Canada’s poor regulating has made it a 'pawn' in global money laundering: Report

Sep 7 2018, 1:15 am

Canada is a “laggard” when it comes to anti-money laundering and anti-terrorist financing measures, according to a new report published by the CD Howe Institute.

The report, titled ‘Hidden Beneficial Ownership and Control: Canada as a Pawn in the Global Game of Money Laundering,’ was written by Denis Meunier.

According to Meunier, “more scrutiny is given to individuals registering for library cards, than to those setting up companies in Canada.” The report points out the need for a publicly accessible central registry for beneficial corporate ownership, a major structural flaw in Canada’s corporate registration system.

In his mind, “Canada is lagging behind in ownership transparency, and the United States even more so.”

The report notes that official estimates of money laundering in Canada range from $5 billion to $100 billion. Offences such as drug trafficking, fraud, tax evasion, smuggling and corruption are fuelling the laundering of dirty money.

“Taxes that are evaded become a burden for compliant taxpayers and corporations who shoulder a disproportionate amount of government expenditures and deprive citizens of better services,” Meunier writes. “The tax gap from non-compliance alone was estimated in 2014 to reach $14.6 billion, and that doesn’t consider corporate tax non-compliance.”

The focus of the report is “to show how the lack of beneficial ownership transparency facilitates the use of corporations and trusts for illicit purposes.”

It notes that currently, there are no requirements to disclose beneficial ownership when creating a corporation. Nominee shareholders and directors can be appointed without disclosing the ultimate beneficial owner or the nominator. The same goes for trusts, where there are no requirements to identify the parties when registering.

“There is a global momentum, led by the Europeans, to make beneficial ownership registries accessible to the public, and trusts under certain conditions, to more effectively address the threats posed by money laundering, terrorist financing, corruption and tax evasion,” said Meunier.

In light of the findings, the report offers a few recommendations. These include:

  • Reforming corporate registries. The federal government, in collaboration with the provinces and territories, establish a central publicly accessible beneficial ownership registry of corporations and certain trusts
  • Placing the onus on corporations and trusts to truthfully and fully disclose beneficial ownership information
  • Requiring all reporting entities under the Proceeds of Crime (Money Launderingand Terrorist Financing Act to identify beneficial ownership information
  • Following the European example by keeping Canada current with the international standards, commitments and trends on beneficial ownership transparency.
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