As predicted in our previous anti-corruption trends to watch in 2022, the Commission of Inquiry into Money Laundering in British Columbia (the Cullen Commission) publicly released its Final Report (the Report) on June 15, 2022. After three years of extensive evidence, including testimony of 199 witnesses and over 1,000 exhibits, the Report provides 1,800 pages of analysis and regulatory recommendations that target industries vulnerable to money laundering in British Columbia (BC).

The key message of the Report is clear and unequivocal: money laundering is a significant issue in British Columbia and more regulatory oversight is required to tackle the problem. While the Cullen Commission did not provide a specific number on the amount of illicit funds that are laundered through the BC economy each year, they estimated that it is within the realm of billions of dollars per year.¹

The Cullen Commission follows four other independent reports released in 2018 that revealed significant levels of money laundering in BC’s real estate, luxury vehicle, gaming and horse racing industries. In 2019, in response to these reports, the Cullen Commission was established under the BC Public Inquiry Act.² Led by British Columbia Supreme Court Justice Austin Cullen, the Cullen Commission was mandated to report on the extent and methods of money laundering in BC; the acts or omissions of various regulatory agencies and public institutions that contribute to money laundering in the province; the effectiveness of anti-money laundering (AML) efforts by these agencies and individuals; and the current barriers to effective law enforcement in this area.

While the resulting action of governments in the wake of this Report remains to be seen, its release puts direct pressure on the BC Government to establish further regulatory oversight and enforcement that may affect the industries that are targeted by money laundering. The Report also indicates that there are significant failures within FINTRAC, the federal agency responsible for money laundering, which implicates further regulatory tightening that must occur at a federal level.

General enforcement recommendations

The Report provides a total of 101 recommendations to bolster the current AML regulatory regime. The following is an overview of the most significant enforcement recommendations:

• A dedicated provincial AML Unit³: This recommendation is the heart of the enforcement recommendations in the Report and is tied to the recommendations on asset forfeiture. The Report recommends that power and resources are invested into a dedicated provincial AML Unit to identify, investigate and disrupt sophisticated money laundering and proceeds of crime. The proposed AML Unit would be housed in the current provincial Combined Forces Special Enforcement Unit, which would ensure that the province has direct oversight and funding over the Unit. This recommendation, paired with the asset forfeiture recommendations, provides the most teeth to the province for tackling money laundering in BC.
• Enhanced criminal and civil asset forfeiture⁴: This recommendation targets the finding in the Report that both criminal and civil asset forfeiture amounts are not commensurate with the amount of money laundering occurring within BC. Asset forfeiture is the seizure or confiscation of assets by the authorities in either a criminal context or through provincial asset forfeiture legislation.⁵

The Report provides several recommendations for effectively leveraging both criminal and civil asset forfeiture laws. For criminal forfeiture, the recommendations include requiring investigators to consider and report on criminal forfeiture during profit-oriented criminal investigations. For civil forfeiture, the Report recommends expanding the resources provided to the BC Civil Forfeiture Office and allowing revenue generated by civil forfeitures to flow to the provincial government.⁶ These recommendations may result in the increased use of asset forfeiture as both a deterrent and a punishment for money laundering in BC.

• Implementing Unexplained Wealth Orders⁷: The Report recommends establishing Unexplained Wealth Orders (UWO) akin to a similar regulatory tool used in the United Kingdom. A UWO is an investigative tool that allows an enforcement authority to apply for an order requiring a person to provide information concerning the nature and extent of that person’s ownership interest in a particular property and how they obtained the property.⁸

The Report recommends implementing a regime for UWOs to target nominee ownership and individuals “further up the criminal hierarchy” who are often involved in lucrative but less visible forms of criminal activity.⁹ If implemented, the tool would result in strengthened oversight and investigation of those who own assets that may be connected to money laundering and other financial crimes.

• An independent AML Commissioner¹⁰: The Report recommends that an independent office of the legislature is established to ensure that the public institutions in BC are appropriately tackling the issue. This recommendation targets the government failures in combating money laundering and provides independent oversight of government moving forward.

The proposed AML Commissioner would produce an annual report, provide research on AML issues, provide policy recommendations, and monitor and audit the performance of provincial agencies with an AML mandate. While the proposed AML Commissioner would not have direct enforcement powers over private industry, it may contribute to a tightening AML regulatory system that is more accountable to the public.

