No province wants to be Canada’s ‘financial secrecy’ jurisdiction

The desire to shut down “financial secrecy” jurisdictions around the world, including in Canada, is building.

Citizens and governments are fed up with corrupt, dangerous and wealthy individuals operating jurisdictions that ask few (or no) questions about their identity and where they got the money they hide in bank accounts or corporations to number.

In the popular imagination, these places are Switzerland and certain tropical islands, but this notion is outdated, just like the term “relocation”.

“Illicit Financial Flows,” the fancy term for moving dirty money, is a global network that facilitates the movement of money overseas, overseas, and overseas again. Where and when the money goes, exactly, is decided by an individual and their army of legal, financial and reputational advisers.

The public probably realized that traditional secret jurisdictions were coming to an end at the Democracy Summit in December, where US Treasury Secretary Janet Yellen noted, “There is a good argument (to be made) that right now the best place to hide and launder ill-gotten gains is actually the United States.”

Delaware is sometimes mentioned as a secretive jurisdiction, but there are also Nevada, New York, Florida, Wyoming and South Dakota – the latter featuring prominently in the latest massive financial secrecy data leak in the Pandora’s Papers.

And money laundering happens right here in Canada, of course. The $43 billion to $113 billion a year that is laundered here is called “snow washing.”

We also have regional phenomena, such as the Vancouver model which sends illicit funds between Canada and China through underground banking, gambling, drugs and housing.

A recent law enforcement operation in Ontario found, however, that the Vancouver model probably extends beyond the Lower Mainland of British Columbia. The fictitious companies of New Brunswick and alberta with alleged links to global corruption schemes have also been investigated, as have schemes in Quebec, which has been judge a better place than Bermuda for the French elite to hide their money.

The good news is that there is global, even Canadian, momentum to crack down on this international network of illicit financial flows. More … than 100 countries are working to end corporate secrecy by setting up beneficial ownership registers. In Canada’s 2021 federal budget, Finance Minister Chrystia Freeland announced a publicly available beneficial ownership registry.

However, the federal government cannot fight Canada’s reputation as a haven for money laundering alone. Provinces and territories must do their part and cooperate.

Quebec got off to a good start by passing Bill 78 last summer, which will make beneficial ownership information publicly available on its business registry. British Columbia’s Land Ownership Transparency Registry is flawed, but it’s a start. It is hoped that the findings of the provincial money laundering inquiry, the Cullen Commission, will spur the province to take further action.

But even if all 14 Canadian jurisdictions set up beneficial ownership registries, it would still not be in their interest to run them entirely on their own.

Provinces and territories are best served either by providing beneficial ownership information for companies in a centralized registry managed from Ottawa, or by allowing the federal government to collect this information that anyone can access.

If each province and territory goes it alone, there is a risk that smaller provinces will not have the resources to properly manage their registries. They might lack the staff and the budgets to pursue crooks and kleptocrats trying to outsmart the system.

Worse, some provinces might be tempted to lower the standards of their registries and make less information available to the public than other provinces, or to create loopholes for certain people so that they do not have to disclose certain information. This is exactly what has created the problem of secret jurisdictions around the world, as well as the mosaic of money laundering centers in the United States.

After much dragging its feet, Ottawa is finally taking the fight against money laundering seriously. Let’s not undermine this effort with jurisdictional wrangling. After all, no province or territory wants to be named Canada’s embarrassing secrecy jurisdiction.

James Cohen is Executive Director of Transparency International Canada.

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