10 ms·

B.C. vows crackdown after investigation reveals money-laundering scheme

98 points by ilamont 9y ago

msie 9y ago
The reporters have found a connection between real estate and the fentanyl crisis but I fear they’re going to jump to the conclusion of banning all foreign ownership. Which is not going to stop the drug trade. It is such a sexy narrative that the real estate crisis and opioid crisis can be blamed on Chinese foreigners which leads the reader to conclude that banning them is the solution. The piece is pushing all sorts of buttons.
- throwaway2048 9y ago
  lets just say the vast majority of canadians arnt going to shed any tears that chinese money cant inflate real estate prices to an even higher extent than they already are.
- mistermann 9y ago
  Sexy yes, but also true. Or do you think the Fentanyl and other criminality is spread evenly through all demographics? I'm curious where you might you have picked up this idea, because it certainly didn't come from the newspaper - perhaps intuition?
  - EnFinlay 9y ago
    The article makes no assertion about the demographics of Fentanyl dealing or trafficking, just that these Chinese lenders are involved with these activities. Are you saying that the opioid crisis can be fully blamed on Chinese foreigners? Is that really what this article is saying? Or is that your intuition.
    - mistermann 9y ago
      It's been routinely reported on in the newspaper, I can't be bothered to post any proof as no enforcement = anecdotal evidence only = checkmate, racist. If you'd like to pretend that is controversial, you're welcome to it, it is an utter waste of time to try to convince people, but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe.
      - EnFinlay 9y ago
        > but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe. I'm confused, is that the people who listen to what is routinely reported in the newspaper, or other people?
- EnFinlay 9y ago
  It definitely gives me the feeling that the popular solution will be something xenophobic. Maybe there's hope for less knee-jerk reactions, like some regulations where when you lend money, the source of that money must be properly tracked. That way when someone claims a mortgage or lien on a house, it won't be respected unless the money lent was confirmed to be legit.
- vkou 9y ago
  Banning foreign ownership is the populist measure that is the price of admission for passing some incredibly unpopular measures (That are needed to solve this crisis.)
philiphodgen 9y ago
There is a missing step in the transaction that the article does not explain. 1. Bad person sells drugs for cash. 2. Bad person has cash. 3. Bad person lends borrower cash to buy real estate. Step 3 is the mystery. — Bad person could give a bag of cash to the borrower. Now the borrower has a banking problem. How does that cash get into a bank account so the real estate purchase can happen? — Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem. — Bad person masquerading as a lender can give a bag of cash to the closing agent who is facilitating the real estate transaction. Now the closing agent has a banking problem. There will be a huge pile of cash that must somehow enter the banking system. Someone must do this. How does it happen? And no it doesn’t not suffice to tell the seller or the closing agent “I brought a giant bag of Canadian currency with me when I flew in from China to buy this property.” Banks didn’t fall off the back of the turnip truck yesterday. As the article notes, this is a money laundering problem. But the article postulates a moment of magic — the moment where a bag of tainted cash becomes a recorded mortgage lien on real estate. I’m saying this as an international tax lawyer who has structured hundreds of millions of dollars of US real estate purchase by foreigners. Maybe I just deal with legit people. We always get wire transfers from real banks, whether the investment is debt or equity.
- CPLX 9y ago
  The article is pretty clear about this. The people who borrow the cash spend it. Often lavishly, they take it to casinos and so on. They are very wealthy people and have that kind of lifestyle, but their problem is that they can't get their money out of China. They borrow against the property by accepting this Canadian cash, and then repay the loan in China via the banking system there. Both parties need to launder money, one in one direction and one in the other, that's the obvious beauty of the scheme.
  - philiphodgen 9y ago
    Thanks for pointing that out. I missed that explanation. The transaction is: 1. Own property. 2. Borrow big bag of cash from Bad Guy. 3. Gamble or spend the cash. 4. Pay back the loan from clean sources. I understand it, but I guess I have never dealt with the KYC people at a casino. I still see obvious choke points (for the conversion of drug-laden currency into gambling chips, for instance) at which Explanations Must Be Made, but perhaps there are channels that I do not know about. Let’s just say my experiences with the KYC systems have been rigorous.
