New Anti-Money Laundering Legislation: Why is Alberta so Slow on the Uptake?

November 18, 2020

Jenine Urquhart*

On December 11, 2017, finance ministers from across Canada signed the Agreement to Strengthen Beneficial Ownership Transparency (the “Agreement”).[1] The Agreement acknowledged “the misuse of corporations and other legal entities for tax evasion and other criminal purposes, such as money laundering, corruption and the financing of terrorist activities.”[2] The ministers agreed “in principle” to amend their respective corporate statutes to, among other things, ensure that all closely held corporations provide up-to-date and transparent information regarding beneficial owners of the corporation.[3]

The Agreement reflects the increasing concern surrounding the phenomenon of “snow washing” in Canada. Snow washing can be defined as “the flow of dirty money entering the Canadian economy for the purposes of tax evasion or terrorist financing.”[4] Due to Canada’s “opaque” corporate registry rules, it has been deemed one of the easiest of sixty countries in the world “to set up an untraceable company.”[5] In fact, research suggests that anywhere between $46 billion[6] to more than $100 billion[7] was laundered in the country in 2018 alone. Private corporations are primary contributors to snow washing.[8] Shell companies—non-trading companies used as a vehicle for some business purpose[9]—can be created and used to launder money because they lack the securities regulation that publicly traded companies must adhere to.[10]

On June 13, 2019, amendments to the Canada Business Corporations Act[11] came into force.[12] The aim of several of the amendments is to identify “individuals with significant control” (“ISC”) within private CBCA corporations.[13] Corporations must keep a securities registry which tracks information about ISCs.[14] The information that is required to be in the registry includes: the ISC’s name, date of birth, last known address, and jurisdiction for tax purposes, as well as a description of the ISC’s interest or shares in the corporation and the date on which the individual became or ceased to be an ISC.[15] ISCs are defined in the legislation as individuals who, jointly or individually, own 25 per cent or more of the corporation’s shares, either as a beneficial or registered owner.[16] Therefore, an ISC either holds 25 per cent or more of voting rights, or 25 per cent or more of shares for value.[17] A person may also be deemed to have significant control if they have “any direct or indirect influence that, if exercised, would result in control in fact of the corporation,”[18] such as the ability to “nominate or name a majority of the board of directors.”[19] Failure to comply with the amendments could result in summary conviction or a fine of up to $5,000.[20]

On March 31, 2019, the Expert Panel on Money Laundering in British Columbia Real Estate released a report titled “Combatting Money Laundering in BC Real Estate”.[21] The Expert Panel Report attributed high money laundering estimates to the high levels of crime and the high gross domestic product (“GDP”) in British Columbia.[22] A high GDP “makes it easier to hide criminal proceeds in lucrative businesses or assets,” therefore making regions with a strong GDP “safe havens for the [laundered] money.”[23] Notably, however, of the Canadian regions with the highest estimated amounts of money laundered, British Columbia ranks only fourth.[24] Alberta, Ontario, and the Prairies (Saskatchewan and Manitoba) take the top three spots.[25]

Presently, only three provinces have taken steps to fulfill the terms of the Agreement. Manitoba’s amending legislation[26] came into force on January 1, 2020. These amendments are almost identical to those of the CBCA. Saskatchewan is also moving toward amendments of its own with Bill 191 receiving royal assent on March 16, 2020.[27]

In British Columbia, Bill 24[28] received royal assent in May 2019. The amendments to the British Columbia Business Corporations Act[29] are also similar to the CBCA amendments. The required transparency registry, however, also obliges corporations to record information regarding the citizenship of the ISC.[30] In addition to these measures, British Columbia has taken the Agreement one step further by creating the Land Owner Transparency Act.[31] This legislation appears to be a reactionary measure to the extraordinary amount of money laundered through British Columbia’s housing market each year. It has been estimated that “nearly one-third of the 100 most valuable residential properties in Greater Vancouver were owned by shell companies” in 2016.[32] This resulted in more than $7 billion being laundered into British Columbia’s housing market, which forced a corresponding increase of housing prices in the province by 5 per cent.[33] Similar to the corporate statute amendments, LOTA creates a publicly accessible registry of beneficial ownership in land.[34]

As mentioned above, high money laundering estimates tend to be correlated with high crime rates and a high GDP. The Expert Panel Report speaks to these variables when discussing Alberta’s high money laundering estimates, noting that “[r]elative crime rates have been rising in Alberta” and that, prior to the fall of oil prices in 2015, Alberta had a relatively high GDP.[35] It was estimated that $10.2 billion was laundered through Alberta in 2015.[36] This number is staggering when compared alongside the Expert Panel Report’s estimation that $40 billion was laundered into all of Canada that same year.[37]

A joint statement made on June 14, 2019 by finance ministers from across Canada reaffirmed their commitment to the Agreement.^[38] The joint statement also introduced a new working committee which will “‘address the inherent risks of money laundering and other illicit activity that may arise in the practice of law.’”[39] However, the estimates from the Expert Panel Report naturally give rise to questions as to why Alberta has been so slow to amend its own legislation. The push from Saskatchewan, Manitoba, and British Columbia to fight the opacity in their corporate statutes serves to emphasize Alberta’s lack of movement.

In a May 2019 statement provided to media, Service Alberta indicated that Alberta “is not in a position to bring any amendments forward” but is “monitoring other provinces’ and jurisdictions’ reactions to the [federal government’s] request.”[40] Nonetheless, as of the time of this blog’s publication, there is no indication of any related amendments to Alberta’s Business Corporations Act.[41]

In fact, instead of using the estimates from the Expert Panel Report to push forward with amendments, Alberta has criticized the Expert Panel Report’s veracity. Alberta’s Minister of Justice and Solicitor General has suggested that the Expert Panel Report’s data is unverifiable and “‘may not be completely reliable.’”[42] This critical attitude of the Government of Alberta presents a bigger problem for the efficacy of Canada’s response to money laundering. Any rigorous legislation that other jurisdictions are implementing may be effectively nullified by Alberta’s lack of participation. British Columbia’s recent initiatives for enhanced transparency, for example, may simply prompt criminals to move their snow washing activities to the province’s less transparent neighbour. Abating the amount of future money laundered in Canada, it seems, could hinge on the approach of Alberta’s legislature.

 

SUMMARY

This comment discusses an agreement by Canada’s finance ministers to amend their respective corporate statutes to reflect a need for transparency within closely held corporations. British Columbia, Manitoba, and Saskatchewan have all moved forward to implement the agreement within their jurisdictions. However, a recent report out of British Columbia has named Alberta as the region with the highest estimated amount of money laundered through it. What is Alberta doing in light of this finding, and what are the possible implications of their inaction?

*           JD Candidate (Saskatchewan).

[1]           Agreement to Strengthen Beneficial Ownership Transparency, 11 December 2017, online: Government of Canada <www.canada.ca/en/department-finance/programs/agreements/strengthen-beneficial-ownership-transparency.html>, archived: <perma.cc/35L2-3FRF>.

[2]           Ibid.

[3]           Ibid, points 1–2.

[4]           “What is snow-washing?” (last visited 19 May 2020), online: End Snow-Washing <www.endsnowwashing.ca/what-is-snowwashing>, archived: <perma.cc/YR7K-BP7G>; Robert Cribb & Marco Chown Oved, “Snow Washing: Canada is the world’s newest tax haven”, Toronto Star (25 January 2017), online: <projects.thestar.com/panama-papers/canada-is-the-worlds-newest-tax-haven>, archived: <perma.cc/3MYJ-T89M>.

[5]           Ashifa Kassam, “How Canada became an offshore destination for ‘snow washing’”, The Guardian (14 February 2018), online: <www.theguardian.com/world/2018/feb/14/canada-corruption-snow-washing-investigation-private-companies>, archived: <perma.cc/Y6A5-G667>.

[6]           Expert Panel on Money Laundering in BC Real Estate, Combatting Money Laundering in BC Real Estate, (Victoria: Ministry of Finance, 2019) at 1, online (pdf): <www2.gov.bc.ca/assets/gov/housing-and-tenancy/real-estate-in-bc/combatting-money-laundering-report.pdf>, archived: <perma.cc/PD37-D4FK> [Expert Panel Report].

[7]          Denis Meunier, Hidden Beneficial Ownership and Control: Canada as a Pawn in the Global Game of Money Laundering (CD Howe Institute, 2018) at 2, online (pdf): <www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/Final%20for%20advance%20release%20Commentary_519_0.pdf>, archived: <perma.cc/3RK6-S9YD>.

[8]           See Kassam, supra note 5.

[9]          See Katherine Barber, ed, The Canadian Oxford Dictionary, (Oxford, UK: Oxford University Press, 2004) sub verbo “shell company”.

[10]         See Gary R Sollis & Andrea C Johnson, “Canada set to require beneficial ownership tracking by non-public CBCA corporations” (11 December 2018), online: Dentons <www.dentons.com/en/insights/alerts/2018/december/11/canada-set-to-require-beneficial-ownership-tracking-by-nonpublic-cbca-corporations>, archived: <perma.cc/D9YY-9FP5>.

[11]         RSC 1985, c C-44 [CBCA].

[12]         See Budget Implementation Act, 2019, No. 1, SC 2019, c 29, ss 98–102; Budget

Implementation Act, 2018, No. 2, SC 2018, c 27, ss 182–86.

[13]         Despite the push for transparency and identification of ISCs, some corporations remain exempt under these amendments: CBCA, supra note 11, s 21.1(7).

[14]         Ibid, s 21.1(1).

[15]         Ibid.

[16]         Ibid, ss 2.1(a), 2.1(3).

[17]         Rashi Sengar, “Non-public CBCA corporations must begin tracking controlling shareholders” (February 2019), online (pdf): Norton Rose Fulbright <www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/knowledge-pdfs/non-public-cbca-corporations-must-begin-tracking-controlling-shareholders.pdf?la=en-ca&revision=f8ecd155-280a-4866-a7ce-47921224cfad>, archived: <perma.cc/CM48-7X55>.

[18]         CBCA, supra note 11, s 2.1(1)(b).

[19]         Sengar, supra note 17.

[20]         CBCA, supra note 11, s 21.1(6).

[21]         See Expert Panel Report, supra note 6.

[22]         Ibid at 118.

[23]         Ibid.

[24]         Ibid at 126.

[25]         Ibid.

[26]         The Business Registration, Supervision and Ownership Transparency Act (Various Acts Amended), SM 2019, c 25.

[27]         Bill 191, An Act to amend The Business Corporations Act, 4th Sess, 28th Leg, 2020 (assented to 16 March 2020), SS 2020, c 1. At the time of this blog’s publication, An Act to amend The Business Corporations Act had not been brought into force.

[28]         Bill 24, Business Corporations Amendment Act, 2019, 4th Sess, 41st Parl, 2019 (assented to 16 May 2019), SBC 2019, c 15 [BC Amendment Act]. At the time of this blog’s publication, the BC Amendment Act had not been brought into force.

[29]         SBC 2002, c 57.

[30]         BC Amendment Act, supra note 28, cl 5. For a more detailed consideration of the BC amendments, see Graeme Austin, “Amendments to BC Business Corporations Act requiring private companies to prepare and maintain a ‘transparency register’” (May 2019), online (pdf): Norton Rose Fulbright <www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/knowledge-pdfs/amendments-to-bc-business-corporations-act-requiring-private-companies.pdf?la=en-ca&revision=>, archived: <perma.cc/QKJ6-5F7V>.

[31]         SBC 2019, c 23 [LOTA]. At the time of this blog’s publication, LOTA had not been brought into force.

[32]         Wendy Stuek, “B.C. unveils Canada’s first beneficial ownership registry”, The Globe and Mail (2 April 2019), online: <www.theglobeandmail.com/canada/article-bc-unveils-canadas-first-beneficial-ownership-registry>, archived: <perma.cc/9U5J-NHZX>.

[33]         Ministry of Finance, News Release, “Billions in money laundering increased B.C. housing prices, expert panel finds” (9 May 2019), online: Government of British Columbia <news.gov.bc.ca/releases/2019FIN0051-000914>, archived: <perma.cc/5JQQ-88GQ>; see generally Expert Panel Report, supra note 6.

[34]         For more detailed information about what LOTA requires, see Riley Burr & Christopher Horte, “British Columbia Land Owner Transparency Act becomes law” (May 2019), online (pdf): Norton Rose Fulbright <www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/knowledge-pdfs/british-columbia-land-owner-transparency-act-becomes-law.pdf?la=en&revision=7ffc0f53-617b-4f93-acb5-cffac009eb8b>, archived: <perma.cc/A8Z4-5TX5>.

[35]         Expert Panel Report, supra note 6 at 126. Note that the estimates were based on information gathered between 2011 and 2015.

[36]         Ibid.

[37]         Ibid.

[38]         Department of Finance Canada, News Release, “Joint Statement – Federal, provincial and territorial governments working together to combat money laundering and terrorist financing in Canada” (14 June 2019), online: Government of Canada <www.canada.ca/en/department-finance/news/2019/06/joint-statement–federal-provincial-and-territorial-governments-working-together-to-combat-money-laundering-and-terrorist-financing-in-canada.html>, archived: <perma.cc/T46Q-GD4A>.

[39]         Ibid.

[40]         Rosa Saba, “Alberta’s money laundering problem made worse by attitude, lack of transparency by government: report author”, Toronto Star (15 May 2019), online <www.thestar.com/calgary/2019/05/15/albertas-money-laundering-problem-made-worse-by-attitude-lack-of-transparency-by-government-report-author.html>.

[41]         RSA 2000, c B-9.

[42]         Justine Hunter & Mike Hagar, “Alberta questioning B.C.’s money-laundering report”, The Globe and Mail (13 May 2019), online: <www.theglobeandmail.com/canada/article-alberta-questioning-bcs-money-laundering-report>, archived: <perma.cc/V5B2-E7Q7>.