By Kate Lambert
I have some money I’d like to clean up. Maybe I’m an oligarch, a drug manufacturer, an oil baron dealing with sanctions, or a lowly bank robber. I can’t spend it because of those pesky sanctions, laws, and rules about moving money around. I’d also love to buy some Picassos, fund my revolutionary or counter-revolutionary friends, maybe fund my trafficking side business, and that’s tough to do cleanly. How do I go about it?
Why is my money dirty in the first place?
Most ‘dirty’ money comes from either traditional organized crime or trying to get around sanctions. It’s ‘dirty’ because although I own it, I can’t spend it. The more I have, the more difficult it is to spend. I can buy a coffee with cash, a meal out, a second-hand car at a push. But once I want something worth thousands, questions start to be asked. I can’t deposit over $10,000 in a bank without being reported and any financial institution is going to report repeated large cash deposits under that without me coming up with decent explanations. I can’t travel internationally with lots of cash either.
Will it cost me?
This is important. Money laundering by default COSTS money. I will end up with less clean money than dirty. Remember this for later because the context is important for housing. I know I will lose money, but I can turn a lot of unspendable money into quite a lot of spendable money. Dirty money is effectively worth nothing because I can’t use it.
How can I clean small amounts?
In the olden days the mob used laundromats. Hence the term ‘laundering’ money. Why? Because laundromats use cash and don’t produce anything (except cleanliness). No receipts, no problem. You keep the empty machines running 24/7, throw away the soap and say lots of people paid you to wash their clothes. Criminals then moved onto other cash-based industries. Taxi firms, tanning salons. Ever wondered why we know tanning is bad for you and you rarely see people tanned in winter but there are still tanning salons all over the place… even cemetery plot companies are used. Another two favorites are casinos and cash-for-gold companies. Anything where the cash is plentiful, and the source is opaque.
How can I clean large amounts?
Once I get to a certain level – there are sometimes massive amounts – I can’t use these methods anymore. I just have too much money. My laundromat can’t make millions and it would look pretty suspicious when I did my tax returns for that business. I need really profitable, big businesses that produce lots of lovely clean money. But I want my name away from the business end, so I am above suspicion. I don’t want to end up like Al Capone serving time because my money isn’t shiny enough.
First, I need a company; that separates me by one degree. Preferably owned by my child or spouse. Shell companies give me a few more degrees. These are companies that don’t do anything much, employ anyone but they do hide me a bit more. Then I register them somewhere silent, like Switzerland, or somewhere a little dodgy like Panama. With some sort of legitimate branch in a less secretive but still slightly laundering-friendly place like Delaware or the UK. Now my money and I are at arm’s length. I am ready to invest it. In a country that is notoriously terrible at dealing with white collar crime. Enter Canada.
Canada is very attractive to money launderers. Something like $50-130 billion of money laundering is going on. The recent Combatting Money Laundering in BC Real Estate report very conservatively estimates $46.7 billion. Canada is attractive because it is stable and has a peaceful reputation, meaning a dictator is unlikely to unilaterally seize my money. But doesn’t actually police laundering very well, so a legal seizure isn’t going to happen either. Essentially Canada doesn’t know who owns what. There isn’t a good record of beneficial ownership. Beneficial ownership: who benefits (i.e. makes a profit) from ownership. I’m using shell companies and doing it from overseas so there is no way I’m getting caught. BC is starting a registry now so maybe I’ll move my money to Alberta, which is doing even worse.
Why would I put my dirty money in housing?
I need as much money moving around as possible. Real estate is absolutely massive business. A fifth of the Canadian economy is driven by real estate and it has been growing fast. And housing is really expensive; just look at Toronto or Vancouver. Million-dollar homes as far as the eye can see, and those are small fry compared to apartment buildings. Those are the real prize. Expensive to buy with dirty money and lovely clean money coming out in resales and rent. I really don’t care if the market is inflated. I also don’t care about getting my money’s worth. I just outbid everyone because remember, I know I will lose money. The important thing is moving as much dirty money as possible. I’d rather overpay than not buy something because dirty money is worth nothing. Of course, I outcompete regular buyers because their money is worth something to them before it goes into housing.
I can also use REITs, real estate investment trusts. Designed to let people own a little bit of a large portfolio of buildings, they are perfect for avoiding outright ownership, which could raise suspicion. Also, no management role for me. Which leaves me lots of time for my oil business and revolutionary support.
The results for me?
I have loads of lovely clean money from my tenants and from the resale of my property portfolio. I avoid suspicion, prosecution and have moved my money out of countries where unstable governments could mean it devalues or is seized. I now have lots of money to spend how I wish, possibly on terrorism, more illegal activity, or maybe just helicopters and Picassos. I think I’d like a swimming pool shaped like a guitar.
The results for everyone else?
An annual rise of around 5% in real estate prices. More in certain markets like Vancouver. BC has produced the recent report but the estimates for money laundering in Alberta are even higher. Home ownership is unaffordable; therefore, people stay in rentals. Or they mortgage themselves to the hilt to afford inflated prices, some of that money coming back to the launderers. This makes rentals short in supply, boosting the cost even more. It sounds like rich people are affected more than others but that’s not the case. Apartment buildings are more expensive, and therefore more attractive, than fancy one-family homes. Even lower rent apartments. The ones people moving out from shelters live in.
Read the report and support the recommendations.