hoodoof 9y ago
Government: "We will crack down VERY VERY HARD (to the extent that it doesn't stop the flow of cash pouring into our real estate market)!" Visualize a very very serious and determined politician at a press conference. Governments know that the massive outflow of cash from China into global real estate markets is bound to be corrupt and in many cases the proceeds of crime but they really have no interest or incentive in any way in preventing that. Governments will express ourage and a rock solid determination to ensure all Chinese money is clean but will in fact do nothing because at so many levels that cash is wanted. Consider for example that most politicians will own multiple houses. They don't want the real estate prices to drop, they want them sky high. Chinese cash, corrupt or not, still results in the best possible real estate dollar so the politicians will speak loud and act quiet on this. The irony is that investment in share markets requires some level of proof that the money being invested is clean but there is no such regulation on real estate cash.
- PakG1 9y ago
  When I read the article, it doesn't seem to say that Chinese cash is propping up real estate prices. Rather, Chinese drugs get smuggled into Canada, the Canadian proceeds from selling those drugs then get loaned to homeowners who don't have Canadian money themselves, and then when the home sells, the Canadian money goes back to the lender. If the lenders can be paid back, they don't get paid back with Canadian cash or Chinese cash in Canada. They get paid back with Chinese cash in China. Of course, the question might arise how did the homeowners get enough money to buy the property in the first place. Well, that's probably Chinese money. Getting enough money out of China for a down payment should only take a few years with a $50,000 per year limit. OK, so maybe Chinese money is paying a lot of down payments, and maybe drug money is being loaned out to homeowners. But where does the money to buy the home when it's later sold or foreclosed come from? Drug money, Chinese money, or other? That's the real question for figuring out what's causing real estate prices to soar.
  - mistermann 9y ago
    > When I read the article, it doesn't seem to say that Chinese cash is propping up real estate prices. Try this one on for size: http://www.timescolonist.com/news/b-c/explosive-b-c-court-case-details-seven-migration-scams-1.23144703 http://www.timescolonist.com/news/b-c/explosive-b-c-court-ca... And the only reason it came to light was because it is a civil suit between individuals, the Canadian legal system most definitely isn't trying to catch anyone breaking laws as described in this story. Despite confessions on record in Canadian court, there will not even be an investigation of these people, as there won't be for those laundering hundreds of thousands of dollars in casinos in broad daylight, or paying people (and getting reported to the media with extensive reporting in the newspaper) for phony job offers for immigration scams. All of this very clearly has the blessing of all levels of government in Canada. Whether it is merely for the much needed economic boost or if there's something more sinister in play, we'll never know.
Tiktaalik 9y ago
After so many years of government indifference the housing situation in Vancouver is so incredibly screwed up. Hard to say whether it'll be possible at all to undo the damage. The expectations for action on housing in the first budget of the new NDP government tomorrow are sky-high.
- chillydawg 9y ago
  Hello from a fellow white hot property market (London). The probability of anything worthwhile being done in BC is approximately zero. The govt will do stupid shit like issue cheap loans to young people to "get them on the housing ladder" which just inflates prices more. If you're rrally unlucky, your lot might even invent new and more stupid ways to heat up a too hot market.
  - Tiktaalik 9y ago
    Yep! Issuing cheap loans to young people is literally what the previous neo liberal government did. Of course local economists which warned against the plan found after that it increased prices. Now however the province has elected a labour government which has mentioned numerous times to expect action on the demand side and expectations are sky high that they'll be a bit different. Here's an article about people are expecting today. A tax on foreign capital is expected. http://www.cbc.ca/news/canada/british-columbia/bc-ndp-government-housing-affordability-1.4542462 http://www.cbc.ca/news/canada/british-columbia/bc-ndp-govern...
    - ttul 9y ago
      Additionally, the new Solicitor General is a tough as nails guy who previously sued the conservative federal government into allowing supervised injection sites for addicts, and then beat the former premier in her own riding, forcing her to move 350km.
      - kayone 9y ago
