Dirty money didn’t cause Vancouver housing crisis
Fundamental factors cited by inquiry judge
A three-year public inquiry into money laundering in British Columbia, prompted in part by public speculation that criminals were driving up housing prices in Vancouver, has found that dirty money didn’t cause the region’s unaffordability crisis.
The inquiry, led by B.C. Supreme Court Justice Austin Cullen, was widely anticipated among local politicians, media and housing advocates, who in recent years have blamed the nation’s most expensive property market on criminal money — in particular, from Asia. Cullen’s exhaustive report, more than 1,800 pages long and based on testimony from 188 witnesses and more than 1,000 exhibits, countered those assumptions.
“Money laundering is not the cause of housing unaffordability,” the report said.
“There are strong reasons to think that fundamental factors such as supply and demand, population increase, and interest rates are far more important drivers of price,” Cullen said in the report. “Steps taken to counteract money laundering should not be viewed as a solution for housing affordability.”
In the past two decades, The price of a benchmark Vancouver home has roughly tripled, coinciding with a surge in so-called millionaire migrants from Asia drawn by Canadian immigration policies designed to attract the rich. The region was riveted by stories of Chinese high rollers showing up at casinos with bags full of cash and Asian students declaring no income but owning multi-million-dollar homes.
But as the cost of a typical single-family house rose to more than 20 times the median household income, public outrage — as well as anti-asian sentiment — exploded.
In early 2019, then Finance Minister Carole James declared that dirty money was responsible for raising housing prices by about 5 per cent in the previous year, citing controversial estimates commissioned by the provincial government. Another study examining B.C. land titles for signs of money laundering classified more than 2,000 properties as high risk for simply having mailing addresses in China or Hong Kong. In May 2019, under pressure to deliver answers to an angry public, Premier John Horgan blamed housing prices on “unchecked” fraud and appointed Cullen to lead the public inquiry.
In his final report, Cullen expressed doubt about those previous estimates of money laundering and said that any impact on housing unaffordability was “tenuous.”
Footage released by Horgan’s government in 2018 of Asian gamblers at Vancouver-area casinos had particularly inflamed public opinion. Cullen’s report acknowledged that hundreds of millions of dollars of illicit cash gambled at the facilities had fuelled “an extraordinary growth in suspicious cash transactions.” But he cautioned against assuming the patrons were all criminals. Typically, they were wealthy Chinese who couldn’t get their cash out of China to gamble because of the country’s currency controls so they had turned to underground cash facilitators linked to criminal organizations, he said.
“The discourse relating to foreign investment, immigration and housing prices can veer into patterns of stereotypical or racist thinking,” Cullen warned, expressing concern about public dialogue treating “any ethnic community as presumptively dishonest or unlawful.”
While there were legitimate policy questions relating to foreign ownership of property, he said, “I am unable to conclude that either money laundering or foreign investment (however that is defined) is a primary cause of price increases in British Columbia residential real estate.”
Cullen did, however, find major failings in Canada’s broader ability to monitor and tackle money laundering, concluding that an “enormous volume” of illicit funds filter through British Columbia’s economy every year. Those flows are destructive to society in other ways, such as distorting markets and enabling criminals to profit from other offences, Cullen said.
Canada’s federal police force disbanded sophisticated financial crime units amid funding cuts in 2012 and its lack of attention since has “allowed for the unchecked growth of money laundering,” the report said. Cullen also described the national financial intelligence agency, Financial Transactions and Reports Analysis Centre of Canada, as “not effective,” saying it collects large volumes of suspicious transaction reports but is unable to produce timely, useful intelligence from them. The number and value of unlawfully obtained assets that British Columbian authorities have seized is also “shockingly low,” Cullen said.
“The prevailing antimoney laundering regime can be likened to a Potemkin village, which relies on the appearance of effective structures rather than their reality,” Cullen said in the report.
Cullen provided 101 recommendations to better tackle money laundering in the province, including a dedicated commissioner and investigation unit, as well as a raft of changes across the legal, banking, real estate, accounting and gaming industries in how they conduct business.