As of January 1, foreigners are banned from buying property in New Zealand because of soaring real estate prices. Canada should have done the same years ago.
But Canadian governments remain clueless. Last month, the Canada Mortgage and Housing Corporation claimed misleadingly that “non-residents” own a small portion of housing – a mere 3.4 percent in Toronto and 4.8 percent in Vancouver.
That statement underscores the incompetence of the country and its principal lender.
Ownership is hidden in Canada because the country is a giant secrecy haven where anyone from anywhere can, and does, buy properties through offshore shell companies, nominee shareholders, trusts, or law firm fronts. The only glimpse into the scale of foreign speculation abuse was an analysis in 2015 by anti-corruption organization, Transparency International, of Vancouver’s 100 most valuable property deals: Nearly 50 per cent of ownerships were hidden through shell companies, nominees and trusts.
This flood of hidden dirty money from offshore is widespread so how can a federal government agency state that foreign ownership is minuscule? Worse, how many billions has the CMHC loaned to “owners” hiding behind fronts that are not entitled to mortgages subsidized by Canadian taxpayers?
Secrecy facilitates money laundering and has contributed mostly to excessive real estate prices and the fact that Canadian consumer debt is the highest in the world, representing a grave economic risk.
Canada is a hot money haven because cash deposits or questionable wire transfers — that cannot be deposited into banks without verifying the source of funds – flow through real estate brokers, developers, and law firms then are deposited into banks for payment.
An example surfaced last May, after a prolonged probe by the Law Society of British Columbia, when a West Vancouver lawyer was found guilty of professional misconduct for allowing $26 million from unknown sources to flow through his trust account even though he did no legal work to earn the money. He was a conduit — like thousands of lawyers, notaries, proxies, and real estate professionals — for helping hide illegal proceeds and money looted from elsewhere into real estate or illicit payments.
The Vancouver lawyer ignored “a sea of red flags” and never asked the source of funds or where they were deployed. He admitted there was “risk involved” so he charged a tenth of one per cent of the amount, but did no legal work for the client.
Lawyers in Australia, Britain, and Europe are now required to determine and disclose the beneficial ownership of any client and provide that information on demand to tax authorities or law enforcement officials.
Last year, the world’s watchdog into money laundering and terrorist financing — the Financial Action Task Force (FATF) launched by the G7 and United Nations – gave Canada a failing grade because of its legal and real estate loopholes.
“Requirements [in Canada] are inoperative toward legal counsels, legal firms and Quebec notaries,” said the FATF report. “In light of these professionals’ key gatekeeper role, in particular in high-risk sectors and activities such as real-estate transactions and the formation of corporations and trusts, this constitutes a serious impediment to Canada’s efforts to fight money laundering (or terrorist financing).”
Canada must close loopholes, end secrecy, and ban foreign ownership of real estate.
First published National Post Jan. 5, 2017