Commission of Inquiry into Money Laundering in British Columbia June 2022 The Honourable Austin F. Cullen Commissioner Final Report June 3, 2022 The Honourable David Eby, QC, MLA Attorney General and Minister Responsible for Housing PO Box 9044 Stn Prov Govt Victoria, BC V8W 9E2 AND TO: The Honourable Selina Robinson The Honourable Mike Farnworth Minister of Finance Minister of Public Safety and PO Box 9048 Solicitor General and Deputy Premier Stn Prov Govt PO Box 9010 Victoria, BC V8W 9E2 Stn Prov Govt Victoria BC V8W 9E2 Dear Mr. Attorney and Ministers: Re: Final Report I am pleased to deliver to you the Final Report of the Public Inquiry into Money Laundering in British Columbia, pursuant to section 4(2)(c)(ii) of the Terms of Reference, established by Order in Council 2019-238. This Report sets out my fndings and recommendations resulting from an extensive review of the evidence I heard from nearly 200 witnesses and the 1,063 exhibits fled during 130 days of hearings into the matters set out in paragraphs 4(1) and (2) of the Terms of Reference. I trust that my Report will contribute to an understanding of the nature and extent of money laundering in British Columbia and that my recommendations will help to abate this pernicious problem. I consider it a privilege and an honour to have served as Commissioner. Yours truly, Austin F. Cullen, Commissioner AFC/mw Enclosure Commission of Inquiry into Money Laundering in British Columbia Final Report June 2022 The Honourable Austin F. Cullen Commissioner © Copyright Province of British Columbia 2022 ISBN 978-1-7774125-2-4 (Digital) Available on the Commission’s website, www.cullencommission.ca, along with transcripts, exhibits, webcasts, and reports prepared by or for the Commission. Library and Archives Canada Cataloguing in Publication Commission of Inquiry into Money Laundering in British Columbia, [electronic resource] : fnal report / Austin F. Cullen, Commissioner. ISBN 978-1-7774125-2-4 (Digital) Electronic monograph in PDF format. 1. Commission of Inquiry into Money Laundering in British Columbia – Final Report. 2. Casinos. 3. Money Laundering. 4. Dirty Money. 5. Proceeds of Crime. 6. Gambling. 7. Real Estate. 8. Underground Economy. 9. Money Laundering. 10. Anti Money Laundering. 11. AML Commissioner. 12. AML Law Enforcement. 13. AML Legislation. 14. AML Policy. 15. Professional Services. 16. Austin F. Cullen. iv Acknowledgements When this Commission of Inquiry was established on May 15, 2019, I recognized that I would need a frst-class team to meet the challenges of inquiring into, understanding, and explaining as complex, wide-ranging, and elusive a subject as money laundering in British Columbia’s economic and social life. I was extremely fortunate to be able to retain Brock Martland, QC, and Patrick McGowan, QC, as senior Commission counsel. The involvement of Mr. Martland and Mr. McGowan in all aspects of the Commission’s work from its inception until its conclusion has been extraordinary. On the administrative side of the Commission, I was able to persuade Dr. Leo Perra and Ms. Cathy Stooshnov to serve as executive director and as manager of administrative and fnancial services, respectively. Their performance of their duties was exemplary and very helpful to the Commission in achieving its objectives, while remaining within budget. The team of lawyers assembled to unearth, prepare, and present the evidence during the Commission’s hearings was of the very highest quality. In addition to Mr. McGowan and Mr. Martland, the legal team included Alison Latimer, QC, Nicholas Isaac, Eileen Patel, Kyle McCleery, Kelsey Rose, Steven Davis, and Charlotte Chamberlain. Two excellent lawyers were retained to serve as policy counsel, Tam Boyar as senior policy counsel and Dahlia Shuhaibar as junior policy counsel. Both Mr. Boyar and Ms. Shuhaibar worked tirelessly to consider, assess, and analyze the evidence to identify potential recommendations on crucial policy and practice issues. Their careful assessments and analytical skills are woven into the fabric of both the Interim and the Final Reports. In addition, the Commission was aided by very helpful advice from Professor Gerry Ferguson, whose expertise was gained from many years of teaching and writing about corruption and money laundering. I also had the great beneft of wisdom and experience from Keith Hamilton, QC, who was retained as a consultant to give invaluable advice and guidance to the legal team. There is likely no lawyer in British Columbia with more experience working with commissions of inquiry than Mr. Hamilton. He brought a wealth of experience to the Commission. I was very fortunate to be able to rely on Doug Kiloh and Don Panchuk, two former police ofcers whose investigative skills were of great assistance to the Commission. I also beneftted greatly from the analytical eforts of Adam Ross in understanding and communicating aspects of money laundering activities. The Commission was able to rely on a strong team of administrative staf to perform essential tasks. Linda Peter and subsequently Mary Williams provided invaluable v support as my administrative assistants. Ms. Peter and Ms. Williams also fulflled other important administrative roles at the Commission. Phoenix Leung was seconded from the Court Services Branch, where she worked as a Clerk of the Supreme Court. She played an important role as registrar for the Commission by managing the electronic hearings, swearing in or afrming witnesses, and marking and keeping track of the many exhibits fled at the hearings. Shay Matters fulflled an important role at the Commission. Although she was originally hired as an administrative assistant, she became an information technology analyst when the events of the pandemic compelled the Commission to conduct all of its hearings and many meetings electronically. Natasha Tam and Sarah LeSage each played an important role in the work of the Commission by managing and organizing the many volumes of exhibits and transcripts of the evidence. They each also made important contributions to the creation of the Final Report by reviewing and fact-checking the text and footnotes. Scott Kingdon brought his experience and expertise in web design and management to the Commission. Mr. Kingdon was responsible for creating and maintaining the Commission’s website, which was critical for the public’s access to and understanding of the Commission’s work. Christine Rowlands brought great skill and ability to her role as an editor and proofreader, as did Christine Joseph as report and research counsel. Tom Norman of Kapow Creative provided excellent service in designing and publishing the report. I would also like to acknowledge the work done by Ruth Atherley and her team at AHA Creative Strategies Inc., who engaged with the media and the public to keep them abreast of the signifcant developments in the hearings and the work of the Commission. Ms. Atherley and her team, Paul Holman, Roxanne Snopek, and Laurie Hanley, also helped to edit the Final Report. Finally, I am grateful to Madam Justice France Charbonneau, the Honourable Dennis O’Connor, and the Honourable Bruce Cohen for their sage advice based on their experience as commissioners in very challenging commissions of inquiry. As is apparent, it took many people to bring this Commission of Inquiry to a successful conclusion. I am grateful to all of them for their hard work and dedication. vi vii CONTENTS Contents Executive Summary 1 Consolidated Recommendations 32 Part I Introduction 48 Chapter 1 Introduction 49 Guiding Principles 50 Constitutional Limitations 52 Commission Counsel 54 Participants 56 Public Meetings 64 Sources of Evidence 67 The COVID-19 Pandemic 69 Chapter 2 What Is Money Laundering? 71 Predicate Ofences 73 The Three Phases of Money Laundering 84 Criticisms of the Three-Stage Model 90 The Underground Economy 93 viii Commission of Inquiry into Money Laundering in British Columbia – Final Report Chapter 3 Who Is Involved in Money Laundering? 98 Transnational Organized Crime 98 Politically Exposed Persons 103 Professional Money Launderers 108 Case Study – The E-Pirate Investigation 114 Chapter 4 How Much Money Is Laundered in BC? 120 Why Try to Estimate Money Laundering? 121 Previous Estimates of Money Laundering in British Columbia 124 Quantifcation Methods in the Literature 126 The Commission’s Quantifcation Eforts 136 Conclusion on Extent of Money Laundering in BC 145 Improving Money Laundering Estimates 148 Chapter 5 Is Money Laundering a Problem Worth Addressing? 151 Part II Legal and Regulatory Framework 160 Chapter 6 The International Anti–Money Laundering Regime 161 Treaties and Declarations 162 The Financial Action Task Force 165 Canada’s Mutual Evaluations 180 Other International Eforts to Address Money Laundering 184 Conclusion 185 Chapter 7 The Canadian Anti–Money Laundering Regime 186 The PCMLTFA 187 Efectiveness of the Federal Regime 200 Conclusion 210 Chapter 8 The Provincial Framework and the Need for an AML Commissioner 211 The Provincial Anti–Money Laundering Regime 212 The Need for an AML Commissioner 213 Role and Responsibilities of the AML Commissioner 215 The Anti–Money Laundering Deputy Ministers’ Committee 228 ix CONTENTS Anti–Money Laundering Liaison Ofcer 230 Conclusion 231 Part III The Gaming Sector 233 Outline of Part III 235 Horse Racing 237 Chapter 9 Gaming Narrative: Pre-2004 and Integrated Illegal Gaming Enforcement Team 238 Limited Decriminalization of Gaming and Assumption of Provincial Responsibility 238 BC’s Gaming Industry Prior to 2002 242 Cash Facilitation in BC Casinos 245 Cash Facilitation, Money Laundering, and Criminality in Casinos 252 Enactment of the Gaming Control Act 257 Legal and Regulatory Structure of BC’s Gaming Industry 261 Integrated Illegal Gaming Enforcement Team 272 Mr. Pinnock’s Interactions with Mr. Heed 301 Chapter 10 Gaming Narrative: 2004–2015 314 2004–2008: Development of Gaming Industry Following Enactment of the Gaming Control Act 315 2008–2013: Reactions and Response to Growth Initial Concerns of the GPEB Investigation Division, 2010–2011 GPEB Investigation Division Reports of 2010 Meeting Between Mr. Coleman, Mr. Vander Graaf, Appointment of Doug Scott as General Manager of 2008–2015: Rise of Suspicious Cash 328 Continued Development of VIP Oferings and Increased Bet Limits 335 Case Study: Qi Li 343 in Large and Suspicious Transactions 349 March 2009 Memorandum, and PGF Account Pilot Project 350 2009 PGF Account Pilot Project 353 Warnings from BCLC Investigator Michael Hiller 354 Findings and Correspondence with BCLC 357 and Lori Wanamaker, and Robert Kroeker’s Review 368 IPOC Engagement and 2011 Intelligence Probe 374 GPEB and Development of an Anti–Money Laundering Strategy 380 x Commission of Inquiry into Money Laundering in British Columbia – Final Report 389 Development and Initial Impact of New Cash Alternatives Service Provider and BCLC Response to BCLC Investigator Intervention in Suspicious Transactions 390 November 19, 2012, Report of Findings and 2013 BCLC Internal and External Communications Regarding Security and Anti–Money Laundering Enhancements State of Response to Large and Suspicious Cash Transactions Suspicious Transactions, Betting Limits, and Enhancements GPEB Letter of December 27, 2012 399 Suspicious Transactions and Money Laundering in BC Casinos 401 by BCLC and Great Canadian 413 BCLC’s Response to the Evolution of a Cash Facilitation Network 415 Appointments of Michael de Jong and John Mazure 420 at End of 2013 427 to VIP Oferings in 2014 and Early 2015 428 Actions of BCLC During 2014 and Early 2015 434 GPEB Response to Rising Large and Suspicious Cash Transactions 447 2014 GPEB Review and Reorganization 454 Chapter 11 Gaming Narrative: 2015–2017 464 June 2015 “Exploring Common Ground, Building Solutions” Workshop 465 BCLC Anti–Money Laundering Enhancements Following BCLC Voluntary Self-Declaration of Non-Compliance / July 2015 E-Pirate Revelations 469 Reaction to Workshop and E-Pirate Revelations 473 July 2015 GPEB Spreadsheet 482 Briefng of Minister Responsible for Gaming 485 Creation of the GPEB Compliance Division Intelligence Unit 487 Creation of the Joint Illegal Gaming Investigation Team 489 Mr. de Jong’s Letter of October 1, 2015, and Subsequent Correspondence 491 BCLC Reaction and Eforts to Clarify Directions 496 Subsequent Correspondence to BCLC from Government 499 Mr. de Jong’s Letter of October 1, 2015 508 Great Canadian’s Eforts to Address Cash Facilitation 523 2016 Chip Swap 524 2016 Meyers Norris Penney LLP Report 528 $50,000 Reporting Threshold 537 February 2017 Attempt to Seek Ministerial Directive 541 xi CONTENTS Chapter 12 Gaming Narrative: 2017–Present 543 Results of 2017 Provincial Election and Appointment of Minister David Eby 543 Post-Election Briefngs of Mr. Eby 544 Commencement of Dr. German’s First Review 549 Responses to Media Coverage of Cash-for-Cheques Money Laundering 551 Dr. German’s Source-of-Funds Interim Recommendation 567 BCLC Proposals for Further Enhancements to the AML Regime 576 January 26, 2018, Email from Mr. Eby 583 Conclusion of Dr. German’s Review 588 Review of GPEB Enforcement Function 589 Current State of AML Risks and Measures in BC’s Gaming Industry 595 Future State: 100 Percent Account-Based, Known Play and Cashless Casinos 601 Chapter 13 Were Illicit Funds Laundered Through BC Casinos? 605 Acceptance of Proceeds of Crime 609 Money Laundering Typologies 620 The Extent of Money Laundering in the Gaming Industry 630 Conclusion 642 Chapter 14 What Contributed to Money Laundering in BC’s Gaming Industry? 644 Part 1: Contextual Factors that Contributed to the Growth and Perpetuation of Money Laundering in BC’s Gaming Industry 644 The Demand for Illicit Cash 645 The Supply of Illicit Cash 650 Absence of an Adequate Regulatory Model 651 Conclusion 653 Part 2: Actions and Omissions of Industry Actors and Stakeholders 653 Actions and Omissions of Gaming Service Providers 654 Actions and Omissions of Law Enforcement 672 Actions and Omissions of the BC Lottery Corporation 680 Actions and Omissions of the Gaming Policy and Enforcement Branch 717 Actions and Omissions of Elected Ofcials 745 xii Commission of Inquiry into Money Laundering in British Columbia – Final Report 771 Part IV The Real Estate Sector Chapter 15 Vulnerabilities to Money Laundering in Real Estate 772 Why Real Estate Is Attractive to Money Launderers 773 Canadian Money Laundering Vulnerabilities: Case Study: Building Supply Companies and FATF 2016 Mutual Evaluation Report 775 Typologies and Academic Literature 776 Conclusion 783 Money Laundering Vulnerability 783 Chapter 16 Real Estate Professionals and Regulators 790 Part 1: Overview of the Regulation of Real Estate in BC 791 Part 2: Real Estate Licensees and Anti–Money Laundering Compliance 810 Part 3: Mortgage Brokers 841 Case Study: Jay Chaudhary 847 Case Study: Suspicious Mortgages 858 Appendix 16A: Suspicious Indicators for Real Estate, by Transaction Phase 874 Chapter 17 Private Lending 879 Part 1: Background 880 Part 2: Land Title and Survey Authority Data Analysis 893 Part 3: Paul Jin Debt Enforcement 903 Part 4: Further Recommendations Regarding Private Lending 912 Chapter 18 Data and Information Sharing in Real Estate 916 Benefcial Ownership Issues in Real Estate 917 British Columbia Benefcial Ownership Measures 917 United States Experience with Benefcial Ownership Disclosure 928 The Impact of Benefcial Ownership Disclosure in British Columbia 930 Real Estate Information Collection and Use 933 xiii CONTENTS Chapter 19 Real Estate Values, Money Laundering, and Foreign Investment 956 Money Laundering and Housing Prices 957 Causes of Real Estate Price Increases and the Role of Foreign Investment 961 Conclusion on Causes of Real Estate Price Increases 967 Appendix 19A: How the Expert Panel Put a Number on Real Estate Price Increases from Money Laundering 968 Part V Financial Institutions 970 Chapter 20 Banks and Credit Unions 971 Constitutional and Other Limitations 972 Legal and Regulatory Framework 974 Money Laundering Risks Facing Financial Institutions 985 Anti–Money Laundering Measures in Banks and Credit Unions 988 Information Sharing 992 Conclusion 1010 Chapter 21 Money Services Businesses 1011 What are MSBs? 1011 The Canadian Money Services Business Association 1013 Regulation of MSBs 1013 Money Laundering Risks 1019 Compliance Examinations by FINTRAC 1027 Investigative Challenges 1030 A Provincial MSB Regulator 1032 Conclusion 1039 Chapter 22 White-Label Automated Teller Machines 1041 What Are White-Label ATMs? 1042 Should White-Label ATMs Be Subject to Provincial Regulation? 1054 Conclusion 1057 The Interac Network 1043 “Regulation” of White-Label ATMs 1044 Other Codes and Standards 1048 Money Laundering Risks 1048 xiv Commission of Inquiry into Money Laundering in British Columbia – Final Report Part VI The Corporate Sector 1058 Chapter 23 Money Laundering Risks Associated with Corporate and Other Legal Arrangements 1059 The Issue: Misuse of Legal Entities to Facilitate Money Laundering 1060 International Eforts to Improve Benefcial Ownership Disclosure 1066 The Global Shif Toward Corporate Transparency 1069 Current State of Benefcial Ownership Transparency in Canada 1072 First Steps Toward Greater Transparency In Canada 1077 Conclusion 1083 Chapter 24 Developing a Corporate Benefcial Ownership Registry 1084 The Need for the National Corporate Benefcial Ownership Registry 1085 The Need for Coordination 1087 Key Design Features for a Corporate Benefcial Ownership Registry 1087 Conclusion 1106 Part VII Lawyers and Notaries 1107 Chapter 25 Legal and Regulatory Framework 1108 Self-Regulation of Lawyers 1110 The Law Society of British Columbia 1111 Ethical Obligations 1115 Paralegals and Notaries 1116 Federation of Law Societies of Canada 1117 FATF Recommendations Relating to Lawyers 1118 Chapter 26 Money Laundering Risks in the Legal Profession 1119 A “Common Sense” Approach to Risk 1119 Thematic Review of Risks Faced by Lawyers 1132 Conclusion 1143 Limitations on Data 1120 Diferentiating Among Lawyers’ Roles 1122 Studies on the Involvement of Lawyers in Money Laundering 1122 FATF Guidance for a Risk-Based Approach for Legal Professionals 1131 xv CONTENTS Chapter 27 The Federation Decision and the Feasibility of a Reporting Regime for Lawyers 1144 Lead-up to the Constitutional Challenge 1145 A Successful Constitutional Challenge 1148 Unreasonable Searches and Seizures 1148 Breach of Lawyers’ Right to Liberty 1149 Afermath of the Decision 1151 Actions by the Law Society and the Federation Following the Federation Decision 1151 Critiques of Canada’s Anti–Money Laundering Regime 1157 Calls for a Provincial Reporting Regime for Lawyers 1161 Conclusion 1174 Chapter 28 Law Society Regulation and Information Sharing 1175 A Preference for a Pan-Canadian Approach to Money Laundering 1176 Client Identifcation and Verifcation Rules 1187 Trust Regulation 1193 Referrals to the Investigations Group 1200 Ongoing Review of Law Society and Federation Rules 1202 Education 1202 Law Society and Federation Engagement with Government 1205 Law Society Collaboration with Law Enforcement and Other Stakeholders 1206 Conclusion 1213 Chapter 29 British Columbia Notaries 1215 British Columbia Notarial Profession 1216 Regulation by the Society 1217 Application of the PCMLTFA 1223 Conclusion 1232 Part VIII Accountants 1233 Chapter 30 Legal and Regulatory Framework 1234 The Accounting Profession in British Columbia 1235 Accounting Services 1236 CPA Regulation in British Columbia 1239 xvi Commission of Inquiry into Money Laundering in British Columbia – Final Report CPA Canada 1249 The PCMLTFA 1252 Financial Action Task Force Recommendations 1255 Conclusion 1257 Chapter 31 Money Laundering Risks in the Accounting Profession 1258 A “Common Sense” Approach to Risk 1259 Limitations in Assessing Risk 1259 Areas of Money Laundering Risk in the Accounting Profession 1263 CPABC and CPA Canada’s Positions Regarding Risks in the Sector 1270 Conclusion 1273 Chapter 32 Limitations of the PCMLTF A and the Need for Additional Provincial Measures 1274 CPABC’s Mandate 1275 Exclusion of Unregulated Accountants from the PCMLTFA 1278 Limited Triggering Activities 1280 Compliance Issues 1288 Conclusion 1292 Chapter 33 Current Measures and Improvements 1294 CPABC’s Anti–Money Laundering Regulation 1294 CPA Canada Engagement 1305 Confdentiality Obligations and a Potential Whistle-blower Regime 1312 Conclusion 1316 Part IX Other Sectors 1318 Chapter 34 Luxury Goods 1319 Money Laundering Risk in Luxury Goods Markets 1324 Money Laundering Risk in Luxury Goods Markets Realized 1332 Organization and Regulation of Luxury Goods Markets 1339 A Model for Addressing Money Laundering in the Luxury Goods Sector 1348 Money Laundering Through Grey Market Vehicle Exports 1360 Insurance Council of British Columbia 1363 Conclusion 1366 xvii CONTENTS Chapter 35 Virtual Assets 1367 What Is a Virtual Asset? 1368 How Does a Cryptocurrency Transaction Work? 1369 Alternative Coins 1373 Modes of Exchange 1373 Regulation of Cryptocurrencies 1378 Cryptocurrency and Crime 1394 Conclusion 1411 Part X The Underground Economy 1412 Chapter 36 Bulk Cash Smuggling 1413 Legal and Regulatory Framework 1414 Legitimate Cross-Border Transfer of Cash 1419 Capital Flight 1421 Criminal Cross-Border Transportation of Cash 1422 Conclusion 1431 Chapter 37 Informal Value Transfer Systems 1432 What Are Informal Value Transfer Systems? 1433 How Does an Informal Value Transfer System Work? 1435 Money Laundering Risks 1437 Conclusion 1445 Chapter 38 Trade-Based Money Laundering 1446 The International Trade System 1446 Trade Finance 1447 Trade-Based Money Laundering 1448 Nature and Magnitude of the Threat 1451 Goods Typically Used in Trade-Based Money Laundering Schemes 1454 Types of Businesses Used in Trade-Based Money Laundering Schemes 1457 Key Challenges Faced by Investigators 1459 Measures Currently in Place 1461 Additional Measures 1465 Appendix 38A: FINTRAC – Operational Alert 1472 xviii Commission of Inquiry into Money Laundering in British Columbia – Final Report Part XI Enforcement 1476 Chapter 39 History and Structure of Policing in British Columbia 1478 Federal Policing 1479 Provincial Policing 1515 Municipal Policing 1533 Chapter 40 Challenges Faced by Investigators 1538 Legal Complexity 1538 FINTRAC 1545 Complexity of Money Laundering Schemes 1551 Chapter 41 A Dedicated Provincial Anti–Money Laundering Unit 1553 Location and Governance 1554 Mandate 1556 Organizational Structure 1557 Performance Metrics and Reporting 1563 Relationship with Regulators 1565 Conclusion 1565 Part XII Asset Forfeiture 1566 Chapter 42 Criminal Asset Forfeiture 1567 Criminal Asset Forfeiture Provisions 1567 Distribution of Proceeds 1575 When Should Criminal Asset Forfeiture Be Pursued? 1577 Chapter 43 Civil Asset Forfeiture and Unexplained Wealth Orders 1580 The United States 1581 Unexplained Wealth Orders 1615 Conclusion 1620 The United Kingdom 1584 The Republic of Ireland 1590 Australia 1596 Manitoba 1599 British Columbia 1602 xix CONTENTS Part XIII Conclusion 1622 Conclusion 1623 Appendices 1626 Appendix A Terms of Reference 1627 Appendix B Rules of Practice and Procedure 1630 Appendix C Rules for Standing 1638 Appendix D Commissioner , Counsel, and Staf 1640 Appendix E Commissioner’s Rulings 1642 Appendix F Participants and Counsel 1644 Appendix G Witnesses 1647 Appendix H Exhibits 1672 Appendix I Constitutionality of Possible Changes to the British Columbia Civil Forfeiture Act 1744 Abbreviations and Acronyms 1805 xx Commission of Inquiry into Money Laundering in British Columbia – Final Report List of Figures Figure 17.1: Mortgages Provided by Unregulated or Unregistered Lenders 895 Figure 17.2: Mortgages Held by Individual Lenders vs. Corporations 896 Figure 17.3: Number of Mortgage Investment Corporation Reports Per Year 897 Figure 17.4: Total Investment in BC Mortgage Investment Corporations by Origin, 2011–2019 897 Figure 17.5: Foreign Investment in BC Mortgage Investment Corporations, 2011–2019 898 Figure 37.1: IVTS Network Map 1438 Figure 38.1: “Canadian Schemes: Cars” 1457 Figure 21.1: Typical Professional Money Laundering Services Through MSBs 1021 xxi CONTENTS List of Tables Table 10.1: BCLC annual revenue, 2000–2010 317 Table 10.2: Suspicious Cash Transactions, 2007–2011 330 Table 10.3: Suspicious Cash Transactions, 2010–2014 330 Table 10.4: Large Cash Transaction Reports, 2010–2015 331 Table 10.5: Suspicious Cash Transactions Submitted to GPEB, 2012–2015 429 Table 11.1: Number of Suspicious Transaction Reports (STRs), 2014–2017 516 Table 11.2: Value of Suspicious Transaction Reports (STRs), 2014–2017 516 Table 11.3: Number of Large Cash Transaction Reports (LCTRs), 2014–2017 517 Table 11.4: Value of Large Cash Transaction Reports (LCTRs), 2014–2017 517 Table 11.5: Annual BCLC Revenue, 2014–2017 519 Table 11.6: Annual Revenue for Major Lower Mainland Casinos, 2014–2017 520 Table 12.1: Number of Suspicious Transaction Reports (STRs), January 2014–December 2019 571 Table 12.2: Value of Suspicious Transactions Reported Annually, 2014–2019 572 Table 12.3: Number of Large Cash Transaction Reports (LCTRs), 2014–2019 574 Table 12.4: Value of Large Cash Transactions Reported Annually, 2014–2019 574 Table 12.5: BCLC Annual Gaming Revenue, 2014–2019 575 Table 12.6: Annual Revenue for Lower Mainland Casinos, 2014–2019 576 Table 13.1: SCT Reports Received by GPEB, 2007–2012 631 Table 13.2: Value of Reported SCTs, Various Periods, 2010–2013 632 Table 13.3: Percentage of SCTs Comprised of $20 Bills, 2011–2013 632 Table 13.4: SCT Reports Received by GPEB, 2012–2015 633 Table 13.5: STRs Submitted to FINTRAC by BCLC, 2014–2019 633 Table 13.6: LCTs Accepted by BC Casinos, 2012–2019 634 Table 13.7: SCTs of more than $100,000 at Lower Mainland Casinos 639 Table 15.1: Summary of Cash Transactions over $10,000, 2015–2020 785 Table 15.2: Details Of Cash Transactions by Building Company, 2015–2020 785 Table 15.3: Number of Cash Transactions over $10,000 787 Table 16.1: Summary of Compliance Statistics 820 Table 16.2: Suspicious Transaction Reports from Real Estate Sector 821 Table 17.1: Court Proceedings Commenced in BC Supreme Court by Mr. Jin 904 Table 17.2: Mortgages Filed by Mr. Jin and His Spouse 905 Table 18.1: Searches of Information Contained in Transparency Records under Section 30(2)) 921 Table 18.2: Searches of Transparency Records under Section 30(1) 922 Table 21.1: Number of MSBs Operating in BC Between 2015 and 2020 1027 xxii Commission of Inquiry into Money Laundering in British Columbia – Final Report Table 21.2: Number of MSBs in BC Examined in the First Two Years of Registration 1028 Table 36.1: Number and value of undeclared funds seizures in BC, 2016–2020 1418 Table 42.2: Value of Non-PCMLTFA Seizures in BC, 2009–2019 1576 Table 42.3: Value of Assets Forfeited to the Federal Government from Non-PCMLTFA Seizures in BC, 2009–2019 1576 Table 43.1: Amounts Deposited into the US Asset Forfeiture Fund, 2017–2021 1583 Table 43.2: Civil Forfeiture Ofce Referrals and Recoveries, 2006–2019 1612 1 Executive Summary This Commission was established in the wake of signifcant public concern about money laundering in British Columbia. The public was rightfully disturbed by the prospect of criminals laundering their cash and parking their illicit proceeds in this province. I was given a broad mandate to inquire into and report on money laundering in British Columbia, including: • the extent, growth, evolution, and methods of money laundering in various sectors of the economy; • the acts or omissions of responsible regulatory agencies and individuals that contributed to money laundering in the province; • the efectiveness of the anti–money laundering eforts by these agencies and individuals; and • barriers to efective law enforcement. I was also tasked with recommending measures to address the conditions that have allowed money laundering to thrive. The Commission embarked on a process of extensive study and investigation culminating in the Commission’s public hearings, where I heard testimony from 199 witnesses over 133 hearing days and received over 1,000 exhibits. In this Report, I review the evidence I received, make fndings of fact, and set out key recommendations to assist the Province and others in addressing the serious money laundering problem facing British Columbia. In this executive summary, I highlight some of the key themes that emerged during the Commission process. Commission of Inquiry into Money Laundering in British Columbia – Final Report 2 Money laundering is a signifcant problem requiring strong and decisive action Money laundering is a signifcant problem deserving of serious attention from government, law enforcement, and regulators. An enormous volume of illicit funds is laundered through the British Columbia economy every year, and that activity has a signifcant impact on the citizens of this province. Money laundering has, as its origin, crime that destroys communities – such as drug trafcking, human trafcking, and fraud. These crimes victimize the most vulnerable members of society. Money laundering is also an afront to law-abiding citizens who earn their money honestly and pay their fair share of the costs of living in a community. There can be few things more destructive to a community’s sense of well-being than a governing regime that fails to resist those whose opportunities are unfairly gained at the expense of others. While it is not possible to put a precise fgure on the volume of illicit funds laundered through the BC economy each year, the available evidence shows that the fgure is very large (with estimates in the billions of dollars per year in this province alone). Sophisticated professional money launderers operating in British Columbia are laundering staggering amounts of illicit funds. Evidence uncovered by law enforcement indicates that a single money services business was involved in laundering upwards of $220 million per year through a sophisticated scheme that relied on underground banking infrastructure and that took advantage of a lax regulatory environment in the gaming sector. It is essential that government, law enforcement, and regulators take strong and decisive action to respond to the problem. The federal anti–money laundering regime is not effective To understand money laundering in British Columbia, it is necessary to understand the federal regime and the work done by agencies such as the Royal Canadian Mounted Police (RCMP) and Canada’s fnancial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The federal government plays a key role in addressing money laundering risk and activity, given that criminal law is primarily a federal matter. It is important to identify and understand gaps and weaknesses in the federal anti–money laundering regime in order to make efective recommendations to the Province as to the measures it must take to respond to money laundering. Over the past two decades, the federal government has enacted increasingly complex legislation aimed at addressing money laundering activity. However, serious questions have been raised about the efectiveness of that regime in relation to money laundering in the province of British Columbia. Executive Summary 3 One of the primary criticisms of the federal regime is the inefectiveness of FINTRAC, the agency responsible for receiving and analyzing information about money laundering threats and communicating this information and analysis to law enforcement. While I recognize that there is a statutory threshold that must be met before FINTRAC can disclose information to law enforcement, the number of disclosures to law enforcement is not commensurate with the volume of reports that FINTRAC receives, nor with the scale of money laundering activity in British Columbia. Law enforcement bodies in British Columbia cannot rely on FINTRAC to produce timely, useful intelligence about money laundering activity that they can put into action. FINTRAC receives an enormous volume of reports from public- and private-sector reporting entities, but it produces only a modest number of intelligence packages that go to law enforcement. For example, in 2019–20, FINTRAC received over 31 million individual reports. In that same year, FINTRAC disclosed only 2,057 intelligence reports to law enforcement across Canada, and only 355 to law enforcement agencies in British Columbia. The federal regime in Canada has encouraged defensive reporting, a practice under which reporting entities err on the side of making a report wherever there is some uncertainty. This has led to high-volume, low-value reporting. The high volume of reports submitted to FINTRAC is especially apparent when compared to reporting in other nations. On a per capita basis, reporting entities in Canada submit 12.5 times more reports than similar entities in the United States, and 96 times more reports than those in the United Kingdom. Given the state of the federal regime, if the Province is to achieve success in the fght against money laundering, it must develop its own intelligence capacity in order to better identify money laundering threats. I am therefore recommending the creation of a dedicated provincial money laundering intelligence and investigation unit with a robust intelligence division. This unit will be responsible for developing actionable intelligence concerning money laundering activity and threats in British Columbia. British Columbia has made progress on money laundering, but much remains to be done The Province has taken laudable steps to understand and respond to money laundering threats in British Columbia. It has commissioned expert reports on money laundering in various sectors. It implemented a source-of-funds recommendation from Peter German, which signifcantly limited the volume of illicit funds entering BC casinos. It has implemented a benefcial ownership registry for real estate. It requires the collection of benefcial ownership information for companies and supports the creation of a registry. These eforts are commendable. But much remains to be done. This Report makes a number of recommendations for reform, some of which transcend specifc sectors. Two key recommendations are the creation of an AML Commissioner and the dedicated Commission of Inquiry into Money Laundering in British Columbia – Final Report 4 provincial money laundering intelligence and investigation unit. My aim is to ofer advice that is realistic, practical, and efective, and I hope and trust that the Province will remain committed to tackling this pernicious problem. The Province should establish an independent AML Commissioner, who will provide strategic oversight of the provincial response to money laundering An overarching theme that emerged through the course of this Inquiry is that money laundering is rarely aforded the priority it requires. Because it operates in the shadows, it ofen goes unnoticed. Because the damage it causes is not as visible as that caused by other crimes (such as violent crime), it is ofen aforded less priority and attention. Even when aspects of a money laundering scheme come out of the shadows and operate in plain sight – as occurred in the casino industry – a lack of will and coordination has led to an inefective response. Unlike many government priorities, anti–money laundering does not ft easily into one sector or ministry. For this reason, anti–money laundering has not been the dedicated responsibility of any one minister and has not received sufcient attention or priority from government. It has similarly been neglected by law enforcement, which has, when faced with