When John Penrose visited Canada this year to address a global anti-corruption summit, he brought some advice for his host country. The U.K. member of parliament told government representatives of a powerful anti-corruption tool that would cost less to implement than paving a few kilometres of road.
He was talking about a public registry of beneficial owners, a searchable database that identifies the true owners of companies. In jurisdictions without public registries, companies can be established without ever revealing the identify of the person or people controlling them. Businesses can then be used to move illicit funds, including proceeds of corrupt governments, trafficking and terrorism. White-collar criminals also profit from the secrecy, which slows down investigators and tax authorities.
As the U.K. prime minister’s Champion on Anti-Corruption, Penrose knows a thing or two about tackling the kind of crime that occurs behind anonymous ownership. His government was the first in the world to introduce a public registry to draw criminals out from the shadows. Penrose spoke about the initiative at the Open Government Partnership Summit in Ottawa this spring, where officials, academics and civil society representatives from 79 countries gathered to promote more open democracies. He was joined on stage by representatives from Ukraine and other jurisdictions that see the value of beneficial ownership transparency.
The Canadian government, however, appears to be mostly watching from the sidelines, even as the situation worsens at home. Weak transparency laws—they are among the worst in the G20—have made Canada a money laundering hot spot. A C.D. Howe Institute report earlier this year estimated that up to $130 billion in illicit funds cross our borders every year. The practice of cleaning dirty money in the Canadian economy has grown so common that international experts found a special term for it: snow-washing.
"We are at the back of the pack on beneficial ownership transparency,” says James Cohen, executive director of Transparency International Canada, one of several organizations advocating for a pan-Canadian public registry of beneficial ownership. “While our peers make the move to address this policy, Canada becomes an increasingly soft target for crooks and kleptocrats,” he warned.
It’s not hard to understand why criminals are drawn to Canada: there are more rigorous checks to obtain a library card here than to set up a shell company. Under the cover of a legitimate business, criminals can stash their dirty money in various sectors of the economy, from casinos to real estate. The effects have been especially felt in British Columbia, where money laundering has increased housing prices by about 5%, according to an expert panel report this spring.
How do beneficial ownership registries work?
Federal and provincial governments already have business registries that are updated whenever a company is created, dissolved, amalgamated, or when it changes ownership, address and other information. A public, searchable pan-Canadian registry would add beneficial ownership fields to these existing corporate registries, identifying the individual investing in and controlling the company rather than a nominee or “straw man.”
What data does a registry contain?
Basic information such as name, partial date of birth, address, country of residency, and whether the owner is a person of interest or head of an international organization. For privacy reasons, some of that information would be limited to government or law enforcement officials, but a unique identifier can be used to search related entities and activities.
Law enforcement tracking illicit activity; tax officials investigating avoidance or evasion schemes in Canada and across multiple jurisdictions; real estate and financial institutions carrying out due diligence checks; Canadian businesses verifying customers, creditors and potential partners; journalists and civil society investigating matters of public interest and safety, etc.
Which jurisdictions are leading on transparency?
The U.K. was one of the first to implement a public registry of beneficial owners and recently passed a law requiring overseas territories, such as the British Virgin Islands, to do the same. The European Union has required member nations to create public registries by 2020. A number of regions have or are in the process of adopting beneficial ownership registry laws, including Brazil, South Africa, Ukraine and others. Within Canada, B.C. requires public registries of beneficial ownership for property through its Land Owner Transparency Act,whichmandates that corporations, trusts and partnerships disclose beneficial owners at the time of legal transfer of a property, and any changes in ownership.
Who supports a public registry?
The Canadian Money Services Business Association, Open Concept, the AML Shop, Mining Watch, the Canadian Labour Congress, FACT Coalition, IMPACT, and many other organizations.
Transparency International’s research in Vancouver found the beneficial owners of nearly half the city’s most valuable properties were hidden behind shell companies, trusts and nominee owners. Then came a hard-hitting report from former RCMP deputy commissioner Peter German this spring revealing that 13,678 residential properties in B.C. were owned by individuals or entities in one of 113 countries outside of Canada, more than a fifth of which are from known high-risk jurisdictions.
In response to the findings, the B.C. government called a public inquiry into its money laundering problem and committed to creating a public registry of beneficial owners for property—a Canadian first, and “one of the biggest steps of any government in the world to address beneficial ownership transparency,” according to Cohen. It could take time for federal and provincial governments to reach a consensus on a pan-Canadian registry, but Cohen says that’s even more reason for jurisdictions like B.C. to press ahead with their own measures, like a public land registry.