        If I had to pick one politician out of the whole country that I trust the most it would without a doubt be David Eby.
JorgeGT 9y ago
Took me a while to find out that B.C. = British Columbia.
- mediocrejoker 9y ago
  Speaking as someone who lives in the Vancouver area, I don't know why this story was posted on this site. I generally come here to avoid reading about politics and the toxic discussions that inevitably follow.
  - msie 9y ago
    Sigh, I agree. Ironically this article came from the Globe and Mail which has turned off all commenting for now. Which I like.
refurb 9y ago
The Zhangs charge interest rates of up to 39.6 per cent, with some private lenders demanding up to 120 per cent. Court records show that one of the Zhangs' associates is among those allegedly charging that extortionate level of interest, which is double the maximum legal rate. OK, this I don't get. Why would you charge someone to launder your money? Typically you pay them. EDIT: Never mind. It's in the article. This seems less like a money-laundering scheme and more like loan sharking. Getting clean money in the end is just icing on the cake.
- EnFinlay 9y ago
  The article makes it sound like an amazing cycle of selling drugs, money laundering, loan sharking, and profiting from the real estate rise.
  - msie 9y ago
    I believe the connection to real estate is incidental. Drug dealing, laundering occurs everywhere, including places without a hot RE market. Take the Hells Angels for instance. They seem to survive without a connection to the RE market. Criminals will find a way to launder money. The money from selling drugs is too irresistible to pass up for them.
    - EnFinlay 9y ago
      True, it sounds like profiting from rising house prices is icing on the cake.
Jesus_Jones 9y ago
One other thing, notice at the start of the article they say "the cash was contaminated with fentanyl and other street drugs". Back in the 80s and 90s, this was used as an excuse for why the cops would seize people's money in the us - often it was a poor person without ability to challenge it. One of many problems with this was that all cash was "contaminated", having some trace of drugs. Canada should strive not to fall into the civil forfeiture hole we have in the us, where the govt seizes people's property separately from charging them with crimes, because it dirty drug money or something. of course they should stop money laundering, but the govt should strive to use factual reasons for taking someone's money.
- dblohm7 9y ago
  Civil forfeiture is already a huge controversy in BC. There's a big court case brewing on this topic.
turc1656 9y ago
"They weren't charged with any crimes" and yet... "The Zhangs did lose their cash, though, for good: A judge ordered it forfeited to the provincial government as "proceeds of crime." The government should not be allowed to just declare the money was obtained illegally and seize it without due process, never to be returned. That's the Canadian equivalent of civil asset forfeiture. I don't know Canadian law, but it seems they are falling into the same morality pit that the US has been engaging in. Yes, I realize that these people are guilty. But this kind of thing is what leads to this: https://listverse.com/2015/06/29/10-egregious-abuses-of-civil-asset-forfeiture/ https://listverse.com/2015/06/29/10-egregious-abuses-of-civi...
- privacypoller 9y ago
  There is one big difference - Canada does not have the same heavy-handed legal punishment system that the US does. Possession for distribution doesn't run the same risks for (essentially permanent) jail time like it does in the US, but costs as much or more to the legal system. I don't agree with the civil forfeiture policies but I can certainly see how & why they are developing here. It's an attempt to remove the profit motive of crime without adding to the already clogged and expensive legal system. Again, I'm not judging the "rightness", just understanding the logic behind it.
  - turc1656 9y ago
    Yeah, I understand the logic as well. In the US it was designed to put a major dent into organized crime by seizing what amounts to their working capital. The problem, though, is that it's the easy way out and due process was specifically designed to keep government from overreaching in exactly the manner which they are doing. They are simply circumventing due process by separating property from its owner. The huge amount of law has to do specifically with property rights and torts against it. People (in the US) supposedly have a 4th amendment right to help protect their property. I'm sure Canada has a similar law. But now, they are separating property from the person who owns, removing the 4th amendment protections. How the SCOTUS hasn't struck this down with extreme prejudice boggles my mind.
txsh 9y ago
Fix: Government refuses to enforce a foreclosure until the lender proves the money loaned came from a legitimate source.
norikki 9y ago
So basically this is the opium wars in reverse. Isn't diversity great?
deleted 9y ago
[deleted]