competing priorities, paid little attention and dedicated few resources to the fght against money laundering. Put simply, despite a relatively long history of mounting evidence about the extent of this problem – and despite growing public concern – government, law enforcement, and regulatory agencies have, for many years, failed to grasp the nature and extent of this growing problem. They have failed to aford it the priority and resources that are required. It is time to change this trend – and change it permanently. The only way to reverse this unhappy state of afairs is to vest with one ofce the responsibility to support, oversee, and monitor the provincial response to money laundering. As such, I recommend the establishment of the AML Commissioner. The AML Commissioner will be an independent ofce of the Legislature that will provide strategic oversight of the provincial response to money laundering and report to the Legislature regularly. The AML Commissioner’s mandate will be to oversee and monitor the provincial response to money laundering by carrying out the following functions: • Keeping people informed: producing annual reports that are publicly available, as well as special reports. The reports will describe money laundering risks, activity, and responses in British Columbia. • Researching: undertaking, directing, and supporting research on money laundering issues. The AML Commissioner will develop expertise on money laundering Executive Summary 5 methods, including emerging trends and responses, informed by an understanding of the measures taken internationally. • Advising: issuing policy advice and recommendations to government, law enforcement, and regulatory bodies on money laundering issues. • Assessing: monitoring, reviewing, auditing, and reporting on the performance of provincial bodies that have an anti–money laundering mandate. • Coordinating: leading working groups and co-operative eforts to address money laundering issues. The creation of a new ofce of the Legislature with an exclusive focus on anti–money laundering will counteract the neglect that this topic has faced for too long. The AML Commissioner will give anti–money laundering pre-eminent attention, in a public and accountable way, so that the people of British Columbia and the government have accurate, current, and reliable information about how public agencies, law enforcement, and government are doing in coming to grips with and responding to money laundering in British Columbia. The RCMP’s lack of attention to money laundering has allowed for the unchecked growth of money laundering since at least 2012 Prior to 2012, the RCMP maintained some capacity and expertise to pursue money laundering and proceeds of crime investigations. A shif in focus in 2012 largely eliminated that capacity and expertise, leaving, for the next decade, a glaring enforcement gap. This gap lef money laundering to proliferate in this province, largely unchecked. From 1990 to 2012, the RCMP maintained Integrated Proceeds of Crime (IPOC) units in each province. These units were responsible for the most serious money laundering and proceeds of crime investigations. They developed a high level of expertise and were critical to the federal government’s strategy to combat organized crime. In 2011, the ofcer-in-charge of the British Columbia IPOC unit became concerned about the large volume of $20 bills being received by BC casinos and initiated an investigation. The investigation revealed substantial amounts of cash entering BC casinos, which the investigators believed were from criminal activity. These investigators also correctly identifed the typology being used to launder this cash – a group of cash facilitators were loaning large sums of cash to high-limit gamblers, who ofen paid back the debt using a cross-border value and payment transfer system, which allows for cash to be advanced in one country and the debt repaid in another. In 2012, the federal government made signifcant cuts to government services and disbanded the IPOC units. This lef no enforcement body with primary responsibility to investigate money laundering or proceeds of crime in this province. The disbandment of the IPOC units was a pivotal moment, which allowed for the unchecked growth of Commission of Inquiry into Money Laundering in British Columbia – Final Report 6 money laundering in the gaming industry and other sectors of the economy for the better part of a decade. Without a dedicated unit, RCMP money laundering investigations were subject to the federal prioritization process and were weighed against other pressures and priorities, such as national security. This resulted in money laundering and proceeds of crime investigations being given very little attention. Important investigations in British Columbia, including the investigation into money laundering at BC casinos, were terminated. Afer 2012, despite repeated requests, there was no enforcement body available to address the casino problem, and the volume of suspicious cash entering BC casinos rose to unprecedented levels. In 2015, the BC Lottery Corporation (BCLC), in part by leveraging a personal relationship, was fnally able to convince the Federal Serious and Organized Crime (FSOC) section of the RCMP to start an investigation. In that year, BCLC reported over $183 million in suspicious transactions to FINTRAC. Shortly into its investigation, FSOC was able to make a direct link between the suspicious cash being provided to patrons at the River Rock Casino Resort and an unlicensed money services business in Richmond. The investigation uncovered evidence suggesting that upwards of $220 million in illicit funds was being moved through this single money services business each year. Unfortunately, this one investigation was an anomaly. There was no sustained efort to investigate money laundering activity in British Columbia. Between 2015 and 2020, there were only two other major money laundering investigations that progressed to the charge-approval stage. This level of attention by the RCMP to money laundering is not commensurate with the money laundering activity and risks in this province. A dedicated provincial money laundering intelligence and investigation unit is needed to mount a sustained and effective response to money laundering While I accept that there are signifcant challenges associated with the investigation and prosecution of money laundering ofences, the primary cause of the poor law enforcement results in this province is a lack of resources. Unflled positions and the reassignment of units to deal with other federal priorities have exacerbated the problem. The result has been that there are ofen few (if any) ofcers available to investigate money laundering activity in British Columbia. Since the establishment of this Commission, the RCMP has taken steps to address some of the resourcing issues that led to the poor enforcement results in this province. I have some optimism that the RCMP may fnd a measure of success if its commitment to money laundering investigations is genuine and if the federal government prioritizes and devotes sufcient resources to money laundering issues. At the same time, I have serious concerns that the RCMP’s newfound commitment to these issues may be short - Executive Summary 7 lived and that current resourcing levels will not be maintained once the work of the Commission is over and the public scrutiny on this issue has diminished. I would add that, given the magnitude and complexity of the problem, even the proposed federal resources will be insufcient to fully and efectively respond to money laundering. I therefore recommend the creation of a dedicated provincial money laundering intelligence and investigation unit to lead the law enforcement response to money laundering in this province. The new unit will do so by (a) identifying, investigating, and disrupting sophisticated money laundering activity, and (b) training and supporting other investigators in the investigation of the money laundering and proceeds of crime ofences. I recommend that this new unit be located within the Combined Forces Special Enforcement Unit (CFSEU). This is important so that the provincial government has a higher degree of oversight and visibility into its operations, and it will avoid “hollowing out” the provincial police force. This structure will also give the Province greater fexibility to hire and retain police ofcers and civilian specialists who have the knowledge, skills, and motivation to investigate money laundering and proceeds of crime cases. Too ofen, high levels of turnover within specialized policing units – especially those investigating fnancial crime – have undermined their efectiveness. My goal in recommending this unit is to build the permanent infrastructure necessary to mount a sustained and efective response to money laundering. In order to be successful, the new unit will need access to prompt, ongoing legal advice, as well as a surveillance team that prioritizes its needs. It is also essential that the new unit be stafed with police ofcers and civilian specialists with expertise in a wide variety of disciplines. The unit must also maintain a team of money laundering and fnancial crime experts who can “demystify” money laundering and help investigators, prosecutors, and judges understand money laundering and the evidence that exposes it. While the creation of the new unit will require a signifcant investment by the Province, it is my expectation that these costs will be ofset by the identifcation and targeting of additional illicit assets for forfeiture. The experience in other jurisdictions demonstrates that a focused and efective asset forfeiture regime can have a signifcant impact on organized crime and lead to substantial fnancial benefts for the state. Law enforcement bodies must make better efforts to follow the money and pursue money laundering and proceeds of crime charges Another cause of the poor law enforcement outcomes in this province has been a failure, at all levels of policing, to consider money laundering and proceeds of crime charges in investigations into proft-oriented criminal activity. Money laundering and proceeds of crime charges are rare in this province. This is because police conducting investigations into proft-oriented criminal activity, such as drug dealing, are not investigating these ofences. Commission of Inquiry into Money Laundering in British Columbia – Final Report 8 Every investigation into proft-oriented criminal activity should have, as one of its aims, building a case to support money laundering and/or proceeds of crime charges. Even a basic fnancial investigation into the accumulation of wealth by those involved in criminal activity can have real benefts. Such investigations can disrupt organized crime networks by identifying assets for seizure and forfeiture. They can also help reveal criminal connections and hierarchies, and show how the subjects are laundering their money. Money laundering and proceeds of crime investigations can also expand the pool of potential accused and allow for charges to be brought against those who are involved in diferent aspects of the criminal enterprise. I am therefore recommending that all provincial law enforcement agencies conducting investigations into proft-oriented crime (a) consider money laundering and proceeds of crime charges at the outset of the investigation, and (b) where feasible, conduct a fnancial investigation with a view to pursuing those charges and identifying assets for seizure and/or forfeiture. While I appreciate that the allocation of law enforcement resources to these matters will put additional strain on law enforcement agencies in the short term, I strongly believe that the consistent and rigorous implementation of this measure has the potential to substantially improve law enforcement results. It could also result in the forfeiture of substantial criminal assets, which will help ofset this important investment. Asset forfeiture must be pursued more vigorously Asset forfeiture is widely regarded as one of the most efective ways of stifing and disrupting organized crime groups and others involved in serious criminal activity. Not only does it deprive these groups of the profts of their unlawful activity (thereby taking the proft out of crime), it also prevents those funds from being reinvested in the criminal enterprise, where they can be used to purchase drugs, weapons, vehicles, and other products necessary to support their unlawful activities. In many cases, the seizure of unlawfully obtained assets will have a greater impact on organized crime groups than the arrest and prosecution of low-level members. Unfortunately, the number and value of unlawfully obtained assets seized through the asset forfeiture system in British Columbia is shockingly low. The BC Civil Forfeiture Ofce recovered approximately $13.4 million in 2019 and $10.7 million in 2018. The criminal asset forfeiture amounts were similarly unimpressive. These recoveries are not commensurate with the huge volume of illicit funds being laundered through the province each year. To mount an efective response to money laundering, it is essential that investigators understand the powerful tools available within the criminal asset forfeiture regime and develop the evidence needed to pursue successful criminal forfeiture applications. It is also essential that police and prosecutors be given training in the importance of criminal asset forfeiture and the use of the criminal asset forfeiture provisions. Executive Summary 9 With respect to civil forfeiture, it is critically important that the BC Civil Forfeiture Ofce expand its focus from the forfeiture of instruments of crime and low-value assets identifed incidentally in law enforcement investigations to the identifcation and forfeiture of high-value assets owned or controlled by those involved in serious criminal activity. To support this wider focus, the Civil Forfeiture Ofce must expand its operational capacity by adding investigators and analysts capable of identifying and targeting unlawfully obtained assets that are not identifed in the police fle. I also believe that the provincial government should transition the Civil Forfeiture Ofce from a self-funded agency to a government-funded agency, in which the revenue generated by that ofce fows to government. The Civil Forfeiture Ofce should be encouraged to pursue cases that have the greatest impact on organized crime groups, regardless of whether those cases are “commercially viable. ” That is not to say that an expansion of the ofce will be a drain on government resources. On the contrary, if the recommendations contained in this Report are adopted, there should be a signifcant increase in the number (and value) of assets forfeited, and the government should properly determine the allocation of that revenue. Unexplained wealth orders will be a valuable additional tool in the fght against money laundering Unexplained wealth orders are a promising tool used in some jurisdictions to address the accumulation of illicit wealth by those engaged in proft-oriented criminal activity. In basic terms, they allow the state, upon meeting a certain evidentiary threshold (such as reasonable grounds to suspect that the person is or has been involved in proft-oriented criminal activity), to obtain an order compelling a person to produce information concerning the provenance of a particular asset (for example, the source of funds used to purchase a house). If the recipient of the order fails to produce the required information, a presumption will arise that the property was purchased with illicit funds. If the presumption is not rebutted, the property will be forfeited to the state. I am persuaded that unexplained wealth orders are a valuable tool in targeting illicit wealth held by members of criminal organizations and others involved in serious proft- oriented criminal activity. By introducing an unexplained wealth order regime, the Province will be better able to determine whether assets suspected to be illicit are, in fact, proceeds of crime and to target those assets in civil forfeiture proceedings. While unexplained wealth orders could be used in a wide variety of circumstances, they may be particularly useful in targeting the assets of individuals further up the criminal hierarchy, who are ofen involved in highly lucrative but less visible forms of criminal activity. If used properly, unexplained wealth orders also allow authorities to address problems such as nominee ownership, where those involved in criminal activity put unlawfully obtained assets into the hands of a family member or associate in an attempt to insulate them from forfeiture. Commission of Inquiry into Money Laundering in British Columbia – Final Report 10 Another beneft of unexplained wealth orders is to discourage foreign corrupt ofcials and others involved in criminal activity from moving their illicit wealth to British Columbia through the purchase of real estate and other valuable assets. One thing that has become apparent during the Commission’s process is that many of those involved in proft-oriented criminal activity are rational actors who are aware of the diferent regulatory requirements in diferent jurisdictions and consider those diferences in determining where to place and launder their ill-gotten gains. Faced with the prospect of having to prove the provenance of a particular asset, to avoid a forfeiture order, these ofenders may choose to launder their proceeds and place their wealth in another jurisdiction. I recognize that unexplained wealth orders are not without controversy and that some have raised concerns about the presumption of innocence and the right to silence. However, it is important to understand that the provincial Civil Forfeiture Act cannot be used to impose any criminal penalties. Unexplained wealth orders would only be used in civil proceedings for the forfeiture of property. The information provided in response to an unexplained wealth order cannot be used in a criminal prosecution. I would add that people who legitimately own valuable assets are well placed to show the provenance of those assets. When used to target high-value assets in the hands of those involved in serious criminality, unexplained wealth orders will prove an efective additional tool to address money laundering. For the better part of a decade, an unprecedented volume of illicit cash was laundered through BC casinos Between 2008 and 2018, Lower Mainland casinos accepted hundreds of millions of dollars in cash that was the proceeds of crime. These transactions were an integral part of a money laundering typology known as the “Vancouver model” – in which wealthy casino patrons were provided vast sums of illicit cash by “cash facilitators” who were afliated with criminal organizations. Typically, these patrons were not themselves involved in the criminal activity that generated these funds. Some held signifcant wealth in China but were unable to access that wealth in Canada because of Chinese currency export restrictions, so they resorted to cash facilitators to get money to gamble in BC. These patrons would genuinely use this cash to gamble. They ofen lost it. But whether they won or lost, they would repay the cash advance to the criminal organization in a form other than cash, ofen via an electronic funds transfer in another jurisdiction. This arrangement enabled wealthy casino patrons to gamble in British Columbia without running afoul (or at least without appearing to run afoul) of Chinese currency export restrictions, while allowing criminal organizations in BC to launder their illicit cash. They did so by converting it into a diferent medium of exchange, transferring it to another jurisdiction, and obscuring its illicit origins. Executive Summary 11 The illicit cash used by these casino patrons played a central role in fuelling extraordinary growth in large and suspicious cash transactions in Lower Mainland casinos. Beginning in 2008, investigators with the Gaming Policy and Enforcement Branch (GPEB) – British Columbia’s gaming regulator – identifed a signifcant increase in suspicious cash transactions in casinos. They became concerned that this was money laundering. In the years that followed, the size and frequency of these transactions increased dramatically, peaking in the mid-2010s. In 2014 alone, British Columbia casinos accepted nearly $1.2 billion in cash transactions of $10,000 or more, including 1,881 individual cash buy-ins of $100,000 or more – an average of more than fve per day. In many instances, these transactions were identifed and reported as suspicious by BCLC and the private-sector companies that had been contracted by BCLC to operate casinos. In 2014, BCLC reported nearly $200 million in suspicious transactions to FINTRAC. These suspicious transaction reports included 595 separate transactions with a value of $100,000 or more. In addition to the extraordinary amounts, the cash used in many of these transactions exhibited well-known characteristics of cash derived from crime. It ofen consisted predominantly of $20 bills, oriented in a non-uniform fashion, bundled in “bricks” of specifc values (as opposed to number of notes), bound with elastic bands, and carried in shopping bags, knapsacks, suitcases, gym bags, cardboard boxes, and all manner of other receptacles. These vast quantities of cash were frequently delivered to casino patrons at or near casinos, very late at night or early in the morning, by unmarked luxury vehicles. It should have been apparent to anyone with an awareness of the size and character of these transactions that Lower Mainland casinos were accepting vast quantities of proceeds of crime during this time period. GPEB, BCLC, and law enforcement were aware of the burgeoning money laundering crisis but failed to intervene effectively The growth of these large and suspicious cash transactions, beginning in 2008, did not go unnoticed. By that year, the GPEB investigation division, led by a former RCMP ofcer and expert in the investigation of money laundering and proceeds of crime, identifed the severe money laundering risk posed by these transactions. Over the next six years, the GPEB investigation division repeatedly issued warnings about this risk – and made recommendations to address it – to their superiors within GPEB, to BCLC, to law enforcement, and to the provincial government. Similarly, warnings were given by BCLC’s own investigative staf and some within law enforcement during this time period. Besides raising concern about the size and suspicious nature of these transactions, some of these warnings specifcally identifed the money laundering typology that was being used. Commission of Inquiry into Money Laundering in British Columbia – Final Report 12 Despite these repeated warnings, no meaningful action was taken to address this issue until 2015. BCLC resisted these calls for action and continued to allow these transactions, almost without exception. Managers within BCLC’s corporate security and compliance unit repeatedly insisted that these transactions could not be connected to money laundering if patrons were genuinely putting their funds at risk and ofen losing them. This insistence continued despite the GPEB investigation division and one of BCLC’s own investigators precisely identifying the money laundering typology to which these transactions were connected. While BCLC managers in the corporate security and compliance unit acknowledged the risk that the cash used in these transactions could be the proceeds of crime, they insisted that, in the absence of a law enforcement investigation proving this, they could not take action. Instead, they stood by and permitted BC casinos to accept vast sums of illicit cash. BCLC’s approach refected a completely unacceptable and unreasonable risk tolerance. GPEB and law enforcement likewise took minimal action to respond to the growth in large and suspicious cash transactions prior to 2015. While GPEB’s leadership during this time period was more open than BCLC’s to the conclusion that these transactions could be connected to money laundering, GPEB’s eforts to reduce these transactions were largely limited to working with BCLC to develop voluntary alternatives to the use of the cash. This strategy stood no realistic prospect of having a meaningful impact on large and suspicious cash transactions. It fell far short of what was called for in the circumstances. Within law enforcement, the RCMP’s IPOC unit undertook an intelligence probe focused on these transactions beginning in 2010. The ofcers involved in this probe came to believe that these transactions were connected to money laundering, and they developed an operational plan that held real promise in addressing the supply of illicit cash provided to casino patrons. However, the plan was never carried out. The IPOC unit was soon disbanded. Following the conclusion of the IPOC intelligence probe, it would be more than three years before there was further meaningful law enforcement engagement with the rapidly growing large and suspicious cash transactions in BC casinos. In early 2015, at the urging of BCLC, the RCMP’s FSOC unit commenced surveillance of people connected to these transactions. In several days of surveillance conducted over several months, the FSOC unit confrmed a direct link between criminal organizations and cash transactions at the River Rock Casino Resort. The police believed that those providing the cash used in these transactions were linked to transnational organized crime. BCLC fnally began to respond to these concerns around the time that it learned of FSOC’s conclusions regarding the connection between suspicious casino transactions and organized crime. The actions taken by BCLC included incrementally placing select patrons identifed in the FSOC investigation, and those engaged in the largest and most suspicious transactions, on conditions that prohibited them from buying in with unsourced cash. However, despite the confrmation it had received from law enforcement that BC casinos were accepting proceeds of crime, and despite the Executive Summary 13 persistent urging of both GPEB and the minister responsible for gaming to take further action, BCLC continued, in many instances, to permit patrons to buy-in at casinos with hundreds of thousands of dollars in cash that bore obvious indicators of being illicit. GPEB also began to take additional action in response to suspicious cash transactions afer learning of the initial results of the FSOC investigation and following the compilation, by two GPEB investigators, of a spreadsheet detailing suspicious transactions in July 2015. That spreadsheet showed more than $20 million dollars of suspicious cash in transactions of $50,000 or more in one month, over $14 million of which was in $20 bills. The spreadsheet impressed upon GPEB’s leadership the urgency of the problem posed by suspicious cash transactions in Lower Mainland casinos. It inspired GPEB to seek the intervention of the minister responsible for gaming. These eforts led to the creation of a law enforcement unit dedicated to the province’s gaming industry. This flled a long-standing enforcement gap. The responsible minister also issued a letter to BCLC that included a direction to take additional action to identify the source of funds used in cash transactions prior to cash acceptance. Like those of BCLC, however, these actions ultimately proved inadequate to stop the regular acceptance of substantial quantities of suspicious cash by BC casinos, and GPEB failed to take adequate further steps to seek the further intervention of the minister. While the rate at which suspicious cash was being accepted by BC casinos slowed beginning in 2015, it remained at an unacceptably high level for several years aferwards. Even afer both BCLC and GPEB received confrmation from law enforcement that BC casinos were accepting illicit cash, casinos continued to accept tens of millions of dollars of suspicious cash annually. Even though some progress was made following 2015, the eforts made during this time period fell well short of what was required. They were not commensurate with the scale of the money laundering crisis that had developed in the industry in the years leading up to 2015. Elected offcials were aware of suspicious funds entering the provincial revenue stream through the gaming industry, but there is no evidence of corruption Money laundering in the province’s casinos persisted over the tenures of multiple ministers responsible for gaming. Each of these ministers was privy, on some level, to information showing that the gaming industry was at elevated risk of money laundering. By 2010, then-minister responsible for gaming Rich Coleman was aware of the concerns of the GPEB investigation division and law enforcement that the province’s casinos were being used to launder the proceeds of crime. At the same time, Mr. Coleman also received information from BCLC stating that the province’s gaming industry had a strong and efective anti–money laundering regime. Mr. Coleman responded to these mixed messages by arranging for an independent review of anti–money laundering measures in the gaming industry, but he did not take action to stem the fow of the suspicious cash transactions that he had been warned about. Commission of Inquiry into Money Laundering in British Columbia – Final Report 14 A similar dynamic characterized the years that followed when the ministers responsible for gaming, including Shirley Bond, Mr. Coleman (returning to the position), and Michael de Jong, received conficting information about money laundering in the gaming industry. Each minister, to varying degrees, received some indication that the gaming industry was at an elevated risk of money laundering. In some instances, this included specifc warnings that casinos were likely accepting substantial quantities of illicit cash. Each minister also received assurances from BCLC and, in some instances, GPEB, that BC’s gaming industry had a robust, industry-leading anti–money laundering regime. Each of these ministers took some action to respond to the risk of money laundering in the gaming industry. Mr. Coleman initiated an independent review of the industry’s anti–money laundering regime. Ms. Bond directed the immediate implementation of nine of 10 recommendations emanating from that review. Mr. de Jong spearheaded the creation of a new, gaming-focused law enforcement unit and directed BCLC to enhance its eforts to evaluate the source of funds used in cash buy-ins before those funds were accepted. None of these actions, however, was sufcient to resolve the extensive money laundering present in the industry through much of the 2010s. Money laundering in the gaming industry accelerated through the tenures of Mr. Coleman and Ms. Bond, and the frst half of Mr. de Jong’s. While the rate of suspicious transactions in casinos began to decline in the second half of Mr. de Jong’s tenure, it remained unacceptably high until the end of his tenure. While I am unable to fnd fault with the response of Ms. Bond, given her short tenure as minister responsible for gaming and the information she received while in this role, more could have been done by Mr. Coleman and Mr. De Jong, who served in that role for extended periods during the evolution of this crisis. Former Premier Christy Clark appropriately delegated oversight of the gaming industry to a succession of experienced ministers. In 2015, however, the premier learned that casinos conducted and managed by a Crown corporation and regulated by government were reporting transactions involving enormous quantities of cash as suspicious. Despite receiving this information, Ms. Clark failed to determine whether these funds were being accepted by the casinos (and in turn contributing to the revenue of the Province) and failed to ensure such funds were not accepted. Despite the failure of these elected ofcials to take steps sufcient to resolve the extensive money laundering occurring in the industry for which they were responsible, there is no basis to conclude that any engaged in any form of corruption related to the gaming industry or the Commission’s mandate more generally. While some could have done more, there is no evidence that any of the failures was motivated by corruption. There is no evidence that any of these individuals knowingly encouraged, facilitated, or permitted money laundering to occur in order to obtain personal beneft or advantage, be it fnancial, political, or otherwise. To the extent that some have hypothesized that money laundering in casinos was facilitated by corrupt politicians or ofcials, they are engaging in conjecture that is not rooted in evidence. Executive Summary 15 The implementation of Peter German’s recommendation has signifcantly curtailed the prevalence of illicit cash in BC casinos The rate at which suspicious cash was accepted in BC casinos was not reduced to acceptable levels until 2018, during the tenure of Mr. de Jong’s successor, David Eby. Like his predecessors, Mr. Eby was initially confronted with contradictory information about the prevalence of money laundering in the gaming industry. Early in his tenure as gaming minister, while GPEB was raising the alarm, BCLC was hailing the strengths of its anti–money laundering program. In response, Mr. Eby engaged Dr. Peter German to conduct an independent review of money laundering in the industry. Soon afer commencing his review, Dr. German presented Mr. Eby with an interim recommendation. The recommendation led to a requirement that casino patrons present proof that funds used in cash transactions of $10,000 or more were from legitimate sources. In 2018, the year in which this measure was implemented, the value of suspicious transactions reported to FINTRAC by BCLC declined by nearly 90 percent. This success was not the result of a solution invented by Dr. German. Measures similar to that implemented in 2018, and others likely to have had a similar efect, had been proposed repeatedly since suspicious transactions began to grow in 2008. What was lacking prior to 2018 was not the identifcation of an appropriate policy response, but rather the will – on the part of both government and industry – to take the kind of decisive action necessary to efectively respond to this problem. Today, BC’s gaming industry is greatly changed from that which permitted extensive money laundering in British Columbia casinos between 2008 and 2018. The source-of - funds requirements implemented following Dr. German’s interim recommendation are an important part of this change. Other changes since the implementation of these requirements also support the view that the industry is in a better place. Afer many years of resisting vital anti–money laundering measures, BCLC now seems to have embraced its responsibility to safeguard the industry from money laundering and proceeds of crime. GPEB – which the Province is in the process of replacing with a new, independent regulator – has been granted important new powers. It has redefned its role in combatting money laundering. There is also a law enforcement unit, the Joint Illegal Gaming Investigation Team (JIGIT), that was initiated during Mr. de Jong’s tenure and is now fully engaged with the industry. Whereas GPEB and BCLC seemed to work at cross-purposes for many years, it now seems that these two organizations, along with JIGIT, are working co-operatively and collaboratively. While the industry is much improved, there must be continued