Risk Management and Crisis Response Blog

Cullen Commission releases final report on money laundering in British Columbia

Jun 23, 2022 6 MIN READ
Authors
Stéphane Eljarrat

Partner, Disputes
Head: White-Collar Defence, Toronto

Lawrence E. Ritchie

Partner, Disputes, Toronto

Malcolm Aboud

Counsel, Litigation, Toronto

Sarah Firestone

Associate, Litigation, Toronto

Canadian currency bills

On June 15, 2022, the Commission of Inquiry into Money Laundering in British Columbia led by the Honourable Austin F. Cullen as Commissioner (the Cullen Commission) released its much-awaited final report [PDF] (the Commission Report). As we previously wrote in our Legal Year in Review – White-collar defence: Increasing risks and enforcement activity, British Columbia established the Cullen Commission in May 2019 to determine where and how money laundering is taking place in the province, why it has been allowed to happen and how to prevent such occurrences in the future.

The Commission Report concluded that, based on the available evidence, it is estimated that billions of dollars per year are being laundered in the province, requiring strong and decisive action by government, law enforcement and regulators in response. The over 1800-page Commission Report calls for sweeping changes and includes the finding that this dirty money has been laundered through real estate, casinos and the purchase of luxury goods in the province.

The Commission Report

The Cullen Commission focused on the period between 2008 and 2018 and heard testimony from 199 witnesses over 133 days of hearings. As stated in the Commission Report, the mandate of the inquiry included

  • the extent, growth, evolution and methods of money laundering in various sectors of the economy
  • the acts or omissions of responsible regulatory agencies and individuals that contributed to money laundering in the province
  • the effectiveness of anti-money laundering efforts by these agencies and individuals
  • barriers to effective law enforcement

The Cullen Commission was also tasked with recommending measures to address the circumstances that allowed money laundering to thrive. The Commission Report makes 101 recommendations largely directed at British Columbia’s provincial government, based on the finding that while the province has taken laudable steps, much remains to be done. The Commission Report contains the following key findings and recommendations relevant to Canadian business and the anti-money laundering enforcement landscape:

  • New AML Commissioner Office — the province should establish an independent AML Commissioner as a new office of the Legislature to better identify threats. A dedicated provincial money laundering intelligence and investigation unit is needed to mount a sustained and effective response to money laundering.
  • Financial institutions — money services businesses present a significant money laundering risk and should be regulated by the province. Recommendations include, among others, that the British Columbia Financial Services Authority should develop anti-money laundering guidance for credit unions and that their mandate be expanded to encompass regulation of money services businesses.
  • Beneficial ownership registry — a corporate beneficial ownership registry is essential to address money laundering risks in the corporate sector and a publicly accessible Canadian corporate beneficial ownership registry should be in place.[1]
  • Virtual assets and cryptocurrency — cryptocurrency is an emerging money laundering vulnerability that should be addressed through provincial regulation. Related recommendations include training related to indicators and typologies of money laundering through virtual assets for law enforcement, regulators and crown counsel as well as the implementation of a regulatory regime for virtual asset providers.[2]
  • Casinos — an unprecedented volume of illicit cash that was laundered did so through B.C. casinos. Recommendations include that the threshold for requiring proof of the source of funds for casino transactions conducted in cash should be lowered and, once formed, the Independent Gaming Control Office maintain authority to issue directives to the British Columbia Lottery Corporation without the consent of the Minister Responsible for Gaming or any other external authority.
  • Real estate — the real estate sector in B.C. is highly vulnerable to money laundering. Recommendations relate to real estate regulation, land owner transparency and improving real estate data collection among others. Findings also include that money laundering is not the cause of housing unaffordability, but the Commission Report recommends that the province analyze the impact of reforms on housing prices as new policies and measures against money laundering in real estate are analyzed.
  • Luxury goods — as a result of risks in the luxury sector, the Commission Report includes the recommendations, among others, that the province should implement a reporting regime in which all cash transactions over $10,000 must be reported to a central authority, that a mechanism should be established by which a minister, in consultation with the AML Commissioner, can implement timely measures to address evolving risks and that the province regulate the purchase and sale of vehicles for export.
  • Professional services — several recommendations relate to lawyers and accountants, including proposed amendments to the Law Society Rules, the need to bring concerns about lawyers involved in money laundering activity to the attention of the Law Society for investigation, as well as that The Chartered Professional Accountants of British Columbia must regulate its members for anti-money laundering purposes.
  • Enforcement — law enforcement agencies were aware of the money laundering risks but failed to intervene effectively. Recommendations include that law enforcement agencies should consider money laundering and proceeds of crime issues at the outset of an investigation and that a dedicated provincial money laundering intelligence and investigation unit be created to lead these efforts.[3] Recommendations also included that asset forfeiture must be pursued more vigorously[4] and that an unexplained wealth order regime[5] should be developed in the province.

Takeaways

Organizations should apply best practices to manage AML risks. As the landscape continues to shift in Canada, remaining vigilant and ensuring policies are updated and revisited to ensure their compliance with all AML laws and regulations is key.

While money laundering activities are predominantly regulated federally, the B.C.-focused Commission Report emphasizes that regulation and corresponding enforcement at the provincial level would be beneficial in terms of efficiency and effectiveness. The Cullen Commission and Commission Report shed light on some of the enforcement shortcomings in B.C. in particular, but the recommendations are relevant to other Canadian provinces as well. Given these robust findings and recommendations, we expect to see an increased focus on the AML regime and a related increase of enforcement action not only in B.C. but also in the rest of Canada. Organizations should anticipate increased coordination between provincial and federal authorities as B.C. and other provinces begin to make legislative, regulatory and enforcement changes.


[1] See also our Legal Year in Review – White-collar defence: Increasing risks and enforcement activity. Notably, as part of the 2022 Budget, the federal government confirmed an accelerated timeline. Therefore, it is anticipated The Canada Business Corporations Act will be amended to implement a public beneficial ownership registry that will be accessible by the end of 2023. 

[2] See also our Anti-money laundering in Canada guide, which includes federal reforms to AML measures over cryptocurrency in the 2021 amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).

[3] Notably, money laundering is a federal offence under the Criminal Code and PCMLTFA. Under the Criminal Code, section 462.31 (Laundering proceeds of crime), the transfer and other dealings with funds suspected to be proceeds of crime is a criminal offence.

[4] See our previous commentary that specialized enforcement can be a highly effective tool for regulators. AML, like complex frauds and other types of financial crime, is sophisticated and difficult to pursue, and an office with a specialized mandate, expertise and focus on these sorts of investigations is likely to contribute to more effective enforcement efforts.

[5] Unexplained wealth orders allow the state, upon meeting a certain evidentiary threshold, to obtain an order compelling a person to produce information concerning the provenance of a particular asset. If the recipient fails to produce this information, there is an assumption that the property was purchased with illicit funds. The property will be forfeited to the state if the presumption is not rebutted.