98 points by ilamont 9y ago

msie 9y ago

The reporters have found a connection between real estate and the fentanyl crisis but I fear they’re going to jump to the conclusion of banning all foreign ownership. Which is not going to stop the drug trade. It is such a sexy narrative that the real estate crisis and opioid crisis can be blamed on Chinese foreigners which leads the reader to conclude that banning them is the solution. The piece is pushing all sorts of buttons.

throwaway2048 9y ago
lets just say the vast majority of canadians arnt going to shed any tears that chinese money cant inflate real estate prices to an even higher extent than they already are.
mistermann 9y ago
Sexy yes, but also true. Or do you think the Fentanyl and other criminality is spread evenly through all demographics? I'm curious where you might you have picked up this idea, because it certainly didn't come from the newspaper - perhaps intuition?
- EnFinlay 9y ago
  The article makes no assertion about the demographics of Fentanyl dealing or trafficking, just that these Chinese lenders are involved with these activities. Are you saying that the opioid crisis can be fully blamed on Chinese foreigners? Is that really what this article is saying? Or is that your intuition.
  - mistermann 9y ago
    It's been routinely reported on in the newspaper, I can't be bothered to post any proof as no enforcement = anecdotal evidence only = checkmate, racist. If you'd like to pretend that is controversial, you're welcome to it, it is an utter waste of time to try to convince people, but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe.
    - EnFinlay 9y ago
      > but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe. I'm confused, is that the people who listen to what is routinely reported in the newspaper, or other people?
EnFinlay 9y ago
It definitely gives me the feeling that the popular solution will be something xenophobic. Maybe there's hope for less knee-jerk reactions, like some regulations where when you lend money, the source of that money must be properly tracked. That way when someone claims a mortgage or lien on a house, it won't be respected unless the money lent was confirmed to be legit.
vkou 9y ago
Banning foreign ownership is the populist measure that is the price of admission for passing some incredibly unpopular measures (That are needed to solve this crisis.)

philiphodgen 9y ago

There is a missing step in the transaction that the article does not explain. 1. Bad person sells drugs for cash. 2. Bad person has cash. 3. Bad person lends borrower cash to buy real estate. Step 3 is the mystery. — Bad person could give a bag of cash to the borrower. Now the borrower has a banking problem. How does that cash get into a bank account so the real estate purchase can happen? — Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem. — Bad person masquerading as a lender can give a bag of cash to the closing agent who is facilitating the real estate transaction. Now the closing agent has a banking problem. There will be a huge pile of cash that must somehow enter the banking system. Someone must do this. How does it happen? And no it doesn’t not suffice to tell the seller or the closing agent “I brought a giant bag of Canadian currency with me when I flew in from China to buy this property.” Banks didn’t fall off the back of the turnip truck yesterday. As the article notes, this is a money laundering problem. But the article postulates a moment of magic — the moment where a bag of tainted cash becomes a recorded mortgage lien on real estate. I’m saying this as an international tax lawyer who has structured hundreds of millions of dollars of US real estate purchase by foreigners. Maybe I just deal with legit people. We always get wire transfers from real banks, whether the investment is debt or equity.

CPLX 9y ago
The article is pretty clear about this. The people who borrow the cash spend it. Often lavishly, they take it to casinos and so on. They are very wealthy people and have that kind of lifestyle, but their problem is that they can't get their money out of China. They borrow against the property by accepting this Canadian cash, and then repay the loan in China via the banking system there. Both parties need to launder money, one in one direction and one in the other, that's the obvious beauty of the scheme.
- philiphodgen 9y ago
  Thanks for pointing that out. I missed that explanation. The transaction is: 1. Own property. 2. Borrow big bag of cash from Bad Guy. 3. Gamble or spend the cash. 4. Pay back the loan from clean sources. I understand it, but I guess I have never dealt with the KYC people at a casino. I still see obvious choke points (for the conversion of drug-laden currency into gambling chips, for instance) at which Explanations Must Be Made, but perhaps there are channels that I do not know about. Let’s just say my experiences with the KYC systems have been rigorous.

