The Dirty Money Report
At 9:30 PDT this morning (June 27, 2018) BC Attorney General David Eby QC convened a press conference to discuss the release of the much anticipated report by Peter German QC. Minister Eby was joined by German, a classic quadruple threat. Quite boring really. Lawyer (BC and Ont), former RCMP member of 31 years, Correctional Service Regional Deputy Commissioner, money laundering expert and textbook writer, PhD, and Queen’s Counsel. He does not, so far as we know, hold any Olympic medals, important medical patents or Eurovision victories.
Those who tuned in to the live stream, as I did, were given a summary rundown of the astonishing links between BC’s broken regulation of casinos, the absurd Vancouver real estate market, and the devastating opioid crisis.
The “Vancouver Model” of money laundering revealed in the report is a trailer of BC’s shame, although this was not the first we have heard of it. The BC AG had appeared in Ottawa a few months back to sound the alarm before the House of Commons Standing Committee on Finance.
But few had seen the actual report until today.
It is somewhat edited, we are told, by German himself to assure necessary privacy considerations, but it is now shared on the BC Government’s news portal (posted at the same time as the conference): https://news.gov.bc.ca/files/German_Gaming_Final_Report.pdf
The report was not searchable, however this version is: https://www.scribd.com/document/382738528/German-Gaming-Final-Report-OCR
Highlights of the Report and Press Conference
Recommendations of the report
I’m using the term “casinos” instead of “service provider”, but basically these are the Great Canadian Gaming Corporation, Gateway Casinos & Entertainment, and Paragon Gaming.
The report recommends:
Gaming in BC
R1 – Gaming Control Act (B.C.) be amended to facilitate the recommendations in the report.
R2 – GCA clearly delineate the roles and responsibilities of BCLC and the regulator, the Gaming Policy & Enforcement Branch.
Crown Corporation – BCLC
R3 – BCLC in concert with casinos and regulator, annually review the source of funds declarations (to see if adjustments are needed).
R4 T- BCLC remind casinos not to accept cash if they are not satisfied with a source of funds declaration.
R5 – make casinos responsible for completing reports to FinTRAC, including STRs (suspicious transaction reports).
R6 – discuss with FinTRAC how to get casinos to directly report to them, or at least how to get BCLC to do this.
R7 – BCLC provide Corporate STRs if its files contain relevant information not contained within an STR from a casino.
R8 – casinos develop the necessary capacity to assess risk and perform due diligence on suspicious transactions.
R9 – casinos copy STRs to BCLC, the regulator and a new designated policing unit (DPU), and the RCMP.
R10 – the regulator/DPU have access to iTRAK in its offices.
R11 – eliminate existing “suspicious currency transaction” and “unusual financial transaction” reporting.
R12 – develop a Transaction Analysis Team to review all suspicious transaction reports.
R13 – weekly meetings for the Transaction Analysis Team to review all suspicious transaction reports and develop strategies to deal with each.
Joint Integrated Gaming Investigation Team (JIGIT)
R14 – provide JIGIT with support for its investigative mandates.
R15 – consider transitioning JIGIT to a permanent, fenced funding model within the RCMP’s provincial budget.
BCLC Goes Undercover
R16 – stop BCLC from doing undercover operations, except in conjunction with the regulator and, or the police.
R17 – stop BCLC from spending money on the SAS AML software system.
Very Important Patrons
R18 – BCLC ensure that VIP hosts do not handle cash or chips.
R19 – those working in VIP rooms get an independent avenue to report incidents of inappropriate conduct by patrons.
Cash Alternatives and Cash Limits
R20 – make cash alternatives the responsibility of the casinos, subject to their compliance with overarching standards.
R21 – don’t impose cash limits on buy-ins.
R22 – eliminate patron gaming fund accounts once responsibility for cash alternatives is transitioned to casinos.
Chips Go Walking
R23 – BCLC implement a chip tracking system for casinos.
R24 – transition casino industry to a standards-based model.
R25 – develop standards-based model via cross-sector of industry and government, building on Ontario Standards.
R26 – make the CEO / Registrar of the regulator be the keeper of the standards.
A New Regulator
R27 – transition to an independent regulator in the form of a Service Delivery Crown Corporation, with a Board of Directors and a CEO / Registrar
R28 – have the regulator’s board be a governance board and not be responsible for appeals from decisions of the Registrar.
R29 – regulatory investigators to be Special Provincial Constables.
R30 – make anti-money laundering and mandatory training a responsibility of the Regulator (re front line gaming personnel, VIP hosts).
R31 – make Regulator the regulator of BCLC and make BCLC Board, officers and employees be subject to registration.
R32 – have Regulator provide a 24/7 presence in the major Lower Mainland casinos, until a designated policing unit is in place.
R33 – appeals from Registrar decisions to be sent to an administrative tribunal constituted for this purpose, or already in existence.
R34 – fund Regulator from gaming revenue still.
R35 – ensure Regulator has dedicated in-house counsel.
R36 – hire Regulator investigators to meet core competencies.
R37 – create Designated Policing Unit to specialize in criminal and regulatory investigations in legal gaming industry, with an emphasis on Lower Mainland casinos.
R38 – make DPU an integral part of the Regulator.
R39 – DPU not responsible for investigating illegal gaming outside casinos.
