Cullen Report Sets Out Recommendations to Address Money Laundering in British Columbia
On June 15, 2022, the British Columbia government officially released its final report authored by Austin Cullen (the “Cullen Report”), examining the full scope of money laundering in B.C. In his dual capacity as both Commissioner of the public inquiry into money laundering in B.C. (the “Cullen Commission”) and B.C. Supreme Court Justice, Mr. Cullen drafted the Cullen Report based on his evidentiary observations stemming from nearly 200 witnesses and approximately 1,000 exhibits over the course of 133 days of public hearings.
In response to the growing public concern about money laundering in B.C. between 2008 and 2019, the B.C. government issued four reports on the adverse impact of money laundering within different sectors in the province, such as casinos and real estate. On May 15, 2019, B.C. Premier John Horgan announced the establishment of the Cullen Commission and appointed Mr. Cullen as its Commissioner. At the forefront of the Cullen Commission’s mandate was spearheading a comprehensive review of the growth of money laundering in the province and formulating recommendations and guidance as to how B.C. could counter this longstanding issue.
The Cullen Report
Spanning over 1,800 pages in length, the Cullen Report provides an in-depth analysis of the state of money laundering in B.C. Although the Cullen Report could not confirm an approximate figure of the volume of funds laundered in B.C. each year, the evidence Mr. Cullen received indicates that this number could reasonably be estimated to lie in the billions. Moreover, given the often silent damage caused by money laundering (that is, compared to violent crimes), law enforcement officials tend to afford it less priority than other offences.
The effects of money laundering in B.C. have widespread implications that span many different sectors. As the Cullen Report highlights, these sectors include, but are not limited to, some of the following:
Casinos. Between 2008 and 2018, according to the Cullen Report, the volume of laundered cash accepted by B.C. casinos reached unprecedented levels. For example, in 2014, B.C. casinos accepted close to $1.2 billion in cash transactions exceeding $10,000. Studies indicate the sources of such funds were large groups of cash facilitators affiliated with criminal organizations lending to high-limit gamblers who often paid back the debt through cross-border payment transfer systems. In turn, these patrons would use the funds to gamble and repay the cash advance to the criminal organization, often via an electronic funds transfer in another jurisdiction.
B.C. Real Estate Sector. The strength of the B.C. real estate market renders it attractive to launderers who seek for their investments to remain relatively unaffected by negative market forces. As it stands, no monetary reporting requirement compels B.C. mortgage brokers to report suspicious transactions, and realtors also have a poor record of anti-money laundering (“AML”) reporting and compliance. Moreover, when laundered funds are deposited towards a mortgage in increments below $10,000, there is no requirement to file a large cash transaction report with the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). Consequently, once launderers ultimately utilize their illicit funds to purchase real estate outright, they can effectively proceed to sell the property and acquire ‘clean’ cash without issue.
Banks and Credit Unions. A key objective in money laundering involves acquiring a façade of legitimacy. To that end, banks and credit unions can serve as targets because they can make it easier for launderers to transfer illicit funds into a legitimate economy. Specifically, deposit services, wealth management, investment banking and correspondent banking are at high risk due to the voluminous cash transfers that occur daily in these spaces.
Money Service Businesses (MSBs). MSBs are non-bank entities that offer at least one form of service related to remitting or transmitting funds, issuing money orders, dealing in virtual currency or maintaining a crowdfunding platform. Although MSBs are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “PCMLTFA”), the primary legislation geared towards deterring money laundering and the financing of terrorist activities, the Cullen Report notes that not all MSBs register with FINTRAC, even though they are required to do so. In addition, the Cullen Report also points out that FINTRAC typically conducts only a limited number of compliance examinations of MSBs.
Cryptocurrency and Virtual Asset Service Providers. The novelty of cryptocurrency and virtual asset service providers creates uncertainty about how law enforcement should investigate money laundering in these spaces. While the PCMLTFA applies to dealers in virtual currency, this has only been the case since recently, leading to a potential gap in regulatory expertise regarding whom is best suited to monitor decentralized financial schemes.
Luxury Goods Providers. Luxury goods can serve as alluring targets to money launderers because goods are easier to move following their purchase than cash, and often with less suspicion. In B.C., many of the luxury goods providers are small retailers that are governed by minimal regulation. As a result, many describe the B.C. luxury goods sector as a ‘black box’ where minimal information is known about what is taking place, including information related to laundered funds.
Public and Private Corporations. The anonymity that corporations can provide makes it easier for money launderers to hide behind the corporate veil and distance themselves from transactions involving their illicit funds. Consequently, investigations into suspects shielded by a corporate entity become increasingly tricky where multiple layers of ownership obscure the true corporate owner's identity.
Private Lending. Private lending secured by mortgages presents a risk of exploitation in furtherance of money laundering schemes because of the gaps in lender obligations to make source-of-funds inquiries of borrowers. For example, criminal borrowers commonly use laundered funds to finance a property’s purchase price and subsequently repay the loan using the proceeds they acquire from crime. The cycle continues as the criminal can then take out additional mortgages using the initial property as collateral to launder more money. In other scenarios, criminals often lend their illicit funds to other private lenders, such as mortgage investment corporations which proceed to lend against real estate. For the criminal, this serves as a passive investment that generates returns on laundered cash which they can later report as legitimate income.
Other affected sectors include lawyers, accountants, and B.C. notaries.