vigilance and further improvement. It is essential that the new, independent gaming regulator be granted clear, independent authority over the industry. This includes the authority to issue directions to BCLC without the approval of the responsible minister or any other external authority. Further, in the interest of ensuring that the industry builds on the advancements made to date, the threshold for requiring proof of the source of funds, implemented following Dr. German’s recommendation, should be lowered to $3,000. Commission of Inquiry into Money Laundering in British Columbia – Final Report 16 The industry must also move rapidly toward 100 percent account-based, known play in the province’s casinos. The BC real estate sector is highly vulnerable to money laundering The BC real estate sector is highly vulnerable to money laundering. These vulnerabilities are exacerbated by the persistent adherence of some real estate professionals to outdated attitudes and myths about what money laundering is and how it occurs in their industry. While money laundering in the real estate sector does not conjure up dramatic images of hockey bags full of cash being emptied onto the desks of realtors, that does not mean money laundering is not occurring. The BC real estate market has traditionally been strong. This makes it attractive to criminal actors who want the investment of their criminal proceeds to be relatively immune from negative market forces. Illicit funds that have already made their way into the fnancial system can be invested in real estate, providing the criminal with a safe place to store their wealth and a façade of legitimacy when the property is eventually sold. Buying and selling a series of properties can further obscure the criminal origins of the funds. Money laundering in the real estate sector ofen involves the use of loans, mortgages, and, in some cases, lawyers’ trust accounts and the legal system. It can also involve cash. For example, a criminal might take out a mortgage for the purchase of property and repay the mortgage with proceeds of crime. If the cash deposited for each payment is under $10,000, it will not trigger the requirement for a large cash transaction report to FINTRAC. Over time, criminals may acquire multiple properties or higher-value real estate through the use of this typology. The properties can then be sold (ofen at a signifcant proft in the Vancouver real estate market) with the criminal property owner receiving “clean” funds from the purchaser to complete the money laundering process. Illicit funds can also be laundered in a manner that exploits the real estate industry by loaning those funds to individuals who do not qualify for a traditional mortgage or who need cash for another purpose (such as gambling). Such loans can be secured through a lien registered on title by falsifying loan documents to suggest the loan was for the purchase or renovation of real property. When the loan is repaid, the criminal receives “clean” funds. If the loan is not repaid, the criminal can, ofen with the assistance of a lawyer, use the court system and seek a forced sale of the property, again receiving repayment from a credible source. While most real estate professionals operate with integrity, evidence I heard demonstrates how money laundering risks can be exacerbated by those who seek to bend the rules or ignore or downplay their professional obligations. It is essential that the British Columbia Financial Services Authority (BCFSA), which regulates real estate professionals, be given a clear and enduring anti–money laundering mandate and that it be given sufcient resources to address allegations of misconduct in a timely way. Executive Summary 17 Realtors have a poor record of anti–money laundering reporting and compliance Real estate licensees (realtors) have a poor record of anti–money laundering reporting and compliance. Many continue to display an inadequate understanding of, and hold misplaced beliefs about, how money laundering occurs in the real estate industry. These misplaced beliefs have led to complacency and a reluctance to comply with their anti–money laundering obligations. FINTRAC reporting by real estate licensees is virtually non-existent and is nowhere near commensurate with the level of money laundering risk in the sector. For example, in 2015–16, real estate licensees in British Columbia submitted a total of seven suspicious transaction reports to FINTRAC. These numbers increased to a high of 37 in 2019–20 before decreasing to 15 in 2020–21. One of the principal reasons for the poor record of anti–money laundering reporting and compliance among realtors is the persistent but mistaken belief that money laundering in real estate means buying houses with bags of cash. FINTRAC has recently started providing information to dispel that myth. Another cause of the poor record of anti–money laundering reporting and compliance is confusion among realtors about how to comply with their federal anti–money laundering obligations. Most real estate agents and brokers have no background in compliance or anti–money laundering measures, and there is signifcant frustration in the industry about the lack of guidance. There is a need for clear, simple guidance from FINTRAC about when transactions must be reported. Changes must be made to ensure that realtors better understand their anti–money laundering responsibilities and report suspicious transactions as required. It is also important that realtors overcome their misgivings about fling suspicious transaction reports. Realtors have no obligation to maintain the confdentiality of potential criminal activity. They are the point of access for most people to the real estate market, and they have a legal and professional obligation to maintain the integrity of that market by making appropriate inquiries and reporting transactions to FINTRAC where they are suspicious. Effective regulation of the mortgage lending industry is essential Regulation of the BC mortgage lending industry is defcient in many ways. Mortgage brokers are not reporting entities under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act ( PCMLTFA) even though they are ofen privy to transactions or attempted transactions that pose signifcant money laundering risks. I view the absence of a reporting requirement for mortgage brokers as a signifcant gap in the federal anti–money laundering regime and recommend that the provincial Minister of Finance urge her federal counterpart to amend the PCMLTFA and associated regulations to include mortgage brokers as reporting entities. Commission of Inquiry into Money Laundering in British Columbia – Final Report 18 At the provincial level, it is essential that the Province continue its eforts to modernize the regulatory regime that applies to mortgage brokers. It should do so by replacing the Mortgage Brokers Act with new legislation that clarifes the defnition of “mortgage broker, ” gives the new regulator rule-making authority, and provides for signifcant penalties – including the power to make a disgorgement order – in order to better deter unlawful activity. I also consider it important that the provincial government introduce separate legislation aimed at regulating private mortgage lenders to help ensure that private lending is not used or exploited in furtherance of money laundering schemes. In order to prevent the abuse of the court system to enforce loans made with illicit funds, I believe the Province should implement a mandatory source-of-funds declaration to be fled with the court in every claim for the recovery of a debt, such that no action in debt or petition in foreclosure can be fled (except by an exempted person or entity) in the absence of such a declaration. The court should have discretion to refuse to grant the order(s) sought by the claimant in a debt action or foreclosure petition if it is not satisfed that the declaration is truthful and that the funds advanced by the lender were legitimate. Money laundering is not the cause of housing unaffordability The public discussion about, and interest in, money laundering has been fuelled, in part, by rising real estate prices and the belief, by some, that high prices are the result of money laundering in BC real estate. Public attention has also been captured by the issue of foreign ownership in the BC real estate market. While the impact of money laundering and anti–money laundering measures on real estate prices is something that would beneft from further study, I am unable to conclude that money laundering is a signifcant cause of housing unafordability in the residential real estate market. I wish to be clear that I do not urge the provincial government to take up the recommendations contained in this Report on the basis that they will resolve British Columbia’s housing afordability challenges. There are strong reasons to think that fundamental factors such as supply and demand, population increase, and interest rates are far more important drivers of price. Money laundering should be addressed, to be sure, but steps taken to counteract money laundering should not be viewed as a solution for housing unafordability. Banks and credit unions dedicate great energy and resources to combatting money laundering, but serious risks persist Banks and credit unions are gatekeepers to the fnancial system. They are prime targets for criminals who try to introduce their ill-gotten gains into the legitimate economy. Passing funds through a fnancial institution provides a façade of legitimacy, facilitates the transfer of funds (including abroad and to legal entities such as corporations or trusts), and in general makes it easier for criminals to use Executive Summary 19 their ill-gotten gains. Most criminals seeking to launder funds will attempt to use a fnancial institution at some point in their process. Canadian banks face inherent risks of being targeted by money launderers. As of 2015, banks held over 60 percent of the fnancial sector’s assets, by far the majority of which were held by the six largest domestic banks. Provincial credit unions and caisses populaires also handle vast sums of money – $320 billion in assets as of 2014. Financial institutions frequently handle signifcant transaction volumes and ofer services to a large client base, including high-risk clients and businesses. Services most at risk of being targeted for money laundering include deposit services, wealth management, investment banking, and correspondent banking. Banks and credit unions have a variety of obligations under the PCMLTFA, including compliance programs, client identifcation and verifcation, record-keeping, and reporting. They invest a great deal into their anti–money laundering compliance programs and have good knowledge of the risks. However, as money laundering is a frequently moving target, they must not become complacent. It is crucial that banks and credit unions maintain their focus on anti–money laundering, stay aware of emerging threats, and adapt quickly to address new threats. While information sharing is important in many sectors, it is especially so for fnancial institutions. As gatekeepers to the fnancial sector, these institutions are well placed to observe suspicious activity, report it to FINTRAC, and collaborate with law enforcement and government. Public-private partnerships between public bodies and fnancial institutions have not been used as frequently in Canada as in other countries. So long as they have clear parameters that respect constitutional and privacy principles, these partnerships should be pursued more ofen. The Province should introduce a “safe harbour provision, ” which would allow provincial fnancial institutions to share information about potential money laundering with one another without giving rise to liability. The Province should encourage the federal government to do the same for banks. BCFSA, which regulates provincial fnancial institutions, has taken some positive steps to integrate anti–money laundering into its regulatory framework. However, it appears that BCFSA is awaiting an explicit anti–money laundering mandate before taking further steps. The Province should provide BCFSA with a clear and enduring anti–money laundering mandate, and ensure that it has sufcient resources to fulfll this mandate. Money services businesses present a signifcant money laundering risk; they should be regulated by the Province Money services businesses (MSBs) are non-bank entities that provide transfer and exchange services, such as transmitting or exchanging funds and issuing or redeeming money orders. Virtual asset service providers and informal value transfer systems are both considered to be MSBs and are addressed separately below. Commission of Inquiry into Money Laundering in British Columbia – Final Report 20 While there are many legitimate uses of MSBs, there are well-known money laundering risks associated with them. They are frequently used by professional money launderers, ofen in conjunction with other money laundering techniques. Many operate outside the traditional fnancial system and are difcult for law enforcement to identify and locate. Although MSBs are subject to the PCMLTFA, that regime has defciencies. Not all MSBs register with FINTRAC (as they are required to do every two years). This leaves FINTRAC and law enforcement in the dark about their activities. In addition, FINTRAC takes the approach that it can refuse registration only if an applicant has a criminal conviction for a specifed ofence. Being under criminal investigation or facing an outstanding charge is not enough. The result is anomalous: an applicant could be subject to a major and active money laundering investigation by law enforcement, but still get registered by FINTRAC. Indeed, that is what happened with one MSB in this province. FINTRAC conducts relatively few compliance examinations of MSBs. When it does, few occur in the frst years of an MSB’s existence. Early examinations of MSBs would serve as a deterrent to those using MSBs for criminal purposes and would address situations where an MSB operates for two years and then re-registers with a new name, sidestepping the FINTRAC examination. Given these risks and defciencies in the MSB sector, the Province should regulate MSBs. BCFSA is well placed to take on this role. This will be a signifcant expansion to BCFSA ’s mandate, and the Province should ensure it has enough staf and resources to carry out this task. The regulatory regime should provide BCFSA with the ability to assess the suitability of applicants in a more meaningful way, not just asking if they have a conviction. There should be regular compliance examinations, especially during the frst two years of an MSB’s existence. In establishing a regulatory framework for MSBs, British Columbia should draw from the experience in Quebec – the only province that regulates MSBs. While Quebec has encountered difculties in the frst years of regulating MSBs, its regime holds promise. The lessons learned in Quebec will be informative for our province. A corporate benefcial ownership registry is essential to address money laundering risks in the corporate sector Corporate and other legal arrangements play an important and legitimate role in the Canadian economy. There are, however, well-known money laundering risks associated with these arrangements. The risks stem principally from the anonymity that corporate and other legal arrangements can provide. Criminals can obscure their identity by hiding behind a company, or perhaps using a few diferent companies, to distance themselves from certain transactions and funds. Law enforcement eforts are ofen frustrated when corporate arrangements make it impossible to determine benefcial ownership. This is particularly so where ofenders use complex, multilayered ownership and control structures to shield their identity. Executive Summary 21 Benefcial ownership transparency is a promising tool to address the risks associated with companies and other such arrangements. The question is no longer whether the Province should implement a benefcial ownership registry, but how it should be done. The federal government has recently made a strong commitment to establish a national benefcial ownership transparency registry. It has committed to doing so by the end of 2023. Given that commitment, the Province should devote its energy and expertise to working with its federal, provincial, and territorial partners to ensure that an efective, publicly accessible, pan-Canadian corporate registry is created and implemented on schedule. It is critical that the registry be publicly accessible. Privacy concerns should be addressed by using tiered access (with more information available to government and law enforcement than what the public gets) and limited exemptions (allowing a person not to be listed publicly where, for example, personal safety concerns arise). The registry will also need a strong compliance and enforcement regime to ensure the accuracy and comprehensiveness of the information it contains. Lawyers are exposed to signifcant money laundering risks, but are subject to extensive regulation by the Law Society of British Columbia Lawyers do much of their work confdentially, and their zone of confdentiality is strongly protected. This is a sound principle, and it has been given constitutional protection. But the confdential nature of lawyers’ work, coupled with the enormous variety and inherent nature of the transactions they are involved in, gives rise to an obvious risk of lawyers being used, knowingly or unwittingly, to facilitate money laundering. Given the nature of sophisticated money laundering schemes – which use corporations, shell companies, real estate, and more – the involvement of a lawyer at some point is almost inevitable. While the extent of lawyer involvement in money laundering is unclear (given an absence of data), the risk is an obvious one. Criminals can exploit features of the lawyer-client relationship. Solicitor-client privilege ensures that clients can be confdent their communications will remain secret. Meanwhile, a lawyer’s duty of commitment to the client means that the state cannot impose obligations on lawyers that interfere with their loyalty to the client’s cause. Solicitor-client privilege and the duty of commitment have received constitutional protection in Canada – for good reason. They encourage clients to speak freely with their lawyers, which in turn allows clients to receive informed advice and access the justice system. However, while legitimate clients beneft from these duties, criminals can abuse them. Lawyers’ trust accounts pose signifcant risks from a money laundering perspective. Recent case law from the Supreme Court of Canada suggests that transactions involving Commission of Inquiry into Money Laundering in British Columbia – Final Report 22 a trust account are presumed to be privileged. As such, trust account records are generally out of reach for law enforcement. Passing funds through a trust account also cloaks transactions with an appearance of legitimacy, causing law enforcement, fnancial institutions, and others to ask fewer questions when a lawyer is involved. Another key area of money laundering risk is the purchase and sale of real estate. Lawyers are routinely involved in real estate transactions, preparing title and mortgage documents, registering transfer of title, and receiving and disbursing funds through their trust accounts. Likewise, lawyers ofen assist with private lending schemes that can be used to launder money. The same is true for incorporations, the creation of trusts and partnerships, and the facilitation of fnancial transactions. Legal entities and complex transactions can be used to conceal the true ownership of funds, and lawyers are instrumental in bringing them about. While the foregoing risks are signifcant, the Law Society has mitigated many of them through robust regulation. Even though lawyers do not fall under the federal PCMLTFA regime, they do face extensive regulation for money laundering by the Law Society. This regulation goes a long way to addressing the exclusion of lawyers from the PCMLTFA regime, although there is room for improvement. The Law Society regulates all aspects of lawyers’ practice, and it has strong powers to investigate misconduct. It can overcome legal privilege, compel answers and documents, and use search and seizure–type powers. When misconduct is found, the Law Society can impose sanctions ranging from reprimands or fnes to suspension and disbarment. The Law Society has implemented a number of rules focused specifcally on anti– money laundering. An important one is the cash transactions rule, which prohibits lawyers from accepting over $7,500 in cash in any one client matter (with some exceptions). That rule is actually more stringent than large cash transaction reporting under the PCMLTFA, which requires those subject to the Act to report cash transactions of $10,000 or more, but not necessarily refuse them. While some exceptions permit lawyers to accept over $7,500 in cash, lawyers must make any refunds in cash, which goes some way to addressing the money laundering risk associated with accepting large amounts of cash. The Law Society has also imposed a variety of client identifcation and verifcation rules, which, in many ways, parallel (or exceed) PCMLTFA measures. Critically important to the Law Society’s anti–money laundering regulation are its trust accounting rules. Lawyers must keep a variety of records, reconcile their trust accounts every month, make annual reports, and undergo regular audits. This oversight is crucial given that others, particularly law enforcement, cannot compel lawyers to produce privileged information or documents. The trust accounting rules and audit process signifcantly mitigate the money laundering risks associated with Executive Summary 23 trust accounts. However, given the potential for privilege to attach to trust account transactions, the Law Society should further limit what can enter a trust account in the frst place, in order to ensure that trust accounts are used only when truly necessary. In addition to these anti–money laundering rules, lawyers must comply with general ethical obligations. These include a prohibition on assisting crime, fraud, or dishonesty, and a requirement to withdraw if a client persists in instructing a lawyer to act contrary to professional ethics. These broad rules enable the Law Society to quickly respond to evolving risks; they are an important part of its anti–money laundering regulation. A reporting regime for lawyers poses signifcant constitutional challenges and should not be pursued Unlike many professionals, lawyers are not subject to the PCMLTFA. The federal government attempted to include them in the regime in 2001; however, the Supreme Court of Canada determined in 2015 that it had not done so in a constitutionally compliant way. The Court concluded that the regime (a) authorized searches of lawyers’ ofces that inherently risked violating solicitor-client privilege, and (b) was inconsistent with lawyers’ duty of commitment to their clients’ causes. Since the Supreme Court’s decision, the federal government has not enacted new legislation to bring lawyers into the PCMLTFA regime. Critics contend that the failure to do so means there is a gap in Canada’s anti–money laundering regime, and that lawyers in this country are not regulated for anti–money laundering purposes. These critiques are too simplistic. It is true that the exclusion of lawyers from the PCMLTFA regime means that FINTRAC does not receive reports from lawyers; it therefore lacks the same lens into lawyers’ (and their clients’) activities as it has for other professions. There are also unique challenges for law enforcement when investigating cases involving lawyers because of solicitor-client privilege and the lack of reporting by lawyers. However, it is inaccurate to say that lawyers in British Columbia are not regulated for anti–money laundering purposes. Lawyers are subject to extensive anti–money laundering regulation by the Law Society, and that regulation has gone a long way to addressing many of the money laundering risks in this sector. This Report is not the proper forum to determine if it is possible to create a constitutionally compliant reporting regime for lawyers. However, attempting to do so would be very challenging due to issues with solicitor-client privilege and the duty of commitment. Given these difculties, the Province should not attempt to design a constitutionally compliant reporting regime at the provincial level. However, this is not to say that lawyers cannot be regulated for anti–money laundering purposes. They should be, and they are. The regulation simply takes a diferent form than other sectors, in order to accommodate the constitutional rules that Commission of Inquiry into Money Laundering in British Columbia – Final Report 24 apply to lawyers. Instead of a reporting regime for lawyers, a better approach to anti– money laundering eforts in the legal sector should focus on: • continuing to revisit and expand anti–money laundering regulation by the Law Society, including limiting the circumstances in which a client’s funds can enter a trust account; • strengthening and making better use of information-sharing arrangements between the Law Society and other stakeholders; • increasing the Law Society’s use of its ability to refer matters to law enforcement where there is evidence of a potential ofence; • encouraging law enforcement to make better use of existing mechanisms by which it can access the information it needs from lawyers during investigations; and • increasing public awareness about these measures to counter any perception that transactions conducted through a lawyer in furtherance of an unlawful aim are immune from detection. It is also essential that law enforcement bodies and regulators bring concerns about the involvement (or potential involvement) of lawyers in money laundering activity to the attention of the Law Society for investigation. The Chartered Professional Accountants of British Columbia must regulate its members for anti–money laundering purposes Accountants are gatekeepers to the fnancial system because of the knowledge and skill they have and use to structure their clients’ fnances in a tax-efcient manner. Their status as gatekeepers, coupled with the nature of their work, gives rise to the risk criminals will employ them – knowingly or unwittingly – in money laundering. While there is an unfortunate lack of data on the extent of accountants’ involvement in money laundering, the risks are nonetheless clear and signifcant. The key areas of risk are fnancial and tax advice; private-sector bookkeeping; company and trust formation; buying or selling property; and performing fnancial transactions. A money launderer may make use of an accountant’s services in one or a number of these areas. The more sophisticated money laundering operations get, the greater the chance that bad actors will seek out an accountant for advice and to help manage large amounts of capital and avoid scrutiny by authorities. There are three key ways that regulation in the accounting sector in British Columbia is inadequate in relation to money laundering risks. First, a large proportion of accountants are not regulated at all. Only chartered professional accountants (CPAs), about one-third of the accounting profession, are regulated. Similarly, while CPAs are subject to the PCMLTFA, unregulated accountants Executive Summary 25 are not. As a result, the majority of individuals working as accountants in this province are not subject to any oversight. While it seems likely that many of the same money laundering risks would apply to unregulated accountants as CPAs (given the overlap in services provided), there is much we do not know about the unregulated accounting sector in British Columbia. The Province should study the nature and scope of work performed by unregulated accountants, in order to know where they work, what clientele they service, what services they provide, whether the services pose a signifcant risk of facilitating money laundering, and, if so, what oversight is warranted. Second, while the Chartered Professional Accountants of British Columbia (CPABC) provides extensive regulation of CPAs for accounting purposes, it maintains that its mandate does not, and should not, extend to anti–money laundering regulation. CPABC takes the position that all such responsibility rests, and should continue to rest, with FINTRAC. This position should be rejected. It is inconsistent with CPABC’s statutory mandate, which includes regulating all matters relating to the practice of accounting, including competency, ftness, and professional conduct. It is also inconsistent with CPABC’s rules. Those rules require CPAs to act in the public interest, avoid conduct that would discredit the profession, not associate themselves with activity that they know or should know is unlawful, and report illegal and dishonest conduct to CPABC. Third, the PCMLTFA captures only limited activities undertaken by CPAs, applying only when they: • receive or pay funds or virtual currency; • purchase or sell securities, real property or immovables, or business assets or entities; or • transfer funds, virtual currency, or securities by any means. This list excludes a number of activities that CPAs (and unregulated accountants) engage in and that pose money laundering risks. It notably excludes providing advice with respect to those activities, which appears to be a far more common service provided by accountants, and one where they are well placed to observe suspicious activity. When accountants assist and advise clients, they gain an in-depth understanding of the client’s fnances; they are well situated to spot suspicious activity. It appears that CPAs’ compliance with the PCMLTFA is low, with only one suspicious transaction report being fled between 2011 and 2015. While other reasons could contribute to lower reporting, it is highly unlikely that only one CPA identifed a suspicious transaction between 2011 and 2015. Despite this almost complete absence of reporting, FINTRAC conducts few compliance examinations of CPAs. The examinations it has done have revealed defciencies in CPAs’ compliance; however, no CPA or frm has ever received an administrative monetary fne. Commission of Inquiry into Money Laundering in British Columbia – Final Report 26 These points, combined with CPABC’s position that its mandate does not extend to anti–money laundering, have resulted in a lack of meaningful anti–money laundering regulation in the accounting sector. CPABC should begin regulating its members for anti–money laundering purposes promptly. The fact that FINTRAC administers the PCMLTFA does not mean that it is the sole “anti–money laundering regulator, ” nor does it mean that CPABC should not also regulate for that purpose. To the contrary, there is a pressing need for anti–money laundering regulation by the regulator closest to accountants and most aware of their activities: CPABC. To address risks in the luxury goods sector, the Province should implement a reporting regime in which all cash transactions over $10,000 must be reported to a central authority The category of “luxury goods” extends beyond expensive cars, jewellery, and yachts. Many goods that we do not usually think of as “luxuries” give rise to the same money laundering risks. For anti–money laundering purposes, this category should include any good that has a high value, a capacity to retain value, transferability, and portability. Luxury goods are inherently vulnerable to money laundering. Criminals can use large amounts of cash to buy such goods. Then, they can be moved more easily and less suspiciously than bulk cash. Many of the goods criminals target retain or increase in value over time, and they can ultimately be sold. The inherent risks are heightened in British Columbia because luxury goods markets are generally composed of many small retailers who have little to no regulation. The signifcant risk of money laundering in the luxury goods sector calls for forceful regulatory oversight and response. But to date, little has been done. Many markets have no regulation, and those with regulation ofen have done nothing to address money laundering risks. Luxury goods markets are also somewhat of a black box; there is little information about what is actually going on. Any efort to combat money laundering in this sector needs to deal with this lack of visibility. I recommend that the Province implement a record-keeping and reporting regime, in which all cash transactions over $10,000 (with narrow exceptions) must be reported to a central authority. The AML Commissioner should have access to this data. This will be a strong starting point and will enable the Province, with advice from the AML Commissioner, to develop sound policy and regulation for the luxury goods sector. The main purpose of the reporting regime will be to guide anti–money laundering policy development. It will shed light on what is occurring in the luxury goods sector. It will provide valuable insight into markets and geographic locations, to know where enhanced anti–money laundering measures should be targeted. It should also deter large cash transactions from occurring at all, particularly by those seeking to avoid scrutiny. Executive Summary 27 The Province must be able to act on the information quickly to address emerging money laundering risks. To that end, I am recommending that the Province establish a mechanism by which a government minister, in consultation with the AML Commissioner, can quickly implement measures to address new and evolving risks in luxury goods markets. Trade-based money laundering, informal value transfer, and bulk cash smuggling are money laundering typologies that demand attention from law enforcement and regulators Much money laundering activity occurs in the context of legitimate business sectors and takes advantage of gaps in regulatory oversight or understanding. However, money laundering also takes place in the informal or “underground” economy, outside the regulated fnancial system. As such, the activity is far less likely to be caught by countermeasures put in place by countries that have adopted the Financial Action Task Force model, which is premised on a concept of industry actors reporting suspicious activity within their industries, but that will not capture activity that does not involve reporting entities. Informal value transfer systems and bulk cash smuggling are two such activities, and trade-based money laundering, while not entirely “underground, ” is closely linked. Trade-based money laundering Trade-based money laundering is arguably one of the largest and most pervasive money laundering typologies in the world. It refers to the process of disguising illicit funds and moving value between jurisdictions through international trade transactions. Complicit sellers and buyers in diferent jurisdictions use a variety of techniques to misrepresent the price, value, quantity, or quality of imports or exports. A 2020 assessment by the Canada Border Services Agency suggests that at a minimum, hundreds of millions of dollars are laundered through trade to and through Canada each year, including a signifcant percentage of activity carried out by professional money launderers. British Columbia is particularly vulnerable because of its international shipping ports; large volume of