13 May 2019
Criminals had placed an estimated $7 billion CAD in real estate in the Canadian province of British Columbia (BC) as of last year, according to a report published Thursday.
The sum made up nearly five percent of the total property-related transactions in the province and accounted for an approximate 5-percent rise in BC housing prices in 2018, according to an expert panel on money laundering, which characterized its estimates as conservative.
“The amount of money being laundered in BC and through real estate is much more than anyone predicted,” said Minister of Finance Carole James, in a statement. “Our government is tackling the housing crisis head-on and taking action to combat the money laundering that has been allowed to drive up housing costs for British Columbians for far too long.”
In all, money laundering activity in Canada totaled $47 billion CAD in 2018, a jump from the $41 billion CAD in dirty money in the country in 2015, the panel concluded. The inflow of illicit funds potentially contributed to an increase in volatility in interest and exchange rates and a rise in solvency and liquidity risks for Canada’s financial sector, the report said.
In British Columbia, the inflow of dirty money likely resulted in a “wedge” between local incomes and local real estate prices, according to the report, which noted a spike in BC housing prices in 2017. The $5.3 billion CAD estimate of money laundering represents nearly eight percent of new construction in the province and 9.5 percent of new construction tied to residential properties for the year, the panel found.
Individuals, companies, trusts, nominees and offshore buyers spent as much as $212 billion CAD in “cash buys” of BC residential property over the past 20 years, according to a related report published by the province’s attorney general.
As part of a broader effort to improve housing affordability, BC officials drafted legislation that would create a land registry of beneficial owners in the province. The proposal, which the panel deemed a “major step forward,” is expected to be introduced in the legislature by this summer, though experts have asked that the register’s reporting threshold for ownership be lowered from 25 percent to 10 percent.
The report separately called on the BC Minister of Finance to impose new regulatory obligations on mortgage lenders and real estate developers, including salespersons working for developers, and to consider whether appraisers and home inspectors should be licensed under a regime that mandates anti-money laundering duties.
The province should also consider stronger oversight of money services businesses and the adoption of unexplained wealth orders, which permit law enforcement officials to seize suspicious assets when owners cannot sufficiently account for the sources of their money, the panel said.
Count reading this article to your CPD minutes, by signing up to our CPD WalletFREE CPD Wallet