf and Country Club by 0993956 BC Ltd., which, according to BC Registry Services, has directors listed as Denise She and Dan Wei of Richmond and Kevin Sun of Vancouver.

The numbered company represents a mainland China investment group, according to Richmond realtor Lawrence Lim, who sold it the Westwood golf course in March for $14.7 million.

“These [China] buyers are stepping up the capital chain and taking on increasingly complex and large-scale projects,” said Jon Ramscar, a senior vice-president with Jones Lang LaSalle, a Vancouver real estate brokerage that has worked with many offshore buyers.

He added the downturn in the Canadian dollar would likely ramp up the offshore investments.

Asian buyers into B.C. are also expected to increase because China eased its offshore-investment regulations in 2014, relaxing constraints on citizens buying in other countries.

“This is just the beginning for Vancouver,” said Tina Mak, president of Asian Real Estate Association of America, Vancouver chapter, and a Vancouver realtor with Coldwell Banker Westburn Realty.

Mak expects a huge increase in buyers from China seeking commercial real estate.

Along with the rapidly rising
interest in real estate is an increased concern that some of the money used to buy properties is from illegal sources.

In the last 10 years, $1.08 trillion was removed illegally from China, said Christine Duhaime, a Vancouver-based financial crime lawyer with a specialized practice in counter-terrorist financing and anti-money-laundering laws.

China is trying to get the money back.

“There is a significant problem with Chinese officials who are absconding with state funds, and there’s a massive international manhunt,” David Mulroney, Canada’s former ambassador to China, told an audience at the University of British Columbia on March 31.

“China is the No. 1 exporter of hot money in the world,” he added.

On March 26, the Fugitive Repatriation and Asset Recovery Office of the Communist Party of China’s “anti-graft co-ordination group” announced Operation Sky Net, aimed at catching corrupt Chinese officials who have fled overseas.

According to the Central Commission for Discipline Inspection (CCDI), the party’s internal regulatory body that deals with corruption, more than 500 overseas suspects were caught and more than three billion renminbi ($613 million) was recovered last year alone. This may be a result of Operation Fox Hunt, a similar international operation initiated by China’s Ministry of Public Security to find corrupt officials who have fled the country.

Operation Fox Hunt agents were in Vancouver as recently as this month, but neither the Vancouver Police Department nor the RCMP would confirm they were working with the secretive operation or give any details on potential targets.

The CCDI promised Sky Net would go even further than Fox Hunt by co-ordinating a multi-pronged approach involving multiple state ministries starting in April, including the Ministry of Public Security, which will continue with Operation Fox Hunt.

“As well, the People’s Bank of China will be assisting with tracing offshore companies and accounts that are suspected of being used to smuggle and launder embezzled funds, and the party’s Organization Department will keep a close eye on party members’ travel documents,” according to official Chinese government statements.

So far the only money laundering case tied directly to Vancouver-area real estate involves the 2012 all-cash purchase of a Richmond condominium and a White Rock house by former China bureaucrat Jianjun Qiao, a fugitive now being sought by the Chinese government on corruption charges.

In this case, Qiao is alleged to have embezzled $50 million from the China Grain Reserves Corp., known as Sinograin, and transferred millions of dollars from various Asian accounts into U.S. banks.

“Real estate in Vancouver is certainly more susceptible to money laundering than any other sector,” Duhaime said.

In 2002, Canada introduced the Proceeds of Crime and Terrorist Financing Act, which requires real estate agents and others to report suspicious activity to the Financial Transactions and Reports Analysis Centre of Canada (Fintrac). Under the regulations, any large cash transactions involving amounts of $10,000 or more, whether suspicious or not, must be reported.

Duhaime, who heads Duhaime Law, said that reporting is simply not being done.

“During 2010 to 2013, there were 5.6 million real estate transactions in British Columbia,” Duhaime said. “We know from realtors in the luxury real estate market that there are numerous sales that are completed in all cash. Yet during that same period of time, real estate agents and developers in British Columbia reported very few large cash transactions to Fintrac.”

Duhaime warned that evasion can be dangerous.

“Those transactions are reported by banks to Fintrac, who have similar reporting obligations. So Fintrac is aware of situations when real estate agents take large cash payments but do not report it.”

Not reporting a suspicious transaction can result in a fine of $2 million. Not filing a large-cash transaction report can lead to fines of up to $1 million per occurrence.

If there is any dirty money being washed through Vancouver real estate, it’s being done not only secretively but also successfully.  

According to Fintrac, there have been 400 charges and 140 convictions for money laundering laid under the Criminal Code in the last five years. However, a search through the federal Public Prosecution Service of Canada found few convictions or appeals in B.C. and none related to real estate.

In an emailed statement, B.C.’s attorney general’s office said “[the] ministry is not responsible for this issue” and referred any questions to the federal government.

Duhaime, who was awarded the 2014 Corporate International Global Award for a Canadian law firm in business crime law, is convinced that Fintrac will be looking more closely at Vancouver real estate transactions in the future.

“Real estate agents and developers in B.C. are the group that, by far, reported the least number of large cash transactions to Fintrac,” she said.

Mulroney, Canada’s ambassador to China from 2009 to 2012,argues that Canada needs to take tougher measures to block the influx of “hot money” pouring into real estate, particularly in Vancouver. 

In his book Middle Power, Middle Kingdom: What Canadians Need to Know About China in the 21st Century, Mulroney writes, “The U.S. and Canada are key targets for [Operation Fox Hunt] investigators.

Both places are popular with corrupt officials because both are highly desirable locations in which to house family members and educate children, and neither has an extradition treaty with China.”