international trade; and stable, accessible fnancial system. Trade-based money laundering can hide in plain sight. Given the sheer volume of international trade, customs ofcials are unable to check every transaction and shipment to verify the accuracy of what is documented or reported. Those engaged in trade-based money laundering take advantage of the imbalance between the large volume of trade and the relatively limited level of oversight. Trade-based money laundering can also be combined with other money laundering tools – such as the use of shell companies, ofshore accounts, nominees, legal trusts, third-party payment methods, and cryptocurrencies – which add complexity to investigations that are already challenging. Commission of Inquiry into Money Laundering in British Columbia – Final Report 28 Faced with such complexities, investigative agencies have ofen done little to address trade-based money laundering. This is highly problematic, considering the volume of illicit funds that can be laundered in this way. While the RCMP , which has primary responsibility for the investigation of trade-based money laundering, has recently increased the number of investigators examining money laundering issues, it appears there have been no successful trade-based money laundering investigations or prosecutions in recent years. A number of steps could be taken at the federal level to address trade-based money laundering, which the Province should encourage. A trade transparency unit is one of the most promising options. Such a unit would collect customs and trade data and share it with other countries, in order to identify anomalies that could demonstrate over- and under-invoicing. Advanced data analytics can be used to identify anomalies in Canadian trade data and to detect and measure the fow of illicit funds without needing to examine every shipment of goods into and out of the country. Improved information sharing is also crucial to investigations of trade-based money laundering. Informal value transfer systems Informal value transfer systems allow people to move value from one location to another without transferring funds through the regulated fnancial system. When a client needs to transfer funds, the money is paid into a “cash pool” in the frst location and paid out of the cash pool in the second jurisdiction where the recipient needs the money. Over time, the operator of the informal value transfer system may need to reconcile the cash pools to keep them in balance. However, there is no transfer of funds on an individual basis. In this way, individuals are not actually sending funds across borders. While informal value transfer systems have many legitimate uses, they also pose signifcant money laundering risks. They are “of the books, ” ofen lacking ofcial records, and not formally part of the fnancial system. Some operators may be unwittingly involved in money laundering schemes; others are complicit. Criminal groups – particularly professional money launderers – frequently control and make use of informal value transfer systems for money laundering. Informal value transfer systems have undoubtedly been used to launder signifcant sums of money in British Columbia. Organized crime groups have used a technique dubbed the “Vancouver model” to launder signifcant sums of money through the British Columbia economy. The model makes extensive use of informal value transfer systems to move value between the Lower Mainland and countries such as China, Mexico, and Colombia. Although FINTRAC considers informal value transfer systems to be money services businesses, and therefore subject to the PCMLTFA, it is challenging to identify operators that do not comply with that regime. The very limited regulation and supervision of Executive Summary 29 informal value transfer systems allows them to be used for money laundering without detection or intervention. Identifying criminally run informal value transfer networks is primarily a task for law enforcement. It will be crucial for the dedicated provincial money laundering intelligence and investigation unit to seek to identify and develop intelligence on these networks. Bulk cash smuggling Bulk cash smuggling refers to the practice of moving large quantities of cash across international borders contrary to currency reporting requirements. Despite the rise of non-cash payment methods, cash continues to be the raw material of most criminal activity. Cash is attractive to criminals because it is relatively untraceable, readily exchangeable, and anonymous. The prevalence of illicit cash remains a signifcant problem in Canada. Given that much criminal activity continues to generate cash and that it is increasingly difcult to conduct all of one’s transactions in cash (due to anti–money laundering measures such as cash transaction reporting rules), criminals need to fnd ways to move large quantities of cash back into the legitimate economy. A common way of doing so is to move the cash to another country and thereby “break the audit trail” – in other words, make it more difcult for authorities to link the cash to the original criminal activity. Moving cash to another country is also attractive where the second jurisdiction has less stringent anti–money laundering regulation, such that it is easier to introduce the cash into the legitimate fnancial system without attracting scrutiny. Given its inherently international dimension, bulk cash smuggling falls to be addressed primarily at the federal level. However, the AML Commissioner will be well placed to engage in ongoing monitoring and research into bulk cash smuggling, and to make recommendations to the Province. Similarly, the dedicated provincial money laundering intelligence and investigation unit must be alive to ways in which the movement of cash is a component of money laundering operations. Cryptocurrency is an emerging money laundering vulnerability; it should be addressed through provincial regulation Cryptocurrency is a new and rapidly evolving technology that is already being exploited for money laundering and other forms of criminality. Because of its newness, many – including government, regulators, and law enforcement – lack the expertise to investigate crime that makes use of it. These features make cryptocurrency vulnerable to exploitation by money launderers. The regulation of cryptocurrency is very new – the PCMLTFA has only captured it since 2020. That is a good frst step. But given the signifcant risks in this sector, the Province should also regulate virtual asset service providers. The Province will need Commission of Inquiry into Money Laundering in British Columbia – Final Report 30 to determine who is best suited to do this, whether it be BCFSA, the BC Securities Commission, or another body. It is crucial for government, regulators, and law enforcement to develop in-house expertise on cryptocurrency. Reasons for optimism This Inquiry explored the myriad ways in which the greedy and the devious seek to make their crime-stained money appear legitimate. Afer such an endeavour, it might be forgivable to abandon optimism about stopping such enterprises and question whether anything can be done to suppress the relentless surges of dirty money that pollute the social and economic environment of the community. However, it is important to maintain the will to combat this social ill. The adaptability of money launderers poses a challenge to law enforcement. The enormous variability and ever-changing nature of money laundering activity make it diferent from the majority of crime. Many of my recommendations address the need for a corresponding adaptability in how responsible government, regulatory, and law enforcement actors respond to this challenge. A key feature of the proposed response is the AML Commissioner, who will be devoted to understanding the economic and social environment, exploring how and where it is at risk of contamination from money laundering, and advising on how best to defend the integrity of our society and economy. In addition, the creation of a dedicated provincial money laundering intelligence and investigation unit will permit a sustained and efective response to money laundering. Money laundering, as with any entrenched and complex problem, requires a strong political will to oppose and deter it. From what I have seen, heard, and read during this Inquiry, the provincial government has, in recent years, demonstrated a strong will, and it is working on strategies to convert its will into action. There is thus room for optimism that, at least in British Columbia, what can be done will be done to come to grips with the money laundering threat. But because of Canada’s constitutional makeup, there is only so much one province can do to address a problem that has national and international dimensions. Because this Inquiry is provincially constituted, it is similarly constrained in the reach and impact of its fndings and recommendations. The Province cannot tackle money laundering alone; it needs the support of the federal government. This Inquiry has shone a light on the integral connection between organized crime and money laundering, and I recommend concrete responses. The organized criminal activity that plagues British Columbia is, no doubt, also present in other provinces. Solutions that prove efective in British Columbia can serve as an example to the rest of Canada. A heightened international focus on money laundering appears to have served as a galvanizing agent for the federal government to step up its anti–money laundering Executive Summary 31 commitment and eforts. If this commitment is sustained, it holds promise that an improved federal response will be mounted. It is increasingly clear that taking frm and willful steps to prevent money laundering and the criminality it represents is critically important. The growing recognition of the need to fght such a corrosive form of criminality, and the commitment to do so, gives rise to optimism that British Columbia can lead by example. 32 Consolidated Recommendations Pursuant to section 2(a) of the Terms of Reference of this Commission of Inquiry, I make the following recommendations. Provincial Anti–Money Laundering Regime Recommendation 1: I recommend that the Province establish an independent ofce of the Legislature focused on anti–money laundering, referred to throughout this Report as the Anti–Money Laundering (AML) Commissioner. The AML Commissioner should be responsible for: • producing a publicly available annual report on money laundering risks, activity, and responses, as well as special reports on specifc issues; • undertaking, directing, and supporting research on money laundering issues in order to develop expertise on money laundering issues, including emerging trends and responses, informed by an understanding of the measures taken internationally; • issuing policy advice and recommendations to government, law enforcement, and regulatory bodies concerning money laundering issues; • monitoring, reviewing, auditing, and reporting on the performance of provincial agencies with an anti–money laundering mandate; and • leading working groups and co-operative eforts to address money laundering issues. Consolidated Recommendations 33 Recommendation 2: I recommend that the Province maintain the Deputy Ministers’ Committee and Anti–Money Laundering Secretariat and that they be given responsibility for the continued development and implementation of the provincial anti–money laundering strategy, including the implementation of measures identifed in this Report. Recommendation 3: I recommend that the Province introduce a statutory requirement that all government agencies, regulators, and law enforcement bodies with an anti–money laundering mandate designate an anti–money laundering liaison ofcer to be the primary point of contact for improved inter-agency collaboration and information sharing. Casinos Recommendation 4: I recommend that the threshold for requiring proof of the source of funds for casino transactions conducted in cash and other bearer monetary instruments be lowered to $3,000. Recommendation 5: I recommend that the Minister Responsible for Gaming direct the British Columbia Lottery Corporation to implement 100 percent account-based, known play in British Columbia’s casinos within a timeframe specifed by the minister. Recommendation 6: I recommend that current limits on the amounts that casinos are able to pay out to patrons in the form of convenience cheques remain in place. Recommendation 7: I recommend that the Province ensure that the Independent Gaming Control Ofce, once established, maintain the authority to issue directives to the British Columbia Lottery Corporation without the consent of the Minister Responsible for Gaming or any other external authority. Real Estate Licensing Recommendation 8: I recommend that the Province amend the Real Estate Services Regulation to bring the employees of developers within the licensing scheme. Recommendation 9: I recommend that the Province bring business-scale “for lease by owner” and “for sale by owner” operations into the licensing scheme for real estate service providers. Commission of Inquiry into Money Laundering in British Columbia – Final Report 34 Real Estate Regulation by the BC Financial Services Authority Recommendation 10: I recommend that the Ministry of Finance consult with the British Columbia Financial Services Authority regarding its data needs and put in place measures to accommodate those needs, in a manner that respects the relevant privacy interests arising in this context. Recommendation 11: I recommend that the British Columbia Financial Services Authority (BCFSA) make inquiries with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to determine whether it plans to institute a source-of-funds inquiry requirement for licensees. If FINTRAC does not plan to do so, I recommend that the BCFSA require real estate licensees to ask clients about their source of funds at the outset of the client relationship, and record the information provided. Recommendation 12: I recommend that the British Columbia Financial Services Authority use its rule-making authority to mandate that brokerages demonstrate the existence of an anti–money laundering compliance program as a condition of licensing. Recommendation 13: I recommend that the Province allocate sufcient resources to the British Columbia Financial Services Authority to ensure that it has the capacity to address allegations of serious misconduct in a timely way. Regulation of Mortgage Brokers Recommendation 14: I recommend that the Province amend the Mortgage Brokers Act defnition of “mortgage broker” to harmonize it with the requirement for registration. Recommendation 15: I recommend that the Registrar of Mortgage Brokers make it a requirement that applicants for registration provide an extended criminal and police background check, showing not only convictions and outstanding charges but also past charges relating to fnancial misconduct, as well as police database information about the person. Recommendation 16: I recommend that, in its revision of the Mortgage Brokers Act, the Province include a requirement that brokerages submit annual information returns to give the Registrar of Mortgage Brokers better insight into industry trends and risks. Recommendation 17: I recommend that the Province give the British Columbia Financial Services Authority rule-making authority in respect of mortgage brokers. Recommendation 18: I recommend that the Province amend the Mortgage Brokers Act to create a managing broker role with clearly defned responsibilities. Recommendation 19: I recommend that the Registrar of Mortgage Brokers require education for both managing brokers and sub-brokers, focusing on the detection and reporting of fraud and money laundering in the industry. Consolidated Recommendations 35 Recommendation 20: I recommend that the Province amend the Mortgage Brokers Act to allow for larger fnancial penalties, up to $250,000, to align with penalties available under the Real Estate Services Act. Recommendation 21: I recommend that the Province amend the Mortgage Brokers Act to give the Registrar of Mortgage Brokers the power to make an order of disgorgement of profts for registered mortgage brokers found to have engaged in misconduct and for unregistered persons engaged in mortgage brokering activities. Recommendation 22: I recommend that the British Columbia Financial Services Authority impose a positive obligation on real estate licensees to report suspected unregistered mortgage brokering to it. Recommendation 23: I recommend that the Province amend the Mortgage Brokers Act to eliminate the automatic stay pending appeal found in section 9(2) of the Act. Recommendation 24: I recommend that the British Columbia Financial Services Authority work with the new dedicated provincial money laundering intelligence and investigation unit to develop an information-sharing partnership. Recommendation 25: I recommend that the provincial Minister of Finance urge her federal counterpart to make mortgage brokers reporting entities under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Recommendation 26: I recommend that the Province create a positive obligation on mortgage lenders to make source-of-funds inquiries of investors providing capital for the lending business, if such obligations are not included in the federal reforms to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated Regulations. Recommendation 27: I recommend that the Province amend Form B (the form for registration of a mortgage under section 225 of the Land Title Act) so that all legal owners of mortgage charges are reported, and that this information be available through the land titles registry. Recommendation 28: I recommend that Province amend the defnition of “interest in land” in the Land Owner Transparency Act to include mortgages, in order to ensure that the benefcial owners of a charge cannot obscure their ownership. Recommendation 29: I recommend that the Province enact legislation directed at private mortgage lenders providing for registration, oversight, and enforcement. This regime should be separate from the scheme applicable to those engaged in brokering loans. Recommendation 30: I recommend that the Province ensure that the regulator of private mortgage lenders has access to land title data, including new mortgage registrations, in a form that allows it to identify private lenders that ought to be registered with the regulator but are not. Commission of Inquiry into Money Laundering in British Columbia – Final Report 36 Private Lending Recommendation 31: I recommend that the Province implement a mandatory source- of-funds declaration to be fled with the court in every claim for the recovery of a debt, such that no action in debt or petition in foreclosure can be fled (except by an exempted person or entity) in the absence of such a declaration. Recommendation 32: I recommend that the Province enact legislation authorizing the court, in its discretion, to refuse to grant the order(s) sought by the plaintif in a debt action or foreclosure petition if it is not satisfed that the declaration is truthful and accurate, or if it concludes that the funds advanced by the lender were derived from criminal activity. Land Owner Transparency Recommendation 33: I recommend that the Province remove, by way of amendment to the Land Owner Transparency Act and/or its Regulations, the fee requirement for law enforcement and regulators with an anti–money laundering mandate who wish to access the Land Owner Transparency Registry. Recommendation 34: I recommend that, within three years of the Land Owner Transparency Registry being populated with historical data, the AML Commissioner report to the Province with any recommendations for improvement to the registry. These recommendations should be informed by the AML Commissioner’s study of the efectiveness of the registry and consultation with entities that are permitted to perform section 30(1) Land Owner Transparency Act searches. Improving Real Estate Data Collection Recommendation 35: I recommend that the Ministry of Finance – either in conjunction with Canada Mortgage and Housing Corporation or on its own – develop the required data and conduct a market integrity analysis in order to identify suspicious transactions and activity in real estate. Recommendation 36: I recommend that the Province give the Land Title and Survey Authority a clear and enduring anti–money laundering mandate, including the ability to more readily share data with other agencies having a complementary anti–money laundering mandate. Recommendation 37: I recommend that the Province give the Financial Real Estate and Data Analytics Unit an express anti–money laundering mandate, so that it can prioritize data analysis and policy development that will further anti–money laundering objectives. Consolidated Recommendations 37 Recommendation 38: I recommend that the Ministry of Finance develop an action plan for addressing the data gaps and data quality issues identifed by the federal- provincial working group on real estate in its reports, focusing on data issues within the Province’s jurisdiction. Recommendation 39: I recommend that the Province adopt a modifed “hybrid” model of data management (as contemplated in the federal-provincial working group on real estate reports) and that the AML Commissioner fulfll the function of analyzing data for anti–money laundering purposes. Recommendation 40: I recommend that the Land Title and Survey Authority make information about historical mortgage and property ownership available through an online search. Recommendation 41: I recommend that the Province amend the Land Title and Survey Authority’s enabling legislation to direct the collection of information on real estate agents and mortgage brokers involved in a property transaction. At a minimum, this information should be available to the Ministry of Finance, the British Columbia Financial Services Authority, law enforcement, and other federal and provincial agencies with an anti–money laundering mandate. Recommendation 42: I recommend that the Province institute the use of unique identifers for Land Title and Survey Authority records. Recommendation 43: I recommend that the Province remove the fee requirement presently charged to access the Land Title and Survey Authority’s records for law enforcement and regulators with an anti–money laundering mandate. Real Estate Prices Recommendation 44: I recommend that, as the Province implements new policies and measures against money laundering in real estate, it analyze the impact of those reforms on housing prices. Banks and Credit Unions Recommendation 45: I recommend that the British Columbia Financial Services Authority develop anti–money laundering guidance for credit unions. Recommendation 46: I recommend that the Province provide the British Columbia Financial Services Authority with a clear, enduring anti–money laundering mandate. Recommendation 47: I recommend that the Province provide sufcient resources to the British Columbia Financial Services Authority (BCFSA) to create or staf an anti– money laundering group. This group should serve as a contact point for BCFSA with law enforcement, public-private partnerships, and other government stakeholders. Commission of Inquiry into Money Laundering in British Columbia – Final Report 38 Information Sharing and Collaboration Among Financial Institutions Recommendation 48: I recommend that the Attorney General of British Columbia urge the appropriate federal minister to introduce amendments to the federal Personal Information Protection and Electronic Documents Act, providing for a “safe harbour provision” allowing fnancial institutions to share information related to potential money laundering activity. Recommendation 49: I recommend that the Province introduce, in consultation with the Ofce of the Information and Privacy Commissioner, a safe harbour provision allowing provincially regulated fnancial institutions to share information related to potential money laundering activity. Recommendation 50: I recommend that the Attorney General of British Columbia engage with his federal counterpart and other stakeholders to implement a formal “keep open” regime for fnancial institutions in which they can, at the request of law enforcement, keep an account suspected of involvement in money laundering open in order to further a law enforcement investigation. Money Services Businesses Recommendation 51: I recommend that the Province expand the mandate of the British Columbia Financial Services Authority to encompass regulation of money services businesses. The regulatory scheme should include (but not be limited to) the following: • a defnition of “money services business” that aligns with the defnition in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), except that virtual asset service providers should not be included at this stage; • a capacity to identify unregistered money services businesses and sanction them; • a registration process in which the suitability of applicants is assessed in a broader manner than is done under the PCMLTFA to include consideration of whether a money services business has been investigated or charged with criminal activity, whether or not this has resulted in a conviction, as well as a requirement to disclose business relationships in the same way as the Quebec regime; • a compliance examination process that applies in the early years of a money services business’s existence; • the ability to enter information-sharing arrangements with the Financial Transactions and Reports Analysis Centre of Canada and other relevant entities; and • the availability of administrative and monetary penalties. Consolidated Recommendations 39 Benefcial Ownership Registry Recommendation 52: I recommend that the Province work with its federal, provincial, and territorial partners to ensure that, before the end of 2023, a publicly accessible pan-Canadian corporate benefcial ownership registry is in place. Improving Metrics and Collaboration Between Law Societies Recommendation 53: I recommend that the Law Society of British Columbia work with the Federation of Law Societies of Canada to develop uniform metrics to track, at a minimum: • the nature and frequency of breaches of rules that are relevant to anti–money laundering regulation; • the number of breaches that are referred for investigation or into a remedial stream; • the outcome of the referrals, including the nature and frequency of sanctions that are imposed; • the rules, policies, and processes law societies have regarding information sharing with and referrals to law enforcement; • the frequency, nature, and circumstances of the information sharing or referrals, including whether this includes sharing of non-public or compelled information and the stage of a proceeding or investigation at which it occurs; and • the use of data analytics by law societies. Recommendation 54: I recommend that the Law Society of British Columbia and the Federation of Law Societies of Canada develop systems to facilitate the more efective sharing of tactical information and coordination on investigations that afect multiple jurisdictions or involve lawyers who practise in multiple jurisdictions. Amendments to Law Society Rules Recommendation 55: I recommend that the Law Society of British Columbia amend Rule 3-59 of the Law Society Rules to make explicit that any cash received under the professional fees exception to the cash transactions rule must be commensurate with the amount required for a retainer or reasonably anticipated fees. Recommendation 56: I recommend that the Law Society of British Columbia amend its client identifcation and verifcation rules to explain what is required when inquiring into a client’s source of money. The rules should make clear, at a minimum: • that the client identifcation and verifcation rules require the lawyer to record the information specifed in the fall 2019 Benchers’ Bulletin; Commission of Inquiry into Money Laundering in British Columbia – Final Report 40 • the meaning of the term “source of money”; and • that lawyers must consider whether the source of money is reasonable and proportionate to the client’s profle. Recommendation 57: I recommend that the Law Society of British Columbia extend the ambit of its client identifcation and verifcation rules to include the situations in which a lawyer is truly acting as a gatekeeper. The rules should be extended to include, at a minimum: • the formation of corporations, trusts, and other legal entities; • real estate transactions that may not involve the transfer of funds, such as assisting with the transfer of title; and • litigation involving enforcement of private loans. Recommendation 58: I recommend that the Law Society of British Columbia amend the Law Society Rules to require lawyers to verify a client’s identity when holding fduciary property on the client’s behalf. Recommendation 59: I recommend that the Law Society of British Columbia amend Rule 3-58.1 of the Law Society Rules to clarify, at a minimum, what is meant by “directly related to legal services” and to consider how to further limit the use of trust accounts so that they are used only when necessary. Recommendation 60: I recommend that the Law Society of British Columbia promptly remove Commentary [3.1](a) from the Code of Professional Conduct for British Columbia. Lawyers’Anti–Money Laundering Training Recommendation 61: I recommend that the Law Society of British Columbia require that all trust auditors and investigators charged with investigating possible transgressions of the trust accounting rules receive anti–money laundering training. Recommendation 62: I recommend that the Law Society of British Columbia implement mandatory anti–money laundering training for lawyers who are most at risk of facing money laundering threats. The education should be required, at a minimum, for lawyers engaged in the following activities: • the formation of corporations, trusts, and other legal entities; • transactional work, including real estate transactions; • some transactions that do not involve the transfer of funds (such as transfer of title); and • litigation involving private lending. Consolidated Recommendations 41 Law Society: Improving Collaboration and Information Sharing Recommendation 63: I recommend that the British Columbia Solicitor General direct law enforcement to refer matters involving lawyers to the Law Society of British Columbia where appropriate, and that the Law Society continue its advocacy with government, regulators, and other stakeholders about its role and when referrals to the Law Society should be made. Recommendation 64: I recommend that the Law Society of British Columbia review and assess its approach to determining whether it possesses information or documents that may be evidence of an ofence, and, if so, whether the executive director should seek approval from the Discipline Committee to deliver the information or documents to law enforcement. Recommendation 65: I recommend that the Law Society of British Columbia and the Province work to increase public awareness of measures available to investigate wrongdoing involving lawyers, including: • the limitations on the use of a lawyer’s trust account; • the information-sharing agreements that exist between the Law Society and government agencies; • the ability of the Law Society to refer matters to law enforcement when there is evidence of a potential ofence; and • the pathways that exist for law enforcement to obtain information about lawyers during investigations. British Columbia Notaries Recommendation 66: I recommend that the Province, in consultation with the Society of Notaries Public of British Columbia, raise the maximum fne that can be imposed when a member of the Society is guilty of misconduct as set out in the Notaries Act. Recommendation 67: I recommend that the Society of Notaries Public of British Columbia require its members to obtain, record, and keep records of the source of funds from their clients when those members engage in or give instructions with respect to fnancial transactions. Recommendation 68: I recommend that the Society of Notaries Public of British Columbia educate its members on the money laundering risks relating to private lending through educational materials or other means. Commission of Inquiry into Money Laundering in British Columbia – Final Report 42 Accountants Recommendation 69: I recommend that the Chartered Professional Accountants of British Columbia (CPABC) amend its Code of Professional Conduct to specify that members must report to CPABC a fnding by the Financial Transactions and Reports Analysis Centre of Canada that a member has not complied with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Recommendation 70: I recommend that the Province study the nature and scope of work performed by unregulated accountants in British Columbia to determine where they work, what clientele they service, what services they provide, whether those services engage a signifcant risk of facilitating money laundering, and, if so, what form of anti–money laundering regulation and oversight is warranted. Recommendation 71: I recommend that the provincial Minister of Finance urge her federal counterpart to introduce amendments to the Proceeds of Crime (Money Laundering) and Financing of Terrorism Act so that accountants’ reporting and other obligations arise when they prepare for and provide advice about triggering activities. Recommendation 72: I recommend that the Chartered Professional Accountants of British Columbia implement client identifcation and verifcation requirements, as well as requirements to verify a client’s source of funds, that apply, at a minimum, when a chartered professional accountant engages in the following activities: • preparing for and providing advice with respect to fnancial transactions, including real estate transactions; • preparing for and providing advice with respect to the use of corporations and other legal entities; and • private-sector bookkeeping. Recommendation 73: I recommend that the Chartered Professional Accountants of British Columbia promptly determine how many of its members operate trust accounts, for what purpose, and in what circumstances. Recommendation 74: I recommend that the Chartered Professional Accountants of British Columbia implement a trust account auditing regime in which chartered professional accountants and frms that operate a trust account are audited on a regular basis, and that a sample of chartered professional accountants and frms that report not operating a trust account be audited to ensure that is the case. Recommendation 75: I recommend that the Chartered Professional Accountants of British Columbia determine the circumstances in which its members accept cash from clients and in what amounts. Consolidated Recommendations 43 Recommendation 76: I recommend that the Chartered Professional Accountants of British Columbia implement a cash transactions rule limiting the amount of cash its members can receive in a single client matter. Recommendation 77: I recommend that the Chartered Professional Accountants of British Columbia determine how ofen its members engage in the activities specifed in section 47 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. Recommendation 78: I recommend that the Chartered Professional Accountants of British Columbia (CPABC) expand its practice review program to address anti–money laundering issues