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?
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 more powerful and difficult to track and prosecute.
How does dirty money get “washed” into the Canadian economy?
One way is by setting up a secret company. 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?
Canada has tied with South Korea for the weakest corporate transparency rules among all G20 nations, according to analysis undertaken by Transparency International in 2017. 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.
First, Canada has business registries at the federal level and within provinces, all of which collect varying levels of information regarding the identities and extent of shareholders; however, none of this information is centralized and while some of this information is public, others are beyond paywalls. Next, Canadian law does not require several sectors of the economy—DNFBPs—to collect and verify beneficial ownership information (e.g., accountants, real estate brokers and developers, dealers in precious metals and stones, casinos, and B.C. notaries).
The lack of publicly available, centralized information about true owners of companies and the lack of regulation for certain sectors make it easy for individuals to conceal their identity and subsequently set up companies and properties to launder money.
What is the impact of snow-washing in 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 such, and it doesn’t take much money laundering to affect the price of real estate.
Snow-washing also leads to greater opportunities for political and other corruption. Our OPACITY report 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?
No. However, because this secrecy is being exploited by criminals and harming Canadian communities and the economy, transparency measures must be put in place in order to deter money laundering and other illicit activities.
What can be done to address snow-washing?
The federal government should create a pan-Canadian company register of beneficial owners that is publicly accessible, centralized, and searchable and employs leading international best practices such as ID verification.
What are the benefits of setting up a publicly accessible registry?
If the true owners of businesses were made publicly accessible, then criminals would be deterred from setting up companies to launder money. A publicly accessible registry would also make it easier for federal tax authorities and law enforcement to carry out investigations. Finally, it would help businesses who have due diligence obligations to use the information in the registry to verify the identity of clients with minimal burden.
Who else is working on, or has implemented publicly accessible registries?
In 2016, The United Kingdom was among one of the first countries to implement a publicly accessible company registry that included beneficial owners. Next, 27 members of the European Union have started implementing these types of registries as well. A single, centralized, publicly accessible registry for all EU members will be implemented by 2020.
Non-E.U. countries such as Ukraine, Norway, and Ghana have implemented publicly accessible beneficial ownership registries. Finally, Nigeria, Indonesia, and Kenya have committed to implementing publicly accessible beneficial ownership registers as part of national action plans.
The current B.C. government became the first province this year to announce it will create an open registry to tackle money laundering through property.
What does this type of a registry look like in practical terms?
Generally, the registry will collect information about beneficial owners of companies from provincial business registries and will be made publicly available in a search portal at the federal level.
What is Canada doing about this right now?
The federal government is working with provinces and territories to ensure that information pertaining to beneficial owners will be harmonized and held privately at individual companies. This information will eventually be made available to law enforcement and tax authorities upon request; however, it is not in an integrated, centralized registry format. There are proposed next steps for conversations about registry options, yet that has yet to be announced.