VANCOUVER—An author of a new report on the risk of money laundering in Toronto’s real-estate market says British Columbia should take a closer look at the role of private lending here.

“I wouldn’t be surprised if it is large. Let’s do a study, see how big it is and then identify how high the risk is,” Denis Meunier told the Star. “I suspect it’s the same issue across the country, so it becomes a federal issue and not just a provincial issue.”

Meunier is a former deputy director of Fintrac — Canada’s financial intelligence unit — and a board member of Transparency International Canada, which published the new report.

Unlike Ontario, British Columbia does not track the extent of private lending in the mortgage market. For a province that has the dubious distinction of having a money-laundering method named after its largest city — the “Vancouver model” — that’s a concern, said Meunier.

That’s because private lenders are not compelled by federal anti-money-laundering and terrorism-finance legislation to report suspicious transactions to Fintrac, unlike banks, casinos, realtors and real-estate developers.

Still, British Columbia is ahead of Ontario in its efforts to make real-estate ownership public, Meunier said.

Read more:

Dirty money is driving up Toronto real estate prices, report says

Who owns these multimillion-dollar properties in Vancouver? With this new registry, the public could soon find out

Subprime lending — as well as the risk that comes with it — is growing in Canada’s hottest real-estate markets

The report by Transparency International Canada tracked property purchases by private companies in the Greater Toronto Area. Private companies do not have to reveal who their owners are, and the organization’s analysis showed that over the past decade, private companies have bought $28.4 billion in real estate.

Of that amount, $20 billion “appears to have entered the GTA housing market ... without oversight from Fintrac” because the properties were either bought in cash ($9.8 billion) or financed by private lenders ($10.4 billion), according to the report, “Opacity: Why Criminals Love Canadian Real Estate (And How To Fix It).”

“Canadian real-estate has attracted the attention (and money of dubious origin) of corrupt government officials and organized-crime syndicates from across the globe,” the report reads.

“A worrying amount slips past regulators who don’t really know who owns what, nor how much is being used for money laundering and tax evasion.”

“Opacity” builds on a 2016 report named “No Reason to Hide,” which included a case study analysis of Vancouver’s 100 most expensive residential properties. That report showed that nearly half of those homes were owned by corporate entities that hid the identity of the owners.

The “Opacity” report’s analysis is much more extensive, tracking 1.4 million real-estate sales over a 10-year period. The data showed that high-value properties are more likely to be owned by private corporations, and that those corporations were much more likely to use cash or unregulated lenders to buy properties than individuals who buy real estate.

Meunier said he wasn’t surprised to see the involvement of private lending in the real-estate market, but he was taken aback by the scope of the activity in Toronto.

“I was surprised by the chart that said the more expensive the property, the more likely it is to be private lending,” Meunier said.

“We were on the right track; we knew there was something odd going on. That doesn’t mean that all the properties, there’s money laundering going on or illegal activities, but it certainly provides an opportunity to skirt a lot of the controls that have been built into Canada’s anti-money laundering regime, because there is a lot of activity that’s not covered by it.”

An October report by Teranet and Realosophy showed that private lending in the Greater Toronto Area had grown by 67 per cent over the past two years. While there’s plenty of anecdotal evidence of multimillion-dollar properties being financed with private loans in Vancouver, there are no similar studies. It’s simply not known how big a role private lending plays in the B.C. market.

Loading... Loading... Loading... Loading... Loading... Loading...

The report’s authors are recommending that private lending be included under the federal proceeds of crime and terrorist financing act.

But to be effective, that measure would need to go hand-in-hand with the creation of a public registry showing who owns real estate, including the owners of corporate entities, trusts and companies registered in offshore tax havens.

As part of an attempt to make real-estate more transparent, B.C.’s Finance Ministry has proposed creating a public ownership registry, and the government plans to introduce legislation this spring. Transparency International Canada is pushing for other provinces and the federal government to create a similar registry.

Read more about: