Make only $40,000 a year in income, but want to buy expensive Vancouver real estate? Maybe these people can tell you how they did it. The situation came to light in passing with our interview with investigative journalist Sam Cooper, author of: Deliberate blindness, That got us in the middle of a censorship controversy last week. The source is an exhibition presented at the Cullen Commission, BC’s money laundering investigation.
The exhibition is a study of a modest-income family that moves extraordinary amounts of cash. Despite making only $40,000 on their peak income, they bought at least $32 million worth of homes in Vancouver. Further analysis of FINTRAC shows that they have moved over $100 million through Canadian banks. With limited recourse options, even if it was for a bank’s attention, there was not much they could do.
Further analysis by counsel shows that even more money was moved than FINTRAC found. In total, about $167 million flowed into Canada. When they dug into the source of payments, they found a network of companies linked to foreign officials and organized crime in China. I really don’t see what was censorship-worthy there, but let’s dive into the details.
FINTRAC warned a low-income family’s fat bank accounts didn’t make sense
FINTRAC, which monitors suspicious transactions, already thought the family’s situation was strange. By the time they arrived in 2005, the family had declared $1.25 million in assets. Not an extraordinary amount, but more than their earnings would support. As of 1998, they had only declared a peak annual income of $40,615. You would need a great hand in a casino to have 30x the peak income in assets.
That could have been a warning flag for many, but it wasn’t for some reason. It wasn’t until more than $100 million started flowing through banks that regulators thought, “Hey, this is weird.”
“Unless they made significantly more before most of the funds came to Canada in 2010, [Person A] and his family did not have sufficient funds to account for the money they transferred,” FINTRAC wrote.
“The discrepancy between the funds they had available and the volume of subsequent transfers to Canada is a key indicator of money laundering activity,” reads FINTRAC’s notes.
Source: Cullen Committee.
Family bought $32 million in Vancouver real estate
The person did a little shopping for real estate in Vancouver. Counsel found that the person, along with their “wife,” “son” and “mother,” bought approximately $32 million worth of homes. Transactions in the study ranged from 2007 to 2021. The most recent transaction was a home sale, which sold for double the price paid. Nice!
Properties bought with cash were then mortgaged as down payments for other properties. It’s such a Canadian move, I’m surprised they didn’t get full citizenship on the spot. Banks provided about $17 million in mortgages to the family. It is unclear whether they have given up any income to support such large mortgages. The FINTRAC reports list a range of occupations, including the unemployed, students and CEOs.
The money being pumped into real estate may seem small, but there are many questions about how it moved. If the goal is to move cash, whether or not it’s legitimate, it can increase home prices. Someone who overpays on one house becomes the comp on the next. It’s nearly impossible to tell if it’s an lavish buyer being financed by Mom and Dad’s bank, or someone who needs cash moving.
Since the marginal buyer sets the pace of the game, this becomes every buyer’s problem. As we discussed earlier, a small amount of money laundering can drive prices up enormously. You think you are buying a house. Maybe they’ll buy a locker. The person with the most money sets the rules, and they may not even be playing the same game as you.
The money transfers should have triggered at least 7 types of alerts
If you’re starting to think this sounds a little suspicious, you’re not. Authorities found more than seven warning flags that it may be money laundering. “At least seven types of money laundering indicators were observed, particularly in the stratification and integration phases as funds were moved from other countries and turned in favor of Person A and his family,” the notes of the FINTRAC report said. .
Not familiar with the jargon? Money laundering occurs in three steps: placement, stratification and integration. Placement is the introduction of illegal money back into the system. Layering is when you transact to hide the original source. Integration works the money back into the legitimate system. If it is successful, it should be impossible to tell whether it was a legitimate business or money laundering.
In this case, FINTRAC says the last two phases were suspicious. In other words, it was a sloppy transaction. Again, every payment (60 in total) should ring alarm bells. For the most part, the entire system has not questioned this money. When they did, the consequences of holding suspicious money were not what you might think.
