Finance Committee on March 27th, 2018

[David Eby]

Thank you, Mr. Chair. I've changed to a later flight, so we're all right.

[The Chair, Liberal, Wayne Easter]

Okay, you're okay.

[David Eby]

Thank you.

[The Chair, Liberal, Wayne Easter]

All right.

We'll go to Mr. Albas, and then back to this side.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

Again, thank you, Minister, for your presence here.

We have heard that the CRA works with FINTRAC when cases are flagged. I hope, though, that there are ongoing investigations or, based on some of your comments today, that some of those files could be looked back on.

The frequent filers, so to speak, in large amounts could perhaps could be looked at by CRA to see whether tax evasion is happening.

You've said that phase two is to focus on real estate. Are you looking into the practice of builders' liens? I heard it is also the case that someone will buy a property—the builders will pay them for it—and then they'll fix it up, and that person will sell it as their principal residence so that there are no capital gains, and so on. However, what they'll do is put a builder's lien on it, because the house was originally bought with money that may be laundered. That's how they're able to get the money laundered; by actually using something like a builder's lien to do that. I really hope you look at that, because the touch points are all provincial.

Furthermore, we had an individual come in last week, as well as the Federation of Law Societies of Canada. I asked a question about a foreign subsidiary attempting to launder money in Canada from a foreign jurisdiction. They will come into an agreement with a host company with a backdoor agreement. They'll break an agreement, sue one another, and then the proceeds will then be cashed out.

Many foreign countries will have capital controls that will allow money to flow only if there is a court order.

Have you heard of any of this kind of activity? So far, one of the representatives of the law societies said it's theoretical, but have you heard of this technique, and do you think it needs to be looked at?

[David Eby]

There were two separate sets of allegations about the connection between the activity in our casinos and real estate.

On March 5, 2018, Kathy Tomlinson of The Globe and Mail wrote about allegations that 17 lenders, allegedly with connections to crime, loaned $47 million in builders' liens and other loans against 45 properties. Postmedia's Sam Cooper, on September 30, 2017, made a series of allegations about a gentleman named Paul Jin and others who were allegedly involved in laundering money and transferring money in casinos. Mr. Jin was also allegedly heavily involved in real estate.

As the member said, some of these were builders' liens. Others appear to be just debt registered against the properties. As I say, these are good examples of us reading about this kind of thing in the newspaper. I've not heard about the specific situation that the member outlined, but certainly there is no end to the creativity of the schemes I have heard alleged.

The challenge for law enforcement on any of these files is, first of all, the complexity of determining the extent of the arrangement. I understand that the second piece is then proving that it's connected to an indexed offence that created the proceeds of crime in the first place. Those two factors are quite difficult for law enforcement, as I understand it. In the situation you described, it's incredibly difficult to—

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm glad all of these things are on your radar, Minister, because it is a problem the public wants tackled.

Again, we know that lawyers are not subject to FINTRAC. In the recommendations, you've raised that as being a concern. We heard from the law societies, They say that every province has a process for self-auditing and whatnot. The point was made, though, that in some cases, there was not enough data forthcoming from those law societies to point out that the job is being done at a FINTRAC level, or at least to that national standard.

That being said, we live in a federation. If a law society, let's say, in British Columbia was not forthcoming with data, would you look to put in place a framework that would secure that information to deal with this issue? I don't think that because of the Supreme Court decision a pan-Canadian approach is going to be applied. Perhaps that might be a way to deal with certain provinces where there is an issue of data.

What are your thoughts?

[David Eby]

Just for clarity on the record, the recommendation comes from Dr. German, about lawyers' trust accounts; and I look forward to reading his report about why he has identified this as an issue in British Columbia.

I have raised this issue with the Law Society of British Columbia. I've been advised that it is very engaged on this issue, and I'm sure it would be happy to provide information to the committee about the work it is doing on this point. It is something that is raised repeatedly internationally, as well as in the media in British Columbia, especially in relation to the situation where you have a company, with a lawyer as the sole director, that owns property. There's a lack of transparency around property ownership, for example. I think there is definitely opportunity for us to improve pieces around this. I look forward to working with our law society around that.

