Bags of cash, luxury car export scheme described in B.C. money laundering report

An independent report suggests organized criminals are laundering money through British Columbia's luxury car sector and some are even receiving tax rebates from the province for the transactions.

The B.C. government tasked former RCMP deputy commissioner Peter German in September to identify potential links between criminal enterprises and real estate, horse racing and luxury vehicle industries.

Attorney General David Eby called the findings released Tuesday "disturbing confirmation" that money laundering is a problem in B.C. that goes beyond the previously identified channel of casinos.

"In the luxury car market, there is no financial reporting of large cash purchases, no oversight of international bank wire transfers and no apparent investigation or enforcement," he said.

"It's a recipe for exactly what's happened here: Vancouver becoming North America's luxury car capital generally, and perhaps since 2013, claiming North America's luxury car export capital title as well."

In addition to gathering accounts of luxury car sales of up to $240,000 paid for with bags of cash, German uncovered a "huge" and complicated luxury-vehicle export scheme involving hundreds of so-called "straw buyers" in the grey market.

Many of the straw buyers appear to be foreign students hired to purchase a car in Canada that will almost immediately be exported and re-sold in China, where dealerships charge more due to the tax structure and soaring demand. The role of a straw buyer is to insulate the true purchasers from contact with the seller, the report says.

The purchasers pay provincial sales tax when they buy the car but apply for a refund when it's exported and the practice has grown exponentially, costing the province almost $85 million since 2013, Eby said.

Before 2014, fewer than 100 vehicles a year received the refund. In 2016, the provincial sales tax was rebated on 3,674 vehicles and the surge in applications required the Finance Ministry to hire more staff, the report says.

The source and destination of the tax refunds and any income tax reporting from these individuals or entities is unknown, but the conditions are ideal for money laundering, the report says.

It's an unregulated grey market, with little know about the people or companies involved and where the money comes from, the report says.

"It provides a wonderful opportunity for large-scale money laundering, with very little chance of detection."

It's impossible to put a dollar figure on the amount being laundered through the luxury car sector, German said.

Eby said he was shocked to hear about the refunds and the government is moving quickly to address the issue.

"We have not waited to take action on this report."

The Finance Ministry is reviewing the tax rebate program and details of allegations made in the report have been forwarded to police, the Insurance Corporation of B.C., and the Vehicle Sales Authority. The province is also preparing plans for regulation of the luxury car sector.

The apparent growth in luxury car money laundering has coincided with other potential criminal activity and problems in the market, Eby said.

"I note the remarkable correlation between the timing of the exponential expansion of this grey market export scheme, the exponential growth of suspicious cash transactions at B.C. casinos and the exponential real estate price ramp up on the Lower Mainland," he said.

The report also found vulnerabilities in the horse racing sector with a lack of financial reporting requirements but no excessive issues related to money laundering.

The report is one of two commissioned by the province in September amid what the government said was "widespread concern about B.C.'s reputation as a haven for money laundering."

German was asked to look further into the problem after he concluded a review last June on money laundering in Lower Mainland casinos.

Another report by an expert panel on money laundering recommends rule changes that would close loopholes in the real estate market and increase transparency around who owns property in B.C.

Eby said that report, along with German's findings about the real estate sector, should be released in the coming days.

In an entirely separate report also released Tuesday, the C.D. Howe Institute estimates Canada fails to catch money launderers 99.9 per cent of the time.

The institute says in a news release that the protections against money laundering in Canada are among the weakest of Western liberal democracies.

"While it is impossible to estimate the exact amount of money laundering, a realistic estimate of the magnitude of dirty money laundered in Canada each year likely lies in range of $100 - $130 billion,” report author Kevin Comeau says in the statement.