Unexplained wealth orders touted to fight money laundering

by Neil Sharma on 07 Sep 2021

Talk of a beneficial ownership registry, which, it is believed, would prevent numbered companies from owning real estate and deal a major blow to would-be money launderers, is misguided, say two Toronto-based lawyers, one of whom proposed establishing an unexplained wealth order instead.

If police were suspicious that an abandoned house was being used to wash dirty money, they could investigate whether or not anyone lives there by questioning neighbours and eventually asking the owner to prove the provenance of funds used to pay for the home. If the owner refuses, the police then have grounds to pursue the matter in court.

“The owner has the right to prove where the money came from, and if they can’t, the house is seized and sold,” said lawyer David Franklin. “The unexplained wealth order is easier to check. It’s a much better way of doing it. If people know they have to go through an unexplained wealth order and they’ve bought a house with dirty money, they have a problem, don’t they? They could lose their property.”

Franklin contends that beneficial ownership registries are rife with problems beginning with the cost of implementation to their enforcement. Moreover, given that so few homes are bought for the purpose of laundering money, it’s unlikely that such registries would catch all attempts and stymie the problem.

“If you have the registry, who checks to see there’s money laundering? Just because you have a registry, how do you go about finding out which one came from money laundering?” asked Franklin. “To me, it’s a lot of money, a big burden and there’s minimal benefit to it.”

Bob Aaron of Aaron & Aaron echoed Franklin’s sentiment about beneficial ownership registries and says government intervention in the real estate market would invariably be disastrous, citing the Ontario Liberals’ Fair Housing Plan in April 2017. Aaron is furthermore sceptical that dirty money even proliferates Canada’s big city real estate markets.

“I’ve been practicing real estate law for almost 50 years and I don’t see laundered money; the only form of overseas money I see usually comes from banking channels. It’s not being laundered at all,” he said. “Not only is it unnecessary, it’s an unjustified intrusion into private ownership.”

Additionally, Aaron says circumventing a beneficial ownership registry isn’t rocket science. One of the easiest ways to do it is by installing a dummy owner.

Still, some corners of the real estate market, notably the Ontario Real Estate Association, believe a beneficial ownership registry is the ideal solution to keeping money laundering out of real estate. The association’s stance is noteworthy because it isn’t typically in favour of government intervention, having recently upbraided the federal Liberals for proposing a proscription on blind bidding, but it believes dirty money is one reason first-time buyers struggle to become homeowners in Canada.

Aaron parries that there’s a simpler explanation for why Canadian housing is frequently paid for with foreign money.

“How much of the foreign money in real estate is legitimate money that’s brought over to shelter it from the politics of the mother country, and how much of it is produced by illegal activities in Canada? My concluding thought is that it’s very difficult to distinguish criminal money from laundered money, and where do you draw the line? Any time the government gets involved in the real estate market, they mess it up and I think a registry of beneficial owners won’t work because it’s easy to get around. The government should step back and keep its dirty paws off the real estate market.”

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