New money laundering schemes are constantly being uncovered, usually due to the brazen actions of money launderers. A recent report into money laundering in Canada’s western province of British Columbia revealed several details of a multi-billion dollar scheme, where so-called students bought multi-million-dollar mansions and a single working-class family brought more than 100 million Canadian dollars to the country. Money launderers entered casinos with garbage bags full of illicit money in an attempt to clean their illicit funds.
These events have opened up fresh inquiries into Canada’s lax regulatory approach to financial crime as provincial governments step up their efforts to identify and prevent the Vancouver Model of money laundering from thriving in their territories.
What Is The Vancouver Model of Money Laundering?
Witnesses cited in the report described rich gamblers flying from China with huge bags of cash used to play baccarat at private salons in Vancouver casinos. Once Canada increased betting limits to 100,000 Canadian dollars per hand, money laundering activities escalated even further.
While the Vancouver Model isn’t limited to the Canadian city, it was popularised there by Chinese citizens who took advantage of high gambling limits and criminal gangs who took advantage of lax regulatory controls to launder the illicit proceeds of their crimes.
How the Vancouver Model Works
Chinese currency controls prevent citizens from taking more than $50,000 out of the country at a time. To circumvent these rules, Chinese gamblers enter into arrangements with criminal syndicates and loan sharks with links to Vancouver. They transfer money to criminal-controlled bank accounts in China before travelling to Vancouver, where loan sharks and other criminal associates provide them with their money in Canadian dollars. (This money, it should be said, is likely the profits of their own criminal activities, such as drug trafficking).
Once they receive their funds, the Chinese citizens visit various casinos and exchange their money for chips. They make a series of bets and then exchange their chips for Canadian dollars. Through gambling, the money has been “cleaned”, and its illegitimate origins are concealed from authorities.
Whether the gamblers win or lose is irrelevant since the money is laundered as soon as it is converted to casino chips. The financial proceeds from the Vancouver Model are usually reinvested back into criminal activities (notably fentanyl sales) by criminal gangs or invested into real estate by Chinese citizens themselves in order to avoid paying taxes or drawing the attention of regulators.
Understanding the Fall Out of the Vancouver Model
Some might argue that money laundering is a victimless crime, but the impact of the Vancouver Model has been keenly felt by ordinary Canadians. The 2019 report on the Vancouver model showed that up to 5.3 billion Canadian dollars (in laundered money) flowed through real estate investments in British Columbia. This phenomenon alone led to a housing price inflation of more than 7.5%, making homes unaffordable for local residents. Nearly half of the city’s most expensive homes were bought using structured purchase methods used to conceal the identity of their owners.
In addition, criminal gangs were bolstered financially and able to expand their large-scale drug operations even further across North America, amplifying the growing opioid crisis. China has also been impacted, with some sources stating that capital flight from China has been in excess of $800 billion since 2014.
The report showed that many officials (including a government minister) may have ignored warnings about money laundering as these casinos offer huge tax revenues to the government. Some police officers interviewed stated that their investigations into illicit gambling were shut down for political reasons, further emboldening criminals to carry out their schemes.
Addressing the Vancouver Model
The challenge of the Vancouver Model is that the laundering process occurs without involving a financial institution, which has AML measures in place to monitor and detect money laundering activities. However, there are a few points in the process where financial institutions are involved (and where red flags should be raised).
Financial institutions may be able to identify Vancouver Model funds through real estate transactions. If high-value properties are fully paid for in cash, without the use of financing or through suspect banks, this should raise a red flag. Subsequent sales will also likely involve financing, which may enable banks to pick up money laundering activities.
Financial institutions may also detect the Vancouver Model by examining recently opened accounts or new activity in dormant accounts when criminal organisations attempt to make purchases with their laundered funds.
In addition, the British Columbia government has taken additional steps to address the issue, including tightening rules at casinos and requiring gamblers to declare their source of funds. In 2019, they launched a public land ownership registry which required certain real estate holders to disclose ownership, including beneficial owners behind shell companies and trusts.
Every jurisdiction and financial institution should take the opportunity to learn from the Vancouver Model and be able to identify warning signs that money laundering may be going on. The best way to combat money laundering is through automated AML solutions that can screen and monitor the thousands of transactions that occur through their institutions every single day. While the Vancouver Model was particularly difficult to detect, there were early warning signs.
To find out more about ways to detect and prevent money laundering within your organization, reach out to sanctions.io for an obligation-free discussion.