[Analytics] Canadian money laundering probe ‘will rock Beijing’

It is deeply ironic that one of the mouthpieces of the Chinese Communist Party (CCP) chose this week to yet again castigate the government of Canada for abiding by the rule of law and its international treaty obligations over the detention of Huawei Technologies executive Meng Wanzhou. Jonathan Manthorpe specially for the Asia Times.

Global Times, the CCP’s high-volume and intemperate English-language propaganda machine, marked the re-election of Justin Trudeau’s Liberals, albeit with a minority government, with another demand that Meng be released.

“Once Meng is released and touches down in China, the frigid relationship between these two important countries will immediately warm up,” said the editorial.

Two Michaels

Oddly, the editorial did not refer at all to the kidnapping by CCP officials of the two Canadians, diplomat Michael Kovrig and businessman Michael Spavor. They are being held hostage to try to force the dropping of the case against Meng, who faces charges of fraud in the United States, and was detained in Vancouver on December 1 last year under the terms of an extradition treaty between Ottawa and Washington.

But the implication of the editorial is that if Meng is released the two Michaels will also be let go.

The CCP clearly does not understand how deeply the feelings of the Canadian people have been hurt by the hostage taking of the two Michaels. It takes two to warm up a relationship, and there is little appetite in Canada at the moment to get cosy with Beijing.

Distrust of the PRC has been compounded by Beijing’s attempts to get Canada to abandon its core belief in the rule of law, an independent judiciary, and its obligation to remain faithful to international treaties.

All this, of course, is happening against the backdrop of the demonstrations in Hong Kong, a city with about 350,000 Canadian residents, which revolve around these issues of democracy and the rule of law.

So even after the Canadian courts have determined the fate of Meng and the Huawei Affair is settled, it is going to be a very long time before Canadian people regard the CCP with anything other than disgust. And that is not just because of the abominable abuse of the two Michaels and events in Hong Kong.

For as the Global Times writer was penning his editorial, a process was starting in Vancouver which is likely to give the CCP even more reason to fear the rule of law and the independent judiciary in Canada.

Money laundering inquiry

On Wednesday a public inquiry chaired by Supreme Court Justice Austin Cullen began its hearings into money laundering in Canada. This will lead to a report and recommendations for legislation early in 2021.

The target of this inquiry is the billions upon billions of dollars that have been smuggled into British Columbia and other regions of Canada over the last two decades.

Most of this money has been illegally taken out of the People’s Republic of China in defiance of currency restrictions, though some has come from Russia and Iran.

A two-volume report produced earlier this year by former Royal Canadian Mounted Police deputy commissioner Peter German set out the corruption and economic instability that accompanied the torrents of PRC money.

In 2018 alone, the report says, at least C$7.4 billion was laundered in British Columbia, most of that from the PRC.

And of that money, over C$5 billion in dirty money was used to buy property, contributing to a 5% rise in house prices. Over the years of this influx of dirty money, housing prices in Vancouver and Toronto have risen to levels that are causing serious social upheaval and economic dislocation for Canadians.

Laundered money, often in cash, is also used to buy luxury cars and companies. Many Canadian universities, colleges and private schools have had to stop taking cash for fees for fear that the money is dirty.

The Vancouver Model

Police and security agencies worldwide even called one aspect of the money laundering schemes “the Vancouver Model.” In his reports German described it like this:

“Chinese citizens wish to relocate some of their wealth from China to Canada. To do so, they agree to accept cash in Canada from a lender. At that point, a settling of accounts occurs, app to app, between the person making the loan and an underground banker in China.

“The catch is that the provenance of the cash loaned in Canada is unclear. It generally comes in the form of stacks of $20 bills, wrapped in a fashion that more closely resembles drug proceeds than it does cash originating at a financial institution. The Chinese individual will then buy-in at a casino with the cash, gamble, and either receive higher denomination bills or a cheque upon leaving the casino.

“The lender is both servicing a drug trafficking organization by laundering its money, and the Chinese gambler by providing him or her with Canadian cash.”

Indeed, there is at least one well-documented case of a company in the Richmond suburb of Vancouver specializing in buying – at a premium – bundles of cash from street-level drug traffickers. Bags containing tens of thousands and sometimes hundreds of thousands of dollars of this money were then delivered by pre-arrangement to “High roller” or “Whale” gamblers from the PRC waiting in the carpark outside Vancouver’s most popular River Rock Casino Resort.

Much of the evidence so far is that it is senior CCP figures and their close Red Prince and Princess relatives who have been the most avid users of this and other underground railroads for transferring assets into Canada.

Public registry of owners

Yet overall, the evidence is that laundering money through casinos and illegal drugs is a relatively small part of the problem. The Washington-based anti-money laundering advocate, Global Financial Integrity, estimates that 60% of the money being taken illegally out of the PRC is moved through inflated false invoicing with foreign business partners.

In many ways, of course, this is much more of a threat to the international reputation of the CCP and its corporate arms than the more colorful use of drug money and casinos to siphon money abroad.

If Canadian partner companies of PRC enterprises start getting hauled up in court for corrupt and fraudulent accounting on behalf of their PRC partners, the damage to trade with China could be serious, at least with G7 countries.

It seems unavoidable that in the course of this inquiry there will be names made public that the CCP would prefer were kept private.

The British Columbia government is in the process of creating a publicly accessible registry of the beneficial owners of all property in the province. In addition, the province is being urged by anti-money laundering advocates, many of them elected politicians, to expand the registry of beneficial owners to include companies and trust funds.

The picture that is emerging is of a growing determination in Canada to reverse its image as a center for money laundering and to clean up the corruption caused by the influx of dirty money over the last two decades.

In the course of this house cleaning, Canada will not take direct aim at CCP Red Princes and Princesses. Canada will avoid becoming an easy target for Beijing’s revenge by making the Red Aristocrats collateral damage in a much broader and necessary eradication of corruption that will also take in Russian and Iranian money laundering.

So the PRC’s reputation in Canada is on a downhill slide for the foreseeable future. For Beijing, to at least minimize the antipathy in which it is held in Canada it must immediately release the two Michaels and ensure they are in good health.