If this committee has any concerns about lawyers and their involvement or alleged involvement in any kind of unsavoury activity—lawyers do have an obligation not to be dupes of criminals and not to use their trust accounts for illegal purposes—I would be glad to have that information and raise it, in my role, as a bencher for the law society. I don't have that information yet, but I'd be glad to hear from the committee about any concerns that you have about it. I believe you'll find the law society of B.C. to be very forthcoming if you have concerns that you want to raise with it.

[The Chair, Liberal, Wayne Easter]

We'll have to end it there.

We did have some of the federal organizations for lawyers the other day. I believe they are quite engaged as well in trying to find an accommodation with this Supreme Court decision.

Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

Welcome, Minister. Thank you for coming from B.C.

This week The Hill Times has run a piece on money laundering, obviously piggybacking off our committee's work, and I commend it for doing that. It's entitled “Feds float idea of beneficial ownership registry as House Finance Committee reviews anti-money laundering law”. I was reading it over earlier this afternoon, and it states that “The RCMP estimated in 2009 that [approximately] $15-billion was being money laundered in Canada each year.” I don't know if that's an exact number, but it's a pretty big number, and it may speak to some of the things you've seen in B.C.

A white paper that was issued by the Department of Finance just prior to the beginning of our study recommended expanding the types of entities that must report to FINTRAC to include mortgage insurers; land registry and title insurance companies; non-federally regulated mortgage lenders; dealers in high-value goods, such as auction houses and jewellers; and unregulated financial companies.

Would you care to comment on that?

[David Eby]

Sure. I think there's a great value in expanding the number of reporting agencies, but the problem is, from my perspective, that we're not doing the basics. Anytime someone can walk a duffle bag full of $20 bills into a casino and there's no apparent enforcement response, then I think we have some work to do on the basics. The province has a responsibility there, and I accept that responsibility, and we will do work on that. I hope we have good partners in the federal government on that.

I would love for us to be tracking people buying super cars with cash—cars that cost $150,000 or are more valuable—to require disclosure for those who are walking cash into these car dealerships. I would also love to have comfort that if a report was filled out that said, “This is a really suspicious transaction. I hope somebody looks at it”, that this would happen as well. It's the two pieces: it's the reporting, plus enforcement.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

In your testimony you used the example of an individual working for FINTRAC in some warehouse and receiving a fax or something like that. It didn't seem to be very useful, or maybe it was missing some other measure, which is the enforcement.

On the beneficial ownership registry, in my view, it has become quite apparent that we need to do that as a government and as a society. I've always heard the stories that in B.C. and other jurisdictions somebody purchases a house for $10 million or $15 million and it's owned by some corporation, but no one knows who is behind the corporation. How important is it that we get that information?

[David Eby]

It is difficult for me to provide a national perspective for you. All I can really do is to provide the British Columbia perspective. Housing is the number one political issue in British Columbia. In the Lower Mainland, the issue is acutely connected to the fact that our real estate has been totally disconnected from what local wages can pay, and that nobody can convincingly answer the question of where the money is coming from. I think that, as a matter of public confidence in government, we need to be able to answer the question of where the money in our housing market is coming from. I think that's why you see me sitting here today, because the people in British Columbia have clearly connected the issue of money laundering to impacts on their day-to-day life. It's about the 15-year-old, in December, who was driving with his parents, who got hit by a stray bullet in Vancouver. It's about that gang crime. Money laundering is not a victimless crime. It's also connected to the fact that we have big problems in our real estate market. I think it's critically important that we have beneficial ownership disclosure.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Minister, I applaud your efforts. I urge you to continue. This is something we need to battle. For the residents of the Lower Mainland, there is a disconnect in the housing issue. There are individuals, I have come to the conclusion, who are moving money into the Lower Mainland that you don't know about. It's funny that you can buy a house in Ontario or wherever and you'll file your taxes every year, but if an individual who may not be a Canadian citizen, who may be just a permanent resident or who may just want to relocate here does that, no one will ask where he got that money. We don't know. He may have gotten it offshore or from another entity.

The reporting requirements must be strengthened. The enforcement mechanisms must be improved. I completely agree with you, and again I applaud your efforts.

[The Chair, Liberal, Wayne Easter]

Okay, thank you.

We'll go to two more questioners, and then we'll go to our next panel.

