Chinese money launderers snap up Vancouver real estate because of lenient border laws, loose regulations

BY SAM COOPER, THE PROVINCE AUGUST 3, 2015

Province reporter Sam Cooper explains how illicit money is flowing into Vancouver's real estate market.

Vancouver International Airport is the major port of entry for millions in hidden cash being smuggled into North America by mostly Chinese citizens, a federal document investigation by The Province reveals.

And according to money laundering investigators, the amounts identified in Canada Border Service Agency cash seizure data, obtained by The Province under freedom of information law, is only the tip of the iceberg.

Experts said Vancouver appears to be targeted by Chinese citizens because Canada’s forgiving border laws allow seized cash to be returned for minimal fines. As well, permissive property investment rules and loose reporting compliance in the real estate industry make Vancouver homes the perfect vehicle for illicit offshore investment.

“A lot of the illicit money coming into Canada from Chinese citizens is laundered through real estate in Vancouver,” Hayley Labbé, a senior forensic investigator with the firm MNP LLP, told The Province.

The Province obtained CBSA data months after undertaking a wide-ranging federal document search to learn more about China’s anti-graft initiatives such as Operation Fox Hunt and SkyNet — the aggressive crackdowns by the Communist Party of China on political corruption suspects.

Co-operation between China and Canada in the hunt for numerous suspects who have fled to Canada with ill-gotten gains is controversial, because of many differences between the two countries’ legal systems.

But The Province obtained several documents that indicate co-operation is increasing.

A variety of Canadian agencies cited national security or China’s diplomatic privilege as a reason not to release information; for example, CSIS and the CBSA refused to confirm or deny the existence of certain documents.

But the CBSA did release rare data on seizures of undeclared assets brought to Canada by foreign travellers.

The data shows customs agents at Vancouver and Toronto airports seized $15,019,891 in either undeclared cash or monetary instruments from 869 Chinese nationals from June 2012 to December 2014.

About $10 million — the majority of undeclared assets seized by the CBSA from Chinese citizens in the period — was taken at YVR.

CBSA data reviewed by The Province suggests that YVR has been the major port of entry for undeclared asset seizures in Canada since 2011, accounting for roughly 30 per cent of the total seizures across Canada’s hundreds of border entries in a typical year.

And YVR accounted for more than half the money seized from Chinese citizens entering Canada in this period. In total, the CBSA seized $17.4 million from Chinese nationals, in 976 seizures. That was four times more than the undeclared assets seized from U.S. citizens entering Canada.

Across Canada, $56.3 million was seized by CBSA agents from all travellers from June 2012 to Dec. 2014 — including $19.4 million seized from Canadians. These Canadian citizens do not all reside in Canada, the CBSA said. Recent data shows about 60 per cent of all undeclared money seized at YVR is from Chinese citizens — about five times the rate of money seized from Canadian travellers.

The situation is similar in the United States, but also shows that Vancouver is North America’s primary entry for illicit money from China. Data reported by U.S. customs officials five years ago shows that undeclared cash taken from Chinese nationals was double any other foreign nationality.

But amazingly, a comparison from a similar time frame shows cash seized from Chinese citizens at YVR was about double the amount taken from Chinese nationals at all U.S airports combined.

Data obtained by The Province shows that the top month for seizures from Chinese nationals at YVR was August 2014, when $744,659 was taken in 37 seizures. The second highest monthly total was June 2012, when $574,194 was taken in 23 seizures.

One seizure in June 2012 stands out. According to CBSA documents, an unidentified Chinese man failed to declare $177,500 in cash tucked into the lining of his suitcase and hidden in his clothing and wallet.

Under Canadian laws meant to hinder money laundering. international travellers can legally bring any amount of money into Canada, as long as they claim it. But any cash or monetary instruments — such as stocks, bonds or bank drafts — valued over $10,000 must be reported to the CBSA.

After he was caught with hidden rolls of Canadian and U.S. cash, the Chinese man told a CBSA agent that he intended to buy a house or car with the money. Although Chinese citizens are restricted by their government from removing any cash greater than $50,000 per individual each year — and the case raises red flags, according to money laundering experts — the man walked out of Vancouver airport with every cent of his hidden cash, minus a $2,500 fine.

