With the public consultation period on the BC NDP’s Land Ownership Transparency Act (LOTA) wrapping up on September 19, a Vancouver-based researcher warns that a significant gap in the legislation could render it “pointless.”
Adam Ross with Transparency International Canada told Business in Vancouver in an interview that while he’s encouraged by the legislation, it might not go far enough to expose murky owners of B.C. real estate.
Ross said the proposed legislation doesn’t include individual nominees who can be appointed to hold assets on someone else’s behalf.
“Unless it includes individuals holding title on behalf of others, then people right now who are routing property holdings through companies and trusts will turn to informal arrangements where individuals hold the property title on their behalf, which could be a lawyer, in which case it’s then also shielded by attorney-client privilege,” Ross said. “The intent of the law is there, but unless it includes that dimension as well, it’s not going to be worth anything because people will just move to another avenue.”
According to a government white paper on LOTA released in June, the “purpose of the Act is to increase transparency of land ownership in B.C. by eliminating the ability to hide ownership through vehicles like trusts and shell corporations.”
“For too long, people have used legal entities to hide the true ownership of real estate in B.C. The use of entities such as numbered companies, offshore and domestic trusts and corporations has made it difficult to expose tax frauds and those engaged in money laundering,” Finance Minister Carole James states in the paper’s forward.
For Ross, the Land Ownership Transparency Act could prove “quite effective” with a few amendments and points to other jurisdictions using creative legal mechanisms to quell nefarious activity in urban real estate markets such as Miami.
In that city’s case, the U.S. Treasury Department, through the Financial Crimes Enforcement Network, issued a “geographic targeting order” requiring disclosure of shell company ownership information for all-cash real estate transactions of $1 million and over. The move had a “chilling effect” as soon as it was enacted in March 2016, according to a Miami Herald report in July.
“As soon as the order took hold, shell companies buying homes with cash dropped off the map,” the Herald reported. “In Miami-Dade, the number of corporate cash sales plummeted 95%, although a strong overall market suggests creative buyers found ways to circumvent the rules.”
Now, there’s a Republican-led effort to take such measures national by Sen. Marco Rubio.
“Shell companies involved in shady activities are a big problem, especially throughout South Florida,” Rubio told the Herald.
Ross said the issue of opaque corporate ownership took time to get Republicans on board until Rubio’s efforts showed it was truly a bipartisan issue, though still a source of division in Canadian politics.
“In Canada, it seems to be this ideological divide like gun control or abortion is in the U.S.,” Ross said. “I don’t see why there isn’t more of a common interest in rooting out money laundering, corruption, tax evasion and criminal activity. That shouldn’t be ideological. We won’t be sending a message saying we’re not open to business or to foreigners placing a foothold in the real estate market here. All we’re calling for is to make it more transparent so that we can be more effective in rooting out the unwanted activity, which is the illegal activity.”
Moreover, he said, Canadian regulators and law enforcement have an “abysmal” record when it comes to punishing offenders, and “more robust criminal prosecution is a significant part of the solution,” while governments should also be using civil forfeiture measures if criminal prosecutions prove too tough.
“We don’t know who owns much of the country because there’s so little transparency in real estate. I think there’s an obvious need for collecting more data and making information more accessible to the public, to journalists, to civil society, but possibly more pressing for law enforcement and regulators who have a formal mandate to crack down on these activities, and they’re hampered from doing so,” he said.
Meanwhile, the next target of his scrutiny is Toronto, given anecdotal evidence of money laundering and excessive flipping in that city’s real estate market.
“We’re confident that Vancouver isn’t an anomaly,” Ross said. “It’s a national issue that requires some leadership at the federal level as well.”