Weak regulations make Canada a money-launderer's playground, says report

Canada's weak financial laws and regulations have made the country a prime destination for money launderers and others who want to hide the proceeds of crime, says a report being released today by the C.D. Howe Institute.

"Organized crime, tax evaders and money launderers don't stand still. Their dirty money flows on a path of least resistance to the safest harbour," author Denis Meunier writes.

"Canada is widely seen as a destination choice for funnelling the proceeds of crime."

The report focuses on Canada's lax rules for registering corporations and trusts — particularly the loose requirements on identifying who really owns or benefits from those corporations and trusts, known as "beneficial ownership" information.

The report says that the country's federal system has created a patchwork which often allows someone looking to register a corporation to pick a provincial jurisdiction with the lowest bar on disclosure.

As a result, bad actors can effectively hide the identities of their real owners and funnel dirty money — often mixed with legitimate funds — into Canada's financial system.

"[W]ith professional know-how, complex structures can be created in Canada, or offshore, that will slow down or stop any intrepid investigator trying to connect the dirty money to the beneficial owner," Meunier writes.

Corporation rules weaker than for ordinary Canadians

Canada's rules for identifying the shadowy owners of shady corporations are much weaker than the rules imposed on ordinary citizens every day.

Applications for birth certificates, vehicle registrations, land registrations, personal bank accounts — even library cards — often require more identifying information than the rules governing corporations do, says the report.

Repeating criticisms previously levelled by groups such as Transparency International, Meunier notes that Canada's weak system places the onus on financial institutions — such as banks —  to provide ownership information, rather than on corporations themselves.

And Canada's regulations exempt real-estate brokers and others from identifying the owners of property, increasing the risk of money-laundering in hot housing markets such as Toronto and Vancouver.

The report calls for the creation of a central, publicly accessible corporate registry that contains information about the true ownership of corporations — along the lines of what Britain established in 2016 and other European countries will soon require. It says Ottawa and the provinces need to harmonize their laws and regulations to make the registry a one-stop search tool.

Meunier says corporations themselves must be forced to divulge ownership information through the threat of hefty financial — or even criminal — penalties, and the regime must be expanded to cover real-estate developers, accountants, casinos and dealers in precious metals and stones.

The report cites estimates of between $5 billion and $100 billion in dirty money being laundered under Canada's lax regime, despite at least 15 years' of repeated commitments from the Canadian government to close the gap. Those commitments include the spring federal budget, which promised to tighten rules around trusts starting in 2021.

The federal Department of Finance has said it's been working with the provinces and territories since at least December 2017 to tighten disclosure rules, noting that fewer than 10 per cent of Canada's corporations are registered at the federal level.