By Rubiat Saimum
Money laundering has long been a major financial and national security threat to Canada. Every year, billions of dollars in dirty money are trafficked into the country through a process known as “snow-washing.” The annual estimates of illicit money being “washed” in Canada are between $45 billion to $113 billion. Most of this wealth is laundered through purchasing Canadian properties or establishing companies concealing the identity of the owners.
The laundering of the illicit wealth has distorted real estate prices and exacerbated the housing crisis, especially in major Canadian cities such as Vancouver and Toronto. Laundering illicit funds into the Canadian market also affects the source countries. The laundered wealth is predominantly obtained through illegal activity in mostly under-developed and developing countries, many of which are situated in the Indo-Pacific. It is a form of capital flight, which affects the poorest countries by exacerbating wealth disparity, decreasing tax collection, and draining critical resources from these countries.
Additionally, Canada’s lax money laundering regulations incentivize corrupt officials and criminal elements in other countries, who view the country as a safe option to launder their wealth. For example, there are allegations that wealthy Bangladeshis are buying up palatial homes and lakeshore apartments in elite neighborhoods in Toronto with illegal wealth laundered from Bangladesh. This phenomenon is locally described in Bangladesh using the fictional name of an area called “Begumpara,” where these homes and apartments are located. International students are also being used as “money mules” by individuals, criminal entities, and state actors to launder millions of dollars to Canada. There has been at least one high-profile case of an international student from China who was used as a front to invest $33.75 million in illicit funds in the Canadian real estate sector. The abuses of the education system for criminal purposes may lead to further erosion of public trust in Canada’s immigration policies, which is already in decline due to growing unemployment rates, the housing crisis, as well as other economic factors.
The federal government has recently tried to address the issue of money laundering with the enactment of Bill C-42, which created a “national public beneficial ownership registry” to fix the loophole that allows foreigners to establish companies by hiding their true identities. However, the law may not deliver the expected outcomes unless it is harmonized with provincial legislation. But the provinces have yet to positively commit to this federal agenda.
Money laundering is more than a social and financial regulatory issue; the financial loopholes that facilitate it could also be exploited for terrorist financing and foreign political interference. Given the domestic and transnational repercussions of money laundering, the federal government must treat the issue as a foreign policy priority and national security threat. To effectively address the issue, a multi-faceted approach is needed to combat money laundering by identifying its varied methods. The Cullen Commission report of British Columbia shows what this multi-faceted approach could look like if adopted on a national scale. The full implementation of the commission’s recommendations is an essential first step, especially in terms of curbing laundering through virtual assets and crypto-currencies. Special attention is needed to determine the roles that immigration, legal professionals, and international students play in laundering illicit money in Canada. The absence of comprehensive provincial regulations is also a critical weak link in Canada’s anti-money laundering policy. The establishment of provincial independent anti-money laundering commissioner offices, as outlined in the Cullen report, could significantly address these regulatory gaps.
Canada has been built through welcoming millions of people from different parts of the world, including the Indo-Pacific region. This deep connection with the Indo-Pacific region has been acknowledged in Canada’s Indo-Pacific strategy—“Almost 20% of new Canadians come from the region, close to 18% of Canadians have family ties to the region and 60% of the international students coming to Canada hail from the Indo-Pacific.” Considering that the region is a major source of funds being laundered in Canada, an anti-money laundering agenda should also be a key pillar of Canada’s Indo-Pacific strategy, which would require Ottawa to strengthen partnerships with financial, law-enforcement, and anti-corruption institutions with the countries of the region. The focus should be in creating more institutional linkages with the source countries. These measures could be taken in forms of sharing financial intelligence with the major countries of the Indo-Pacific, signing extradition treaties with a specific focus on financial crimes, and providing Canadian expertise to strengthen their own financial monitoring mechanisms. Undertaking these critical measures would not only address the problems of money laundering, but also enhance bilateral ties with the region, bolster Canadian soft power, and solidify its reputation as a “norm entrepreneur.”
Photo: Money laundering in Canada. Photo courtesy to Jeremy Scott Tax Law. Licensed under Creative Commons Attribution-Non-commercial 4.0 International (CC BY-NC 4.0).
Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada
