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Will B.C. adopt 'McMafia' law to combat money laundering?

Unexplained wealth orders are expanding in the United Kingdom. A Vancouver criminal defence lawyer calls them "a frightening expansion of the surveillance state" that the B.C. government ought to steer clear of.

Richmond resident Laura Gillanders says she’s been baffled by the steep rise of large mansions being built on farmland on the city’s urban-rural divide.

These new estates have catapulted legally protected farmland to as much as $1 million per acre during one of the province’s most significant bull runs on real estate, from 2015 to 2018. Now, smaller farm lots of less than 10 acres with such mansions built on them can now fetch in the $15-million to $20-million range.

Gillanders, and others from a community group called Richmond FarmWatch, wonders where the money has come from to support the huge spike in land values.

And so, Gillanders and John Roston, a mayoral candidate in the upcoming fall municipal election, proposed at the public inquiry into money laundering, in 2019, that Commissioner Austin Cullen explore real estate transactions in Lower Mainland farmland.

Gillanders and Roston also recommended unexplained wealth orders (UWOs) as a new tool for law enforcement to probe such massive movements of wealth they argue is jeopardizing the viability of farming.

Although Cullen never probed the Lower Mainland’s rise in farmland mansions, he has recommended UWOs be implemented by the provincial government.

Unexplained wealth orders could apply to Richmond farmland transactions: advocates

“Seeing these massive, you know, tens of millions of dollars, multimillion-dollar mansions coming up on farmland, it made sense to us to say, ‘Why not have unexplained wealth orders in place to investigate the largest transactions?’” said Gillanders.

Notably, there is no concrete evidence of money laundering, largely on account Canadian law enforcement agencies haven't prosecuted the crime to any significant extent, as shown during the inquiry, dubbed the “Cullen Commission."

She does point to media reports showing multiple farmland mansions in Richmond being used as illegal casinos, including one with alleged connections to proceeds of organized crime where violent incidents have taken place, according to local police; others are known to have operated as illegal hotels.

“It’s looking at it through the lens of the urgency of stopping this practice of using farmland as a place to launder money. It’s not just a little bit of cash; it’s not just a small thing,” said Gillanders.

Farming advocates viewed the run on farmland mansions as correlating to B.C.’s foreign buyers’ tax not applying to the Agricultural Land Reserve.

As such, Roston now says it is worth examining if the vast sums of money may be coming from overseas by way of underground banking supported by illicit activity in Canada, as like how the inquiry heard of casino gamblers sidestepping capital controls in China by unwittingly partnering with professional money launderers.

Unexplained wealth orders essentially allow law enforcement to compel property owners to reveal the source of their wealth in certain circumstances that meet an evidentiary threshold, where criminality is suspected. If a person fails to account for an asset, law enforcement can apply to B.C. Supreme Court to have it seized based on a presumption it was obtained by illicit activity.

Roston says the basic premise is similar to lifestyle audits (connecting under-reported income to high-value asset holdings) by the Canada Revenue Agency, only that UWOs can lead to asset forfeiture.

As such, these orders are an anti-money laundering tool that operate under the controversial reverse onus principle.

Cullen Commission accepts benefits of UWOs

“Unexplained wealth orders are a promising tool used in some jurisdictions to address the accumulation of illicit wealth by those engaged in profit-oriented criminal activity,” stated Cullen in his final June 2022 report.

Cullen said he was persuaded UWOs are a “valuable tool” for civil forfeiture proceedings and considered the benefits as outweighing the criticisms.

“The information provided in response to an unexplained wealth order cannot be used in a criminal prosecution. I would add that people who legitimately own valuable assets are well placed to show the provenance of those assets,” said Cullen.

In the case of farmland, many new mansions are owned by numbered companies, notes Gillanders.

Cullen suggests UWOs “allow authorities to address problems such as nominee ownership, where those involved in criminal activity put unlawfully obtained assets into the hands of a family member or associate in an attempt to insulate them from forfeiture.”

UWOs ‘a frightening expansion of the surveillance state’

But such orders pose significant risks to freedom and possibly Charter rights, according to many commission observers, including criminal defence lawyer Joven Narwal.

