No evidence to show that money laundering increased the unaffordability of housing

The real estate industry is “highly vulnerable” because criminals invest in real estate to hide their crime proceeds and brokers fail to report many suspicious transactions, as required by federal anti-money laundering laws.

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While real estate in BC is “highly vulnerable” to money laundering, brokers report few suspicious transactions and the federal regulator should provide more guidance on what to report, according to the BC money laundering report released Wednesday.

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But the report said that “money laundering is not the cause of housing unaffordability,” and author Austin Cullen wrote that the area needs more research.

“I cannot conclude that money laundering is a major cause” of unaffordable housing in BC, he wrote.

“If money laundering went to zero, people with $750,000 still wouldn’t be able to afford a detached house on the west side of Vancouver,” said University of BC professor Tom Davidoff of the real estate division of the Sauder School of Business.

And Cullen’s conclusion also aligns with what the BC Real Estate Association told the committee that “affordability in BC is and will continue to be dependent on supply,” said Trevor Koot, the association’s CEO.

But criminals buy real estate to hide the proceeds of crime, Cullen said in his report, finding that some real estate professionals are stubbornly holding onto outdated beliefs and myths about what money laundering is and how it works in their industry.

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“Evidence I’ve heard shows that money laundering risks can be exacerbated by those who want to bend the rules or ignore or downplay their professional obligations,” he wrote. “Brokers have a poor record of reporting and compliance with money laundering” and their “misguided beliefs have led to complacency and unwillingness to comply with their anti-money laundering obligations,” he said.

For example, in fiscal year 2015-16, the Financial Transactions and Reports Analysis Center, or FINTRAC, the federal oversight agency for brokers and others in the financial sector, received just seven reports of suspicious transactions from BC real estate licensees, a number that jumped to 37 in 2019. -20, but dropped to 15 in 2020-21, he wrote.

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Cullen also said “there is significant industry frustration over the lack of guidance” and called on FINTRAC to change its message to brokers to help them better understand their responsibilities against money laundering.

FINTRAC provides courses, forums and guidance to businesses, including real estate, to educate them about compliance requirements under the Anti-Money Laundering Act, spokeswoman Melanie Goulette Nadon said in an email.

And it has issued a letter especially published for the real estate industry, sent welcome letters to 169 new real estate agents in 2020 informing them of their reporting obligations, and conducted 650 real estate compliance exams across Canada, she said.

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Cullen said that instead of real estate buyers paying for their new home with bags of cash, they can launder their wealth by investing in real estate, which “provides the criminal with a safe place to store their wealth and a facade.” of legitimacy when the property is eventually sold.” sold.”

“Buying and selling a range of properties can further obscure the criminal origins of the funds,” he wrote.

Criminals can also launder illegal funds by taking out a mortgage on a place and then repaying them with crime proceeds in increments of less than $10,000, which wouldn’t be a requirement for a major cash transaction report to FINTRAC.

Or they can put a lien on a property to get money for, say, gambling, but then state the reason for the loan as for renovations. When the loan is repaid, the owner receives “clean” funds.

Davidoff said a better way to reduce money laundering and improve affordability is to make sure that non-Canadian property owners pay property taxes based on the value of the property, because wealthy non-resident investors have a pay a relatively small amount of property taxes commensurate with the value of the home.

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