Over the past 10 years, newly rich Chinese have increasingly sent cash abroad by a variety of legal and illegal means. According to U.S. anti-money laundering organization Global Financial Integrity, China leads the world in illicit cash outflows with a staggering $1.25 trillion US leaving the country in the past decade.

In 2012, the last full year measured by Global Financial Integrity, China saw $249.57 billion US in illicit money transferred abroad.

According to Chinese officials, Canada is a top destination for these funds. Yet Canadian border officials almost always return undeclared cash with light fines of up to $5,000 levied depending on the level of concealment involved.

By contrast, U.S. customs agents can hit travellers with fines up to $500,000 for undeclared assets over $10,000. And the seized cash often remains in U.S. government coffers.

According to B.C.-based fraud investigation executive Kim Marsh, that’s one of the reasons Vancouver is such an attractive destination for money launderers. Marsh, an expert on tracking dirty money worldwide, served 25 years with the RCMP and led the force’s international organized crime unit.

Marsh said he recently started work on a new case involving a Chinese man who absconded with $450 million in corruption money and has been laundering it in Vancouver for a number of years. Marsh said he is uncovering numerous Lower Mainland real estate assets that the suspect purchased with his stolen fortune.

“This guy is just one of many,” Marsh said. “The evidence is mounting of a lot of grey money coming into Vancouver’s real estate market from China. So we have some serious issues in Vancouver and we need more deterrents. The money seized at YVR is a good example. You pay a pittance of a fine, and it is worth the risk.”

Hayley Labbé told The Province that CBSA seizure data indicates only a tiny fraction of the illicit money pouring from China into Vancouver property. Labbé said experts believe there are major gaps in compliance for reporting of suspicious transactions in Vancouver’s real estate industry.

Several real estate industry sources have informed The Province they suspect colleagues are turning a blind eye — or even in some cases participating in illegal schemes. However, these professionals say they fear speaking on the record because they could be blackballed by peers, or accused of racism.

“The people buying these multi-million-dollar properties here in Greater Vancouver don’t care what the asking price is,” one experienced realtor said. “Some are corrupt government officials and insiders, and all they want to do is get the money out of China and use Vancouver to launder the money.”

Vancouver lawyer Christine Duhaime, an expert in money laundering law, said her contacts report that many Chinese money launderers hire mules in Hong Kong to carry illicit cash for a 20-per-cent fee. And the mules choose Vancouver airport as a soft target.

“I think Canada detects this pretty well, but we return undeclared money much more easily than the U.S. and we fine much less,” she said. “So there is not much of an impediment against bringing money illegally into Canada.”

Duhaime said Chinese citizens also use “trade-based” methods, including invoice manipulation, to transfer money illegally into Canada.

And even China’s strict capital controls can be legally avoided through coercion or use of family members.

She said in one case a Chinese businessman forced nearly 200 employees to each transfer $50,000 to his Vancouver bank account, all within several days.

“He bought a $7-million mansion in Vancouver and had some spending money left over,” Duhaime said.

Although Vancouver is seen as a convenient destination for Chinese money launderers, some experts believe rules, detection and enforcement could be strengthened over the next year.

There are indications state-level co-operation is already increasing.

In response to an Access to Information request for communication between the Canadian and Chinese governments on Operation Fox Hunt, the Department of Foreign Affairs provided a December 2013 letter from Chinese Minister of Public Security Guo Shengkun.

Shengkun’s letter — sent “under cover of a diplomatic note” — was completely redacted by Canadian information officials. A response to Shengkun from Canada’s Public Safety Minister Steven Blaney, said: “I am delighted that law enforcement cooperation is strong between our two countries, especially on ...”

The following sentence was blacked out by Canadian officials.

But Blaney noted in his letter that following a successful 2013 meeting in China between RCMP and Guo Shengkun’s security officers, a similar meeting would take place in Canada.

Although the unredacted information doesn’t specifically detail co-operation on Operation Fox Hunt, it appears that is what Guo Shengkun was asking for. In April 2015 Guo Shengkun and U.S. Homeland Security Chief Jeh Johnson met and agreed to stronger co-operation on China’s fugitive repatriation and asset recovery initiatives, including Operation Fox Hunt and SkyNet, according to statements from both governments.