Anatomy of money laundering in B.C. real estate: 12 cases, $1.7 billion, 20 countries and 30 banks
Credit to Author: Gordon Hoekstra| Date: Fri, 29 Nov 2019 20:20:39 +0000
It started with a huge hash bust.
Following up on a tip, the RCMP set up a stakeout and pounced when a freight truck left a warehouse on Mitchell Island in Richmond.
The haul: six tonnes of hashish (a drug made from the resin of cannabis), wrapped in cellophane and carefully packed in wooden boxes.
More concerning — the traffickers’ books showed it was the tail end of a 40-tonne shipment with a wholesale value of more than $140 million.
The RCMP did not know it at the time — and would not find out until a couple of years later, when the U.S. Drug Enforcement Administration corralled a major drug-trafficking kingpin — that the hash shipment was part of a global cartel that had profits of $165 million a year.
Even after being arrested in the warehouse bust, the B.C. ringleader, George (Lorry) Burden, sold off 20 tonnes of the shipment already stashed in B.C.
George Lorry Burden
The cash proceeds from the drugs were laundered in part in real estate in the Lower Mainland: at least seven houses worth more than $7 million.
The year was 1993.
As British Columbians attempt to confront, understand and quantify the effects of money laundering in real estate, there remains skepticism over whether, and to what extent, illicit money can be laundered in real estate.
A B.C. government-commissioned report released this spring estimated that as much as $5 billion was laundered in real estate in 2018. But it was based on an economic model and not actual data of money laundering. In response to the report, Vancouver lawyer Garth Evans wrote to Postmedia: “Lawyers and banks aren’t allowed to accept large amounts of cash, so what is alleged to have gone on? The buyers were paying with bags of cash? I don’t think so. It behooves the authorities to provide evidence of real-estate money laundering rather than making allegations.”
It is a valid point.
How money is laundered in real estate is also an important question for an inquiry launched by Premier John Horgan’s B.C. NDP government that will begin hearing evidence next year.
The fact is that laundering money in real estate is not a new phenomenon.
A Postmedia compilation and analysis of 12 cases over the past three decades, including the hash bust in Richmond, shows there are a number of ways to get money into the financial system, ultimately resulting in property purchases that are made with money in electronic or digital form and not, generally, with bags of cash.
Postmedia’s conclusions are the result of an examination of thousands of pages of U.S., Canadian federal and B.C. court records; B.C. property and corporate records; archived Postmedia News reports; and interviews with those familiar with the cases.
Bundles of 20-dollar bills sezied in October 2015 as part of RCMP E-Pirate investigation into money laundering at alleged underground Richmond bank, Silver International.
The cases — big and small, domestic and international — paint a much wider picture of money-laundering in real estate than has been reported in the past three years in B.C., where the focus has been on B.C.’s biggest money-laundering case, involving the underground bank Silver International in Richmond, where allegedly as much as $220 million a year of largely drug-trafficking cash was cleaned.
Postmedia’s analysis shows laundering methods have included placing cash in multiple banks in exchange for bank drafts, a lottery scheme that produced winning tickets, and stuffing money into suitcases and flying it abroad to jurisdictions where financial institutions ask fewer questions about cash. Other methods include the use of currency exchanges and underground banking schemes.
The analysis also shows that money was often laundered with the use of shell companies and nominee directors, where the true owner or owners were hidden.
The illicit money was generated from an array of offences and alleged offences: stock fraud, bank and company embezzlement, phishing email fraud and drug trafficking. In another case, millions were raised in an alleged cryptocurrency fraud.
The proven and alleged illicit activities generated as much as $1.7 billion, a huge sum that points to the amount of domestic and global money available to be laundered.
Postmedia tracked nearly $100 million that was plowed into real estate.
“It is pervasive,” says Denis Meunier, a former deputy director of Canada’s financial intelligence gathering agency, in response to Postmedia’s compilation and analysis of the 12 cases.
“It doesn’t matter whether it is drugs, or whether it is fraud or pump-and-dump schemes; as long as it’s dirty, the source is illegal, people will want to hide it,” said Meunier, also a former director general responsible for criminal investigations at the Canada Revenue Agency.
Added Meunier: “Real estate is being used, has been used and will continue to be used.”
While most of the money invested in real estate was sunk into Metro Vancouver properties, the analysis shows money also ended up in other places, including Whistler and Kelowna.
