“Snow-washing” dirty money in Canada

SNOW WASHING

Canada’s reputation as the good guy of geopolitics — the wholesome, plaid-shirted, crinkly-eyed member of the G7 (I have Canadian citizenship, I’m allowed to say these things) – was, if anything, bolstered during the Donald Trump years. Whatever knots its southern neighbor tied itself in, Canada just carried on in a rational, straightforward, bilingual, steady-as-you-go manner.

But people interested in money laundering have always been a little concerned by the shenanigans beneath Canada’s outdoorsy exterior. It wasn’t just the pioneering golden visa program, which became so over-heated that it had to be abolished back in 2014 (except in Quebec) to prevent officials being overwhelmed by applicants, or the Vancouver property market, which became so over-heated that an official enquiry was launched into money laundering, but also the whole phenomenon of “snow-washing”.

To be honest, I’ve never been entirely persuaded by the term “snow-washing,” which a Toronto tax lawyer coined to describe how money is being laundered in Canada until it is “clean as the driven snow of the Great White North” (in contrast to the sunnier places further south that are usually thought of as dodgy). But the phenomenon is real enough.

The mechanism of snow-washing is broadly the same as that used by financial criminals in Britain, or indeed, Nevada. Innocent-appearing Canadian-registered shell companies are created to move money or hold assets, while themselves being owned in tax havens that guarantee anonymity to company owners.

  • “Due to its positive international image, Canada is seen by some of the more discerning crooks as their money-laundering venue of choice,” wrote the British Virgin Islands-based and Canadian-born lawyer Martin Kenney last year.

In some ways, Canada has a system that is the worst of all worlds. Because its provinces have so much autonomy, a lot of regulation is as fragmented as in the United States; but because it isn’t a superpower, enforcement is as weak as in a European Union country or Britain.

Finally, however, the ice may be beginning to crack. Last week the Canadian government published the results of a consultation into whether it should collect information centrally as to the owners of Canadian corporate structures, so as to prevent them featuring in scandals like this one.

  • “As this consultation ends, strengthening corporate beneficial ownership transparency remains a priority of the Government of Canada. Work should continue on advancing a coordinated approach to strengthening beneficial ownership, while respecting jurisdictional responsibilities with respect to corporations,” is pretty much the most exciting quote I could find. This is a distinctly cautious document, and its prose style does not lift the spirits.

Nonetheless, it is a step forward, and the report was cautiously welcomed by Transparency International’s Canadian chapter, and other groups working to fight corruption. They did note, however, that the report failed to realize that a publicly accessible registry would help users to analyze large volumes of data and thus spot suspicious patterns, in a way that only being able to access limited records does not.

  • “Canada is one of the last G7 countries without a commitment to implement a central or publicly accessible beneficial ownership registry,” they noted. “Canada’s federal government can no longer afford to be last place in the fight against money laundering and must make reforms to ensure we no longer have an international reputation for snow-washing.”

Thanks to the Corporate Transparency Act in the United States, and the White House’s commitment to fight kleptocracy, in some ways the dynamic of the Trump years has been reversed. It is Canada that is now at risk of becoming the laggard in the fight against financial crime, as many Canadian commentators have noted. This is not something we should overstate — the American registry of beneficial ownership won’t be ready for years and, even when it is, will only be accessible to a very limited group of people or organizations. And, as the Wall Street Journal noted in an assessment of the new law’s impact on the property market, you can always just use a trust rather than a company if you want to circumvent the act and stay anonymous.

However, the White House is pushing on and, last week, asked Congress for an extra $64 million to build the new corporate registry database, as part of a serious re-investment in America’s rather under-nourished tax enforcement system.

  • “The Biden administration is leading the charge for a new politics of tax justice,” the Tax Justice Network’s Alex Cobham wrote. “Just as Trump’s attitude to truth and tax seemed to empower a generation of politicians around the world to act in his image, so – we might hope – a US administration leading on tax justice may also shift norms and narratives.”

This feels good, but also distinctly weird. I’m not yet accustomed to there being a US president who actually wants rich and powerful people to pay taxes, and a positive write-up of the United States by the TJN still feels a little like seeing a vegetarian give a positive review to a steakhouse. I’ll probably get used to it in time for the next election.

Before, we start feeling too positive about the world, however, lets cross the Atlantic. Canada and the United States may be feeling their way towards taking corruption seriously, but the United Kingdom appears to be moving steadily in the opposite direction.

TWO STEPS FORWARD, TWO STEPS BACK

Back in the days before Brexit, much of the international momentum for fighting corruption came from UK Prime Minister David Cameron who – among other things – convened a large summit devoted to the topic in 2016. Considering the complicity of British shell companies, banks, lawyers, etc., in moving the world’s dirty cash, this always looked a bit like green-washing, but Cameron’s government did introduce some genuine innovations that put the UK ahead of the world.

What a difference a half-decade makes: Cameron is back in the news for all the wrong reasons, having used his connections to his former colleagues to lobby for government support for the now-collapsed financial company Greensill Capital. The scandal has revealed, once again, the gigantic and persistent flaw at the heart of Britain’s regulatory regime, which is based on the old private school principle that decent chaps don’t tell other chaps how to behave.

  • “The whole system doesn’t work, everyone knows it doesn’t work, everyone’s known for years it doesn’t work. David Cameron knew it didn’t work, which is exactly why his actions didn’t turn up anywhere on any official disclosure,” said Steve Goodrich, senior research manager at Transparency International UK.

The government has announced an inquiry into the affair, but its track record on suppressing and/or ignoring and/or delaying previous inquiries does not suggest the outcome is likely to make much difference. British lobbyists’ own lobbyist – the Public Relations and Communications Association (PRCA) – have come out with six recommendations of its own to help repair the damage this rather sordid affair has caused. The fact that one of the recommendations is that ministers should stop ignoring the rules that they are legally obliged to follow is a sign of quite how bad things have got.

  • “The Lobbying Act is unfit for purpose,” PRCA Public Affairs Board Chair Liam Herbert said.
    “This inquiry is an opportunity for the government to reset its approach to lobbying regulation. Our industry has made concerted efforts uphold to public confidence but it’s now time for politicians to do the same.”

There is an increasing feeling that, under Prime Minister Boris Johnson, the UK is neutering much of its previous pro-transparency legislation, whether that’s with regard to Freedom of Information requests, or the long-overdue register of offshore-owned property, which was supposed to go live in early 2021.

The British government’s recent integrated review into foreign and security was a missed opportunity to put the fight against kleptocracy at the heart of what London does. On that note, RUSI’s Centre for Financial Crime and Security Studies is hosting an interesting-looking discussion on the integrated review next week, which can be accessed online, by anyone.

WHAT I’M READING

I’ve recently made a start on Mariana Mazzucato’s Mission Economy, which seems remarkably timely as a call for governments to rethink their role in society. I’m only 30 or so pages in, but I already suspect I might get quite evangelical about it.

That’s it for this week. See you next Wednesday,

Oliver Bullough

The story you just read is a small piece of a complex and an ever-changing storyline we are following as part of our coverage. These overarching storylines — whether the disinformation campaigns that are feeding the war on truth or the new technologies strengthening the growing authoritarianism, are the crises that Coda covers relentlessly and with singular focus. But we can’t do it without your help. Support journalism that stays on the story. Coda Story is a 501(c)3 U.S non-profit. Your contribution to Coda Story is tax deductible.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.

@OliverBullough