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Cullen Commission Report on Money Laundering in B.C. Recommends Extensive Regulatory and Enforcement Improvements to Fight Money-Laundering

Fasken
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Overview

White Collar Defence & Investigations Bulletin

Introduction

On June 15, 2022 the Commission of Inquiry into Money Laundering in British Columbia (the Cullen Commission) released its highly anticipated Final Report. The Commission’s conclusions suggest that significant changes by government, law enforcement, and regulators are on the way to stem the flow of what the Commission found was the billions of dollars in laundered money entering the British Columbia economy each year.

The Commission’s work and the British Columbia government’s response to it indicate that British Columbia is poised to take a leading global role in prioritizing the fight against money laundering, and developing more detailed policy responses.

Below we highlight some of the Commission's key recommendations and offer some thoughts on what we expect to see next.

The Commission’s Analysis and Findings

The Commission’s comprehensive examination of money laundering is unprecedented. The Report is more than 1800 pages and contains 101 recommendations. The Commission heard from over 200 witnesses, including the former British Columbia premier and several former ministers, and a contingent of  experts on global money laundering schemes. The Report is the most extensive examination of money laundering in Canada. It analyzes money laundering in the context of  real estate, gaming, financial institutions, luxury goods, virtual assets, and the corporate, legal and accountancy sectors.

The Commission concluded that although it is not possible to determine a precise figure, the amount of money laundered in British Columbia is “enormous.” Money laundering erodes confidence in systems of governance and distorts markets. Permitting money laundering allows “those who prey on the most vulnerable in society to continue if not expand their operations and reap the rewards of their unlawful conduct.”

The Commission found that all relevant actors, including government, regulators and industry, have paid insufficient attention to money laundering. This is consistent with Canada’s ranking on the Basel Anti-Money Laundering Index, which addresses countries’ risk levels, and affirms Canada’s middling status and lack of progress in its efforts to fight money laundering. In order to address the “unchecked growth” of money laundering the Commission found that substantial policy reform, sustained effort and a major increase in resources are required.

The governments of British Columbia and Canada have each responded to the Report with statements emphasizing their continued commitment to addressing the issues identified by the Commission. The federal government highlighted its intent to establish a new Canada Financial Crimes Agency, while British Columbia expressed hope that the federal government will join with B.C. in addressing the problem. This is notable as the Commission recommended that given the regulatory and enforcement failings to date, and the scale of the money laundering problem in B.C., the provincial government should not wait for federal reform to take action. As a result, the regulatory reforms that B.C. introduces for provincially regulated institutions can be expected to lead the way for future federal and provincial regulatory responses.

The Commission’s Key Recommendations

We highlight the following recommendations, which illustrate the significant reforms that are expected to be implemented provincially:

  • The establishment of an independent Anti-Money Laundering Commissioner to provide permanent and strategic oversight on money laundering;
  • The establishment of a specialized money laundering law enforcement unit to improve intelligence and conduct money laundering investigations; 
  • Requirements that police consider money laundering and proceeds of crime offences when investigating profit-driven criminal activity, and gather evidence to support criminal and civil forfeiture of assets; 
  • The introduction of unexplained wealth orders in civil forfeiture proceedings. Unexplained wealth orders are used to compel information about assets where the beneficial owner has a suspected connection with organized crime. Such orders have yet to be introduced anywhere in Canada; and 
  • Acceleration of the federal government’s planned implementation of the cross-Canada corporate beneficial ownership registry by the end of 2023. 

The Commission also called for greater regulation and oversight of the industries most at risk for money laundering: real estate and mortgage lending, money services businesses, cryptocurrency, chartered professional accountants and legal services professionals.

Future bulletins will address some of the sector-specific implications of the Report in more detail.

The Likely Effects of the Commission’s Recommendations 

The Commission’s findings and recommendations are likely to lead to significant changes in how British Columbia and other Canadian jurisdictions fight money laundering. Based on the Commission’s findings we expect that:

  • The provincial and federal governments will engage in a sustained period of policy development;
  • The industries most likely affected by policy changes include financial services, real estate and certain professional services;
  • Both levels of government will dedicate increased resources to regulatory and enforcement measures directed at fighting money laundering;
  • There will be a heightened enforcement and prosecutorial focus on proceeds of crime offences, money laundering and criminal and civil asset forfeiture;
  • Consistent with the Commission’s call for more effective regulation, we expect to see an increase in corporate transparency and reporting requirements across a range of sectors, particularly for professionals, financial institutions and others who are important gatekeepers to prevent money laundering; and
  • Other jurisdictions are likely to look to the British Columbia experience in implementing policy developments and reforms.

Conclusion

As governments take up the Commission’s call for effective regulation and anti-money laundering measures, actors in vulnerable gatekeeping sectors have the opportunity to proactively implement best practices, and to review and improve their compliance programs, client identification and verification, record-keeping and reporting systems.

The Report is an important step forward in addressing the risk of money-laundering. It remains to be seen how governments respond and the degree of focus they bring to these issues as they work to implement the Commission’s recommendations.

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