It first came to the attention of UBS (Canada)
The family and the mountains of inexplicable money first came on the radar of UBS Canada. In 2011, the bank made two reports of suspicious transactions. The family received $7.5 million over ten transactions, which seemed odd to the bank. UBS asked the family to explain where the money came from.
The family claimed it came from the partial sale of real estate in China. A developer bought part of the property from the family, and these were the proceeds. Why it came in ten trades still wasn’t covered, but whatever. The bank asked them to provide proof of the sale or title to the remaining property they owned.
After there was not enough evidence to satisfy the bank, the money was seized. Just kidding, UBS asked them to take their money elsewhere. Any assets that were illiquid could be kept with the bank until they were liquidated. At that point, they should transfer the proceeds.
In other words, you don’t have to stop having suspicious money, you just can’t have it here. It may seem strange, but Canadian banks have few tools to deal with these problems. In fact, even FINTRAC, which is responsible for investigating these transactions, has no tools. The bank (and authorities) have little or no recourse in these situations. That’s part of why Canada has become a hotbed of murky money.
In contrast, countries such as the UK have recently introduced unexplained wealth orders (UWO). If you are hit by a UWO, you must explain where you got the money. If you can’t, the state can seize the property from the public. It’s not a high bar to show where the money came from, but people fail to take even a low threshold.
The family moved $167 million through Canadian banks
After examining the FINTRAC data, counsel has subpoenaed 11 banks. They found that the family had moved $166.9 million through five major Canadian banks between 2009 and 2020. It’s unclear where the rest of the money went beyond real estate purchases. Looking at the ownership records, only ~$32 million appears to have been used as payment. It’s a lot of mysterious money floating around, and where it came from caught the attention of the study authors.
How questionable money entered Canada
A chart produced by FINTRAC to explain how the money flowed from abroad through various intermediaries and eventually ended up with a “low-income” family.
Source: Cullen Committee.
Deposits made by parties associated with organized crime and foreign officials
FINTRAC lists the names of the depositors, but makes no further comment. Counsel found limited information about the companies. Some also had no official registration in the country in which they operated. A little digging, and they found an association with less than savory springs.
A saver who sent the family $1.6 million was accused of running an underground bank. The allegation came from a mainland Chinese, during an unrelated contract dispute. He accused the operator of using employees to evade capital controls. A Chinese court ruled that the transfers were legal.
The Council also alleges that a depositor is a business partner of a prominent Communist Party member. He served as a delegate to the Chinese People’s Political Consultative Congress (CPPCC). The CPPCC is considered a branch of the United Front Work Department (UFWD). An Australian think tank (run in part by the military), accused the UFWD of being a tool for foreign influence.
In June 2020, Canada will have a public security notice citing the UFWD. The release was made not to acknowledge anything but said Canada is working on it. A public safety statement for what exactly is still unclear. But Canada seems to be doing it.
Council also indirectly connects another high-profile executive from Macau. They describe her as “a gaming mogul widely said to have close ties to organized crime, most notably Wan Kwok-koi, aka Broken Tooth Koi, a leader of the 14K Triad.”
Fun fact from Vancouver: Wan Kwok-koi once ordered a hit on Lai Tong Sang, the head of another Triad gang. Lai had moved to Vancouver in 1996 and his house was sprayed with bullets in an attempt to kill him. Canadian Immigration said they had wrongly granted him permanent residency because they didn’t do background checks. Oops!
There is now a way to tell how money laundered cash was made
Was the money transferred linked to organized crime? No one knows, but when this scale of money moves, it’s nearly impossible to tell the source. Is it legitimate money the family made, just flowing through dodgy banks? Or is it someone else’s money, earned in a much more nefarious way? Few questions were asked, as it was simply largely seen as cash to buy houses. Many of them.
When a bank eventually asked questions, the Canadian system had few recourse options. All they could do was ask the family to take their money elsewhere. This is not an accident, but part of a carefully constructed system. Not to allow the illegal flow of money, but to limit the reporting of crimes to a minimum. Officially, this is just $167 million worth of misfiled paperwork. As for the family, the head of the family is deported. No idea how that goes, as a Canadian court has just sealed the proceedings.
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