R40 – provide DPU with an Intelligence Unit.
R41 – study OPP Casino Bureau and the Nevada GCB Enforcement Division to determine an appropriate role for the DPU.
R42 – make anti-money laundering a specific responsibility of the DPU.
R43 – fund DPU from gaming revenue.
R44 – ensure Provincial prosecution service has prosecution counsel familiar with gaming law.
R45 – undertake research into allegations of organized crime penetration of the real estate industry.
R46 – consider a licencing and recording regime for money service businesses, similar to the Metal Dealers Recycling Act.
R47 – consider researching the vulnerability of the luxury car sector and the horse racing sector to organized crime.
R48 – continue to encourage the federal government to amend the POCMLTFA to broaden the entities subject to reporting, specifically luxury goods of interest to organized crime.
The interim recommendations
The report includes letters German earlier sent to the AG Eby in late November 2017 and in March 2018 with interim recommendations:
- Require Gaming Service Providers to declare source of funds for cash deposits over $10,000, and include ID, financial institution and account of source money.
- Put a Gaming Policy and Enforcement Branch investigator on shift 24/7 at high volume casinos.
- Appear before the House of Commons Standing Committee on Finance
Security footage: bags and stacks of dirty money
Some of this stuff looks like a poorly shot Guy Ritchie homage. Bags of dirty cash, in bricks of $10,000, wrapped with elastic bands, run into the casino by “smurfs” and dumped at the teller’s cage. As German himself makes clear, these are definitely not banking kosher.
— CTV Vancouver (@CTVVancouver) June 27, 2018
Jesus –> David Eby shows video of $500,000 in bundles of $20 bills held by elastic bands like drug dealers use, being taken out of plastic grocery bags being laundered by 2 guys at River Rock Casino. #moneylaundering
— Christine Duhaime (@cduhaime) June 27, 2018
In the Dirty Money report, at paras. 433-434, we get this less than sterling example of enforcement from an old Gaming Policy and Enforcement Branch report:
A GPEB investigator reported that in September 2010, a patron entered the Starlight casino with $3.1 million, of which $2.6 million was in $20 denominations, bundled in bricks of $10,000, wrapped with an elastic band at either end and carried in inexpensive plastic bags. The same patron made numerous other buy-ins, always with used currency. Sometimes he left the casino and returned minutes later with another bag of cash. He was known to associate with individuals who had previously been involved in loan sharking.
On November 24, 2010, GPEB wrote a letter to BCLC expressing concern over the September 2010 buy-in. Despite having filed an STR on the transaction, BCLC responded
that the patron’s buy-in patterns “does not meet the criteria that would indicate he is actively laundering money in British Columbia casinos.”
Praise for journalists
Peter German and Minister Eby both praised the work of journalists.
— Jon Woodward (@ctv_jon) June 27, 2018
It’s about policy and regulatory reform, but no public inquiry at this time
Seeing that the “Vancouver Model” is a term touting an especially profitable and bespoke money laundering strategy developed in BC, it comes as no surprise that BC’s approach to enforcement is hardly the beacon other jurisdictions turn to for enforcement wisdom.
German recounts an exchange with Nevada authorities at para 872 of the report:
I met with the Deputy Chief of the Enforcement Division, who heads the Las Vegas office, as well as with one of the investigators. I hypothesized that a box of cash arrived with rubber
bands at a cash cage. What would occur? The officers doubted that this would occur in Las Vegas, although it might have happened in the past. Today, their expectation is that the
casino will contact the on-duty enforcement agent, who would attend at the casino and deal with the suspicious money.
Attorney General Eby spoke to the need for a new casino regulator, one with dedicated police agents, and stricter reporting of suspicious cash transactions. But when it came to questions over commencing a full public inquiry launched by the government, Minister Eby noted that those are long processes and that this is a matter of urgency.
I noted this:
It's clear that the @Dave_Eby and Peter German strategy is to steer entirely away from scapegoating the individual people in charge of the various agencies/orgs and point towards rehabilitating the system at a policy and restructuring level.
— Nate Russell (@nrusse) June 27, 2018
Stages of money laundering
Money laundering is usually divided into three stages:
- “Wash cycle”, or placement stage, where dirty money is put into a financial vehicle.
- “Spin cycle”, or the layering stage, where money is moved through other vehicles by purchasing precious metals, fancy cars, through offshore trusts and “brass plate” banks, and… of course, real estate. “Intermediaries, including lawyers, wittingly or not, may be used as conduits for many of the foregoing schemes.”
- “Dry cycle”, or integration stage, that puts the funds back into the legitimate economy.
Role of lawyers: victims and gatekeepers
German upholds the regulatory efforts of the Law Society of BC, and gives it credit for keeping its own house in order. But the independence of lawyers to run trust accounts under the protection of solicitor client privilege is targeted.
German says, at para. 971:
Without question, the absence of reporting by lawyers to FinTRAC is a gap in Canada’s AML regime and is a significant impediment to police investigations […]. Canada is an outlier, as other common law jurisdictions, including the United Kingdom, have robust provisions in place which require financial reporting by lawyers. Although not an answer to the issue, the Law Society of B.C. is leading the way in terms of self-regulation of lawyers and has extensive policy in place regarding lawyers receiving and recording cash transactions.
– Find Nate Russell on Twitter