Industry Reports

How Suspicious Transactions in British Columbia Casinos Turned into Canada’s Biggest Money Laundering Scandal

The term “money laundering” is often associated with popular offshore destinations such as Bermuda or Panama, but it turns out that countries, where regulations seem more stringent, may be just as vulnerable. Recently, it became clear that illicit money has been laundered through casinos in the Vancouver area for years. The scandal started when suspicious transactions were detected to and from British Columbia casinos but it soon spread to the local real estate sector and eventually turned into Canada’s biggest money laundering scandal – at least in the past few years.

Money laundering seems like a relatively simple process, although it can be extremely sophisticated in some cases. In it, the proceeds of any illegal activity are made to appear to have derived from a legitimate source. Often, this illegal activity is drug trafficking and drug sales as in the latest Canadian case, a recent journalists’ investigation shows. Most countries have passed legislation intended to combat financial crime, including money laundering, and it usually requires individuals who make large purchases to provide detailed information about their identity, employment, and all relevant sources of income.

Laws, however, usually target companies and international corporations that have the capacity to make larger transactions and thus, “launder” much more money within a shorter period of time. In addition to the proper legal frame, countries should also focus on the enforcement of legislation – how financial crime is investigated, transactions are monitored, and criminals punished. In the light of recent events, it is safe to say that Canada, in particular, may be much more vulnerable to money laundering and financial crime that everyone has ever imagined. That was not noticed until some irregular transactions to and from British Columbia casinos were spotted.

Lower Mainland Casinos and the Vancouver Model

Leading the battle against money laundering, British Columbia Attorney General David Eby announced that a 2017 report detailed suspicious cash flows to and from casinos in the Lower Mainland. This is a large area of British Columbia, the region surrounding and including Vancouver. This is also the area where the province’s largest casino, River Rock Casino, is located. In January, the Ministry of Attorney-General confirmed that unusual financial transactions had lead to an investigation against a River Rock Casino employee. The employee violated the directives of the B.C. Lottery Corp. and FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) regarding third-party cash buy-ins, according to the probe.

This was just one of the many strange allegations that linked the casino with Chinese organized crime rings, drug trafficking, and more. B.C. Attorney General Eby said that an older report that included information about money-laundering in River Rock casino was intentionally suppressed by the former Liberal government. But it was not released because liberals wanted the attractive revenue share of the casino worth millions of dollars, Eby claims. Last month, he appeared before the House of Commons’ Standing Committee on Finance where he spoke about the suspected money laundering operations in great detail. He revealed the findings of an investigation conducted by anti-money-laundering expert Dr. Peter German, a former senior RCMP officer.

In his testimony, David Eby said that the money laundering problem in British Columbia was so notorious that it was known among international intelligence groups as “the Vancouver model”. In this model, gamblers, usually from China, who do not have cash, take money from gangsters and deposit them into a casino – these are the proceeds of gang crime, often in amounts as high as hundreds of thousands of dollars. The gambler then transfers money from his Chinese bank account to a bank account under the control of the gang. The illicit cash he took from the gangsters is taken into the casino, a FINTRAC reporting form is completed, and the gambler is free to buy chips, gamble, and then, cash out.

According to Eby, this scheme allows the gang to launder illicit cash – thousands of dollars in 20 dollar bills. Gangsters move the money from Canada to China while keeping away from FINTRAC control. The most outrageous part of the Vancouver model is the fact that even a bag full of 20 dollar bills was not suspicious enough to start a police investigation. In one case, $1.2 million in 20 dollar bills was deposited into a casino, but the Canada Revenue Agency did not try to track the origin of the cash, nor did it try to investigate.

In a recent journalist investigation, Canadian television network Global News revealed more details about the so-called Vancouver model. It becomes clear that it is just one part of a transnational criminal activity originating from the Chinese province of Guangdong, home to factories for narcotics, including methamphetamine, and the chemical precursors for fentanyl. These chemicals are then trafficked to different places around the world, including Canada, and sold on the black market. The proceeds from the sales are laundered through casinos in Vancouver where VIP gamblers from China are buying chips and wagering. The cheques and cash from casinos are later sent to underground banks in Vancouver, which transfer the money to Hong Kong banks. The funds are then moved to offshore bank accounts which later return them to Vancouver banks and law firms and the cycle continues.