Such a tool is “a frightening expansion of the surveillance state,” one that has Orwellian overtones, said Narwal.

Narwal says many of Cullen’s recommendations — with UWOs among his chief concerns — “involve substantially increased state surveillance and an erosion of privacy protections of all British Columbians.”

“In my view,” said Narwal, “the cure is worse than the disease, yet distressingly, the current public discourse has yet to grapple with this possibility.”

Such orders “de-incentivizes proper investigations, because the law leaves it to the accused to prove their innocence,” argued Narwal.

UWOs run the real risk, he added, of being subject to arbitrary state definitions and it’s plausible information gathered from UWOs can be collected and shared within government agencies, “who in turn have free rein to conjure fantasies of illegal activity, sparking costly nuisances such as inquiries, audits and investigations of innocent people,” said Narwal.

The lawyer is also no fan of publicly available databases of beneficial ownership, as proposed by Cullen and appears to be gathering momentum nationwide.

“While we demand the state use its awe-inspiring machinery justifiably, in the real world the demand is not always met. There are other non-obvious forms of collateral damage caused by unjustified state intrusion. For example, there is a rising tide of cases in which banks and other financial intermediaries will terminate banking relationships if they receive a simple inquiry from an enforcement agency about an individual,” said Narwal.

Likewise, the BC Civil Liberties Association, an inquiry intervenor, has raised objections to the provincial government establishing a “draconian and controversial” UWO regime.

“UWOs undermine privacy rights, the presumption of innocence, and the right to silence. They have only been adopted in a few countries, and there is no credible evidence that they have been effective,” stated the association.

Cullen stated how his opinion was formed in part from jurist Hon. Thomas Cromwell, a former Puisne Justice on the Supreme Court of Canada, who said UWOs would be a reasonable infringement on Charter rights. The association said Cullen cannot make such opinions as his mandate is determinations of fact, and as such it is fact that UWOs are contentious.

"The evidence before the Commission is that 'there is no international consensus on whether the introduction of UWOs is desirable from the standpoint of striking the right balance between crime prevention and human rights protection,'" stated the association in closing submissions.

Furthermore, B.C.’s Civil Forfeiture Act, to which UWOs would likely fall under, is presently being challenged at the B.C. Court of Appeal, noted the association.

United Kingdom strengthens UWOs after Ukraine invasion

Established in 2017, then U.K. Minister for Security and Economic Crime Ben Wallace invoked the BBC crime drama McMafia in explaining UWOs and the term “McMafia orders” stuck in U.K. media discourse.

Since, the success of such orders appears to be checkered in the United Kingdom.

Narwal notes the court case “National Crime Agency v. Baker,” as the first instance, in 2020, an order has been overturned.

The Baker case looked at how much evidence is needed to raise an “irresistible inference” of criminality to justify the order. Ultimately, the state did not have enough evidence to justify the order, according to a summary by London law firm Corker Binning.

“The family (of a deceased senior Kazakh governmental official) was publicly humiliated through that process, only to be vindicated after the damage had been done to their reputations and well-being,” said Narwal.

A British House of Commons research briefing published April 14, 2022 stated the use of UWOs has been limited.

“By February 2022 only nine orders had been issued, relating to four cases. None have been obtained since the end of 2019. There have been high-profile successes and failures. A similar regime in Australia has also had limited success, whereas that in Ireland is credited with having significantly disrupted economic crime.

“A U.K. government money laundering risk assessment concluded in December 2020 that money laundering has probably increased since 2017, suggesting that UWOs are yet to have the desired impact in the U.K.,” stated the report.

Now, citing Russia’s invasion of Ukraine and the assets held in the U.K. by Russian oligarchs believed to be holding Vladimir Putin’s wealth, the government reformed its UWO laws under the Economic Crime (Transparency and Enforcement) Act 2022.

The act implements interim freezing orders and establishing mere reasonable grounds of suspicion to file an order. It also call for directors of corporate entities to be compelled to reveal information to law enforcement about beneficial owners.

The United Kingdom implemented UWOs under law in 2017 and this year media reports indicate the British government is stepping up its use of them in the wake of Russia’s invasion of Ukraine.

The B.C. government says it's reviewing the Cullen Commission recommendations, including the proposed UWO regime.

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