The Cullen Report sets out 101 recommendations for B.C. and how the province can mitigate money laundering across sectors, including the following recommendations of note:
Provincial AML Regime
- Recommendation 1: Appointing an independent Anti-Money Laundering Commissioner (“AML Commissioner”) to lead B.C.’s AML efforts and provide strategic oversight. In particular, the AML Commissioner would be responsible for keeping citizens informed, actively researching money laundering issues, providing policy advice and recommendations, conducting timely reviews on the state of B.C.’s AML mandate and coordinating with other stakeholders for faster results.
- Recommendation 2: Maintaining the Deputy Ministers’ Committee and AML Secretariat to continue and develop B.C.’s AML strategy.
- Recommendation 3: Implementing a dedicated provincial money laundering intelligence and investigation unit to mount a sustained and effective response to money laundering.
AML Measures for Casinos
- Recommendation 4: Lowering the threshold for requiring proof of the source of funds for cash transactions in casinos to $3,000.
- Recommendation 5: Implementing a 100% account-based, known play system in B.C. casinos.
- Recommendation 6: Maintaining the current limits on casino convenience cheque payouts to patrons.
- Recommendation 7: Having the Independent Gaming Control Office, once established, maintain the authority to issue directives to the B.C. Lottery Corporation without having to first obtain consent from the Minister Responsible for Gaming or any other government body..
Increased AML Regulation for Real Estate
- Recommendation 11: Requiring the British Columbia Financial Services Authority (“BCFSA”) to collaborate with the FINTRAC and determine whether B.C. needs to implement a source-of-funds inquiry requirement for brokerages and realtors. If there is no plan to implement one, then the BCFSA should require real estate licensees to ask and record information about their clients’ source of funds at the outset of the client relationship.
- Recommendation 12: Urging the federal government to amend the PCMLTFA and associated regulations to include mortgage brokers as reporting entities and urging the BCFSA to use its rule-making authority to mandate brokerages to demonstrate the existence of an AML compliance program as a pre-requisite to licensing.
- Recommendation 13: Providing the BCFSA, which regulates, among others, real estate professionals, with an AML mandate and sufficient resources to address allegations of misconduct once they arise.
- Recommendation 21: Granting the Registrar of Mortgage Brokers the power to make orders for disgorgement of profits for registered brokers who have engaged in misconduct and for unregistered persons engaged in brokering activities.
Private Lending Mandatory Source-of-Funds Declarations
- Recommendation 31: Implementing a mandatory source-of-funds declaration to be filed in every claim for the recovery of a debt, whereby no action in debt or petition in foreclosure can be filed (except by an exempted person or entity) in the absence of such a declaration.
Additional Tools for Banks and Credit Unions
- Recommendation 49: Implementing ‘safe harbour’ provisions to allow provincial financial institutions to share money laundering concerns without having any liability attached and subsequently encouraging the federal government to do the same for banks.
- Recommendation 50: Implementing a formal “keep open” regime for financial institutions where they can keep accounts that are suspected of being involved in money laundering open to assist and advance law enforcement investigations.
Provincial MSB Regulation
- Recommendation 51: Expanding BCFSA regulation to capture MSBs with a regulatory scheme that includes:
- a definition of “money services business” that aligns with the definition in the PCMLTFA;
- the power to identify unregistered MSBs and sanction them;
- a registration process that assesses the suitability of MSB applicants more broadly than how applicants are evaluated under the PCMLTFA, including a consideration of whether an MSB has been criminally investigated and a requirement to disclose business relationships in the same way as the requirements of the Quebec regime;
- a compliance examination process that applies in the early years of an MSB’s operation;
- the ability to enter information-sharing arrangements with FINTRAC and other relevant entities; and
- the ability to impose administrative and monetary penalties.
Provincial Beneficial Ownership Registry
- Recommendation 52: Working with the federal government to implement a publicly accessible corporate beneficial ownership registry before the end of 2023 that discloses beneficial ownership of corporate entities.
Luxury Goods Record-Keeping Regime
- Recommendation 82: Implementing a record-keeping reporting regime in the luxury goods sector that (1) requires all luxury goods providers to report cash transactions exceeding $10,000 to a central authority while inquiring into and recording the source of the funds; and (2) provides the proposed AML Commissioner with unimpeded access to these records.
Provincial Virtual Asset Regulation
- Recommendation 86: Ensuring that law enforcement, regulators, and Crown counsel with relevant duties are trained to recognize indicators and typologies of money laundering through virtual assets.
- Recommendation 87: Implementing a B.C. provincial regulatory regime for virtual asset service providers and ensuring a B.C. regulator (i.e. the BCFSA or the BC Securities Commission) acts as the relevant regulator.
Civil Asset Forfeiture
- Recommendation 99: Encouraging the B.C. Civil Forfeiture Office to increasingly pursue cases involving organized crime groups as a means of seizing unlawfully obtained assets.
- Recommendation 101: Actively pursuing more unexplained wealth orders that compel a person to produce information concerning the purchase and ownership of particular assets when there are reasonable grounds to suspect that the person is involved in criminal activity.
 See Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos Conducted for the Attorney General of British Columbia. Peter M. German, Q.C. March 31, 2018; Dirty Money - Part 2: Turning the Tide - An Independent Review of Money Laundering in B.C. Real Estate, Luxury Vehicle Sales & Horse Racing. Peter M. German, Q.C., March 31, 2019; Real Estate Regulatory Structure Review. Dan Perrin, 2018; and Combatting Money Laundering in BC Real Estate. Maureen Maloney, Tsur Somerville and Brigitte Unger, March 31, 2019.