including, at a minimum: • compliance with client identifcation and verifcation measures implemented by CPABC; • audits of trust accounts or confrmation that a member does not operate a trust account; and • assessment of the adequacy of the anti–money laundering policies and programs in place by the member to ensure compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Recommendation 79: I recommend that the Chartered Professional Accountants of British Columbia implement a mandatory continuing professional education requirement focused on anti–money laundering that applies, at a minimum, to chartered professional accountants who engage in the following activities: • the activities specifed in section 47 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations; • preparing for and providing advice with respect to fnancial transactions, including real estate transactions; • preparing for and providing advice with respect to the use of corporations and other legal entities; and • private-sector bookkeeping. Recommendation 80: I recommend that the Chartered Professional Accountants of Canada follow up with the Financial Transactions and Reports Analysis Centre, on an ongoing basis, to acquire and maintain insights into the level of reporting and compliance of its membership with the requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Recommendation 81: I recommend that the Chartered Professional Accountants of British Columbia pass bylaws or rules enabling it to share information with law enforcement in appropriate circumstances. Commission of Inquiry into Money Laundering in British Columbia – Final Report 44 Luxury Goods Recommendation 82: I recommend that the Province implement a universal record- keeping and reporting requirement for cash transactions of $10,000 or more. Every business that accepts $10,000 or more in cash in a single transaction or a series of related transactions should be required to: • verify a customer’s identifcation and record their name, address, and date of birth; • inquire into and record the source of funds used to make the purchase; • determine whether the purchase is being made on behalf of a third party and, if so, inquire into and record the identity of that third party; and • report the transaction – including the total amount of cash accepted; the item or service purchased; the source of funds reported by the customer; whether the purchase was made on behalf of a third party and, if so, the identity of that third party; and the name, address, and date of birth of the customer – to the Province. The Province should ensure that the AML Commissioner has access to these reports. The universal record-keeping and reporting requirement should apply in all circumstances, with some narrow exceptions: • one-time transactions between private individuals; • fnancial institutions and fnancial services businesses; • lawyers; and • other situations where it is determined that the requirement would be unduly onerous, generate reports of little value, or is otherwise inappropriate. Recommendation 83: I recommend that the Province establish a mechanism by which a minister, in consultation with the AML Commissioner, can implement timely measures to address new and evolving risks in the luxury goods sector (as defned in Chapter 34 of this Report). Recommendation 84: I recommend that the Province regulate the purchase and sale of vehicles for the purpose of export from British Columbia. This regulation should involve, at a minimum, a registration requirement for those who export more than an identifed number of vehicles annually and a requirement that the export of all vehicles by registered exporters be reported prior to export. Recommendation 85: I recommend that the Province amend the Provincial Sales Tax Act to ensure that information collected for the purpose of processing provincial sales tax rebates is available, at a minimum, to the Vehicle Sales Authority and the AML Commissioner. Consolidated Recommendations 45 Virtual Assets Recommendation 86: I recommend that the Province, in consultation with the AML Commissioner and the dedicated provincial money laundering intelligence and investigation unit, ensure that law enforcement, regulators, and Crown counsel with relevant duties are trained to recognize indicators and typologies of money laundering through virtual assets. Recommendation 87: I recommend that the Province implement a regulatory regime for virtual asset service providers. In determining which authority is best placed to act as the regulator, the Province should consult with the AML Commissioner, the British Columbia Financial Services Authority, the British Columbia Securities Commission, industry members, and other stakeholders. Trade-Based Money Laundering Recommendation 88: I recommend that the dedicated provincial money laundering intelligence and investigation unit implement and make use of the sofware developed by Professor John Zdanowicz, or other sofware with the same capability, as part of its intelligence functions. Enforcement Recommendation 89: I recommend that all provincial and municipal law enforcement agencies in British Columbia implement a policy requiring all ofcers involved in the investigation of proft-oriented crime to consider money laundering and proceeds of crime issues at the outset of the investigation and, where feasible, conduct an investigation with a view to pursuing those charges, and identifying assets for seizure and/or forfeiture. Recommendation 90: I recommend that all provincial and municipal law enforcement agencies involved in the investigation of proft-oriented crime develop training modules to ensure that their members have the knowledge and skills to pursue money laundering and proceeds of crime investigations, and identify assets for seizure and/or forfeiture. Recommendation 91: I recommend that the Province create a dedicated provincial money laundering intelligence and investigation unit to lead the law enforcement response to money laundering in this province by (a) identifying, investigating, and disrupting sophisticated money laundering activity, and (b) training and otherwise supporting other investigators in the investigation of the money laundering and proceeds of crime ofences. Commission of Inquiry into Money Laundering in British Columbia – Final Report 46 Recommendation 92: I recommend that the AML Commissioner and the Policing and Security Branch make best eforts to monitor the response to money laundering within the RCMP federal police service by seeking detailed metrics concerning the resources dedicated to money laundering investigations, the number of money laundering investigations undertaken by the RCMP , and the results of those investigations. Recommendation 93: I recommend that the Policing and Security Branch develop a way of tracking FINTRAC disclosures made in response to voluntary information records, in order to ensure that they are received promptly. Recommendation 94: I recommend that the Province ensure that there is sufcient surveillance capacity within the Combined Forces Special Enforcement Unit to support the work of the new dedicated provincial money laundering intelligence and investigation unit. Recommendation 95: I recommend that the AML Commissioner conduct a comprehensive review of the provincial money laundering intelligence and investigation unit every fve years to ensure it remains relevant and efective. Criminal Asset Forfeiture Recommendation 96: I recommend that law enforcement bodies implement a policy requiring that all investigators conducting investigations into proft-oriented crime consider the criminal asset forfeiture provisions and, where feasible, develop the evidentiary basis necessary to support a forfeiture application. Recommendation 97: I recommend that law enforcement bodies implement a policy requiring that all investigators conducting investigations into proft-oriented crime include, in their Report to Crown Counsel, information concerning the assets owned or controlled by the target of the investigation (and their associates) along with recommendations concerning possible forfeiture applications. Recommendation 98: I recommend that the Province ensure that all investigators and prosecutors addressing proft-oriented criminal activity receive training on the importance and use of the criminal forfeiture provisions. Civil Asset Forfeiture Recommendation 99: I recommend that the Civil Forfeiture Ofce signifcantly expand its operational capacity by adding investigators and analysts capable of identifying and targeting unlawfully obtained assets and instruments of unlawful activity beyond those identifed in the police fle. Consolidated Recommendations 47 Recommendation 100: I recommend that the Province transition the Civil Forfeiture Ofce from a self-funded agency to a government-funded agency, in which the revenue generated by the Civil Forfeiture Ofce fows to government. Recommendation 101: I recommend that the Province proceed with its plan to develop an unexplained wealth order regime in British Columbia. 48 Part I Introduction My Terms of Reference require me to make fndings of fact on the extent, growth, evolution, and methods of money laundering in various sectors; the acts and omissions of key actors in those sectors and of government ofcials; and the barriers to efective law enforcement in British Columbia. They also require me to make recommendations, including in respect of these matters, where I consider it necessary and advisable. Before addressing these matters, it is necessary to consider some background concepts. What is money laundering? Who is involved in it? How much money laundering occurs? And, given that much of this activity occurs under the radar and does not directly result in physical harm, is money laundering a problem worth addressing? Part I addresses these questions. 49 Chapter 1 Introduction On May 15, 2019, the Lieutenant Governor of British Columbia issued Order in Council No. 2019-238 establishing the Commission of Inquiry into Money Laundering in British Columbia and appointing me as the sole commissioner in accordance with section 2 of the Public Inquiry Act, SBC 2007, c 9. The Commission was established in the wake of signifcant public concern over the nature and prevalence of money laundering in British Columbia as well as the institutional efectiveness of those charged with detecting and combatting it. Media reports suggested that a staggering amount of money was being laundered through the BC economy and serious concerns were raised about the response of regulators and law enforcement agencies. While most of these reports involved suspected money laundering activity in and around Lower Mainland casinos, concerns were also raised about money laundering in other sectors of the economy, including the corporate sector, where concerns were raised about the use of shell companies to launder illicit funds, and the real estate sector, where there were suggestions that money laundering activity was contributing to the rapid increase in housing prices in the Lower Mainland and other parts of the province. The Order in Council and Terms of Reference 1 give me a broad mandate to inquire into and report on money laundering in British Columbia. I am required to conduct hearings and make fndings of fact with respect to: • the extent, growth, evolution, and methods of money laundering in various sectors of the economy, including the gaming sector, the real estate sector, fnancial institutions and money services businesses, the corporate sector, the luxury goods sector, and the professional services sector; The Terms of Reference can be found at Appendix A. 1 Commission of Inquiry into Money Laundering in British Columbia – Final Report 50 • the acts or omissions of responsible regulatory agencies and individuals, including whether those agencies or individuals have contributed to money laundering in the province; • the scope and efectiveness of the anti–money laundering powers, duties, and functions exercised or carried out by the regulatory agencies and individuals referenced above; and • barriers to efective law enforcement. In considering these issues, I have been directed to review and consider four recent reports commissioned by the provincial government on these matters: • Peter M. German, QC, Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos Conducted for the Attorney General of British Columbia, March 31, 2018 (Dirty Money 1); • Peter M. German, QC, Dirty Money, Part 2: Turning the Tide – An Independent Review of Money Laundering in B.C. Real Estate, Luxury Vehicle Sales & Horse Racing, March 31, 2019 (Dirty Money 2); • Dan Perrin, Real Estate Regulatory Structure Review (2018) (Perrin Report); and • Maureen Maloney, Tsur Somerville, and Brigitte Unger, “Combatting Money Laundering in BC Real Estate, ” March 31, 2019 (Maloney Report). I am also empowered to make any recommendations I consider necessary and advisable with respect to the conditions that have allowed money laundering to thrive. Guiding Principles In carrying out my mandate, I have been guided by the fundamental principle that the Commission is an independent body that owes its allegiance solely to the people of British Columbia. Independence is particularly important where, as here, the Commission has been called upon to examine the response of government to a pressing social problem. While I have been careful to ensure that the fndings set out in this Report are based on evidence – as opposed to speculation or conjecture – I have not been hesitant to make fndings critical of government where those fndings are supported by the evidence. Another principle that has guided the work of the Commission is the need to conduct open, public hearings with a view to making fndings of fact, and informing and educating concerned members of the public. In Phillips v Nova Scotia (Commission of Inquiry into the Westray Mine Tragedy), [1995] 2 SCR 97, Mr. Justice Cory explained these important public functions as follows: Part I: Introduction • Chapter 1 | Introduction 51 Commissions of inquiry have a long history in Canada. This Court has already noted (Starr v. Houlden, supra, at pp. 1410–11) the signifcant role that they have played in our country, and the diverse functions which they serve. As ad hoc bodies, commissions of inquiry are free of many of the institutional impediments which at times constrain the operation of the various branches of government. They are created as needed, although it is an unfortunate reality that their establishment is ofen prompted by tragedies such as industrial disasters, plane crashes, unexplained infant deaths, allegations of widespread child sexual abuse, or grave miscarriages of justice. … One of the primary functions of public inquiries is fact-fnding. They are ofen convened, in the wake of public shock, horror, disillusionment, or scepticism, in order to uncover “the truth” . Inquiries are, like the judiciary, independent; unlike the judiciary, they are ofen endowed with wide-ranging investigative powers. In following their mandates, commissions of inquiry are, ideally, free from partisan loyalties and better able than Parliament or the legislatures to take a long-term view of the problem presented. Cynics decry public inquiries as a means used by the government to postpone acting in circumstances which ofen call for speedy action. Yet, these inquiries can and do fulfl an important function in Canadian society. In times of public questioning, stress and concern they provide the means for Canadians to be apprised of the conditions pertaining to a worrisome community problem and to be a part of the recommendations that are aimed at resolving the problem … They are an excellent means of informing and educating concerned members of the public. [Emphasis added.] 2 In furtherance of those objectives, the Commission conducted 133 days of evidentiary hearings and heard viva voce evidence from 199 witnesses (with another 23 witnesses giving evidence by way of afdavit). With a few limited exceptions, 3 these hearings were live-streamed on the Commission website and remain available for public viewing. Transcripts of these hearings – along with the exhibits tendered during the Commission process – are also accessible on the Commission website (though some of these exhibits have been sealed or redacted to protect security and privacy interests). 4 While the breadth of the Commission’s mandate was such that not all possible lines of inquiry could be pursued, it is my sincere hope that these hearings have contributed to a 2 Phillips v NS (Commission of Inquiry into the Westray Mine Tragedy) [1995] 2 SCR 97 at paras 60 62. 3 Two days of evidence in the fnancial institutions sector were not live-streamed on the Commission website or otherwise made available to the public in order to maintain the secrecy of countermeasures used by fnancial institutions to identify and combat money laundering activity (see Ruling 24 – Appli - cation for In Camera Hearing (January 15 2021)). 4 A copy of the Commission’s Rules of Practice and Procedure which address the manner in which evidence was presented (among other things) can be found at Appendix B. A copy of the Commission’s Rules for Standing can be found at Appendix C. Commission of Inquiry into Money Laundering in British Columbia – Final Report 52 deeper understanding of money laundering among concerned members of the public and that the continued availability of these materials on the website will provide an additional source of information for law enforcement, regulators, and other relevant stakeholders. A third principle that has guided the work of the Commission is the need to respect the rights and interests of the many individuals and agencies that have participated in the Commission process as well as others who may be the subject of adverse comment in this Report. It is important to understand that a commission of inquiry is not a criminal trial. Nor is it an action for the determination of civil liability. There are no legal consequences attached to my fndings and they do not bind courts considering the same subject matter. 5 At the same time, the fndings made by a commission may have an impact on the reputations of the individuals and entities who are the subject of adverse comment in a fnal report and it is important that they be given notice of such fndings as well as a fair opportunity to respond. In order to ensure that those who could potentially be subject to adverse comment in the fnal report had a meaningful opportunity to respond, the Commission issued confdential notices to various individuals and entities advising that they could be subject to adverse fndings and setting out the particulars of the alleged misconduct. Notices of Anticipated Evidence were also issued to certain individuals at the beginning of the hearing process to ensure they had the ability to cross-examine witnesses and otherwise participate in the Commission process from an early stage. While I appreciate that the receipt of these notices can sometimes come as a shock to the recipient, 6 it is important to reiterate that the purpose of these notices is to give the recipient notice of potential fndings that could be made and to ensure that they have the opportunity to respond. In every case where a notice was issued, I was careful to not prejudge the issue and carefully reviewed any submissions and further evidence received by the recipient with a view to determining whether the potential fndings set out in the notice were supported by the evidence. I also considered whether it was necessary for me to make those fndings in order to fulfll my mandate. In many cases, I chose not to make some or all of the fndings set out in a notice either because the evidence did not support a particular fnding or because it was not necessary for me to make that fnding in order to fulfll my mandate (or both). Constitutional Limitations While there can be little doubt that the Province has a legitimate constitutional interest in calling a public inquiry to address the nature and prevalence of criminal activity 5 Canada (Attorney General) v. Canada (Commission of Inquiry on the Blood System) [1997] 3 SCR 440 at para 34 citing Beno v Canada (Commissioner and Chairperson, Commission of Inquiry into the Deployment of Canadian Forces to Somalia) [1997] 2 FC 527 at para 23. 6 On this point see Simon Ruel The Law of Public Inquiries in Canada (Toronto: Thomson Reuters Canada Limited 2010) p 141. Part I: Introduction • Chapter 1 | Introduction 53 within the province, it is important to recognize that this is a provincial commission and that there are a number of established constitutional principles that must be respected. 7 First, it is well established that the Commission cannot allow its process to be transformed into an investigation of specifc ofences alleged to have been committed by specifc persons. Not only would that encroach on the exclusive jurisdiction of the federal government to enact legislation relating to the criminal law, but it would also compromise the substantive and procedural rights guaranteed to those being investigated. 8 While not strictly a constitutional issue, it is also a well-established principle that public inquiries should avoid making fndings with respect to civil liability. In Canada (Attorney General) v Canada (Commission of Inquiry on the Blood System), [1997] 3 SCR 440 (Krever), Mr. Justice Cory expressed these principles as follows: A public inquiry was never intended to be used as a means of fnding criminal or civil liability. No matter how carefully the inquiry hearings are conducted they cannot provide the evidentiary or procedural safeguards which prevail at a trial. Indeed, the very relaxation of the evidentiary rules which is so common to inquiries makes it readily apparent that fndings of criminal or civil liability not only should not be made, they cannot be made. 9 At the same time, it is important to note that a commission of inquiry is not precluded from making fndings relevant to its mandate, including fndings that individuals or organizations are at fault in some way. Indeed, the eforts of most commissions would be pointless if they could not make fndings about what went wrong and why. What is to be avoided are fndings that incorporate a judgment based on a legal standard or that otherwise refect the requirements of civil or criminal liability: The restriction against making determinations of criminal or civil liability does not mean a commission of inquiry is precluded from making fndings of fact. Rather, speaking generally, it means commissions may not assess factual matters with reference to normative legal standards. 10 Second, it is a well-established constitutional principle that a provincial commission of inquiry cannot make fndings or recommendations with respect to the internal administration and management of federal agencies. In Quebec (AG) and Keable v Canada (AG), [1979] 1 SCR 218, Pigeon J. expressed that principle as follows: 7 For the proposition that the province has a legitimate interest in calling a public inquiry to address the nature and prevalence of criminal activity within the province see Di Iorio v Warden of the Montreal Jail [1978] 1 SCR 152 at p 201; Quebec (AG) and Keable v Canada (AG) [1979] 1 SCR 218 at p 254–55 [Keable ] (“[t]he investigation of the incidence of crime or the profle and characteristics of crime in a province or the investigation of the operation of provincial agencies in the feld of law enforcement are quite dif - ferent things from the investigation of a precisely defned event or series of events with a view to criminal prosecution. The frst category may involve the investigation of crime generally and may be undertaken by the invocation of the provincial enquiry statutes”); and O’Hara v BC [1987] 2 SCR 591 at p 610. 8 Starr v Houlden [1990] 1 SCR 1366 at p 1397–1398. 9 Krever at para 53. 10 Hartwig v SK (Inquiry into Matters Relating to the Death of Neil Stonechild) 2008 SKCA 81 at para 35. See also Bentley v Braidwood 2009 BCCA 604 at para 45 and Krever at paras 38 57 62. Commission of Inquiry into Money Laundering in British Columbia – Final Report 54 I thus must hold that an inquiry into criminal acts allegedly committed by members of the R.C.M.P . was validly ordered, but that consideration must be given to the extent to which such inquiry may be carried into the administration of this police force. It is operating under the authority of a federal statute, the Royal Canadian Mounted Police Act, (R.S.C. 1970, c. R-9). It is a branch of the Department of the Solicitor General, (Department of the Solicitor General Act, R.S.C. 1970, c. S-12, s. 4). Parliament’s authority for the establishment of this force and its management as part of the Government of Canada is unquestioned. It is therefore clear that no provincial authority may intrude into its management. While members of the force enjoy no immunity from the criminal law and the jurisdiction of the proper provincial authorities to investigate and prosecute criminal acts committed by any of them as by any other person, these authorities cannot, under the guise of carrying on such investigations, pursue the inquiry into the administration and management of the force. [Emphasis added.] 11 While that principle prevents me from interfering in the management and administration of federal agencies, I do not understand it to prohibit a consideration of the federal anti–money laundering regime as a whole, or the efectiveness of federal entities such as the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), the Royal Canadian Mounted Police (RCMP) and the Canada Border Services Agency (CBSA). Such inquiries are necessary “in order to explain what took place during the relevant time frame” 12 and make efective recommendations to the provincial government about steps that must be taken to address money laundering activity. I have paid close attention to both constitutional principles in making the fndings of fact and recommendations contained in this Report. While I have made a number of factual fndings concerning the activities of those alleged to be involved in money laundering activity, the purpose of these fndings is to shed some light on the methods used by organized crime groups to launder illicit funds and to evaluate the response of provincial regulatory agencies. I have not assessed their conduct against any legal standard, and it is not my intention to suggest that the elements of criminal or civil liability are satisfed. Likewise, I have conducted a comprehensive review of the federal anti –money laundering regime and considered the efectiveness of federal agencies such as FINTRAC and the RCMP in responding to money laundering in the province of British Columbia. However, I have, at all times, been mindful of the prohibition against interference in the management and administration of federal agencies. Commission Counsel One of my frst tasks as Commissioner was to put together the senior leadership team that would be responsible for managing the substantive work of the Commission. 11 Keable at p 242. 12 Reply of the Attorney General of Canada October 19 2021 p 127. Part I: Introduction • Chapter 1 | Introduction 55 In May 2019, I appointed Brock Martland, QC, and Patrick McGowan, QC, as senior Commission counsel. Both have signifcant knowledge, expertise, and experience in the conduct of public inquiries, and I have relied on them to manage the substantive work of the Commission. Mr. Martland and Mr. McGowan were assisted by a talented team of associate and junior counsel, which included Alison Latimer, QC, Nicholas Isaac, Eileen Patel, Kyle McCleery, Kelsey Rose, Steven Davis, and Charlotte Chamberlain. In December 2019, Tam Boyar, a senior lawyer with a broad range of experience, was appointed as policy counsel. Mr. Boyar was assisted in that work by Dahlia Shuhaibar, who made signifcant contributions to the Inquiry in her role as junior policy counsel. I would also be remiss if I did not express my gratitude to Dr. Leo Perra, the executive director of the Commission, Cathy Stooshnov, manager of fnance and administration, and Keith Hamilton, QC, who shared his wisdom and experience with members of the legal and policy teams. 13 Over the life of the Commission, Commission counsel acted as the alter ego of the Commissioner and were responsible for various tasks including: • preliminary investigations; • witness interviews and document production; • consultation with experts and investigators; • preparation of overview reports; • communications with participants; • organization and presentation of evidence; • examination of witnesses; • legal and policy research; • advising and assisting with evidentiary and procedural rulings; • advising and assisting with the Interim Report; and • advising and assisting with the Final Report. While I freely conferred with Commission counsel on most issues, there were a few instances in which it was necessary to take a diferent approach. On contentious applications where Commission counsel took a position, Commission counsel were divided into two groups: a legal team responsible for responding to the application (in a visible way, for all participants to see) and a separate advisory team responsible for advising and assisting with my eventual ruling. 13 A full list of Commission staf can be found at Appendix D. Commission of Inquiry into Money Laundering in British Columbia – Final Report 56 The purpose of that division was to ensure that those who took an adversarial stance on the application were not advising or otherwise assisting me in preparing my ruling. I also issued a ruling on May 5, 2021, in which I restricted the role of hearing counsel (i.e., Commission counsel who participated in the gathering and presentation of evidence) in the consideration of certain evidence tendered during the Commission process. 14 Participants Because of the breadth of the Commission’s mandate, I considered it necessary and appropriate to hear from a wide range of voices. I granted participant status to various individuals and organizations. Some of these participants were given standing with respect to all issues before the Commission, while others were given standing with respect to specifc issues. In what follows, I provide some information on each of these participants and comment on the perspectives they brought to the Commission. 15 Province of British Columbia The Province of British Columbia initially sought to participate in the Inquiry through the Ministry of Finance and the Gaming Policy and Enforcement Branch, and as such, I initially granted standing to those two provincial bodies. Both entities were highly responsive to the many document and interview requests made by Commission counsel, and I am very grateful for the eforts of these entities and their counsel. The Ministry of Finance has responsibilities in many of the sectors identifed in the Terms of Reference, including the real estate, corporate, and fnancial sectors. It has also been involved in the development and implementation of the provincial anti– money laundering strategy. The Gaming Policy and Enforcement Branch is responsible for the overall integrity of gaming and horse racing in the province and has regulatory oversight of the gaming and horse-racing industries. It is also responsible for providing advice to the Attorney General on all gaming policy matters, including both regulatory and operational matters. On December 4, 2020, I issued a ruling in which I replaced the separate grant of participant status given to the Ministry of Finance and the Gaming Policy and Enforcement Branch with a single grant of participant status to Her Majesty the Queen in Right of the Province of British Columbia (HMTQ). I gave HMTQ standing with respect to all matters set out in my Terms of Reference. 14 For a more detailed discussion of that issue see Ruling 32 (May 5 2021). A full list of rulings made during the Commission process can be found at Appendix E. 15 A list of all participants and their counsel can be found at Appendix F . Part I: Introduction • Chapter 1 | Introduction 57 Government of Canada The Government of Canada (Canada) plays a central role in the fght against money laundering and has put in place an anti–money laundering regime made up of various agencies and institutions. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 (PCMLTFA), is the centrepiece of the federal anti–money laundering regime. Broadly speaking, that legislation creates mandatory record-keeping and reporting requirements for fnancial institutions and other businesses, such as casinos, where there is a risk of money laundering occurring. 16 Examples of these requirements include suspicious transaction reports, which must be fled where there are reasonable grounds to suspect that a transaction is related to the commission or attempted commission of a money laundering ofence; large cash transaction reports, which must be fled when reporting entities receive $10,000 or more in cash in a single transaction; and electronic funds transfer reports, which must be fled when reporting entities process cross-border electronic funds transfers of $10,000 or more. 17 The PCMLTFA also creates a fnancial intelligence unit (FINTRAC) that is responsible for receiving and analyzing information relating to money laundering activity. Under section 55(3), FINTRAC is required to disclose certain information to law enforcement agencies where it has reasonable grounds to suspect that the information is relevant to the investigation or prosecution of a money laundering ofence. Moreover, it is authorized to conduct research into money laundering trends and developments and to inform reporting entities, law enforcement authorities, and the public about the nature and extent of money laundering in Canada and internationally. Other federal agencies involved in the fght against money laundering include the Ofce of the Superintendent of Financial Institutions, the Public Prosecution Service of Canada, the RCMP , the Canada Revenue Agency, and the Canada Border Services Agency. The Ofce of the Superintendent of Financial Institutions is responsible for supervising and regulating more than 400 federally regulated fnancial institutions and 1,200 pension plans. While it does not manage the substantive operations of these institutions, it plays an important regulatory and oversight role in assessing the strength of their regulatory compliance and risk management practices. The Public Prosecution Service of Canada generally prosecutes criminal ofences under federal statutes other than the Criminal Code, RSC 1985, c C-46. Examples include the Controlled Drugs and Substances Act, SC 1996, c 19; the Income Tax Act, RSC 1985, c 1 (5th Supp); the Immigration and Refugee Protection Act, SC 2001, c 27; and the Firearms Act , SC 1995, c 39. In prosecuting such ofences, it can seek authorization from the province to prosecute related ofences such as those set out in sections 354 and 462.31 of the Criminal Code. It also has the power to seek the forfeiture of illegal proceeds and ofence-related property in the sentencing process. 16 Examples of these entities (sometimes called “reporting entities”) include banks credit unions life insurance companies trust and loan companies real estate agents notaries accountants and casinos. 