Colossal Regulatory Failure

Canada is widely considered as a lawful and just country where the rule of law prevails. It has a full set of rules and laws that ensure democracy, freedom and justice. But the presence of legislation is not the only necessary thing when talking about anti-money laundering measures. In many countries around the world, parliaments have passed plenty of laws and acts designed to counter financial crime. It is the lack of supervision and the weak or nonexistent methods of enforcement that make certain jurisdictions extremely vulnerable to these particular types of illegal activity.

It turns out, according to a 2013 report presented by the United States Government, that Canada represents a “jurisdiction of primary concern”. The report by the Bureau of International Narcotics and Law Enforcement Affairs (INL) lists the major money laundering countries, identifying them by two main factors – whether their financial institutions process transactions that involve proceeds from international narcotics trafficking and whether their security and anti-money laundering systems are vulnerable to such transfers. In fact, there are more than 20 vulnerability factors taken into account for this analysis.

In this report, Canada falls within the same category as jurisdictions such as Macau, Australia, Panama, the British Virgin Islands, and the Netherlands. Russia, China, the United States, as well as nearly half of all European Union counties are in this group, as well. Of course, the report does not say that these countries are flooded with “dirty money”. It does suggest, however, that the anti-money laundering measures taken there are not sufficient and that, unfortunately, their legal frameworks make them vulnerable to certain illegal practices.

Speaking before the Committee, Eby also pointed out that the regulatory failure was “colossal”, explaining that it is pointless to have an anti-money-laundering system that rigorously enforces compliance with reporting but does not have an enforcement arm. He referred to FINTRAC, the Financial Transactions and Reports Analysis Centre of Canada, which is the Canadian financial intelligence unit. What it does is simply to collect critically important information, i.e. the source of funds an individual or company has, and to store it. It rarely starts investigations and more importantly, it does not work with the police. The police, on the other hand, Eby says, does not have access to this information and does not have the funds and other resources to track and investigate suspicious transactions.

Real Estate, Luxury Cars and the Impact on Canada’s Economy

The biggest problem, however, is that this scheme is certainly not limited to British Columbia casinos. The Attorney General told the federal committee that he would ask German to conduct the second phase of his money-laundering investigation that will focus on the real estate sector. Some of the money laundered through Vancouver casinos are eventually used for purchasing luxury real estate in the area, according to the Global News investigation.

A series of media reports in the past few weeks suggested that there was a clear relation between shady transactions, crime proceeds and the skyrocketing housing market around Vancouver and in the Lower Mainland, in particular. The finance minister Carole James announced on April 18 that an independent review led by former civil servant Dan Perrin will look at the real estate regulators. The probe will focus on the responsibilities of the Real Estate Council of British Columbia and the Office of the Superintendent of Real Estate in order to strengthen the protection of consumers in this lucrative market.

Meanwhile, during his speech in Ottawa, B.C. Attorney General David Eby cited another review of Metro Vancouver’s real estate market that was conducted by Transparency International Canada. The non-governmental organization looked at the 100 most expensive properties and the land title registrations for them. It found out that it was impossible to determine the true owner of the nearly half of the properties. They were owned by a trust or a company, by a lawyer, a student or a housewife, Eby continues.

In German’s report, there are several recommendations that include further exploring of “high risk sectors”. Among these are the horse racing sector, the company service providers, and the auto dealers. Due to the high value of luxury cars and pleasure craft, these items are excellent for storing illegal cash and reintroducing it to the legitimate economy. It turns out that multiple sectors in British Columbia have been affected by money laundering activities. International crime gangs have been targeting Vancouver’s economy, flooding it with proceeds from drug sales and other criminal activity. According to Eby, this continued for many years and is probably happening right now. Whether authorities will be capable of breaking that cycle and clearing Canada’s reputation remains to be seen.