What is snow-washing?

Snow-washing is a type of money laundering. It was coined by The Toronto Star to describe the flow of dirty money entering the Canadian economy for the purposes of tax evasion or terrorist financing, and the term is now being used internationally.

As tax lawyer Jonathan Garbutt explains “You’ve got this entity in Canada, banks or other parties in other countries are going to presume that it’s legitimate and OK—pure as the driven snow of the great white north.”

Why is snow-washing a problem?

An expert panel convened in B.C. has estimated that approximately $47 billion is laundered or “washed” into Canada in 2018. Other experts have even pegged that figure up to $100 billion.

Snow-washing is a problem because it allows criminals and tax evaders to use Canada as a haven to conceal harmful and illegal financial activities. Left unchecked, corruption spreads within Canadian communities and criminal operations grow to become powerful and more difficult to prosecute.

How does dirty money get “washed” into the Canadian economy?

Anyone wanting to launder money in Canada may conceal their identity by anonymously purchasing a property or by creating a company without disclosing their true identity.

By remaining anonymous, individuals can use dirty money to buy real estate or funnel the funds through company operations. Once the property is sold, or once company shares are sold, the secret owner can benefit from the proceeds of the sale.

Why does this problem exist in Canada?

According to a 2017 analysis by Transparency International, Canada has tied with South Korea for the weakest corporate transparency rules among all G20 nations. Shell companies are often associated with sleepy tropical locales such as the British Virgin Islands and Seychelles, but it is just as easy in Canada to set up an anonymous untraceable company.

Canada has federal and provincial business registries, yet information about beneficial owners is missing.

The lack of publicly available information about the true owners of companies makes it easy for individuals to conceal their identities and set up companies to launder money.

What is the impact of snow-washing on the Canadian economy?

Money laundering contributes to artificial price bubbles and makes housing unaffordable for Canadians. For instance, the expert panel in B.C. indicated that money laundering through B.C. real estate has contributed to a 5% increase in the price of housing. This is a big problem as vacancy rates are already quite low in major Canadian cities and money laundering affects the price of real estate.

Our research points to several case studies where multi-million-dollar properties in Montreal, Toronto, and Vancouver were purchased by foreign government officials under investigation for corruption in their home countries.

Does this mean anyone who incorporates an anonymous company might be laundering money?

Anonymous companies can be used for legitimate reasons. At the same time, the extent of this secrecy is being exploited by criminals and harms Canadian communities and the economy. In our perspective, the harm from fraud, tax evasion, organized crime, terrorist financing, drugs and weapons trafficking, environmental crimes, and distortions to Canada’s capital markets and housing market, outweigh the benefits of keeping laws that encourage secrecy.

What can be done to fight snow-washing?

We are calling upon the federal government to create a pan-Canadian company registry of beneficial owners that is publicly accessible, centralized, and searchable. We also want the registry to use international best practices such as ID verification, a tip-line for whistleblowers, and a registrar with comprehensive powers to issue penalties. A beneficial owner is a term used to describe the true owner of a business.

What are the benefits of setting up a publicly accessible registry?

If the beneficial owners of companies were required to disclose their ownership and control status in a registry, then criminals would be less likely to set up a company to launder money anonymously. This is because they no longer have the advantage to remain secret as they risk being caught by law enforcement. In short, a publicly accessible registry makes it easier for tax authorities and law enforcement to carry out investigations.

A publicly accessible registry would help businesses who have due diligence obligations to use the information to verify the identity of clients with minimal burden. Investigative journalists, civil society organizations, and whistleblowers can also use the registry to conduct analysis and alert these authorities.

Who else is working on, or has implemented publicly accessible registries?

As of March 2023, approximately 108 countries worldwide have committed to a public registry. This includes major G7/G20 economies and Five Eyes’ members.

In Canada, the federal government committed to implementing a publicly accessible registry with verified data and consulting with provinces in Budget 2022. Legislation (Bill C-42) has been announced and is making its way through the House of Commons.

As for provinces, In 2020, British Columbia became the first province to create a publicly accessible registry for land-owning companies. In 2021, The province of Québec it will make corporate beneficial ownership information publicly available and searchable in its existing business registry.

What does a publicly accessible registry look like in practical terms?

Ideally, a publicly accessible registry will collect information about the beneficial owners of companies and this information will be made publicly available in a search portal that is administrated by the federal government. Provinces and territories will make legislative amendments to allow provincially-registered companies to send their beneficial ownership information into the centralized portal. For more detailed information, please refer to our report exploring technical and legislative options for a pan-Canadian registry.

Where can I learn more about progress in Canada?

Please refer to our campaign timeline for up-to-date information about major announcements and milestones for Canada.