The analysis also underscores the global nature of illicit activities and laundering operations.
The cases involved more than 20 countries and territories: the U.S., Canada, Australia, Pakistan, India, Japan, New Zealand, Taiwan, Mexico, China, Hong Kong, the Bahamas, Singapore, Bahrain, Panama, Belize, the United Kingdom, Mauritius, Malta, the United Arab Emirates, Switzerland and Germany.
Major banks are almost always the conduit to move money, through legally established accounts and often in the names of companies also legally established. In the 12 cases, money moved through more than 30 banks, including all the major banks in Canada: CIBC, Royal Bank, Bank of Montreal, Toronto Dominion and Bank of Nova Scotia.
The money also moved through other major banks: HSBC, the Bank of China, the Industrial and Commercial Bank of China, Credit Suisse, Credit Lyonnais, Citibank, Wells Fargo, DBS Bank, Barclays Bank, and Deutsche Postbank.
In the global trafficking scheme that Burden was involved in, huge amounts of cash were laundered both inside and outside of Canada.
French-American Claude Duboc led the global cartel, which shipped the hash from Pakistan to Canada, and also to the U.S. and Australia.
Duboc had couriers move cash from Canada to banks in Europe and Singapore, where fewer questions were asked about the origin of the currency. The cash was stuffed into suitcases for flights out of Vancouver or Montreal. One courier moved $80 million out of Canada using this method on 39 separate trips.
Duboc also used a money trader in Hong Kong to launder money into banks in Bahrain.
Some of the money Duboc moved globally was sent back to B.C. to help fund further operations — $5 million from a bogus company in Bahrain called Arab Lumber Products to Burden’s business, Coastal Forest Products, to outfit ships and barges to transport drugs.
The money was sent to a Richmond branch of CIBC.
Money from Duboc’s profits was also used to purchase drug stash houses on Vancouver Island and the Sunshine Coast.
The profit from Burden’s share of the hashish, also cash, was placed in banks in amounts that would not trigger suspicion. Cash was also cleaned using a lottery ticket scheme that guaranteed payouts.
Russ Lefler, a now-retired RCMP officer who headed the Burden money-laundering investigation back in the ’90s, said he remembers when he mapped the various cash bank deposits, it showed a criss-crossing pattern along Kingsway as multiple transactions took place. It’s a classic money-laundering scheme called smurfing.
At the end, “they come out with a bank draft,” said Lefler.
A problem with the lottery scheme was for the gangsters to find enough different people to cash in the winning tickets, said Lefler. When police raided Burden’s house — purchased by his lawyer though a shell company set up in the Bahamas called Taipei Trading Corp. — they found stacks of winning tickets, worth about $500,000.
“They get it down to an art, to dilute the money, so you don’t get the big picture. It’s designed to confuse investigators,” said Lefler.
Burden, who has since died, was handed a five-year sentence in 1997. The properties used to launder money were forfeited. Duboc is serving a life sentence in the U.S. and also forfeited his wealth.
Even today, cash is placed in banks by those accused of money laundering.
In another case examined by Postmedia, the B.C. Civil Forfeiture Office is suing to seize a Burnaby home owned by Matthew Thomas Borden and wife Chia Yin (Vicky) Wang, alleging drug trafficking money was laundered through the property, which B.C. property records value at $677,000.
Borden and his stepfather, John Michael Canning, were arrested on Aug. 29, 2019, for alleged drug trafficking, according to a police affidavit filed in B.C. Supreme Court in support of the civil forfeiture suit. Neither Borden nor Canning has been charged and the police investigation is continuing, according to the affidavit from the B.C. Combined Forces Special Enforcement Unit.
During police raids of the Burnaby home, Canning’s home in Surrey and several vehicles, more than $30,000 in cash was seized, along with a money-counting machine, scales, nearly two kilograms of cocaine, almost three-quarters of a kilogram of heroin and 260 grams of marijuana.
The police investigation alleged Borden was observed depositing two large cash deposits at a Scotiabank branch in Burnaby, both in August of this year. One was a three-quarter-inch-thick sheaf of cash (the top note was a $50 bill) and the other was a half-inch-thick stack with a $5 bill on top, according to court filings.
In the second deposit, police allege in the affidavit that Borden was overheard saying to the teller to deposit $6,500 into a bank account. That is less than the $10,000 amount that triggers an automatic large transaction report to Canada’s financial intelligence-gathering agency, the Financial Transactions & Reports Analysis Centre or Fintrac.