hoodoof 9y ago

Government: "We will crack down VERY VERY HARD (to the extent that it doesn't stop the flow of cash pouring into our real estate market)!" Visualize a very very serious and determined politician at a press conference. Governments know that the massive outflow of cash from China into global real estate markets is bound to be corrupt and in many cases the proceeds of crime but they really have no interest or incentive in any way in preventing that. Governments will express ourage and a rock solid determination to ensure all Chinese money is clean but will in fact do nothing because at so many levels that cash is wanted. Consider for example that most politicians will own multiple houses. They don't want the real estate prices to drop, they want them sky high. Chinese cash, corrupt or not, still results in the best possible real estate dollar so the politicians will speak loud and act quiet on this. The irony is that investment in share markets requires some level of proof that the money being invested is clean but there is no such regulation on real estate cash.

PakG1 9y ago
When I read the article, it doesn't seem to say that Chinese cash is propping up real estate prices. Rather, Chinese drugs get smuggled into Canada, the Canadian proceeds from selling those drugs then get loaned to homeowners who don't have Canadian money themselves, and then when the home sells, the Canadian money goes back to the lender. If the lenders can be paid back, they don't get paid back with Canadian cash or Chinese cash in Canada. They get paid back with Chinese cash in China. Of course, the question might arise how did the homeowners get enough money to buy the property in the first place. Well, that's probably Chinese money. Getting enough money out of China for a down payment should only take a few years with a $50,000 per year limit. OK, so maybe Chinese money is paying a lot of down payments, and maybe drug money is being loaned out to homeowners. But where does the money to buy the home when it's later sold or foreclosed come from? Drug money, Chinese money, or other? That's the real question for figuring out what's causing real estate prices to soar.
- mistermann 9y ago
  > When I read the article, it doesn't seem to say that Chinese cash is propping up real estate prices. Try this one on for size: http://www.timescolonist.com/news/b-c/explosive-b-c-court-case-details-seven-migration-scams-1.23144703 http://www.timescolonist.com/news/b-c/explosive-b-c-court-ca... And the only reason it came to light was because it is a civil suit between individuals, the Canadian legal system most definitely isn't trying to catch anyone breaking laws as described in this story. Despite confessions on record in Canadian court, there will not even be an investigation of these people, as there won't be for those laundering hundreds of thousands of dollars in casinos in broad daylight, or paying people (and getting reported to the media with extensive reporting in the newspaper) for phony job offers for immigration scams. All of this very clearly has the blessing of all levels of government in Canada. Whether it is merely for the much needed economic boost or if there's something more sinister in play, we'll never know.

Tiktaalik 9y ago

After so many years of government indifference the housing situation in Vancouver is so incredibly screwed up. Hard to say whether it'll be possible at all to undo the damage. The expectations for action on housing in the first budget of the new NDP government tomorrow are sky-high.

chillydawg 9y ago
Hello from a fellow white hot property market (London). The probability of anything worthwhile being done in BC is approximately zero. The govt will do stupid shit like issue cheap loans to young people to "get them on the housing ladder" which just inflates prices more. If you're rrally unlucky, your lot might even invent new and more stupid ways to heat up a too hot market.
- Tiktaalik 9y ago
  Yep! Issuing cheap loans to young people is literally what the previous neo liberal government did. Of course local economists which warned against the plan found after that it increased prices. Now however the province has elected a labour government which has mentioned numerous times to expect action on the demand side and expectations are sky high that they'll be a bit different. Here's an article about people are expecting today. A tax on foreign capital is expected. http://www.cbc.ca/news/canada/british-columbia/bc-ndp-government-housing-affordability-1.4542462 http://www.cbc.ca/news/canada/british-columbia/bc-ndp-govern...
  - ttul 9y ago
    Additionally, the new Solicitor General is a tough as nails guy who previously sued the conservative federal government into allowing supervised injection sites for addicts, and then beat the former premier in her own riding, forcing her to move 350km.
    - kayone 9y ago
      If I had to pick one politician out of the whole country that I trust the most it would without a doubt be David Eby.