17 PCMTLFA ss 7 9 12. Commission of Inquiry into Money Laundering in British Columbia – Final Report 58 The RCMP , Canada Border Services Agency, and Canada Revenue Agency play critical roles in the investigation of money laundering ofences, ofen in conjunction with provincial and international partners such as the US Drug Enforcement Administration. In light of the central role it plays in the fght against money laundering, I gave the federal government participant status in all sectors identifed in my Terms of Reference. Law Society of British Columbia The Law Society of British Columbia (Law Society) is responsible for the regulation of lawyers in the province. It operates independently of government and is responsible for upholding the public interest in the administration of justice, including the integrity, independence, honour, and competence of lawyers practising in British Columbia. The Law Society was given participant status in various sectors identifed in my Terms of Reference, including the real estate sector, fnancial institutions and money services businesses, the corporate sector, luxury goods, and the professional services sector. Society of Notaries Public of British Columbia The Society of Notaries Public of British Columbia is responsible for the regulation of notaries in British Columbia. Under section 18 of the Notaries Act, RSBC 1996, c 334, notaries are entitled to provide a range of legal services in the province, including services relating to the purchase and sale of real estate. The Society of Notaries Public of British Columbia was granted participant status in the real estate sector and the professional services sector. British Columbia Lottery Corporation The BC Lottery Corporation is a Crown corporation responsible for the “conduct and management” of gaming in the province. 18 In furtherance of that mandate, it has entered into operational service agreements with gaming service providers, who are responsible for the day-to-day operation of casinos. These agreements incorporate detailed standards, polices, and procedures that must be followed by gaming service providers in operating their facilities. The BC Lottery Corporation also has various reporting obligations under the PCMLTFA and the Gaming Control Act, SBC 2002, c 14. The BC Lottery Corporation was granted participant status in the gaming and horse-racing sector. Great Canadian Gaming Corporation The Great Canadian Gaming Corporation (Great Canadian) is a publicly traded corporation that operates gaming facilities in British Columbia, Ontario, Nova Scotia, 18 Gaming Control Act s 7. Part I: Introduction • Chapter 1 | Introduction 59 and New Brunswick. At the time it applied for participant status, it operated 10 gaming facilities in British Columbia, including two of the largest casinos in the province (the River Rock Casino Resort and the Hard Rock Casino Vancouver) and the only two racetracks that continue to host live horse racing. 19 Great Canadian was granted participant status in the gaming and horse-racing sector. Gateway Casinos and Entertainment Inc. Gateway Casinos and Entertainment Inc. (Gateway) is a gaming service provider that operates three of the largest gaming and entertainment facilities in the Lower Mainland as well as a number of smaller gaming sites in Vancouver, on Vancouver Island, and in the Okanagan Valley. 20 Gateway was granted participant status in the gaming and horse-racing sector. Canadian Gaming Association The Canadian Gaming Association is a not-for-proft organization that works to advance the evolution of Canada’s gaming industry; promote the economic value of gaming in Canada; use research, innovation, and best practices to help the industry advance; and create productive dialogue among relevant stakeholders. 21 Its members include leading gaming operators such as Gateway and Hard Rock casinos as well as law frms and suppliers to the industry. 22 The Canadian Gaming Association was granted participant status in the gaming and horse-racing sectors. British Columbia Government and Service Employees’ Union The British Columbia Government and Service Employees’ Union (since renamed the British Columbia General Employees’ Union) is one of the largest labour unions in British Columbia. It represents more than 80,000 members who work in almost every sector of the economy, including the public service, the fnancial services industry, and the gaming sector. The BC Government and Service Employees’ Union was granted participant status in the following sectors: gaming and horse racing, real estate, fnancial institutions, the corporate sector, luxury goods, and the professional services sector. 19 Each of these facilities is operated by Great Canadian’s wholly owned subsidiaries: Great Canadian Ca - sinos Inc. Hastings Entertainment Inc. Orangeville Raceway Limited Great Canadian Entertainment Centres Ltd. and Chilliwack Gaming Ltd. 20 Gateway also operates the Grand Villa and Starlight casinos in Edmonton and various gaming and enter - tainment facilities in Ontario. 21 Application for standing (Canadian Gaming Association) para 3. 22 Opening statement of the Canadian Gaming Association p 2. Commission of Inquiry into Money Laundering in British Columbia – Final Report 60 BMW Canada Inc. and BMW Financial Services BMW Canada Inc. (BMW) is the Canadian subsidiary of BMW AG, a German multinational company that manufactures and distributes luxury vehicles and mobility services through its retail network in Canada. BMW Financial Services, a division of BMW , provides fnancial services, including leasing and fnancing of vehicles, to BMW customers in Canada. BMW was granted participant status in two sectors: luxury goods and fnancial institutions. Chartered Professional Accountants of Canada The Chartered Professional Accountants of Canada (CPA Canada) is the national organization that represents Canada’s accounting profession domestically and internationally. CPA Canada was formed through the unifcation of Canada’s three legacy accounting designation bodies: the Canadian Institute of Chartered Accountants, the Society of Management Accountants of Canada, and the Certifed General Accountants Association of Canada. It has over 220,000 members who have obtained the chartered professional accountant designation or possess a legacy designation. CPA Canada is not a regulator but works co-operatively with provincial and territorial regulatory bodies, including the Chartered Professional Accountants of British Columbia. CPA Canada was granted participant status in the professional services sector. Chartered Professional Accountants of British Columbia The Chartered Professional Accountants of British Columbia (CPABC) is a statutory corporation that exercises responsibilities under the Chartered Professional Accountants Act, SBC 2015, c. 1 (the CPA Act). CPABC is currently the sole statutory professional regulatory body for professional accountants in British Columbia. CPABC was granted participant status in the professional services sector. British Columbia Civil Liberties Association The British Columbia Civil Liberties Association is a non-proft advocacy group with a mandate to defend, maintain, and extend civil liberties and human rights in Canada. It has expertise in a wide range of civil liberties matters, including criminal law reform, police accountability, access to justice, due process, and the impact of investigative and enforcement mechanisms on privacy interests. The BC Civil Liberties Association was given participant status in all sectors identifed in my Terms of Reference and has brought an important civil liberties perspective to the work of the Inquiry, particularly as it relates to the potential Part I: Introduction • Chapter 1 | Introduction 61 expansion of police and regulatory powers, the increased collection of personal information, and the introduction of measures such as unexplained wealth orders (discussed below). Canadian Bar Association and the Criminal Defence Advocacy Society The Canadian Bar Association is a professional organization representing the interests of more than 36,000 legal professionals, including lawyers, law students, academics, and judges. Founded in 1896, the Canadian Bar Association was formally incorporated by an Act of Parliament in 1921 and has branches in every province and territory. The British Columbia branch has more than 7,000 members in a wide range of practice areas, including criminal justice, real estate, corporate law, family law, and civil litigation. The Criminal Defence Advocacy Society was founded in 2015 by members of the criminal defence bar in British Columbia. It is particularly concerned with the rule of law, the independence of the bar, and the constitutional rights of accused persons. Because of the substantial overlap between the proposed contributions of these organizations, I directed that they share a single grant of standing in relation to all sectors identifed in my Terms of Reference. British Columbia Real Estate Association The British Columbia Real Estate Association is a professional association representing more than 23,000 commercial and residential realtors in the province. It does not have any legislative or regulatory powers and works with its member boards on matters such as professional development, advocacy, economic research, and the development of standard forms. The BC Real Estate Association was granted participant status in the real estate sector. Transparency International Canada, Canadians for Tax Fairness, and Publish What You Pay Canada Transparency International Canada, Canadians for Tax Fairness, and Publish What You Pay Canada (Transparency Coalition) is a coalition of public interest advocacy groups that has been campaigning to increase corporate transparency and establish a publicly accessible benefcial ownership registry in Canada. The Transparency Coalition was given a single grant of standing in relation to fnancial institutions, the real estate sector, and the corporate sector. Commission of Inquiry into Money Laundering in British Columbia – Final Report 62 James Lightbody James Lightbody is the president and chief executive ofcer of the BC Lottery Corporation. He has held that position since February 2014, when he was promoted from vice-president of casino and community gaming. Mr. Lightbody was granted participant status in relation to the gaming and horse-racing sector. Robert Kroeker Robert Kroeker has held a number of senior positions in the gaming industry, including chief compliance ofcer and vice-president of legal, compliance, and security at the BC Lottery Corporation and vice-president of compliance and regulatory afairs at Great Canadian. Mr. Kroeker was also involved in the creation and operation of the BC Civil Forfeiture Ofce, where he worked extensively with police and other enforcement agencies in British Columbia and beyond. Mr. Kroeker was granted participant status in the gaming and horse-racing sector. Brad Desmarais Brad Desmarais is currently the vice-president of casino and community gaming at the BC Lottery Corporation and has been with the BC Lottery Corporation in various other capacities since 2013. Before joining the BC Lottery Corporation, he worked as a police ofcer with the Vancouver Police Department and the RCMP . Mr. Desmarais was granted participant status in the gaming and horse-racing sector. Paul Jin Paul Jin came to the attention of the Commission as someone who was potentially involved with the lending of cash to gamblers through his association with an unregistered money services business in Richmond, British Columbia. Mr. Jin sought and was granted standing to question witnesses, make submissions, and exercise the rights of a participant in relation to evidence that afects his interests or engages him specifcally. 23 Afer granting participant status to Mr. Jin, I was asked to make various rulings relating to his participation in the Inquiry and the process adopted by the Commission for making fndings and recommendations that could afect his interests. These rulings include: • Ruling 26, which dealt with an application brought by Commission counsel concerning Mr. Jin’s ability to access to documents produced by other participants; 23 Ruling 14 – Application for Standing (November 5 2020) para 16. Part I: Introduction • Chapter 1 | Introduction 63 • Ruling 32, which dealt with an application brought by Mr. Jin for various orders and directions relating to the process for making fndings of fact and recommendations concerning Mr. Jin; • Ruling 34, which dealt with an application brought by Mr. Jin for an order that Commission counsel provide him with the defnition of the term “loan shark” as that term will be used and applied by the Commission in analyzing the evidence and considering and formulating fndings and recommendations; • Ruling 36, which dealt with an application brought by Mr. Jin for various orders relating to an overview report sought to be tendered by Commission counsel concerning Mr. Jin’s private lending activity; and • Ruling 37, which dealt with an application brought by Mr. Jin to compel information and documents relating to the process adopted by the Commission for the issuance of summonses as well as certain interviews conducted by Commission counsel. I have followed the process outlined in these rulings and given careful consideration to the oral and written submissions made by Mr. Jin (and his counsel) in every instance where I have made fndings of fact and recommendations that could afect his interests. Kash Heed Kash Heed has had a long career in public service, having served as a member of the Vancouver Police Department from 1979 to 2007, Chief Constable of the West Vancouver Police Department from 2007 to 2009, and Minister of Public Safety and Solicitor General from June 10, 2009 to April 9, 2010, and again from May 4 to May 5, 2010. On November 12, 2020, I granted him participant status for the limited purpose of cross-examining Fred Pinnock, a former RCMP ofcer who has levied public criticisms of his superior ofcers, and others, for their alleged failure to take steps to abate money laundering activity in the gaming industry. I return to these issues in Part III. Ross Alderson Ross Alderson was an employee of the BC Lottery Corporation from 2008 to 2017 and served as the director for anti–money laundering, investigations, and intelligence from 2015 until his resignation in 2017. Mr. Alderson frst sought participant status by way of an application dated September 4, 2019, but subsequently withdrew that application. On May 24, 2021, Mr. Alderson submitted a renewed application for standing in which he took the position that the evidence led through the Inquiry process has given rise to allegations of misconduct, unlawful behaviour, and mental health issues in relation to his employment at the BC Lottery Corporation. He also took the position that Commission of Inquiry into Money Laundering in British Columbia – Final Report 64 he has “extensive knowledge of the gambling industry” and it has become evident that he is a “key witness with intimate knowledge of events between 2009–2017. ” 24 On June 25, 2021, I granted him limited participant status to address matters involving his personal conduct and respond to evidence that could adversely impact his legal, reputational, or privacy interests. 25 Public Meetings From October 23 to November 14, 2019, the Commission held public meetings in Vancouver, Victoria, Kelowna, Prince George, and Richmond. The purpose of these meetings was to seek input from the communities most afected by money laundering. While participants were free to speak on any topic relevant to the Commission’s mandate, the following questions were posed in advance of the meetings: • What are the most signifcant money laundering issues facing your community in British Columbia and in Canada? • What areas of our mandate would you like us to focus on or address in our process? • What have been the major consequences of money laundering in your community? • What do you think is required to address the issues you have identifed? • How can the Commission keep you informed on our activities and fndings? • How can community members participate or stay involved in the process? I would like to thank the many individuals who attended and made presentations at these public meetings. The thoughtful presentations I heard gave me considerable insight into the perspectives and concerns of members of the public. In the fve sections that follow, I provide a summary of the ideas and concerns expressed by members of the public at each of these meetings. Vancouver On October 23, 2019, the Commission held a public meeting in Vancouver and heard concerns regarding: • the increase in criminal activity on the streets of Vancouver; • the prevalence of money laundering in the gaming industry, including the lack of meaningful action taken by the Gaming Policy and Enforcement Branch, the BC 24 Ruling 33 – Application for Participant Status (June 25 2021) paras 15–16. 25 Ibid. Part I: Introduction • Chapter 1 | Introduction 65 Lottery Corporation, and gaming service providers to combat money laundering in BC casinos; • the involvement of lawyers in money laundering activity, including the absence of any reporting obligations under the PCMLTFA and the use of trust accounts to facilitate illegal transactions; • the suppression of relevant information and evidence by diferent levels of government; • the need to strengthen whistle-blower protections, particularly in the gaming industry; • the use of illicit funds to purchase real estate in British Columbia; • the infltration of casinos by organized crime fgures; and • the failure of law enforcement and regulatory agencies to actively (or efectively) prosecute money laundering ofences. Many of the presenters spoke to their personal experiences and observations with these matters, including eforts to inform the RCMP and other relevant authorities about suspicious activity they believed to be connected to money laundering. Kelowna On October 29, 2019, the Commission held a public meeting in Kelowna. One of the presenters was a former manager of a real estate company who expressed concerns about the process for tracking money in real estate transactions as well as the lack of compliance with FINTRAC regulations. They also expressed concern about the potential use of rental income as a way of laundering illicit funds. I also heard concerns about the ability of the BC Securities Commission to properly regulate the market and the extent to which organized crime and money laundering has infltrated the community. Victoria On November 4, 2019, the Commission held a public meeting in Victoria where presenters addressed a number of topics, including: • the high proportion of money laundering cases involving white-collar professionals; • the need to better regulate lawyers; • the lack of compliance among reporting entities with the PCMLTFA; Commission of Inquiry into Money Laundering in British Columbia – Final Report 66 • the prevalence of money laundering in BC casinos, including the perception that government has largely “ignored” the problem; • the need to protect whistle-blowers; • the impact of money laundering on housing afordability; and • the lack of enforcement of anti–money laundering laws in comparison with other countries. One of these individuals spoke to the “regrettable” decision to disband the Integrated Proceeds of Crime units and suggested that substantial money laundering leads submitted to the RCMP have not been acted upon. He also suggested that the sanctions for failing to report suspicious transactions to FINTRAC were not signifcant enough to act as an efective deterrent and that the centre should take additional steps to audit reporting entities to ensure compliance. Among the solutions these individuals proposed were a benefcial ownership registry and the use of unexplained wealth orders. Richmond On November 7, 2019, the Commission held a public meeting in Richmond and heard presentations from a number of concerned individuals. A consistent theme in these presentations was the impact of money laundering on the real estate sector, including the impact on housing afordability and the construction of “mega mansions” on agricultural land. Presenters expressed concern that such encroachment pulls good farmland out of production, drives up the cost of real estate, and allows criminals to enjoy the proceeds of crime. Other concerns included: • the prevalence of money laundering in the gaming sector; • the exemption of lawyers from the fnancial reporting requirements set out in the PCMLTFA; • cash payments in the construction industry as a potential weakness in the current anti–money laundering regime; • lack of compliance with reporting obligations under the PCMLTFA, particularly among realtors; and • the lack of any meaningful enforcement of anti–money laundering laws by law enforcement agencies. A few of these speakers expressed the view that the current state of afairs is contrary to Canadian values, discouraging for British Columbians, and a “black eye” on Part I: Introduction • Chapter 1 | Introduction 67 the history of our country. They also expressed considerable support for unexplained wealth orders as well as increased corporate transparency, including the creation of a benefcial ownership registry in the corporate sector. Prince George On November 14, 2019, the Commission held its ffh public meeting, in Prince George, where several speakers expressed concern that the Commission’s work may have no lasting efect, particularly when law enforcement agencies have been subject to signifcant cutbacks and have failed to act on matters related to money laundering. Written Submissions In addition to holding public meetings, the Commission invited members of the public who could not attend a public meeting or preferred to share their perspectives in writing to make written submissions to the Commission. The Commission has received a large number of written submissions from concerned members of the public. These submissions are largely consistent with the perspectives and concerns raised at the public meetings reviewed above. I am grateful to the many citizens of our province who have taken the time to share their thoughts and perspectives with the Commission. Each of these submissions has been reviewed and considered. Sources of Evidence In order to develop an evidentiary basis for the fndings of fact and recommendations mandated by my Terms of Reference, the Commission received and considered evidence from a variety of sources. Each of these sources are discussed below. Terms of Reference Reports One of the frst steps taken by the Commission in furtherance of its mandate was to thoroughly review and analyze the Terms of Reference Reports along with various other studies and reports concerning money laundering in British Columbia. While these reports were invaluable in identifying issues to be investigated and solutions to be explored, I have not considered or otherwise relied on these reports in making fndings of fact on contentious issues or in making fndings that could refect adversely on any party. A full review of the key fndings and recommendations contained in the Terms of Reference Reports, along with the responses of each participant with standing in the Inquiry, is contained in my Interim Report released in November 2020. Commission of Inquiry into Money Laundering in British Columbia – Final Report 68 Overview Reports On December 5, 2019, the Commission enacted Rules of Practice and Procedure in accordance with section 9 of the Public Inquiry Act. Rule 32 allows Commission counsel to prepare “overview reports” containing core or background information with respect to issues being considered. These reports were then circulated to participants, who had the opportunity to comment on the information contained in those reports before they were entered into evidence. Because of the breadth of the Commission’s mandate, and the sheer volume of evidence tendered on each issue, these reports were invaluable in putting relevant evidence before the Commission in an efcient manner. A total of 57 such reports were entered as exhibits. Witness Testimony Witness testimony was a critical source of evidence for the Commission in making the fndings of fact and recommendations contained in this Report. The Commission heard viva voce evidence from 199 witnesses, with another 23 witnesses giving sworn evidence by way of afdavit. Many of these witnesses were highly qualifed experts who gave evidence with respect to various topics including: • money laundering typologies (i.e., the methods used by those involved in money laundering activity to launder illicit funds); • the Financial Action Task Force and other components of the international anti– money laundering regime; • the Canadian anti–money laundering regime; • legal and regulatory responses to money laundering in other countries, including the United Kingdom, the United States, Ireland, Australia, and New Zealand; • quantifcation (i.e., estimates of the total volume of illicit funds laundered through the BC economy); • legal and regulatory responses to money laundering in specifc sectors of the economy, including the gaming sector, real estate, fnancial institutions, the corporate sector, luxury goods, professional services, and cryptocurrency; • law enforcement responses to money laundering in Canada and other jurisdictions, including the United Kingdom, the United States, and New Zealand; • information sharing and privacy; and Part I: Introduction • Chapter 1 | Introduction 69 • asset forfeiture, including the asset forfeiture regime in jurisdictions such as the United Kingdom, the United States, Ireland, New Zealand, and Manitoba. 26 I am very grateful for the knowledge, experience, and insight that these witnesses brought to the work of the Commission. Exhibits A total of 1,063 exhibits were entered through the Commission process, including the 57 overview reports referenced above. These exhibits include a wide range of reports, afdavits, briefng notes, slide decks, memos, emails, and other documents that contain a wealth of information on a wide range of money laundering topics. 27 Additional Research and Study Finally, it is important to note that the Commission was established as both a hearing commission and a study commission under section 20 of the Public Inquiry Act. In accordance with its study commission mandate, the Commission has conducted additional interviews and research to supplement the evidence tendered through the hearing process. I note, however, that the information received through the study commission process was not considered in making any fndings of misconduct. The COVID-19 Pandemic The COVID-19 pandemic has impacted the Commission – and the province – in ways that would have been unimaginable at the time the Commission was established. Like most individuals, organizations, and businesses, the Commission was required to adapt to the reality of the pandemic and fnd new ways to conduct its work. One of the key challenges faced by the Commission was the need to conduct virtual hearings. I am extremely grateful to Leo Perra, Shay Matters, Kelsey Rose, Linda Peter, Phoenix Leung, Natasha Tam, Sarah LeSage, John Lunn, Mary Williams, and Scott Kingdon for their dedicated eforts to create and run a virtual courtroom on very short notice. I would also like to thank participants, witnesses, and counsel for their continued engagement with the Commission during these difcult times. In the best traditions, they adapted to, and facilitated, our shif to an entirely virtual hearing process, in a co-operative fashion. I remain grateful for their approach. 26 A full list of witnesses with links to hearing transcripts and webcasts can be found at Appendix G. 27 A list of exhibits tendered during the Commission process can be found at Appendix H. Commission of Inquiry into Money Laundering in British Columbia – Final Report 70 In the next chapter of this Report, I provide a high-level overview of money laundering, including the methods commonly used by ofenders to launder illicit funds. I then provide an overview of the individuals and groups involved in money laundering activity, followed by a discussion of quantifcation (i.e., estimates of the volume of illicit funds laundered through the BC economy). I conclude Part I with a discussion of the harms caused by money laundering, including the impact it has on individuals and communities throughout the province. 71 Chapter 2 What Is Money Laundering? Section 1 of my Terms of Reference defnes money laundering as “the process used to disguise the source of money or assets derived from illegal activity. ” 1 Other commonly cited defnitions include “the process by which one converts or transfers cash or other assets generated from proft-oriented crimes in order to conceal their illegal origins, ” 2 “any act or attempted act to disguise the source of money or assets derived from criminal activity, ” 3 and “the process used by criminals to conceal or disguise the origin of criminal proceeds to make them appear as if they originated from legitimate sources. ” 4 The Criminal Code, RSC 1985, c C-46, creates the criminal ofence of money laundering in Canada. It provides, in relevant part: Laundering proceeds of crime 462.31 (1) Every one commits an ofence who uses, transfers the possession of, sends or delivers to any person or place, transports, transmits, alters, disposes of or otherwise deals with, in any manner and by any means, any property or any proceeds of any property with intent to conceal or convert that property or those proceeds, knowing or believing that, or being reckless as to whether, all or a part of that property or of those proceeds was obtained or derived directly or indirectly as a result of 1 Terms of Reference para 1. 2 Exhibit 6 Stephen Schneider Money Laundering in British Columbia: A Review of the Literature p 12. 3 Exhibit 3 Overview Report: Documents Created by Canada Appendix A Canada Parliament Senate Standing Senate Committee on Banking Trade and Commerce Follow the Money: Is Canada Making Progress in Combatting Money Laundering and Terrorist Financing? Not Really, Report of the Standing Senate Committee on Banking, Trade and Commerce 41st Parl 1st Sess (March 2013) (Chair: Irving R. Gerstein) p 1. 4 Ibid Appendix B Canada Department of Finance Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada, 2015 (Ottawa: 2015) [2015 National Risk Assessment] p 9. Commission of Inquiry into Money Laundering in British Columbia – Final Report 72 a) the commission in Canada of a designated ofence; or b) an act or omission anywhere that, if it had occurred in Canada, would have constituted a designated ofence. 5 Section 462.3(1) defnes the term “designated ofence” as (a) any ofence that may be prosecuted as an indictable ofence under the Criminal Code or any other Act of Parliament, other than an indictable ofence prescribed by regulation or (b) a conspiracy or an attempt to commit, being an accessory afer the fact in relation to, or any counselling in relation to an ofence referred to in paragraph (a). Examples include drug trafcking, human smuggling, counterfeiting, illegal gaming, and certain types of fraud. While the primary objective of money laundering is to conceal the true origins and ownership of illicit funds, a comprehensive money laundering scheme will also seek to “legitimize” those funds (that is, to make it appear that they have been derived from legitimate sources, such as a legal business). Stephen Schneider, a professor at St. Mary’s University, Halifax, and one of Canada’s foremost authorities on organized crime, fnancial crime, and money laundering, distinguished between these two objectives as follows: You can conceal criminal activity or a criminal source through what’s called layering, and that is … transaction upon transaction upon transaction through numerous fnancial instruments or commercial sectors to try to basically obfuscate any kind of paper trail between the asset or the funds and the criminal source. So that is in itself an important step in the process or an important objective. But again, on top of that, to really truly satisfy the process, it’s not good enough just to conceal it. You want to have that legitimate source. I mean, some examples of creating a legitimate source … the most common … is setting up a shell company or even a real company that produces legitimate revenue. You would like a company that in its normal line of business produces cash … like a bar or a restaurant, and you commingle your drug proceeds with the cash from [a] legitimate [source] and then you deposit into a commercial bank account … [T]hat’s a typical example of creating legitimacy. You … are concealing the criminal sources, but more importantly you’re creating the guise of legitimacy. And there’s various techniques to use to create that legitimacy. [Emphasis added.] 6 5 Criminal Code RSC 1985 c C-46 ss 462.31(1). Note that the Criminal Code defnition of money laundering is narrower than the defnition contained in my Terms of Reference and that I have been guided by the defnition in my Terms of Reference. Nothing in this Report is intended as a fnding that any particular individual or entity is guilty of any criminal ofence. 6 Transcript May 25 2020 pp 31–32. See also Exhibit 23 Money-Laundering Typologies: A Review of their Fitness for Purpose (October 31 2013) p 8 where Professor Michael Levi of Cardif University an expert in money laundering and transnational organized crime states that the “central purpose” of money launder - ing is to ensure a legitimate appearance of what is in fact the proceeds of crime; Evidence of Simon Lord a money laundering expert at the National Crime Agency in the United Kingdom Transcript May 28 2020 p 10 (“Money laundering at its most basic is the act of making the origin of criminally derived funds appear legitimate”); and Evidence of Robert Wainwright Transcript June 15 2020 p 17 (“[Money launder - ing] is the process of … concealing – disguising the identity and ownership of illegally obtained proceeds in a way that makes the origin appear legitimate while leaving no link to the real source of funds”). Part I: Introduction • Chapter 2 | What Is Money Laundering? 73 In what follows, I make some general comments about money laundering and introduce some of the themes that have emerged during the Commission process. Predicate Offences From the outset, it is important to recognize that money laundering is inextricably tied to revenue-generating criminal ofences. Such ofences (sometimes referred to as “predicate ofences”) include drug trafcking, fraud, human trafcking, counterfeiting, and a variety of other ofences that have as their primary objective the generation of illicit funds through criminal activity. A 2015 risk assessment conducted by the federal Department of Finance (the National Risk Assessment) describes the threat actors perpetrating proft-oriented crime as ranging from unsophisticated, criminally inclined individuals and street-gang members to criminalized professionals 7 and transnational organized crime groups such as Mexican and Colombian cartels. 8 The report goes on to identify 22 proft-oriented crimes and evaluates the money laundering threat associated with each of those crimes, using the following criteria: • Sophistication: the extent to which the perpetrators have the knowledge, skills, and expertise to launder criminal proceeds and avoid detection by authorities; • Capability: the extent to which the perpetrators have the resources and network to launder criminal proceeds (e.g., access to facilitators and links to organized crime); • Scope : the extent to which the perpetrators are using fnancial institutions and designated non-fnancial businesses and professions (such as lawyers and accountants) to launder criminal proceeds; and • Magnitude: the estimated dollar value of the illicit funds being generated annually from the proft-oriented crime. 