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Public registries to combat money laundering should be free: experts

But registries that have limited enforcement are not as effective as those that have more proactive, and costly, verification processes
Cardiff University professor Michael Levi | Photo by

Two expert witnesses on anti-money laundering regulations say public registries of beneficial ownership for land and companies should be free, although the efficacy of their data, if not properly scrutinized, can be questionable.

Weighing in on B.C.’s trailblazing work on public registries Monday at the online Commission of Inquiry into Money Laundering in British Columbia were criminologists Peter Reuter, a professor at University of Maryland School of Public Policy, and Michael Levi, a professor at Cardiff University.

They contend verification of land and company ownership is going to be an ongoing issue for authorities managing such registries. They also say search fees can be counterintuitive.

“The purpose of this registry is to be used. If you’re charging for it, it seems to be counterproductive, really,” said Reuter.

“Sure,” added Reuter, with a fee “you discourage frivolous use of it, but is frivolous use such a risk as to otherwise encourage utilization of the information? Without specific expertise around this, I would consider it better not to charge.”

Levi told the commission, “A public registry that is online and available to the public shouldn’t automatically have any extra costs attached to it. 

“In which case, the argument for charging is weak. There isn’t much point in having a public registry if it’s so expensive that people can’t use it.”

Transparency International Canada (TIC), which has lobbied the government on public registries, states in its report, Opacity, “Beneficial ownership transparency is the single most important tool for fighting money laundering and other financial crime in the real estate sector and beyond.”

The B.C. inquiry was spurred by the intersection of skyrocketing real estate prices, allegations of money laundering in casinos, underground banks tied to international organized crime groups and an opioid crisis fuelled by fentanyl from China. 

As such, B.C. is to soon launch Canada’s first public registry of beneficial ownership of land in response to May 2019 recommendations from the Expert Panel on Money Laundering in BC Real Estate. The planned spring 2020 launch has been delayed to fall, according to the BC Land Title and Survey Authority.

B.C. is planning to charge $5 per property search. The expert panel recommended online registers “with fee-based access, provided the cost is not prohibitive, or online access to basic information with or without a fee.”

The $5 charge is about half the fee charged for an existing land title search.

“The more you charge for those inquiries, the less investigative journalism would be conducted,” said Levi.

The BC NDP-Green Party of BC coalition government is also in the midst of creating Canada’s first beneficial ownership registry for private companies. Canada could follow with a national registry like most Western nations already have 

Finance Minister Carole James already enacted legislation in May 2019 requiring companies to state their beneficial owners in their corporate records, which are only held privately and only accessible by government authorities and relevant regulators.

However, both Levi and Reuter poured some cold water on the concept, when examined by TIC counsel Kevin Comeau, when discussing how to maintain accurate data.

“Whether the person is the beneficial owner should not be solved by certifiable ID,” said Levi.

To that end, the experts discussed how a free corporate registry of beneficial ownership in Great Britain has been fraught with problems because it is not verified. 

UK government registry Companies House is now under review, said Levi, after it was shown it was easy to provide false information without verification.

But simply showing government ID doesn’t mean there isn’t a further hidden structure or agreement beyond what is disclosed, noted Levi.

And so it becomes a question of verification and enforcement.

Hence, “the question becomes how much are you willing to spend on the resource?” asked Levi, raising the spectre of inconvenience for businesses.

The B.C. government has acknowledged the dilemma in its January 2020 Public Beneficial Ownership Registry public consultation white paper: “Increasing beneficial ownership transparency of companies through a similar registry (to land ownership) would represent a business and cultural change concerning company information; it would create new filing requirements for B.C.’s approximately 430,000 private companies while removing a level of privacy company owners have become accustomed to.”

A corporate registry may be enforced reactively (via a complaint or tip) or proactively, according to the paper. If the latter, the paper suggests search fees would offset enforcement costs.

The paper states how financial institutions, notaries and lawyers could catch people lying, when information provided to them is cross-checked with the registry during due diligence work (“Know-Your-Client”).

Both experts raised questions about whether anti-money laundering (AML) techniques can be considered effective when weighed against the burden on business, or even if they can be proven to mitigate the original crimes.

Levi said it is “important for the commission to distinguish between harms that arise from control and the harms that arise from money laundering itself.”

Reuter said “the real question is, how effective are the AML control efforts?”

“We have to strip away the notion that it’s difficult to launder money,” added Reuter.

And, because the nature of money laundering is secretive, the scope of the problem is unknown, said Levi, and so “it’s hard to see connections between efforts to control money laundering and how criminals go about their business.”

The expert panel attempted to estimate how much money is laundered annually in B.C. real estate, pegging the figure anywhere from $800 million to $5.3 billion.

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