Public B.C. corporate registry would be ‘game changer’ for money laundering
But unchecked corporate trusts remain ‘a vehicle’ for dirty money in B.C., says anti-money-laundering coalition
Graeme Wood
Western Investor
Downtown Vancouver’s financial district is home to thousands of numbered companies and some with hidden ownership believed to be tied to so-called dirty money ? File photo, Rob Kruyt, Business in Vancouver
The B.C. government will be seeking advice from the business community and public at large on the creation of a public registry of corporate beneficial ownership in the province, it announced January 17 it .
Finance Minister Carole James already enacted legislation last May requiring companies to state their beneficial owners in their corporate records, which are only held privately and only accessible by government authorities and relevant regulators.
Now, James is beginning a process to make at least some of that information public, which would align B.C. with a similar nationwide process and one that’s already been enacted this month by 31 European Union nations. Similar proposed legislation – but for a private registry controlled by the U.S. Treasury Department in the U.S. – has seen rare non-partisan support at committee level last year.
In Canada, three anti-corruption and transparency advocacy groups (Canadians for Tax Fairness, Publish What You Pay Canada and Transparency International Canada) have formed a coalition campaign to lobby senior governments, including the BC NDP, for these changes.
Campaign manager Sasha Caldera says a beneficial ownership registry for B.C. companies would be a “game changer” given the widespread concerns of dirty money flowing into the province.
“B.C. has been rocked by money laundering and illicit cash flows linked to crime and the fentanyl trade. At the same time, we’ve seen money laundering play a role in artificially increasing the price of real estate,” said Caldera.
“One problem experts point out is this cash is flowing through anonymous shell companies. Canada has a problem where it is easy to set up an anonymous company and ownership is hidden.”
The registry is a recommendation of the 2019 Expert Panel on Money Laundering in BC Real Estate report Combatting Money Laundering in BC Real Estate.
Transparency International Canada states in its report Opacity: “Beneficial ownership transparency is the single most important tool for fighting money laundering and other financial crime in the real estate sector and beyond.”
Caldera said the public registry could help combat illicit flow of funds, tax evasion and aggressive tax avoidance, which is proven to be a significant problem in Vancouver real estate. The registry will assist authorities with criminal investigations and civil society groups including journalists, said Caldera.
Banks and lawyers may also benefit from such a registry in order to better conduct know-your-client requirements under the Proceeds of Crime and Terrorist Financing Act, stated James in her consultation paper.
But before a public registry is created provincially and perhaps nationally, James wants to consider what may be some unintended consequences – a good thing, said Caldera, who has met with James previously on the subject.
Holding companies, James wrote, “are legitimate and regularly created for normal business purposes.” However, “without beneficial ownership information to complete the picture, it is difficult to distinguish between legitimate business structures.”
Input will consider, among other things: business impacts; efficient collection of data; public access (privacy); scope; and the role of government.
James noted that under the Land Owner Transparency Act, “which will establish a public registry of beneficial owners of land in B.C., the collected information has been divided into public information and information that is not publicly available.”
For instance, the public can see the full name and residency status of the beneficial owner but not other things available to law enforcement such as: how the ownership structure is held, social insurance number, last known address and tax status.
“Government is aware that public searchability of the registry means personal information will be displayed publicly,” James said.
“Advocates of full searchability of the database argue that full access deputizes every member of the public to act as verifiers of the information. If inconsistencies are found, they can be pointed out to the government for further follow-up.”
B.C. has already mandated beneficial owners of 25 per cent or more of a company be disclosed. The initial intention of the public registry is to maintain this level, said James in a statement. This is a much higher threshold than the 10 per cent threshold required by public registries in European countries and the 10 per cent threshold for public companies reporting major shareholders via SEDI. The expert panel recommended 10 per cent as well.
One significant issue acknowledged by Caldera may be the verification process. What is to stop someone from lying?
“Generally, to ensure the information in a government-maintained registry is accurate, government can take a reactive approach, a proactive approach or a mixture of the two,” stated James.
“The reactive approach refers to situations where the government only takes steps to verify the information about beneficial owners when alerted by another party,” whereas “the proactive approach would involve government enforcement officers monitoring the information in the government-maintained registry for suspicious entries.”
The public and businesses may weigh in on such a matter via the consultation process.
Currently, under the Business Corporations Act, authorities may seek a compliance order. Administrative penalties and charges may be other options in cases of non-compliance.
Then there remains the question of trusts.
“Other legal entities, notably partnerships and trusts, are also susceptible to being used for money laundering purposes,” stated James.
The proposed public registry will not include exposing the beneficial owners of trusts, although B.C.’s planned beneficial property owner registry will in cases where property is held in trusts. As such, James is asking businesses and the public about a future register of trusts for those not holding property assets.
“Trusts will be the next upcoming frontier and it’s already in discussion,” said Caldera.
“It’s important to have smart conversations on this before going ahead with policy. It’s a lot for Canada as a regime to catch up. So nailing trusts, private companies and lowering the threshold, verification methods and so on – it’s a lot. In the last two years things have moved by leaps and bounds. In early 2017, people were denying this was an issue.”
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