9 Nine ofences were rated as having a very high money laundering risk. These ofences were capital markets fraud, commercial trade fraud, corruption and bribery, counterfeiting and piracy, illicit drug trafcking, mass-marketing fraud, mortgage fraud, third-party money laundering, and tobacco smuggling and trafcking. 10 Eight ofences were rated as having a high money laundering risk. These ofences were currency counterfeiting, human smuggling, human trafcking, identity thef and fraud, illegal gambling, payment-card fraud, pollution crime, and robbery and thef. 11 7 “Criminalized professionals” are defned in that report as individuals who hold or purport to hold a professional designation and title in an area dealing with fnancial matters and who use their pro - fessional knowledge and expertise to commit or willingly facilitate proft-oriented criminal activity . Examples include lawyers accountants notaries investment and fnancial advisors stock brokers and mortgage brokers. 8 Exhibit 3 Appendix B 2015 National Risk Assessment p 18. 9 Ibid p 19. For additional commentary on the four criteria used in this Report see Evidence of S. Schneider Transcript May 25 2020 pp 45–47. 10 Exhibit 3 Appendix B 2015 National Risk Assessment p 19. 11 Ibid. Commission of Inquiry into Money Laundering in British Columbia – Final Report 74 Four ofences were rated as having a medium money laundering risk. These ofences were frearms smuggling and trafcking, extortion, loan sharking, and tax evasion / fraud. 12 One ofence (wildlife crime) was rated as having a low money laundering risk. 13 In what follows, I make some general comments about these ofences and the associated money laundering risk. Capital Markets Fraud Capital markets fraud involves a wide range of illicit activities relating to capital markets. Examples include investment misrepresentation, insider trading, and pyramid schemes. The National Risk Assessment notes that capital markets fraud is a “rich source” of illicit funds that can generate millions of dollars in profts. It also notes that capital markets frauds are ofen perpetrated by criminalized professionals and accompanied by sophisticated money laundering schemes designed to integrate the profts of these schemes into the fnancial system. In his testimony before the Commission, Professor Schneider expressed the view that law enforcement bodies tend to focus on crimes such as drug trafcking and do not pay sufcient attention to fnancial crime, despite the signifcant impact it has on society: [W]e talk about proceeds of crime, we tend to focus on … organized crime, like drug trafcking, prostitution and tobacco smuggling and people smuggling and gambling, but even though I’m loath to try to estimate the scope of any kind of crime … certainly we do not pay sufcient attention to the type of commercial crimes that occur in society, the impact that has on society and the amount of proceeds of crime and money laundering that accompany these economic crimes. 14 While the relative priority given to fnancial crime is beyond the scope of this Report, these comments are important insofar as they highlight the wide range of ofences giving rise to money laundering activity. Moreover, it is important to note that there can be signifcant organized crime involvement in certain types of fnancial crime, with the lucrative fnancial returns being laundered and used to fund other types of criminality. 15 12 Ibid. 13 Ibid. 14 Transcript May 25 2020 p 51. 15 Exhibit 1017 Overview Report: Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud (2020) Appendix A Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud 2020 (Ottawa: 2020) p 4 (“Financial crime ofen seen as ‘white collar’ crime is committed by highly capable criminals and interconnected [organized crime groups] both in Canada and abroad with some Canadian [organized crime groups] directly involved in running boiler rooms (i.e. telemarketing centres used in fraud) and others simply collect a portion of profts. The lucrative fnancial returns produced by frauds are likely used to fund other criminal activity pri - marily drug importation and trafcking”). Part I: Introduction • Chapter 2 | What Is Money Laundering? 75 Commercial Trade Fraud While commercial trade fraud is not specifcally defned in the 2015 National Risk Assessment, I understand it to involve the intentional misrepresentation of information declared to customs services in order to evade import duties and tarif quotas or to conceal the movement of restricted goods. 16 Joel Gibbons, a senior analyst with the Canada Border Services Agency’s Trade Fraud and Trade-Based Money Laundering Centre of Expertise, described commercial trade fraud as follows: What is trade fraud? It’s the intentional misrepresentation of information that is declared to custom services like the CBSA and ofen the shipping and the sales documents that are related to those, the goods in question. Trade fraud has really been happening for as long as there have been customs authorities. It’s a form of crime that enables a wide variety of criminal activity. In the more traditional customs context, trade fraud techniques are primarily used to evade paying import duties or to evade tarif quotas on certain goods. So it’s really to evade controls that are established to ensure that the Government of Canada is collecting the appropriate amount of revenue for goods that are entering into the country. And when we talk about trade fraud techniques, what we’re primarily talking about is misdescription. And we’re talking about misdescribing a number of diferent elements on, again, primarily customs documents but also shipping documents as well. And some of the elements that we would be talking about include the price of goods or the value of goods, the description of the goods … the quantity of the goods, the weight of the goods, potentially even the quality of goods that are declared on customs documents. 17 Some estimates suggest that, globally, less than 2 percent of shipping containers are physically examined and that criminals “routinely” take advantage of customs processes by intentionally misstating the value, quantity, quality, weights, and descriptions of commercial goods in order to evade duty and regulatory requirements and smuggle restricted goods into and out of the country. 18 Concerns have also been raised about organized crime groups “profteering” from illegally smuggled goods. The National Risk Assessment notes that the transnational organized crime groups, terrorist actors, and networks that operate in this sphere are “very sophisticated and capable, with the knowledge, expertise and international relationships to manipulate multiple trade chains and trade fnancing vehicles, ofen operating under the cover of front and/or legitimate companies. ” 19 It further notes that the sophistication and capability of these groups in conducting commercial fraud also extends to laundering its proceeds. 20 16 Evidence of J. Gibbons S. Sharma and B. Gateley Transcript December 10 2020 p 22. 17 Ibid pp 22–23. 18 Exhibit 357 Canada Border Services Agency COVID-19 Implications for Trade Fraud (April 2020) para 3. 19 Exhibit 3 Appendix B 2015 National Risk Assessment p 20. 20 Ibid. Commission of Inquiry into Money Laundering in British Columbia – Final Report 76 Corruption and Bribery The National Risk Assessment states that corruption and bribery in Canada come in many diferent forms ranging from small-scale bribe-paying activity to large-scale bribery schemes aimed at illegally obtaining lucrative public contracts. It goes on to state that the money laundering threat from corruption and bribery was given a very high rating “principally due to the size of the public procurement sector and the opportunities that this presents to illegally obtain high-value contracts. ” 21 The Report of the Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry (also known as the Charbonneau Commission Report, afer the head of the inquiry, Madam Justice France Charbonneau) provides considerable insight into this type of criminality in the Quebec construction industry. The report outlines the various schemes used to manipulate the public procurement process as well as the extent to which organized crime groups have infltrated the Quebec construction industry. Of equal if not greater concern are corruption and bribery ofences carried out by foreign ofcials and organized crime groups in other jurisdictions. While such conduct may be outside the reach of Canadian law, the proceeds of that unlawful activity ofen make their way to countries such as Canada, the United Kingdom, and the United States. Counterfeiting and Piracy The National Risk Assessment states that the number and selection of counterfeit and pirated products has grown signifcantly over the last decade, with Toronto, Montreal, and Vancouver being the key entry points for these products. It also states that organized crime groups appear to have tapped into global illicit distribution channels, allowing them to bring increasingly more counterfeit products into Canada and to launder the proceeds derived from the sale of counterfeit goods. 22 All indications suggest that the counterfeit and pirated goods market is substantial and continues to grow rapidly. As a result, authorities can expect an increase in money laundering activity associated with this type of criminality. Illicit Drug Traffcking The National Risk Assessment indicates that the illicit drug market is the largest criminal market in Canada, with cannabis, cocaine, amphetamine-type stimulants, and heroin making up a signifcant share of the market. 23 Since the release of that report, fentanyl and fentanyl-adulterated substances have taken over 90 percent of the opioid market in British Columbia and resulted in signifcant public harm, including the deaths of thousands of drug users. By 2016, fatal overdoses from fentanyl exposure 21 Ibid p 21. 22 Ibid. 23 Ibid. Part I: Introduction • Chapter 2 | What Is Money Laundering? 77 had increased to 8.4 per 100,000 in Canada, and more Canadians died from fentanyl- contaminated opioid use than were killed in motor vehicle accidents. 24 By 2018, the rate of fatal overdoses from opioid use reached 12 per 100,000 – approximately 85 percent of the province’s fatal overdoses. 25 A research report prepared for the Commission by Dr. Martin Bouchard (the Bouchard Report), a criminology professor at Simon Fraser University, sets out the reasons that fentanyl is attractive to those involved in drug trafcking: High mortality from fentanyl exposure stems from its potency – reported to be nearly 25 times more potent than heroin (Pardo et al., 2019). Fentanyl is cheaper than heroin too, which means its emergence has been motivated by trafckers’ desire to cut costs and increase profts (Caulkins et al., 2021). Fentanyl’s high potency means trafckers can make considerable profts by smuggling very small quantities (Caulkins et al., 2021). And its production chain is shorter compared to heroin, which reduces overall manufacturing costs. Fentanyl is manufactured from chemical precursors, so trafckers bypass the frst part of the heroin distribution chain (i.e., farmers cultivating opium from poppy felds). Although bought and sold itself, fentanyl contaminates large quantities of heroin, opioids, and stimulants sold on the street (Bardwell, Boyd, Arredondo, et al., 2019). 26 The Bouchard Report also estimates the size of the fentanyl market in British Columbia and concludes that retail sales of fentanyl – as well as fentanyl-contaminated opioids and stimulants – are in the range of $200–$300 million annually. 27 These numbers provide some insight into the size of the fentanyl drug market in British Columbia as well as the fnancial opportunities available to organized crime groups and other threat actors intent on making a proft from the sale of illicit drugs. The Criminal Intelligence Service Canada (CISC) estimates that more than 90 percent of organized crime groups are involved in at least one illicit drug market and that these groups directly control or indirectly infuence all aspects of the illicit drug market, including production, importation, and distribution. 28 While recognizing that many of these groups were involved in the cannabis market leading up to the 24 Exhibit 335 Research Report: Estimating the Size of the Fentanyl Market in British Columbia (October 26 2020) [Bouchard Report] p 7. 25 Ibid. 26 Ibid. The full references in the quotation are as follows: B. Pardo J. Taylor J. Caulkins et al The Future of Fentanyl and Other Synthetic Opioids (Santa Monica CA: RAND Corporation 2019); J.P . Caulkins A. Gould B. Pardo et al “Opioids and the Criminal Justice System: New Challenges Posed by the Modern Opioid Epidemic” (2021) 4 Annual Review of Criminology pp 353–75; G. Bardwell J. Boyd J. Arredondo et al “Trusting the Source: The Potential Role of Drug Dealers in Reducing Drug-Related Harms via Drug Checking” (2019) 198 Drug and Alcohol Dependence pp 1–6. 27 Bouchard Report p 47. 28 Exhibit 3 Overview Report: Documents Created by Canada Appendix F Criminal Intelligence Service Canada 2018-19 National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Illegal Drugs (Ottawa) pp 3 5. Commission of Inquiry into Money Laundering in British Columbia – Final Report 78 October 2018 enactment of the Cannabis Act, SC 2018, c 16, CISC’s intelligence indicates that almost all these groups are involved in at least one other illicit drug market and will likely increase their involvement in those other markets to counteract the displacement of their share in cannabis. It also suggests that these groups will pursue other adaptive strategies, such as exporting cannabis to countries where it remains illegal, focusing on more potent cannabis products, targeting consumers who are unable or unwilling to purchase cannabis from legitimate suppliers, and exploiting regulatory diferences. 29 Afer reviewing this evidence, I am satisfed that illicit drug trafcking remains one of the most fnancially lucrative criminal markets for transnational organized crime groups (and other criminal actors) and is one of the most signifcant sources of illicit funds in this province. Mass-Marketing Fraud “Mass-marketing fraud” is an umbrella term for fraudulent schemes that use mass- communication media, including telephones, the internet, mail-outs, television, and radio, to defraud the victim. 30 Common forms of mass-marketing fraud include • government services scams, where an individual or a group poses as a government representative in order to mislead victims into revealing sensitive fnancial or personal information, with the objective of stealing their money or identity; 31 • phishing scams, where criminals contact victims from what appear to be reputable agencies in order to induce the disclosure of sensitive information; 32 • romance scams, where victims are lured into a false relationship with a fraudster, ofen through the use of information that has been posted online; 33 • ransomware scams, where criminal actors deploy malicious sofware to attack computer networks by encrypting fles and holding data hostage until payment is made; 34 and 29 Ibid p 3. 30 Exhibit 1017 Overview Report: Criminal Intelligence Service Canada National Criminal Intelligence Esti - mate on the Canadian Criminal Marketplace: Money Laundering and Fraud (2020) Appendix A Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud 2020 (Ottawa: 2020) p 18. 31 Ibid. Although communication with victims ofen occurs through the use of telephone and email ofenders are increasingly using social media platforms and text messaging to carry out this form of unlawful activity . 32 Ibid p 19. Common forms of phishing scams include email phishing where ofenders target a large indiscriminate number of people by email; spear phishing which involves a targeted attack directed at a single person; and whale phishing which involves a targeted attack on specifc high-ranking employ - ees such as CEOs. 33 Ibid. 34 Ibid p 20. The Criminal Intelligence Service Canada estimates that Canadian individuals and institu - tions including businesses universities banks hospitals and government agencies are targeted by ransomware attacks approximately 3 200 times per day . On average such attacks are estimated to cost between $1 million and $3 million per incident. Part I: Introduction • Chapter 2 | What Is Money Laundering? 79 • elder-targeted scams, where criminals use a variety of techniques, including government service scams, romance scams, bank and investment schemes, and prize ofers, to defraud seniors. 35 The National Risk Assessment states that the majority of mass-marketing fraud scams in Canada are carried out by organized crime groups, which use a variety of methods and techniques to launder the illicit funds they generate. While reported losses averaged approximately $60 million annually from 2009 to 2013 and totalled $73 million in 2014, the National Risk Assessment states that “actual losses are viewed as being much higher, in the hundreds of millions of dollars annually, given that [mass-marketing fraud] is generally under-reported by victims. ” 36 Mortgage Fraud Mortgage fraud includes a wide range of deceptive practices relating to the provision of mortgage fnancing. At its simplest, it includes false and misleading statements made by a borrower on a mortgage application. However, a large number of sophisticated schemes are used to defraud lending institutions and property owners. The National Risk Assessment states that organized crime groups conduct the “vast majority” of mortgage fraud activity in Canada and are believed to rely on the assistance of professionals such as real estate agents, mortgage brokers, appraisers, and lawyers. Some estimates suggest that the total amount lost to mortgage fraud annually is in the hundreds of millions and could be as high as $500 million. Third-Party Money Laundering The National Risk Assessment states that large-scale money laundering operations, including those connected to transnational organized crime groups, frequently involve third-party money launderers (defned as individuals or groups who were not involved in the predicate ofence). Examples include professional money launderers, nominee owners, 37 and money mules. 38 Professional money launderers specialize in laundering large sums of money and generally ofer their services to criminals for a fee. They are ofen the masterminds behind sophisticated money laundering schemes and are frequently 35 Ibid. 36 Exhibit 3 Appendix B 2015 National Risk Assessment p 22. It is also noteworthy that cryptocurrency is one of the most common methods of payment for mass-marketing fraud: Exhibit 1017 Overview Report: Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud (2020) p 16 and Evidence of R. Gilchrist Tran - script June 9 2020 p 62. 37 Nominee owners hold assets in their names on behalf of the true owner – the benefcial owner. 38 Money mules are individuals not involved in the predicate ofence who are used to physically transport money goods or other merchandise. In some cases they are willing participants in the money launder - ing scheme. In others they are unaware that they are being used to facilitate criminal activity . Commission of Inquiry into Money Laundering in British Columbia – Final Report 80 used by the most powerful organized crime groups to launder domestic- and foreign-generated proceeds. Nominees and money mules are less of a threat but are nonetheless important because they may be critical in carrying out money laundering schemes (large and small). 39 A full discussion of third-party money laundering is contained in Chapter 3. Tobacco Smuggling and Traffcking The National Risk Assessment states that organized crime groups have a high level of involvement in the smuggling and trafcking of illicit tobacco products, such as counterfeit cigarettes and “fne cut” tobacco imported illegally by Canadian-based manufacturers. It also indicates that the organized crime groups involved in that trade have the sophistication and capability to launder the signifcant cash proceeds generated from the sale of those products. 40 Currency Counterfeiting Large-scale currency counterfeiting is predominantly undertaken by organized crime groups that conduct currency counterfeiting alongside other proft-oriented criminal activities. The National Risk Assessment states that these actors exhibit a high level of sophis- tication and capability. They also appear to have the network and the infrastructure in place to successfully launder the cash proceeds arising from such activity. 41 Human Smuggling The National Risk Assessment indicates that “Canada is a target for increasingly sophisticated global human smuggling networks. ” 42 Such activity, it continues, is believed to be carried out by a small number of well-established organized crime groups that have developed the sophistication and capability to smuggle humans across multiple borders. Human smuggling requires international connections along with a high degree of organization and planning. The organized crime groups engaged in this type of criminality are believed to engage in sophisticated money laundering activity. 39 Exhibit 3 Appendix B 2015 National Risk Assessment p 22. 40 Ibid p 23. For an analysis of the illicit fnancial fows from the tobacco trade see Exhibit 4 Overview Report: Financial Action Task Force Appendix SS FATF Report: Illicit Tobacco Trade (Paris: FATF 2012). 41 Exhibit 3 Appendix B 2015 National Risk Assessment p 23. 42 Ibid. Part I: Introduction • Chapter 2 | What Is Money Laundering? 81 Human Traffcking Human trafcking for sexual exploitation is the most common form of human trafcking in Canada. There have also been cases of labour trafcking in the construction and housekeeping sectors. The National Risk Assessment indicates that sex trafcking is largely perpetrated by criminally inclined individuals who are not thought to have a high level of sophistication in terms of money laundering. Such individuals are believed to launder the proceeds of that activity for “immediate personal use, leveraging a very limited or non-existent network, and using a limited number of sectors and methods. ” 43 Organized crime groups are also involved in human trafcking and use their established infrastructure to launder the proceeds of that activity. 44 Identity Crime Identity crime – such as identity thef and identity fraud – is prevalent in Canada and is of particular concern because stolen identities are ofen used to support the conduct of other criminal activities. Stolen identities can also assist money laundering operations by giving ofenders fake credentials to subvert customers’ due diligence safeguards. 45 The National Risk Assessment states that the organized crime groups conducting identity crime are “well-established and resilient, and have well-developed domestic and international networks. ” 46 I also heard evidence that a signifcant percentage of organized crime groups involved in this type of activity are located in British Columbia and that many of those groups have international connections. 47 Illegal Gaming Illegal gaming consists of a variety of activities, including private betting or gaming houses, unregulated video gaming and lottery machines, and unregulated online gambling. The National Risk Assessment identifes organized crime as the major provider of illegal gambling opportunities in Canada, though there are some smaller operations. The National Risk Assessment also notes that the illegal gambling market appears to be small in terms of the number of threat actors but is believed to be highly proftable for those involved. 48 43 Ibid. For additional commentary on the illicit fnancial fows generated by human trafcking see Exhibit 4 Overview Report: Financial Action Task Force Appendix KK FATF Report: Financial Flows from Human Trafcking (Paris: FATF 2018). 44 Exhibit 3 Appendix B 2015 National Risk Assessment p 23. 45 Ibid p 24. 46 Ibid. 47 Exhibit 1017 Overview Report: Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud (2020) Appendix A Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud 2020 (Ottawa: 2020) p 18. 48 Exhibit 3 Appendix B 2015 National Risk Assessment p 24. Commission of Inquiry into Money Laundering in British Columbia – Final Report 82 Organized crime groups involved in illegal gambling conduct these activities in a sophisticated manner. They are believed to have the capability to use a variety of sectors and methods to launder the proceeds of that activity. Payment-Card Fraud The National Risk Assessment notes that credit-card fraud increased signifcantly from 2010 to 2015, while debit-card fraud decreased over that period. Like many other proft- oriented criminal activities, organized crime groups are heavily involved in payment-card fraud, which includes card thefs, fraudulent applications, fake deposits, skimming, and card-not-present fraud. 49 These groups are sophisticated and have specialized technical knowledge that allows them to carry out this type of fraud. They also exhibit very high levels of sophistication and capability in laundering the proceeds of this activity. A 2020 report from the Criminal Intelligence Service Canada indicates that fnancial institutions reimbursed approximately $862 million to Canadian credit-card customers in 2018. However, it is unclear how much of that total is attributable to organized criminal activity, as opposed to opportunistic use of credit cards by criminally inclined individuals. 50 Pollution Crime Pollution crime is generally understood as unlawful activity that directly harms the environment. Examples of such activity include the improper disposal of hazardous materials and the importation of counterfeit products that do not meet Canada’s environmental standards (e.g., vehicle engines). 51 The National Risk Assessment raises a particular concern about organized crime groups infltrating the waste-management sector as a tool to generate illicit profts and launder proceeds from other types of proft-oriented criminal activity. 52 Robbery and Theft While small-scale thefs and robberies carried out by opportunistic criminals and petty thieves do not raise any signifcant money laundering concerns, it is important to recognize that organized crime groups are heavily involved in large-scale motor 49 The 2015 National Risk Assessment defnes card-not-present fraud as “the unauthorized use of a credit (or debit) card number the security code printed on the card (if required by the merchant) and the cardholder’s address details to purchase products or services in a non–face-to-face setting (e.g. online telephone). ” It identifes card-not-present fraud as the most signifcant type of credit-card fraud in Cana - da followed by credit-card counterfeiting. 50 Exhibit 1017 Overview Report: Criminal Intelligence Service of Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud (2020) Appendix A Criminal Intelligence Service Canada National Criminal Intelligence Estimate on the Canadian Criminal Marketplace: Money Laundering and Fraud 2020 (Ottawa: 2020) p 22. 51 Exhibit 3 Appendix B 2015 National Risk Assessment p 25. 52 Ibid p 25. Part I: Introduction • Chapter 2 | What Is Money Laundering? 83 vehicle, heavy equipment, and cargo thef. The most sophisticated and capable threat actors in this area have well-established auto thef networks that are used to supply foreign markets with stolen Canadian vehicles. The National Risk Assessment indicates that these organized crime groups are believed to use a range of trade-based fraud and money laundering techniques to disguise the illicit origin of the automobiles and to move the illicit proceeds back into Canada. 53 Firearms Smuggling and Traffcking Firearms smuggling and trafcking has been assessed as having a medium money laundering risk in Canada. The National Risk Assessment states that very few organized crime groups are involved in the trafcking or smuggling of frearms in this country for the purpose of generating illicit profts. Instead, these groups use frearms to strengthen their position within other criminal markets (such as the illicit drugs market). 54 Extortion The National Risk Assessment indicates that organized crime groups ofen use extortion in furtherance of other crimes such as drug trafcking, illegal gaming, and human trafcking. For example, there is evidence of extortion being used as a tool to obtain money and property, control the distribution of illicit drugs, force the payment of illegal gambling debts, and gain access to ports of entries. It also states that the organized crime groups operating in this space vary in their level of sophistication and capability. 55 Loan Sharking The National Risk Assessment indicates that loan-sharking activity appears to be undertaken by a small number of sophisticated organized crime groups, as well as a small number of independent operators who have a relatively high level of sophistication and capability when it comes to laundering the illicit funds generated by this activity. 56 Importantly, loan sharking has also been used as a way of laundering illicit funds generated by organized crime groups involved in other types of proft-oriented crime. These groups will provide the illicit cash generated by that activity to a loan shark, who will use it to make a loan to the borrower. In many cases, the loan will be secured through a lien registered against property. When the borrower repays the loan, the loan shark will receive “clean” funds in exchange for the illicit cash. 53 Ibid. 54 Ibid p 25. 55 Ibid p 26. 56 Ibid. Commission of Inquiry into Money Laundering in British Columbia – Final Report 84 Tax Evasion Tax evasion is carried out in many diferent forms in Canada. The ultimate objective of these schemes is to avoid the payment of taxes owing (or to unlawfully claim refunds or tax credits). The National Risk Assessment indicates that tax evasion generally involves ordinary individuals using tax-evasion techniques of low sophistication. The ensuing money laundering activity is also believed to be relatively unsophisticated. However, it is important to note that some tax-evasion schemes – particularly those involving shell companies and ofshore fnancial havens – can have a high level of sophistication and involve signifcant sums of money. 57 Wildlife Crime Although wildlife crime was assessed as having a low money laundering risk, an illicit market exists for certain types of Canadian species, including narwhal tusks, polar bear hides, peregrine falcon eggs, and wild ginseng. Black-market prices for these species are high and have risen signifcantly in recent years. The National Risk Assessment indicates that wildlife crime is largely conducted by opportunistic, criminally inclined individuals who, from a money laundering perspective, exhibit low levels of sophistication. 58 The Three Phases of Money Laundering Under the traditional conception of money laundering, there are three distinct phases in the money laundering process: (a) placement, where illicit funds are placed into the legitimate economy, usually by way of a deposit in a fnancial institution; (b) layering, where the criminal enterprise carries out various transactions to hide the true source and ownership of illegally acquired funds and obscure any paper trail that may lead back to the original ofence; and (c) integration, where the illicit funds are fully integrated into the fnancial system and put back into the hands of the ofender. Professor Schneider testifed that these phases should be viewed more as individual functions within the money laundering process as opposed to a sequential series of steps undertaken every time someone seeks to launder illicit funds: I think the important point is not to necessarily look at this through a linear process, or even as phases, but [to] look at these as each individual function within the laundering process that satisfes the objective. Again, with the key objective of obviously getting the proceeds of crime back into the hands of the ofender, repatriate it back to the ofender. 59 57 Ibid. 58 Ibid. 59 Transcript May 25 2020 pp 39–40. See also pp 40–41 43 (“[T]here’s a misconception that these phases operate in a sort of unilateral sequential manner and they don’t always do so so in some cases I think they’re better referred to as functioning phases”). Part I: Introduction • Chapter 2 | What Is Money Laundering? 85 At present, there is an active debate among experts and academics as to the descriptive accuracy and utility of the three-stage model. In what follows, I review the traditional three-stage model and then comment on some of its shortcomings. Placement Placement refers to the process by which illicit funds generated by other forms of criminality are introduced (or “placed”) into the fnancial system. Professor Schneider describes placement as the most difcult stage for those involved in money laundering activity. He testifed that most of the anti–money laundering regulations that have been put in place – such as the requirement that fnancial institutions report cash deposits exceeding $10,000 – revolve around the placement stage and that this stage is where ofenders are most vulnerable. 60 He also observed that one of the reasons that commercial crime such as capital markets fraud and mass-marketing fraud is given such a high threat rating is that the illicit funds generated by that type of activity are already in the fnancial system: [O]bviously, the cash transaction reporting requirements of the legislation revolve around cash placement. So, in this case, what you have is many of these [commercial] ofences don’t produce cash, they produce – if it’s mass marketing fraud, you’re basically asking your victim to send in a cheque or to wire transfer or to do an account transfer or an Interac transfer. And so that’s why [commercial ofences] are rated such a high threat, because the proceeds of crime are in a non-cash form, and in some cases they’re in an electronic form. … And that makes it … easier to integrate the proceeds of crime and launder it, and it makes it more difcult to detect the proceeds of crime … [I]f you don’t have the cash to start with, that makes the laundering just so much easier and more efcient. 61 One of the most common placement techniques is for the ofender to deposit the cash at a fnancial institution. In order to avoid the mandatory reporting requirement for cash deposits in excess of $10,000, ofenders will ofen make a series of smaller deposits under the $10,000 threshold (a technique known as “structuring”) or engage a number of other individuals to make cash deposits on their behalf (a technique known as “ smurfng”). 62 Establishing a commercial bank account and depositing the criminal proceeds in the name of the company is another placement technique that allows the ofender 60 Transcript May 25 2020 p 49. Canadian anti–money laundering regulations such as the requirement that fnancial institutions report cash deposits exceeding $10 000 are reviewed in detail in Chapter 7. 61 Ibid. See also pp 50–51. 62 The term “smurf” is derived from popular culture and connotes the image of a large group of small blue humanoid creatures working together to achieve a larger goal. Commission of Inquiry into Money Laundering in British Columbia – Final Report 86 to legitimize (or “justify”) the illicit funds by claiming the proceeds of crime as legitimate revenue earned by the business. 