• Tue. Nov 29th, 2022

Introducing the Cullen Commission – Lexology

ByChad J. Johnson

Jul 20, 2022

As anticipated in our previous Anti-Corruption Trends to Watch in 2022, the British Columbia Commission of Inquiry into Money Laundering (the Cullen Commission) released its final report (the Report) on June 15, 2022. After three years of extensive evidence, including testimony from 199 witnesses and more than 1,000 exhibits, the report provides 1,800 pages of analysis and regulatory recommendations that target industries vulnerable to money laundering in British Columbia (C. -B.).

The report’s key message is clear and unequivocal: money laundering is a significant problem in British Columbia and increased regulatory oversight is needed to tackle the problem. Although the Cullen Commission did not provide a specific figure on the amount of illicit funds that are laundered into the BC economy each year, it estimated that it is in the realm of billions of dollars per year. year.1

The Cullen Commission follows four other independent reports released in 2018 that revealed significant levels of money laundering in the real estate, luxury vehicle, gaming and horse racing sectors in British Columbia. In 2019, in response to these reports, the Cullen Commission was established under BC Public Inquiries Act.2 Led by British Columbia Supreme Court Justice Austin Cullen, the Cullen Commission was mandated to report on the extent and methods of money laundering in British Columbia; the acts or omissions of various regulatory agencies and public institutions that contribute to money laundering in the province; the effectiveness of the anti-money laundering (AML) efforts of such agencies and individuals; and current obstacles to effective law enforcement in this area.

While the resulting government action on this report remains to be seen, its release puts direct pressure on the BC government to establish additional regulatory oversight and enforcement that could affect industries targeted for money laundering. The report also indicates that there are significant failings within FINTRAC, the federal agency responsible for money laundering, implying further tightening of regulations that must occur at the federal level.

General Application Recommendations

The report provides a total of 101 recommendations to strengthen the current anti-money laundering regulatory regime. Here is an overview of the most important application recommendations:

  • A provincial unit dedicated to the fight against money laundering3: This recommendation is at the heart of the report’s implementation recommendations and is linked to the recommendations on asset forfeiture. The report recommends that power and resources be invested in a dedicated provincial anti-money laundering unit to identify, investigate and disrupt sophisticated money laundering and proceeds of crime. The proposed anti-money laundering unit would be housed in the province’s existing Combined Forces Special Enforcement Unit, which would ensure that the province has direct oversight and funding of the unit. This recommendation, along with the asset forfeiture recommendations, gives the province the most teeth in the fight against money laundering in British Columbia.
  • Enhanced confiscation of criminal and civil assets4: This recommendation addresses the report’s conclusion that the amounts of both criminal and civil asset forfeitures are not commensurate with the volume of money laundering occurring in British Columbia. Asset forfeiture is the seizure or forfeiture of assets by authorities either in a criminal context or under provincial asset forfeiture legislation.5

The report provides several recommendations for effectively leveraging criminal and civil asset forfeiture laws. For criminal forfeiture, the recommendations include requiring investigators to review and report criminal forfeiture during for-profit criminal investigations. For civil forfeiture, the report recommends increasing the resources provided to the BC Office of Civil Forfeiture and allowing revenues generated from civil forfeitures to flow to the provincial government.6 These recommendations could lead to an increased use of asset forfeiture as both a deterrent and a punishment for money laundering in British Columbia.

  • Implement unexplained wealth ordersseven: The report recommends the establishment of Unexplained Wealth Ordinances (UWO) which are akin to a similar regulatory tool used in the UK. A UWO is an investigative tool that allows an enforcement authority to seek an order requiring a person to provide information regarding the nature and extent of that person’s ownership interest in a particular property and how it got the good.8

The report recommends the establishment of a scheme for UWOs aimed at targeting ownership by candidates and individuals “higher in the criminal hierarchy” who are often involved in lucrative but less visible forms of criminal activity.9 If implemented, the tool will result in increased oversight and investigation of those who own assets that may be linked to money laundering and other financial crimes.

