Authorities failing to protect Canada from corporate, real estate corruption: Transparency International

Unmask the shady owners, says report released on World Anti-Corruption Day

A report by Transparency International says more information is required to get a library card than to set-up a company in Canada.

“Canada is one of the easiest places in the world to set up a company. All you need is a few hundred dollars, an address and someone to appoint as a director,” said the report, released on Dec. 9, World Anti-Corruption Day. “There is no need to show documentation to prove who you are, and you are free to list other people – nominees – as the company’s directors or shareholders. In all but two provinces – Alberta and Quebec – companies are not required to identify their shareholders. Beneficial owners can remain totally anonymous.”

The report, titled No Reason to Hide: Unmasking the Anonymous Owners of Canadian Companies and Trusts, said that British Columbia has 385,410 of the country’s 3.4 million registered companies and the lack of identity verification means the beneficial owners of vast amounts of real estate are shielded from the public.

TI found Canada to be among the bottom three countries in the G20, with Brazil and South Korea, in fighting corruption. Conversely, U.K., France, Australia and South Africa are in various stages of setting-up beneficial ownership registries.

The report calls anonymous companies and trusts “the getaway cars of financial crime” because hiding beneficial ownership enables money-laundering, tax evasion, corruption and terrorist financing. Only 210,000 of the estimated 1 million trusts in Canada are registered to pay taxes. Trustees need not keep record of the beneficial owners or disclose that they are acting for others in bank transactions.

“The lack of available information on private companies and trusts, and who owns them, is a huge obstacle for law enforcement and tax authorities. The RCMP’s success rate in pursuing money laundering is a fraction of what it is for other crimes. A suspect cannot be identified in more than 80 percent of cases, and only a third of the cases that go to trial result in a conviction.”

TI found Canada’s performance to be weak or very weak in seven of the G20’s 10 principles on beneficial ownership. Apart from tabling legislation to eliminate bearer shares — unregistered securities owned by whoever holds the share certificate —there has been no progress under Prime Minister Justin Trudeau’s Liberal government.

The report includes a chapter on the skyrocketing cost of real estate in Toronto and Vancouver and the influx of overseas capital. It noted the cases of high profile Chinese immigrants Li Dongzhe, Li Donghu and Gang Yuan. The Li brothers were jailed in 2014 for fraud after they “placed vehicles, properties, utility bills, businesses and bank accounts into nominee names in order to avoid detection from the authorities.” Mining tycoon Gang was murdered in 2015. He used nominees to hold his real estate. One of them, Li Zhao, was charged with his murder.

“The extent and impact of foreign investment remains unknown since very little data is collected on property owners. Individuals can use shell companies, trusts and nominees to hide their beneficial interest in Canadian real estate,” it said.

Beneficial ownership is hidden in nearly half of the 100 most-expensive houses in Greater Vancouver. Nearly a third of the properties examined are owned through sell companies and at least 11% have a nominee listed on the title.

“The use of nominees appears to be on the rise; more than a quarter of the high-end homes bought in the last five years are owned by students or homemakers with no clear source of income.”

The TI report referenced several properties on Belmont Avenue and Point Grey Road in Vancouver’s West Side that are owned through trusts, numbered companies and offshore shell companies.

Six of the 100 titles are held through trusts, but the actual number may be higher, because there is no requirement in B.C. to register a trust’s existence.

The report’s key recommendation is for mandatory reporting of beneficial owners in all companies and trusts and for such information to be published in a central registry that is easily accessible by the public.

“A public registry of companies and trusts that includes beneficial ownership information would be a low-cost, high-impact way of preventing their misuse,” the report said. “It would improve the effectiveness of law enforcement and tax authorities. It would help the private sector comply with regulations and make better business and investment decisions. It would also bolster Canada’s reputation for fairness and transparency both at home and abroad.”

Among the other recommendations are that nominees disclose who they are acting for; governments to beef-up corporate registry staffing and budgets so they can independently verify identities of directors and shareholders; require beneficial ownership disclosure before approving any real estate transaction; and, for all government authorities to require disclosure of beneficial ownership by all bidders for public contracts.

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