But a Fintrac disclosure report filed in B.C. Supreme Court in support of the civil forfeiture suit alleges the Toronto Dominion bank already had concerns about the activity in Borden’s accounts in 2016 and 2017. The bank filed a suspicious transaction report to Fintrac flagging potential money-laundering activity. The report alleged that $110,000 was deposited during a six-month period, some of which came from cash deposited at bank branches in Saskatchewan and Newfoundland as well as email transfers ranging from $175 to $3,000. “The origin of the cash, connection to the third parties and final distribution of the funds are unknown,” said the report to Fintrac.
If laundering cash has always been a problem for criminal organizations, as police investigators have observed, it’s why the so-called Vancouver model was so ingenious. It was the name given by an Australian academic to the scheme allegedly run by the underground Richmond bank, Silver International.
Under the scheme, drug-trafficking money — and proceeds from other crimes such as illegal gambling and extortion — was lent to high-roller gamblers from China to be used in Metro Vancouver casinos, according to B.C. court documents. The money provided was largely in bundles of $20 bills wrapped in rubber bands, a key marker of money collected in the illicit drug trade.
In exchange for the cash, the high rollers would wire money into foreign bank accounts, for example in China, to cover the debt. The drug-trafficking money, now in electronic form, could then be moved as profit back to those involved in drug trafficking and money laundering to finance their operations, or to buy assets such as houses, allegedly laundering the drug-trafficking proceeds.
Postmedia tracked more than $47 million in Lower Mainland properties linked to the underground bank scheme and related police probes into allegations of drug trafficking, illegal gambling and money laundering.
Peter German, a former RCMP deputy commissioner and a lawyer with a doctorate in law, said once the cash is in the financial system, depending on the complexity of the scheme and the amount of money involved, it can “whiz” around the world.
“If you are talking about real estate, in most cases you are talking about money that is already in the system. People aren’t walking into lawyers’ offices or realtors with tons of cash,” said German, who is the lead author of two B.C. government — commissioned reports on money laundering.
There are criminal schemes where it is not necessary to place cash in the financial system because the money is already in electronic or digital form.
Of the cases that Postmedia analyzed, this is true of the bank and China state-owned company embezzlement, stock fraud, alleged cryptocurrency fraud and email phishing fraud.
It removes a step from the classic money-laundering process. No placement of cash into the system is needed, just layering and integration.
Xu Chaofan was one of three senior Bank of China branch managers who stole $670 million from the bank.
One of the cases examined by Postmedia was a massive embezzlement at the Bank of China between 1992 and 2001. A trio of senior executives — Xu Chaofan, Xu Guojun and Yu Zhen Dong — stole $670 million at the branch of the Bank of China in Kaiping in Guangdong province where they worked. Chaofan and Guojun and their spouses were convicted by a federal jury in Las Vegas in 2008 of racketeering, money laundering, international transportation of stolen property, as well as passport and visa fraud. All four have since been deported to China.
While the fraud itself was not simple — requiring the perpetrators to mobilize staff to create a new and separate set of books before a major bank audit — moving the hundreds of millions was in some ways a straightforward matter of transferring the money from bank account to bank account.
The trio of bank executives used their positions to cover up false loans and illegal transfers, according to the U.S. court proceedings.
The money moved into Bank of China accounts of Chinese shell companies, including Kaiping Polyester Factory and Zhong Hui Filament Co., under the guise of the purchase of equipment or supplies. From there, the money was funnelled to bank accounts of shell companies in Hong Kong controlled by the trio of executives, including Everjoint Ltd. and Everjoint Properties Ltd. The money was then moved from Everjoint to bank accounts in Hong Kong in the names of the executives, their spouses and relatives, including through a Hong Kong account at Credit Lyonnais. Getting the money to Hong Kong was important because it has fewer constraints on transferring money out of country than China.
House at Udy Road in Richmond
From Hong Kong, at least $8.5 million was transferred into accounts at the Royal Bank, HSBC and CIBC in B.C., according to a successful claim to recover money filed in B.C. Supreme Court by the Bank of China.
Some of the money was used to buy three Richmond houses: two on Udy Road and one on Mang Road. The houses were purchased in the early 2000s in the names of the Bank of China executives’ spouses, B.C. court and property records show. One house still remains in the name of one of the spouses, B.C. property records show.