63 In some cases, the illicit funds are commingled with legitimate revenue (such as revenue from restaurants, bars, supermarkets, and/or gas stations). 64 In other cases, the funds are solely the product of criminal activity. Outside of fnancial institutions, a variety of techniques are used by ofenders to introduce cash proceeds into the legitimate fnancial system. These techniques include the purchase of real estate and luxury goods with the cash proceeds of criminal activity, and the use of money services businesses to convert cash proceeds to larger denominations (or other currencies) and send those proceeds to other individuals. Without proper safeguards, casinos can also be used as a portal to introduce illicit proceeds into the fnancial system through the purchase of casino chips. While federal legislation requires certain transactions to be reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), there are a variety of ways to circumvent those reporting requirements. Moreover, some sectors, such as the luxury vehicle sector, have no reporting obligations, and ofenders can make large cash purchases with very little scrutiny. The vehicles can then be sold or exported to other countries, allowing the purchaser to realize a signifcant proft. I provide a more detailed description of these techniques – along with some specifc case studies – in subsequent chapters of this Report. Layering Once illicit funds are placed in the legitimate fnancial system, the ofender will ofen carry out various transactions to hide the true source and ownership of the illicit funds and obscure any paper trail that may lead back to the original ofence. Professor Schneider describes this phase of the money laundering process as an attempt to “distance” the illicit proceeds from their criminal source. 65 While there are many ways to achieve that objective, the most common involve nominee ownership, shell companies, and the use of ofshore fnancial havens. 66 Nominee Ownership Nominee ownership refers to the practice of putting an asset – whether it is land, a luxury vehicle, or even a bank account – in the name of someone else (sometimes 63 Evidence of S. Schneider Transcript May 25 2020 p 84. 64 Exhibit 6 S. Schneider Money Laundering in British Columbia: A Review of the Literature pp 92–94. Pro - fessor Schneider states that these types of businesses are particularly attractive to money launderers because they process a high volume of cash transactions. 65 Exhibit 6 S. Schneider Money Laundering in British Columbia: A Review of the Literature p 39. See also Evidence of S. Schneider Transcript May 25 2020 p 37. 66 Exhibit 6 S. Schneider Money Laundering in British Columbia: A Review of the Literature p 39. Of course there are many other methods of achieving this objective. Part I: Introduction • Chapter 2 | What Is Money Laundering? 87 referred to as the “nominee”) to hold on behalf of the true owner (sometimes referred to as the “benefcial” owner). 67 The nominee is ofen a family member or a friend with no criminal record, making it difcult for law enforcement to trace the asset back to any criminal activity. 68 While legal professionals use nominee ownership for a number of legitimate and important purposes, it is also a very efective way to put distance between the ofender and the proceeds generated by criminal activity. Shell Companies Shell companies are at the centre of most sophisticated money laundering operations and provide virtually unlimited opportunities for ofenders to launder illicit funds. While there is no legal defnition of a shell company, they are generally understood to be companies that exist only on paper and do not have active operations. There are legitimate ways that shell companies are used. However, they are also employed for illegitimate purposes such as money laundering or fraud. In some cases, shell companies are incorporated and registered by the ofenders themselves. In other cases, they are purchased from a company formation agent complete with a corporate bank account. These companies are sometimes referred to as shelf companies because they are purchased “of the shelf” from another party. 69 Ownership of these companies is ofen obscured through the use of nominee directors and shareholders, making it difcult, if not impossible, for authorities to determine who owns and controls them. Moreover, it is common for ofenders to create (or purchase) multiple shell companies in various jurisdictions and have them loan or otherwise transfer money to one another in order to further obscure the true ownership and origins of illicit funds. 70 Jason Sharman, a professor of international relations at King’s College, Cambridge, explains the vulnerability associated with shell companies in the following terms: Shell companies create vulnerability because … an expendable legal person can set up in dozens of jurisdictions online very quickly for perhaps a few hundred dollars and, as a legal person … it can be the owner of the property, it can hold a bank account, and it can act as the screen or a veil to separate and conceal the underlying real owner, the benefcial owner. 67 In legal terms legal title to the asset is registered in the name of the nominee and held in trust for the benefcial owner of the asset. 68 Exhibit 6 S. Schneider Money Laundering in British Columbia: A Review of the Literature p 40. 69 Evidence of S. Lord Transcript May 28 2020 p 33. 70 Evidence of S. Schneider Transcript May 25 2020 pp 73–74. Commission of Inquiry into Money Laundering in British Columbia – Final Report 88 Again, this means that suspicious transactions are less likely to be fagged as such and secondly, it means that investigations can stop dead. If you fnd out that company A, B, C is involved and then you can’t fnd who actually owns company A, B, C, then that’s that in terms of the investigation most ofen. 71 While these companies are ofen incorporated in ofshore jurisdictions such as the Cayman Islands, it is important to note that these countries are merely “transit” points for the illicit funds. What is really happening is that the money is moving from China to Vancouver or from Russia to London or from Equatorial Guinea to Paris with a complex series of transactions in the middle. 72 It is also important to note that Western countries such as Canada, New Zealand, and the United States can provide similar functions to the classic ofshore fnancial centres. 73 Offshore Financial Havens Ofshore fnancial havens such as the Cayman Islands, Panama, and St. Kitts provide fertile ground for money laundering. Such countries are attractive because of their strict secrecy laws, relaxed money laundering regulations, and the array of facilities and services ofered to foreign investors reluctant to disclose their identity. Once illicit funds are transferred to a shell company in one of these jurisdictions, or cash is smuggled into one of these jurisdictions and deposited in a numbered account, it is infnitely more difcult to trace the criminal funds back to the ofender. Oliver Bullough, an investigative journalist and the author of Moneyland: The Inside Story of the Crooks and Kleptocrats Who Rule the World, 74 coined the term “Moneyland” to refer to the labyrinth of countries, companies, and transfer mechanisms used to obscure the ownership and origins of illicit funds. His point, as I understand it, is that these transfer mechanisms are constructs created by legal professionals to hide the movement of money so that it no longer resides in any geographic location that we would recognize as a country: If you put your money in Moneyland, it drops of the map. It no longer is registered as existing anywhere that we would recognize as a country. So you have this hole in the global balance sheet … The assets and liabilities of the world don’t match. It’s as if Mars was a major investor in the world, which obviously it isn’t … [I]n order to make the list of countries add up so that the assets and liabilities add up, I decided to add another country to the list, and that’s the country I called Moneyland. 75 71 Transcript May 6 2021 p 30. 72 Evidence of O. Bullough Transcript June 1 2020 p 33. 73 Exhibit 959 Jason Sharman Report to the Cullen Commission Money Laundering and Foreign Corruption Proceeds in British Columbia: A Comparative International Policy Assessment pp 14–18. 74 New Y ork: St. Martin’s Press 2019. 75 Transcript June 1 2020 p 20. Part I: Introduction • Chapter 2 | What Is Money Laundering? 89 Mr. Bullough also described the manner in which ofenders, with the help of their legal and professional advisors, can bounce the money through six or seven jurisdictions in one afernoon, making it “astonishingly difcult” to fnd. 76 He states: If you … bounce the money through multiple bank accounts in multiple jurisdictions, each of them owned by a diferent corporate structure or registered again in diferent jurisdictions … you confuse the picture so hugely that it becomes very, very hard to follow what’s going on, particularly if you don’t move the money around in a lump sum that’s always the same size. You know, if you have a lawyer’s escrow account and you send the money in in a million dollars, and then bring it out in 33 packages of $33,000, then it becomes much harder to trace what’s really going on. 77 I return to the manner in which illicit funds are transferred between diferent companies and corporate structures in subsequent chapters of this Report. Integration While commonly described as the third “phase” of the money laundering process, the integration of the illicit funds into the legitimate economy is better viewed as the end goal rather than a distinct stage in that process. Moreover, it is important to reiterate that one of the goals of money laundering is to create a veneer of legitimacy and that many of the transactions carried out as part of the money laundering process are undertaken with that in mind. Examples include • depositing cash into a bank account under the guise of revenue from a legitimate business; • making a cash deposit to “hold” a luxury vehicle, with the funds being returned, by cheque, when the prospective purchaser changes his or her mind; • loan-back schemes, where nominees or shell companies “loan” illicit funds back to the ofender under the guise of a loan agreement; and • selling property fnanced with the proceeds of crime to a legitimate buyer pursuant to a contract of purchase and sale. It is also important to recognize that the illicit funds are not always returned to the jurisdiction where the predicate ofence occurred. For example, • illicit funds generated from criminal activity in British Columbia can be smuggled to countries such as Mexico, where high-ranking cartel members reside; • illicit funds generated from criminal activity in British Columbia can be used to purchase illicit products, such as drug precursors, in other countries; 76 Ibid pp 9 10. 77 Ibid p 56. Commission of Inquiry into Money Laundering in British Columbia – Final Report 90 • illicit funds generated from criminal activity in foreign countries can “transit” through British Columbia; 78 • illicit funds generated from criminal activity in other countries can pass through the bank account of a shell company based in British Columbia (or whose directors and/ or shareholders are based in British Columbia); 79 and • illicit funds generated from criminal activity in other countries can make their way to British Columbia and be used to purchase property and other assets. 80 These possibilities illustrate the complexity of the problem and highlight the need for a co-operative approach among provincial, federal, and international agencies. Criticisms of the Three-Stage Model While the three-stage model (placement, layering, and integration) continues to be cited in academic literature and training materials, it was developed more than 30 years ago, when anti–money laundering eforts were focused on the cash proceeds of drug trafcking activity and may no longer be a useful or informative way of thinking about money laundering. Simon Lord, one of the world’s leading experts on money laundering, testifed that the three-stage model has become “truth by repetition, ” but it is not the typical money laundering structure. 81 He explained that the methods employed by ofenders may change from week to week depending on what they want to achieve: [T]he view I take – and this is what I always say when I’m beginning a lecture on money laundering – is essentially you have to look at the criminal decision-making process. So the frst element of that would be the criminal makes money from organized crime in some way – so he might sell a kilo of cocaine or heroin or sell some illicit cigarettes or commit a robbery or something like that. So once he’s actually got the money, the second thing he’s going to say to himself is: What do I want or what do I need to do with this money now I’ve made it? The third process is: Where do I need it to be in order to achieve that, and in what form? And the fourth point is: How am I going to get it there? And that is actually what [indiscernible] how money laundering works. You have to consider the criminal has got the money and wants to do something with it. And that is how … they’re going to think. And the important thing 78 For some of the reasons that Canada is attractive as a “transit” country for money laundering see Evi - dence of S. Schneider Transcript May 25 2020 p 54. 79 See Evidence of J. Sharman Transcript May 6 2021 pp 94–95 and Exhibit 959 J. Sharman Money Laun- dering and Foreign Corruption Proceeds in British Columbia: A Comparative International Policy Assessment p 18. 80 See for example Exhibit 6 S. Schneider Money Laundering in British Columbia: A Review of the Literature p 23. 81 Transcript May 28 2020 p 10. Part I: Introduction • Chapter 2 | What Is Money Laundering? 91 that follows on from that is that … the funds arising from [diferent types of criminality] are not always going to be laundered in the same way. So as an example, you could be in the situation where a criminal sells a kilo of cocaine this week, and because he’s bought it on credit he needs to pay his supplier. Now, in the UK, there’s a good chance his supplier might be in somewhere like the Netherlands or overseas. In which case the criminal would probably want the money in euros, because that’s the currency of the country where it needs to go, and so he might need – and he might elect to do something like hide it in the car and drive it out of the UK to the Continent. The following week, he might sell another kilo of cocaine. He’s paid of his supplier, and so this time he decides he wants to buy a car with it. So somehow he’s got to get that money into the fnancial system in such a way as to make the person who’s selling him the car believe that it’s legitimate. And so the predicate ofence is the same two weeks running but the money has been laundered in two totally diferent ways. And I think it’s really important to understand that because I think there is a general perception amongst some areas of society that drug trafcking – money laundering always happens in this particular way … whereas in fact it’s entirely down to what the criminal wants to do with it. [Emphasis added.] 82 Likewise, Professor Michael Levi, an expert in money laundering and transnational crime, argues that the three-stage model may have been appropriate at the early stages of the anti–money laundering movement, but must be reconfgured to account for the diversity of sources, transfer mechanisms, and destinations of proceeds of crime. He writes: The placement / layering / integration model was developed at a time (1988–89) when drugs trafcking was the principal predicate ofence in law and in practice, following the Vienna Convention and the creation of [the Financial Action Task Force]. Indeed, my discussions with those present at the Sommet de l’ Arche make it clear that the model was frmly urged on the nascent FATF at its travaux préparatoires. In that era and place, models of Italian-American and rival syndicated crime groups were prominent, and it was generally accepted that this avenue from organised crime to social and political respectability constituted what the sociologist Daniel Bell (1953) termed “the queer ladder of social mobility. ” So the focus of the typology was appropriate at the time. However we are now almost a quarter of a century on, and reconfguring the process is also appropriate, in the light of our more developed understanding and the arrival of new technologies. Whether this means substituting it for one other “one size fts all” typology is more questionable, however. Rather 82 Ibid pp 11–13. Commission of Inquiry into Money Laundering in British Columbia – Final Report 92 we need to stop using the placement-layering-integration process as a comfort blanket and think about the diversity of sources, transfer mechanisms and destinations of proceeds of crime (and, in the case of terrorism and WMD [weapons of mass destruction], preceeds [preceding events] of crime). 83 While the debate about the descriptive accuracy of the three-stage model may seem academic, the use of a fawed model can have signifcant implications for the ability of law enforcement, regulators, and other stakeholders to recognize and identify money laundering activity. In Money Laundering: A Concise Guide for All Business, Doug Hopton describes the implications of using a fawed model as follows: [The] three-stage model, while a convenient way of describing the activity, is a little simplistic and does not fully refect what really happens. It relates back to the common historical defnition of money laundering discussed earlier. While they are examples of money laundering, they do not defne what money laundering actually is. This has led to those with the duty of recognising money laundering having insufcient knowledge to be able to identify it in all its guises. Too ofen we have looked at money laundering from the aspect of what we expect it to look like, rather than by reference to what it actually is. Numerous cases have come to light where employees have failed to identify relationships in which property has been laundered, simply because what happened did not match with what they had been taught to expect such activity to look like. So while the traditional model is useful, it does not adequately cover all situations in which money laundering occurs. [Emphasis added.] 84 I agree with these commentators that the time has come to move away from the three-stage model. While useful in the early stages of the anti–money laundering movement, the three-stage model provides little insight into the methods actually used by ofenders to launder illicit funds and has arguably stood in the way of developing better ways of responding to the money laundering threat. 85 For example, the three- stage model fails to fully account for money laundering techniques such as informal value transfer and trade-based money laundering, which many experts view as the largest and most pervasive methodologies in the world (see below). 86 It is also a poor ft for economic crimes – such as capital markets fraud – where the illicit proceeds are transferred electronically and do not need to be “placed” into the fnancial system. Indeed, it is common for fraudsters who have received electronic funds transfers from their victims to make cash withdrawals in order to break the audit trail. 83 Exhibit 23 M. Levi Money-Laundering Typologies: A Review of their Fitness for Purpose pp 34–35. 84 Ibid pp 11–12 citing D. Hopton Money Laundering: A Concise Guide for All Business 2nd ed (Aldershot UK: Gower 2009) pp 2–3. See also Evidence of M. Levi Transcript June 5 2020 pp 27 28. 85 Exhibit 23 M. Levi Money-Laundering Typologies: A Review of their Fitness for Purpose p 14. 86 See Evidence of S. Schneider Transcript May 25 2020 p 42; Evidence of J. Cassara Transcript De - cember 9 2020 pp 43–47; and Exhibit 341 Statement to the Cullen Commission of Inquiry into Money Laundering in British Columbia by John A. Cassara p 18. Part I: Introduction • Chapter 2 | What Is Money Laundering? 93 Another way of conceptualizing the money laundering process is to think of it as a chain of transactions (and other forms of money movement) which aim to move the funds acquired through proft-oriented crime to a setting in which criminals can use it freely. In an expert report prepared for the Commission by Christian Leuprecht, Jef Simser, Arthur Cockfeld, and Garry Clement (the Leuprecht Report), the authors describe the money laundering process as follows: Money laundering requires moving value acquired as the result of a crime (the “predicate offence”) to a setting in which the criminals can use it freely; in other words, money laundering tries to break the connection between the crime and the use of the value it produced. Using a chain (or better still a network) of movements makes it more difficult to find and demonstrate the connection. There is a fundamental asymmetry between criminals and law enforcement because adding more complexity to the chain is relatively easy for criminals but disproportionately increases the effort to follow the chain for law enforcement. Each link in the chain is detectable in principle because the movement of value creates data that can be captured and analysed using data-analytic techniques. However, there are several kinds of links that do not leave a trace, and so break the chain required to prosecute the offence of money laundering. 87 While these movements can include the physical movement of cash or the transfer of illicit funds through the fnancial system, ofenders can use a wide range of other methods to break the connection between the predicate ofence and the illicit funds it produces. In subsequent chapters of this Report, I move away from the three-stage model and undertake a more detailed examination of the mechanisms used to launder illicit funds. I also make a number of recommendations aimed at giving law enforcement agencies, regulators, and the private sector the information they need to recognize money laundering activity in all its various forms. The Underground Economy While a signifcant portion of this Report is devoted to the six economic sectors identifed in my Terms of Reference, it is important to recognize that a great deal of money laundering activity occurs in the informal or “underground” economy. What distinguishes this form of money laundering is that much of it occurs outside the regulated fnancial system and may not be caught by the countermeasures put in place by countries that have adopted the Financial Action Task Force model (such as the 87 Exhibit 828 Collaborative Report Detect, Disrupt and Deter: Domestic and Global Financial Crime – A Road- map for British Columbia (March 2021) p 6. Commission of Inquiry into Money Laundering in British Columbia – Final Report 94 requirement that private-sector entities report suspicious transactions to a central fnancial intelligence unit). 88 John Cassara, a former US law enforcement ofcial and an expert on trade- based money laundering, testifed that these forms of money laundering are still not recognized as signifcant threats even though they are among the largest and most pervasive methodologies in the world. 89 In what follows, I provide an overview of three such techniques: bulk cash smuggling, informal value transfer, and trade-based money laundering. Bulk Cash Smuggling Bulk cash smuggling is one of the oldest and most basic forms of money laundering. However, it remains a signifcant problem. Some estimates suggest that the total amount of illicit cash smuggled across international borders each year could be in the order of hundreds of billions of dollars. 90 Professor Schneider testifed that bulk cash smuggling is favoured by many organized crime groups that use shipping containers, human “mules, ” and a variety of other methods to smuggle cash across international borders. Once the funds have been moved, they can be used for various purposes, including the payment of employees and suppliers, the purchase of weapons, and the payment of protection money and bribes. The movement of funds across international borders allows the ofender to distance illicit funds from the predicate ofence and break the audit trail, making it extraordinarily difcult for law enforcement to investigate and prosecute money laundering ofences: One of the primary drivers for laundering money derived from criminal activity is to conceal its illegitimate origins, and one of the simplest methods of doing this is to remove it from the jurisdiction in which the predicate ofence was committed … The movement of funds in the form of cash from one country to another fulfls numerous requirements for a criminal. Primarily, it makes 88 Note however that it is something of a misnomer to say that these activities take place in the “un - derground” economy . In many cases they occur in plain sight. Moreover it cannot be said that such activity occurs outside the regulated fnancial system entirely . At some point the illicit cash generated by proft-oriented criminal activity will re-enter the legitimate economy . However that may occur in another jurisdiction or by co-opting individuals with no connection to the underlying criminal activity . 89 Transcript December 9 2020 pp 43–47. See also Evidence of J. Sharman May 6 2021 p 24; and Exhibit 1020 Overview Report: Information Relating to the FATF & Egmont Group Trade-Based Money Laundering Report Appendix A FATF & Egmont Group Report on Trade-Based Money Laundering: Trends and Developments (December 2020) p 4. For a contrary view see Evidence of R. Wainwright Transcript June 15 2020 p 21 (“[T]he regulated fnancial sector remains the primary means by which criminal funds are laundered”). 90 Exhibit 4 Overview Report: Financial Action Task Force Appendix LL FATF Report: Money Laundering Through the Physical Transportation of Cash (Paris: FATF 2015) p 3. For the proposition that bulk cash smug - gling remains a serious problem see also Evidence of J. Sharman Transcript May 6 2021 pp 15–16 (“[C]ash is probably still one of the most important mechanisms for laundering the proceeds of crime”). Part I: Introduction • Chapter 2 | What Is Money Laundering? 95 the tracing of the proceeds of a crime very difcult for the authorities. Police investigating a crime may never be able to identify the money generated from it if they have been unable to identify any evidence leading them to believe that the cash has been smuggled out of their jurisdiction. Even if the cash is detected in the destination country at some stage of the process, the legal and practical implications of information and intelligence exchange and evidence gathering between the countries of origin and destination can frustrate law enforcement eforts to prosecute ofenders and seize the cash. 91 Ofenders can also move illicit funds to jurisdictions with less diligent regulatory oversight, making it easier for the ofender to place those funds into the legitimate fnancial system for use at a later date. I return to this topic in Chapter 36. Informal Value Transfer Systems Informal value transfer systems (sometimes referred to as “underground banks”) are another mechanism used by ofenders to launder illicit funds. 92 In basic terms, these systems allow people to move value from one location to another without transferring funds through the regulated fnancial system. While each system is slightly diferent, the operators of these systems typically have “pools” of cash available to them in diferent locations, usually in diferent countries. When clients need to transfer funds from one location to another, the money will be paid into the cash pool in the frst location and paid out of the cash pool in the jurisdiction where they need the money. The money paid into the frst pool will be held in that location until another client needs to transfer funds into that jurisdiction. Over time, the operator may need to reconcile the cash pools to keep them in balance. However, there is no transfer of funds on an individual basis. Mr. Lord described the operation of informal value transfer systems as follows: Essentially, it’s money transmission at its most basic. Quite a lot of the time these types of systems are tied to specifc geographic regions, ethnic communities and what have you, and essentially what they do is they arrange for transfer and receipt of funds or equivalent value without the physical need to transfer the funds themselves. So you’re transferring value but not necessarily the funds. So there won’t be a straight line remittance from point A to point B through the banking system … [S]omeone will make a deposit of funds in one location and will receive an equivalent value in another location, less fees and commission, but 91 Exhibit 4 Overview Report: Financial Action Task Force Appendix LL FATF Report: Money Laundering Through the Physical Transportation of Cash (Paris: FATF 2015) p 37. 92 Note however that these systems are also used for legitimate purposes in countries where the fnancial system has collapsed or is otherwise unreliable: see Evidence of S. Lord Transcript May 28 2020 pp 56 57 58. See also Evidence of J. Sharman Transcript May 6 2021 pp 21–23. Commission of Inquiry into Money Laundering in British Columbia – Final Report 96 without there actually being a physical connection between the two. And they generally involve a process which I generally refer to as cash pooling. So the people who are involved in these types of networks have available to them pools of funds in diferent locations, not always cash. Sometimes it’s money in bank accounts, sometimes it’s trade. But pools of funds in diferent locations, and you receive the payment into one of those pools and make a payment out of another one. And then over time there will be a settlement arrangement between the pools to keep them in balance. Because, obviously, if all the money went one way, you would end up with lots of money in one place and not in another, and you would have to have some sort of settlement mechanism in place. So settlement can take place through trade, through cash, through net settlements over a long period of time, quite ofen through the banking system. They’re ofen informal in so far as this type of stuf ofen happens outside of the formal fnancial system, but by no means all the time. They ofen interact with fnancial systems as well. 93 Over the past 10 to 15 years, informal value transfer has been used to launder substantial sums of money through the British Columbia economy using a money laundering technique known as the Vancouver model. Under that model, organized crime groups operating in the province deposit the cash proceeds of their illegal activity with the operator of an informal value transfer system in the Lower Mainland and receive an equivalent value (less the commission earned by the operator) in countries such as Mexico and Colombia. The cash received by the operator is then repurposed and provided to wealthy Chinese nationals who are unable to move their wealth to British Columbia because of the currency restrictions imposed by the Chinese government. Those individuals make payments to the operator of the informal value transfer system in China and receive the equivalent value in cash when they arrive in British Columbia. While a signifcant portion of that cash was used to make large cash buy-ins at Lower Mainland casinos, it is important to note that the cash can be used for any legitimate or illegitimate purpose, including the purchase of real estate and luxury goods. It is also important to note that the individuals seeking to move their wealth from China to British Columbia are not necessarily involved in criminal activity and may well have acquired that wealth through legitimate means. The problem, however, is that most, if not all, of the actual cash provided to those individuals in British Columbia is derived from proft-oriented criminal activity and is being paid out by the operator of the informal value transfer system in furtherance of a money laundering scheme. I return to informal value transfer systems in Chapter 37. 93 Transcript May 28 2020 pp 57–58. Part I: Introduction • Chapter 2 | What Is Money Laundering? 97 Trade-Based Money Laundering Trade-based money laundering is a related form of money laundering that involves the use of trade transactions to avoid the scrutiny of more direct forms of transfer and to move illicit funds (or more accurately, value) from one location to another. It can also help to legitimize illicit funds by making them appear to be generated through a legitimate commercial transaction. Invoice fraud is one of the primary techniques used by ofenders to transfer illicit funds from one jurisdiction to another. Under this form of value transfer, a company in one country will ship goods to another country at signifcantly overvalued or undervalued prices. For example, an importer in British Columbia could transfer money overseas by overpaying for goods (real or fctitious) that it has “imported” from another country. The shipment of goods and the accompanying documentation provide cover for the transfer of money. Other techniques used to transfer value between jurisdictions include multiple invoicing, falsely describing goods and services, short-shipping, and phantom shipping. While there is general agreement that trade-based money laundering is a signifcant threat and one of the largest and most pervasive methodologies in the world, it is not well understood and has not – to date – been the subject of any meaningful enforcement action in Canada and many other countries. I return to this topic in Chapter 38. 98 Chapter 3 Who Is Involved in Money Laundering? In order to understand the nature and prevalence of money laundering activity in the province, it is useful to examine the individuals and groups typically involved in such activity. A 2015 risk assessment conducted by the federal Department of Finance (the National Risk Assessment) describes these groups as ranging from unsophisticated, criminally inclined individuals to criminalized professionals and transnational organized crime groups. 1 It also raises the spectre of professional money laundering organizations and networks that ofer money laundering services to individuals and groups involved in proft-oriented crime. 2 Each of these groups presents a diferent money laundering threat and poses diferent challenges for regulators and law enforcement agencies. Transnational Organized Crime Transnational organized crime has been described as one of the pre-eminent criminal threats to Canada and its global partners. 3 It is also a signifcant money laundering threat because of the volume of illicit proceeds generated by these groups and the “intensity” of their money laundering eforts, which almost always involve the use of professional money laundering networks to move illicit funds to various locations around the globe. 1 Exhibit 3 Overview Report: Documents Created by Canada Appendix B Canada Department of Finance Assessment of Inherent Risks of Money Laundering and Terrorist Financing in Canada, 2015 (Ottawa: 2015) [National Risk Assessment] p 18. 2 Ibid. 3 Exhibit 757 Transnational Organized Crime in “E” Division: RCMP “E” Division Federal Serious and Organized Crime Major Projects [Transnational Organized Crime] p 2.