Over the past decade, Toronto has introduced numerous laws to combat the flow of illicit funds, particularly through money laundering.
While law enforcement has worked hard to address the issue, criminals have adapted with increasingly sophisticated methods, now turning to real estate as a prime avenue for laundering money after stricter regulations disrupted older methods like investing in businesses.
Quick Summary
- Money laundering in Toronto’s real estate market is a significant issue, with the number of complaints tripling in the last five years.
- Common methods of laundering money include using third-party members to purchase property, colluding with real estate agents to manipulate property values, investing in renovations, using shell companies, and utilizing mortgages to mix illicit funds with legitimate ones.
- FINTRAC has made 32 changes to existing rules to improve financial regulations pertinent to real estate.
- From my experience, stringent regulations and diligent enforcement are crucial in combating money laundering. Ensuring transparency and accountability can significantly reduce illegal activities.
The Rate At Which Money Is Being Laundered
Since 2008, approximately $28.4 billion has been invested in Greater Toronto Area (GTA) housing through corporate entities, much of which is linked to money laundering activities. This influx has contributed to inflated property prices and reduced affordability for average homebuyers [1].
This unquestionably causes illicit funds worth billions in numerous currencies to be used without being liable for any legal repercussions. Unfortunately, real estate has a tremendous contribution to these staggering statistics.
Criminals have adapted their methods, employing tactics such as using third-party buyers, colluding with real estate agents to manipulate property values, and investing in renovations to further obscure the source of funds.
Money Laundering in Canada over the Years
A significant portion of luxury properties is owned through corporations, making it difficult to trace the beneficial owners. For example, over 50% of homes priced above $7 million are owned by companies, which often purchase properties with cash, bypassing traditional financing scrutiny
An estimated $35 billion in residential mortgages in the GTA has been provided by unregulated lenders who lack anti-money laundering (AML) reporting obligations. This lack of oversight allows for the blending of illicit funds with legitimate financing [2].
The number of money laundering complaints in Toronto has tripled over the last five years, indicating a growing awareness and acknowledgment of the issue within both law enforcement and the public.
“Canada is a hotbed for this illegal activity because of a lack of transparency in beneficial corporate ownership.”
- Denis Meunier, C.D. Howe Institute
How is Money Being Laundered?
Adding to these statistics, are also the new ways through which the money is blatantly laundered in Toronto. The reports and cases that have been dealt with in the past offer insights into the methods to which criminals conform to.
1. The most basic way that has been discovered is the use of third-party members to obtain estate property. With this, the invested money is labelled legal while the direct involvement of the criminal is also negated.
2. Collusion with the real estate agents also offers significant advantages. By doing so, criminals attain the ability to overvalue or undervalue the market price of a particular property.
3. The difference of from the original price can thus be paid using the illicit funds, thus cloaking it as a regular investment. Another versatile method used in almost all the markets is the investment in renovations of properties.
4. The amount used is thus shrouded and made to look like a legal expenditure. Shell companies and corporations are another way under the real estate umbrella in Toronto. The investment made in this could be domestic or even overseas, the profit, however, remains constant.
5. Mortgages also offer ample ways to mix the illegal funds with the legitimate lot. The options are numerous. And every year, a new method seems to pop up and deteriorates the system further. The negligence is thus making the whole sector vulnerable and inviting more criminals and giving birth to more practices. The requirement of the stricter laws and stringent enforcement on a global scale is thus a necessity.
The Consequences
Furthermore, the ramifications caused by the mass money laundering are also sheerly alarming.
In addition to providing an open stage for corruption and malpractice, it also contaminates the ethics and set of rules and conventions that society as a whole conforms to.
Moreover, real estate agents, banks and other entities and corporations who are a part of the illegal system or at the least are ignorant towards them, also end up losing credibility and trust of the citizens and customers alike. This not only affects them but the whole community.
The ineffectiveness in dealing with money laundering also invites vociferous invasions of institutions and significant corporations through bribes.
The overall perception of the sector and the region itself are also affected. They become liable to be perceived as volatile and under the influence of illegal entities.
This could, therefore, thwart the inflow of foreign investment and aid. The repercussions are damaging to the financial institutions, government agencies, and society as well.
Steps Being Taken by the Agencies
However, in the wake of the alarming studies coming to light and the damage done been approximated, the agencies have decided to take the required steps. FINTRAC recently announced its forthcoming plans to consolidate the financial regulations pertinent to the real estate.
In total, there were a total of 32 changes made in the existing rules. One of the most effective changes made was to include a register that would record the transactions. It will be made available to agencies and corporations during investigations.
A new bill, the Anti-Money Laundering in Housing Act, has been proposed to require corporations, trusts, and partnerships that own real estate to disclose their individual owners. Non-compliance could result in fines of up to $100,000. This aims to eliminate the anonymity currently enjoyed by many investors.
The federal government plans to establish a national database that details beneficial landowners, expected to be completed by 2025. This initiative aims to provide law enforcement with better tools to combat money laundering at a national level.
Money Laundering in Toronto: A Point To Look After
Like mentioned, money laundering is becoming a huge issue in real estate and especially in the sectors that are developed. It is a concern that needs to be addressed.
These proposed measures reflect a comprehensive approach to tackling money laundering in Toronto's real estate market. By increasing transparency and accountability, authorities aim to mitigate the risks associated with illicit financial activities and protect the integrity of the housing market.
If you want to know more about what's happening in Toronto's (and Canada's) real estate market, you can check out our homepage at https://precondo.ca/.
References:
- https://globalnews.ca/news/5080238/toronto-real-estate-money-laundering-opaque-investment/
- https://storeys.com/billions-gta-housing-linked-money-laundering/