Governments that don’t act should consider themselves warned, according to Maureen Maloney, professor at the School of Public Policy at Simon Fraser University and chair of the expert panel that produced the report Combating Money Laundering in B.C. Real Estate. In an interview this year with CBC’s The Current, Maloney cautioned that other provinces will find they have a much bigger issue once criminals start moving their money out of B.C. in search of a new home. The expert panel calculated that other provinces are already awash in the activity, with an estimated $10.2 billion of illegal flows in Alberta in 2015, and $8.2 billion worth in Ontario.
The Greater Toronto Area—where property prices and homelessness have been on the rise—is especially vulnerable, according to a joint report this year by Transparency International Canada, Canadians for Tax Fairness, and Publish What You Pay Canada. The report examined more than 1.4 million property transactions in the GTA and found at least $20 billion entered the GTA housing market over the last decade without oversight or due diligence on beneficial owners and source of funds. Companies were more than three times as likely as individuals to purchase real estate without a mortgage.
All of this has prompted a wave of support for greater transparency across the board. One of Canada’s largest single-industry trade associations, the Ontario Real Estate Association, backed calls for a public registry of beneficial owners of property. CEO and former provincial Progressive Conservative party leader Tim Hudak told the Toronto Star the policy solution was “a no brainer.”
Municipalities have a major stake as well. Regional governments have been left to deal with the localized effects of money laundering and other criminal activity, including drug and human trafficking, a worsening fentanyl crisis, and lack of affordable housing. Revenues lost to tax evasion have added insult to injury, as governments claw back public services rather than addressing the root of their revenue problems.
Tax experts recognize the need for greater transparency. A recent survey of Canada Revenue Agency professionals found 61% believe Canada is too secretive about beneficial ownership and even more (75%) agree that federal and provincial governments should require corporations to publicly identify beneficial ownership relationships.
Business too is building a case for lifting the veil on anonymous ownership. Legitimate small and medium-sized enterprises (SMEs) have lost millions from being taken advantage of by criminals hiding behind shell companies. Law enforcement is having a hard time tracking the perpetrators down, much less recovering lost funds. The C.D. Howe Institute found that 99.9% of money launderers are never caught due to the difficulty of tracing money through a complex web of secret corporate entities.
SMEs and big business alike need access to beneficial ownership information to help them make informed decisions about their supply chains, says Robin Hodess, a panellist at the Open Government Partnership summit this spring and director for the B Team, a U.S.-based advocacy group of global business leaders. At last year’s B20 in Argentina (a global business meeting on the sidelines of the G20 summit) industry representatives called on governments to reduce business risks associated with anonymous company ownership. Public registries are increasingly seen as a critical due diligence tool, and support for that open data is growing across multiple levels of industry, from big banks to small businesses and even multinationals, Hodess told the summit.
Weak transparency rules pose risks to society beyond the impact on business. A report this spring from the Washington-based FACT Coalition highlighted how opaque ownership has allowed the import of counterfeit goods ranging from cancer treatment medication to knockoff military components. Legislators in the U.S. have recently acknowledged the perils of anonymous business ownership; beneficial ownership bills are making their way through congress with bipartisan support.
As the U.S. moves toward greater transparency, it has heightened warnings about the “major money laundering country” to its north. The U.S. Department of State this spring placed Canada on a shortlist of countries, including Afghanistan, the British Virgin Islands and China, at high risk of money laundering. Canada’s international reputation continues to suffer as international headlines expose the country’s snow-washing problem—and lack of government response.
An estimated $2.6 trillion—roughly 5% of global GDP—is laundered worldwide. The effects at home are detrimental enough, but they are devastating in countries where the additional loss of revenue exacerbates poverty. Money laundering helps fund terrorism and trafficking, which also more profoundly affect the poorest individuals, particularly women. Canada, which is committed to a feminist international assistance policy, can do much more to strengthen domestic laws to reduce gender-based violence beyond our borders.
Federal and provincial policy-makers have acknowledged there’s a problem. This spring, Finance Minister Bill Morneau announced the government would commit to exploring solutions with the provinces, including looking at a public registry of company beneficial owners. But without any firm commitment, advocacy groups and citizens must continue to press all levels of government to move toward more transparent laws that protect our communities, the economy, and Canada’s role on the international stage.
Erika Beauchesne is Communications Co-ordinator at Canadians for Tax Fairness.