Targeted industries

In its investigation, the Cullen Commission targeted specific industries, including (but not limited to) real estate,¹¹ financial institutions,¹² virtual assets,¹³ luxury goods¹⁴ and the general corporate sector.¹⁵ The following is a summary of the Report’s findings and recommendations for each of these industries.

Real estate

The real estate industry in BC has long been infamous for its susceptibility to money laundering. The Report dedicates over 100 pages to the issues in the BC real estate industry and provides 36 recommendations for further regulation and oversight. The findings show that significant money laundering occurs in the real estate business in BC and that it is particularly susceptible to international money laundering schemes.¹⁶ The recommendations include stricter licencing requirements, including bringing developers, mortgage brokers and owners into the licencing oversight regime.¹⁷ It also includes rigorous reporting requirements and additional oversight of real estate transactions by FINTRAC and the British Columbia Financial Services Authority.

Financial institutions

The Report discusses three different types of financial institutions: banks and credit unions, money service businesses (MSBs), and white-label automated teller machines. The Report finds that each of these facets of the financial services sector are susceptible to money laundering in different ways. Banking is regulated both federally and provincially, and the Report worked within the limits of what could be done at a provincial level while also acknowledging the inadequacies of regulation at the federal level. The primary recommendations target the British Columbia Financial Services Authority to provide them with more authority and resources to act on a clear AML mandate that encompasses all financial institutions, including MSBs.¹⁸

Virtual assets

In addition to financial institutions, the Report also flagged the widespread development of virtual assets within the current financial system. The Report defines virtual assets as “a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes,”¹⁹ generally referring to cryptocurrency assets and exchanges. Due to the relative novelty of these assets, the Report finds that there are currently significant regulatory gaps in this area that are exploited in the pursuit of money laundering and other financial crimes. On this basis, the Report recommends further policy and regulation that specifically targets virtual assets.²⁰

Luxury goods

The market of luxury goods was previously flagged by the German Report²¹ as an area that is susceptible to money laundering. The Report takes on the same definition as the German Report to include luxury vehicles, fine art, precious stones, super-yachts and other high-paying items.²²The Report finds that luxury goods are involved in money laundering in a multitude of ways, including using the goods to store the value of proceeds of crime; using the proceeds of crime to purchase luxury goods for use and enjoyment; and lending proceeds of crime to individuals with the expectation that the loan will be repaid in another form or location (the Vancouver Model).²³ The Report provides specific recommendations to target this industry, including implementing a provincial reporting requirement on cash transactions of CA$10,000 or more.²⁴

The corporate sector

The Report overviews the corporate sector at a general level, including the money laundering risks associated with corporate and other legal arrangements. In Chapter 23, the Report discusses how money launderers use corporate structures to facilitate their laundering activities through anonymous shell companies. In light of these issues, the Report recommends establishing a publicly accessible pan-Canadian corporate beneficial ownership registry. This recommendation was made alongside the new federal corporate registry that is set to be established in 2023.²⁵ The Report emphasizes coordinating amongst federal and provincial governments to ensure transparency of corporate ownership to avoid criminal transactions operating through anonymous shell companies.

Looking to the future

The ultimate impact of this Report remains to be seen as we wait for BC Government officials to decide which recommendations will become a reality. What is certain is that, in the wake of this Report, the regulatory landscape governing money laundering is likely to shift and strengthen across BC and Canada in the coming months.

1. Final Report at 2.
2. Public Inquiry Act, SBC 2007, c 9; established by Order in Council No. 2019-238.
3. Final Report at Chapter 41.
4. Final Report at Part XII.
5. In BC, the Civil Forfeiture Act, SBC 2005, c 29.
6. The BC Civil Forfeiture Office is currently self-funded.
7. Final Report at Chapter 43.
8. Final Report at 1616.
9. Final Report at 1617.
10. Final Report at Chapter 8.
11. Final Report at Part IV.
12. Final Report at Part V.
13. Final Report at Chapter 35.
14. Final Report at Chapter 34.
15. Final Report at Part VI.
16. Final Report at 775.
17. Recommendations 8-9; 14-30.
18. Recommendations 44-54.
19. Final Report at 1367.
20. Recommendations 86-89.
21. Dr. Peter German, “Dirty Money – Part 2” (March 31, 2019) accessed online via <link>.
22. Final Report at 1320-1322.
23. Final Report at 1324.
24. Recommendation 82.
25. Final Report at 1084.