B.C. gaming investigators repeatedly warned bosses of 'horrendous' money laundering

When former RCMP deputy commissioner Peter German brought down his Dirty Money report in June, he guessed the amount of suspicious cash laundered through B.C. casinos "exceeded $100 million" over approximately seven years.

Now, previously secret internal reports obtained by CBC News through a freedom of information request show the dollar figure is at least seven times higher: more than $700 million between 2010 and 2017.

And the co-author of the confidential reports — who was one of the province's top gaming investigators — believes the actual figure is $1 billion.

"I crunched the numbers and added them all up," said Joe Schalk, former senior director of investigations with the province's Gaming Policy Enforcement Branch (GPEB). "The numbers would have exceeded $1 billion for sure in suspicious currency transactions. It was a staggering amount of money."

Shortly after warning of a "massive escalation" of suspected dirty money flowing virtually unimpeded into B.C. casinos, Schalk and his boss were fired in late 2014.

'Horrendous amounts of unexplained cash'

The Gaming Policy Enforcement Branch Investigation Division reports were for the eyes of casino overseers in the province — including senior bureaucrats and the assistant deputy minister in charge of GPEB under the former B.C. Liberal government.

Schalk's October 2013 report was an urgent call to action. 

It warned none of the anti-money laundering measures introduced by the province in 2011 — including an attempt to move away from cash to electronic transfer of funds at casinos— had "slowed the dramatic and on-going increase in suspicious cash."

"The alarm continues to ring, even louder," stated the report, noting "horrendous amounts of unexplained cash …continues to flood" into B.C. casinos.

It predicted the total amount of suspicious cash transactions at B.C. casinos was "coming very close to $100 million a year."

B.C. Lottery Corp pushed to ease restrictions: Report

In the midst of these serious concerns, the 2013 report noted the B.C Lottery Corporation was pushing to ease restrictions on suspicious transactions, "requesting that casino cheques be issued to patrons that had entered with large amounts of currency, put their money at risk and then left the casino."

The GPEB investigators expressed their opposition, stating BCLC's request would pose a "huge risk."

As for the casinos themselves, the report urged they be required to refuse suspicious cash.

"[Casinos] simply follow the BCLC guideline of 'know your customer' ...  however never asks about or questions the origin of the money," even though patrons brought in "up to $500,000 in cash" — often in $20 bills, the currency of street drugs, according to the 2013 report.

The report authors, Schalk and Larry Vander Graaf, executive director of GPEB, called for regulations to force casinos to do their "due diligence."

But no such action was taken at that time by the B.C. Liberal government or the B.C. Lottery Corporation.

BCLC says it has no law enforcement or investigative powers, but took action to increase controls.

'Massive escalation' in 2014

A year later, the follow-up October 2014 report declared the money laundering crisis was even worse.

"The [new] numbers clearly show a massive escalation of suspicious currency entering casinos," stated Vander Graaf.

It estimated suspicious currency transactions would exceed $185 million in 2014-2015 alone.

"It is my and others unchallenged opinion that … casinos have an obligation to deter money laundering and not facilitate or be wilfully blind," wrote Vander Graaf.

He called for GPEB to be given enforcement powers, including the ability to impose penalties on non-compliant casinos. He called such powers "critical"  — but they weren't granted to the agency at the time. 

Vander Graaf could not be reached for comment, but Schalk blames the B.C. Lottery Corporation and the B.C. government for failing to act.

"It was demoralizing. It astounded us that nobody was doing anything and appeared not to want to do anything," said Schalk.

"At times, we were even told we should not be talking about money laundering."

Report authors fired

On Dec. 4, 2014 —  five weeks after the October 2014 report was submitted —  both Vander Graaf and Schalk were fired from their jobs.

"I think that was an answer to us ringing the bell for so long and they weren't going to listen anymore," said Schalk.

He believes BCLC bears most of the responsibility.

"I think [the reports] clearly indicate that in our opinion BCLC was wilfully blind to what was happening," said Schalk. "They were well, well, well aware of exactly the extent and the severity of the suspicious currency that was coming in."

'Claims are categorically false': B.C. Lottery Corporation

The B.C. Lottery Corporation denies the accusation.

"These claims are categorically false," said spokesperson Lara Gerrits. "BCLC and its employees recognize the risk that money laundering poses to casinos."

In an email to CBC News, Gerrits writes the lottery corporation repeatedly "took action" including flagging concerns to police and GPEB in numerous meetings.

The man who was the minister responsible for gaming when the GPEB reports were filed, said he's not sure he saw them — but takes issue with the claim he didn't act.

'Steps were taken': Ex-finance minister

"Could more have been done, should more have been done? I guess you can always do more," said former Finance Minister Mike de Jong.

"There is I think a tendency on some people's part to want to portray this as a problem that was ignored. It was not. And steps were taken."

In 2016, one year before the B.C. Liberals lost power, de Jong held a news conference to announce the creation of a joint illegal gaming investigation team.

The NDP announced it was cracking down on money laundering in B.C. casinos shortly after taking office in 2017.

Attorney General David Eby tightened gaming regulations following an interim report by Peter German, requiring gamblers with more than $10,000 cash to complete a "source of funds" declaration, and placed government regulators in large casinos.

The flow of suspicious currency dropped to $2.1 million in the first six months of 2018, according to the B.C. Lottery Corporation.

Even with the changes, Schalk said he's just glad his formerly confidential reports have now been released.

"For somebody to now say, 'look at these numbers, isn't it horrific?' I'd say … we should have looked at this a long time ago and been much more serious about stopping it.

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