JorgeGT 9y ago

Took me a while to find out that B.C. = British Columbia.

mediocrejoker 9y ago
Speaking as someone who lives in the Vancouver area, I don't know why this story was posted on this site. I generally come here to avoid reading about politics and the toxic discussions that inevitably follow.
- msie 9y ago
  Sigh, I agree. Ironically this article came from the Globe and Mail which has turned off all commenting for now. Which I like.

refurb 9y ago

The Zhangs charge interest rates of up to 39.6 per cent, with some private lenders demanding up to 120 per cent. Court records show that one of the Zhangs' associates is among those allegedly charging that extortionate level of interest, which is double the maximum legal rate. OK, this I don't get. Why would you charge someone to launder your money? Typically you pay them. EDIT: Never mind. It's in the article. This seems less like a money-laundering scheme and more like loan sharking. Getting clean money in the end is just icing on the cake.

EnFinlay 9y ago
The article makes it sound like an amazing cycle of selling drugs, money laundering, loan sharking, and profiting from the real estate rise.
- msie 9y ago
  I believe the connection to real estate is incidental. Drug dealing, laundering occurs everywhere, including places without a hot RE market. Take the Hells Angels for instance. They seem to survive without a connection to the RE market. Criminals will find a way to launder money. The money from selling drugs is too irresistible to pass up for them.
  - EnFinlay 9y ago
    True, it sounds like profiting from rising house prices is icing on the cake.

Jesus_Jones 9y ago

One other thing, notice at the start of the article they say "the cash was contaminated with fentanyl and other street drugs". Back in the 80s and 90s, this was used as an excuse for why the cops would seize people's money in the us - often it was a poor person without ability to challenge it. One of many problems with this was that all cash was "contaminated", having some trace of drugs. Canada should strive not to fall into the civil forfeiture hole we have in the us, where the govt seizes people's property separately from charging them with crimes, because it dirty drug money or something. of course they should stop money laundering, but the govt should strive to use factual reasons for taking someone's money.

dblohm7 9y ago
Civil forfeiture is already a huge controversy in BC. There's a big court case brewing on this topic.

turc1656 9y ago

"They weren't charged with any crimes" and yet... "The Zhangs did lose their cash, though, for good: A judge ordered it forfeited to the provincial government as "proceeds of crime." The government should not be allowed to just declare the money was obtained illegally and seize it without due process, never to be returned. That's the Canadian equivalent of civil asset forfeiture. I don't know Canadian law, but it seems they are falling into the same morality pit that the US has been engaging in. Yes, I realize that these people are guilty. But this kind of thing is what leads to this: https://listverse.com/2015/06/29/10-egregious-abuses-of-civil-asset-forfeiture/ https://listverse.com/2015/06/29/10-egregious-abuses-of-civi...

privacypoller 9y ago
There is one big difference - Canada does not have the same heavy-handed legal punishment system that the US does. Possession for distribution doesn't run the same risks for (essentially permanent) jail time like it does in the US, but costs as much or more to the legal system. I don't agree with the civil forfeiture policies but I can certainly see how & why they are developing here. It's an attempt to remove the profit motive of crime without adding to the already clogged and expensive legal system. Again, I'm not judging the "rightness", just understanding the logic behind it.
- turc1656 9y ago
  Yeah, I understand the logic as well. In the US it was designed to put a major dent into organized crime by seizing what amounts to their working capital. The problem, though, is that it's the easy way out and due process was specifically designed to keep government from overreaching in exactly the manner which they are doing. They are simply circumventing due process by separating property from its owner. The huge amount of law has to do specifically with property rights and torts against it. People (in the US) supposedly have a 4th amendment right to help protect their property. I'm sure Canada has a similar law. But now, they are separating property from the person who owns, removing the 4th amendment protections. How the SCOTUS hasn't struck this down with extreme prejudice boggles my mind.

txsh 9y ago

Fix: Government refuses to enforce a foreclosure until the lender proves the money loaned came from a legitimate source.

norikki 9y ago

So basically this is the opium wars in reverse. Isn't diversity great?

deleted 9y ago

[deleted]