In another case examined by Postmedia, there was also no need to place actual cash in the financial system because the more than $300 million in illicit proceeds from a stock fraud were also already in electronic funds.
There was no cash — no $20 bills — involved.
U.S. court proceedings — including a civil suit brought by the U.S. Securities and Exchange Commission and a criminal case led by the U.S. Attorney’s office — showed that mastermind Gregg Mulholland had dozens of shell companies created in the U.S. and Canada to move millions of dollars from pump-and-dump schemes. In a pump-and-dump scheme, the stock fraudsters falsely promote a penny-stock and then sell off their chunk of the shares when the price rises. The stock then often plummets, leaving other shareholders with a loss. A Calgary businessman helped set up more than a dozen of the shell companies in Canada, according to B.C. court records.
Mulholland used two of the shell companies — Vision Crest Consulting Group Ltd. and 2943 High Point Drive Whistler Holdings Ltd., neither of which showed him as the true owner — to purchase a $4.85-million West Vancouver house in 2014 and a $2.5-million parcel of land in Whistler in 2013, according to the U.S. Securities and Exchange suit filed in B.C. Supreme Court to recover money.
Both properties had been paid for in full with no mortgages.
Home at 3630 Mathers Ave. in West Vancouver, which was one of the properties forfeited by Greg Mulholland.
To purchase the houses, $5 million was wired from the U.S. to a Vancouver law firm, and another $2.94 million was wired to a CIBC account in the name of Vision Crest, according to the B.C. court proceedings.
In 2016, Mulholland pleaded guilty in a criminal action brought by the U.S. Attorney’s Office in the Eastern District of New York and agreed to forfeit his illicit gains, including the two B.C. properties.
In 2017, he was sentenced to 12 years in a U.S. jail.
In another case examined by Postmedia, money was moved from Canada to Hong Kong and back.
In 2017, fraudsters used an email phishing scheme to trick Grant McEwan University into sending $11.88 million in builder contract payments to a bank account in Montreal in the name of a company called Mono Shoes, whose sole director was Jehad Al Batniji. From there, some of the money was transferred to a bank account in Hong Kong in the name of company Kinglong Commerce Development Ltd., according to B.C. court documents.
In a separate transaction, a B.C. property developer, Hoi Fu Enterprises, arranged to borrow $1 million from a Chinese company, Yangjiang City Jixie Zhulu Engineering Ltd. to help with the $30 million purchase of land in Richmond.
Because it was difficult to get the $1 million out of China, the engineering firm used an underground banking channel to do so, shows information filed by Hoi Fui in its defence of a B.C. Supreme Court claim by Grant McEwan University to recover money.
Under that scheme, the engineering firm deposited about $1 million in Chinese currency in China to the accounts of two men. In return, the two men made arrangement to have $1 million sent from Hong Kong to the property developer in Richmond, to accounts at CIBC and Toronto Dominion. It turned out the $1 million from Hong Kong was sent from the account in the name of Kinglong Commerce Development, according to the B.C. court proceedings.
The Richmond property developer, Hoi Fu, said it had no knowledge that the Hong Kong money was obtained from Grant McEwan University. The parties reached at an out-of-court settlement.
In another B.C. Civil Forfeiture Office case examined by Postmedia, a portion of $30 million raised in an alleged cryptocurrency fraud was allegedly laundered in real estate in Vancouver and Toronto.
Money in the form of bitcoin was converted to U.S. dollars through an American crypto-asset trading company, Cumberland DW LLC, according to an RCMP affidavit filed in B.C. Supreme Court in support of the civil forfeiture suit.
The U.S. currency was then transferred to owners of the Vancouver-based cryptocurrency company and used to buy a $4.1 million Coal Harbour condo and a $3.74 million condo in Toronto, according to the police affidavit.
The owners, including Kevin Patrick Hobbs, deny any wrongdoing and say they run a legitimate business.
Louise Shelley, a professor at George Mason University and the lead at the university’s Terrorism, Transnational Crime and Corruption Center, has a sobering conclusion.
The use of real estate to launder money is a growing problem, she says.
Criminals have ever-larger amounts of money to be disposed of — and skyrocketing prices of real estate in a growing number of places in the world, including in Vancouver and Toronto — makes it a “really choice” way to store and grow their illicit money, said Shelley.
Of the illicit money flowing into real estate, she says: “Nobody seems to have cared … It was good for business.”
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