Mr. Albas is first, and then it's back to Ms. O'Connell.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you again, Mr. Minister, for being here.

There has been some discussion about mutual ownership, and I agree that there is a lot in the international community, going back to a meeting in the U.K., at which David Cameron, the Prime Minister at the time, made transparency in some of these things one of the most important things to go ahead, so I appreciate your point. There is a lot of international pressure to see all jurisdictions, including provinces, territories, and the federal government, up their game.

One of my first jobs was actually working at a law office, where I used BC OnLine, the old system. It is a tremendously helpful system for land title, and it works quite well.

Rather than looking at brand new registries—because right now people may not know that the federal government has a registry for all federally regulated incorporated companies, as does every province and territory—Minister, do you think there could be a way for us to look at including this information using existing registries, or do you think there must be a pan-Canadian one?

That may be a very difficult system to put in place. What are your thoughts about that?

[David Eby]

I'm not in any position to advise this committee on the best technical solution for requiring beneficial ownership disclosure, but, as someone from B.C., I can tell you that you don't need a new federal system. We're going to put that information in our provincial systems. From my perspective, what would be fastest for B.C. would be to have the feds say, “Here are the standards we are going to try to hit nationally around ensuring that beneficial ownership is disclosed. Can you make sure you have a registry in your province that discloses that information to the public?” That is something we can work with.

I agree with the challenges and the potential delay inherent in establishing a federal registry for provincial companies, or for provincial land title and so on. A federal registry for federal companies would be a good thing, but we can do it in B.C. with our existing systems.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Okay, that's utilizing existing systems, just adding greater accountability when it comes to funding this thing. Okay, I sincerely appreciate that.

You talked about luxury items, specifically cars. I would imagine boats might apply, or whatnot, but what threshold do you think would be a good number to say? You mentioned a $400,000 car. I don't think anyone in this room would say that is not a luxury vehicle, but what do you think should be the threshold? Ultimately FINTRAC has to have a number.

[David Eby]

The working definition for a supercar in British Columbia is $150,000 or more. There are a lot of pickup trucks, as I understand it, that can get up in the neighbourhood of $100,000 but are common working trucks in British Columbia, especially in rural areas.

Again, I'm getting a bit beyond my area of expertise, but what could work for British Columbia is the existing standard of $10,000 or more in cash. The question is, if a bunch of reports are generated as a result of that, does FINTRAC have the capacity to manage that, and is somebody actually looking at the reports once they are generated?

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I think most people would say $10,000 is quite low. Most people would probably think it's $50,000 or even $75,000 for a luxury car, specifically. We also have to bear in mind, at this committee, that the Income Tax Act gives a special capital cost allowance, or appreciation, to luxury cars. When you sell them, you can dispose of them and there's preferential treatment regarding depreciation. I think the point should be made that if someone launders a car and then gets a tax break, that might be odious to all of us here.

Minister, last, we've heard a number of comments—again going back to the Law Society—that there sometimes seems to be apprehension by authorities, and I mean both provincial police and RCMP, to pursue white collar crime or money laundering, because they're often complex cases.

Have you changed any of the criteria for the crown servants who ultimately make recommendations? In British Columbia, it's not the RCMP, as it is in other jurisdictions, that will see charges laid and then go to court. It's ultimately up to the crown. Have you encouraged the crown to deal with cases of mortgage fraud that have laundering components, or casino fraud charges, and that they should really penalize these cases and prosecute them to send a message? Have you done that?

[David Eby]

We have an independent crown in British Columbia, the criminal justice branch. I don't interfere in their daily prosecution decisions.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You set policy.

[David Eby]

Absolutely, we set policy and we also set resources. I'm in conversations with our crown to ensure that they have the resources—because some of these cases are, as you say, incredibly complex—and that they can dedicate crown time to assist police. We also ensure, as is appropriate, that police are doing the investigation in a way, within their separate spheres of authority, that they have access to crown resources when they need them. We also ensure that crown resources are available to assist with disclosure and obligations to defence counsel so that we don't run into a Jordan situation where—

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

You haven't resourced them, and you haven't changed the policy yet. Is that correct?

[The Chair, Liberal, Wayne Easter]

Dan, we have to end it there. This is the last question in this block.