  • An independent AML commissionerten: The report recommends that an independent office of the legislature be established to ensure that public institutions in British Columbia appropriately address the issue. This recommendation targets government failures in the fight against money laundering and provides independent government oversight to move forward.

The proposed Anti-Money Laundering Commissioner would produce an annual report, provide research on anti-money laundering issues, provide policy recommendations, and monitor and audit the performance of provincial agencies with an anti-money laundering mandate. against money laundering. Although the proposed AML Commissioner would not have direct enforcement powers over private industry, he could contribute to a stricter and more publicly accountable AML regulatory system.

Target Industries

In its investigation, the Cullen Commission targeted specific industries, including (but not limited to) real estate,11 financial institutions,12 virtual assets,13 luxury products14 and the general business sector.15 Below is a summary of the report’s findings and recommendations for each of these industries.

Immovable

The real estate industry in British Columbia has long been infamous for its sensitivity to money laundering. The report devotes more than 100 pages to issues in BC’s real estate sector and provides 36 recommendations for further regulation and oversight. The results show that significant money laundering occurs in the real estate sector in British Columbia and that it is particularly vulnerable to international money laundering schemes.16 The recommendations include tougher licensing requirements, including bringing developers, mortgage brokers and landlords into the licensing oversight regime.17 It also includes stringent reporting requirements and additional oversight of real estate transactions by FINTRAC and the British Columbia Financial Services Authority.

Financial institutions

The report covers three different types of financial institutions: banks and credit unions, money services businesses (MSBs), and white label ATMs. The report finds that each of these facets of the financial services industry is vulnerable to money laundering in different ways. The banking sector is regulated at both the federal and provincial level, and the report worked within the limits of what could be done at the provincial level while acknowledging regulatory gaps at the federal level. Key recommendations are aimed at the British Columbia Financial Services Authority to give it more authority and resources to act on a clear anti-money laundering mandate that encompasses all financial institutions, including including ESMs.18

Virtual assets

Besides financial institutions, the report also pointed to the widespread development of virtual assets within the current financial system. The report defines virtual assets as “a digital representation of value that can be exchanged or transferred digitally and can be used for payment or investment purposes.”19 usually referring to cryptocurrency assets and exchanges. Due to the relative novelty of these assets, the report finds that there are currently significant regulatory loopholes in this area that are being exploited for money laundering and other financial crimes. Based on this, the report recommends further policies and regulations specifically targeting virtual assets.20

Luxury products

The luxury goods market was previously flagged by the German report21 as an area sensitive to money laundering. The report adopts the same definition as the German report to include luxury vehicles, fine art, gemstones, super-yachts and other high-paying items.22The report finds that luxury goods are implicated in money laundering in multiple ways, including using the goods to store the value of proceeds of crime; using the proceeds of crime to purchase luxury goods for use and enjoyment; and lending proceeds of crime to individuals with the expectation that the loan will be repaid in another form or at another location (the Vancouver model).23 The report provides specific recommendations for targeting this industry, including implementing a provincial reporting requirement on cash transactions of C$10,000 or more.24

The business sector

The report reviews the business sector at a general level, including the money laundering risks associated with business and other legal arrangements. In Chapter 23, the report discusses how money launderers use corporate structures to facilitate their laundering activities through anonymous front companies. In light of these issues, the report recommends the creation of a publicly accessible, pan-Canadian corporate beneficial ownership registry. This recommendation was made alongside the new Federal Business Register which is expected to be established in 2023.25 The report emphasizes coordination between the federal and provincial governments to ensure transparency of corporate ownership in order to prevent criminal transactions operated through shell companies.

To look forward

The ultimate impact of this report remains to be seen as we wait for BC government officials to decide which recommendations will become reality. What is certain is that as a result of this report, the regulatory landscape governing money laundering is likely to change and strengthen in British Columbia and Canada in the coming months.