♬ Everything is not what it seems
When you can get what you want by the simplest of means
Be careful not to mess with the balance of things
Because everything is not what it seems…♬
Lyrics and music by: John R. Adair, Ryan David Elder, Bradley Jay Hamilton, Stephen R. Hampton, recorded by: Selena Gomez.
CBC News on May 4, 2010 in an on-line article entitled: “Bank of Montreal alleges huge mortgage fraud” reported on a potential $30 million mortage/real estate fraud in Alberta.
The article is disturbing, as the size of the fraud and the number of people involved is not small: there are apparently 14 inter-connected groups involved:
Toronto forensic accountant Al Rosen said he has never seen anything like it.
“This is massive in the sense that it is so broad and so deep,” Rosen said Tuesday. “This is [allegedly] a huge fraud. I can’t think of any situation that has so many people involved and over a period of time like this one.”
The people involved ranged from ‘straw buyers’ who fronted the purchase of the properties for inflated prices based on fake, inflated wage and net income documents, to lawyers, to bank employees and ‘masterminds’.
The Bank has filed a lawsuit arising out of the fraud for two reasons:
“One was to recover as much as possible of what was taken from the bank from the fraud,” Ralph Marranca, the bank’s spokesman told the CBC on Tuesday.
“And secondly was to send a very strong message to fraudsters and anyone who might contemplate something like this that the bank will pursue this very aggressively and will not tolerate fraud.”
As laudatory as the Bank’s actions to pursue the fraud and the fraudsters, this matter raises more questions than are answered in the CBC article.
For one, ‘irregularities’ were detected as early as 2006. This indicates that the frauds continued for several years. It is disturbing that procedures and processes could not have been implemented or changed that would have stopped or at least slowed the fraudulent activities.
During its investigation, bank investigators seized records that showed millions of dollars from the alleged scheme have been transferred to such countries as Lebanon, India, Saudi Arabia, the United Arab Emirates and Pakistan
It appears that the fraudsters exploited weaknesses in the Canadian Banking System in order to potentially fund terrorist activities. Alarmingly, the article indicates that the Bank of Montreal is not the only financial institution targeted:
Other banks don’t appear to be as aggressive in their approach, even though documents indicate they may have been targeted too. Bank of Montreal investigators found documents that showed one Calgary management company had 150 suspect mortgages from 16 different financial institutions.
Despite all the efforts to prevent money laundering in Canada, the fraudsters appear to have found a well-oiled funding machine.
Third, where are the RCMP, CSIS and the police in all this? There is no mention of criminal investigations paralleling the civil action. Doubtless the Law Society of Alberta and the lawyers of Alberta will be conducting their own investigations, if they haven’t already started.
Fourth, and certainly not least, what steps could the bank have taken to stop this from happening in the first place?
Rosen said this alleged fraud illustrates how weak and ineffective the controls are in our banking system.
“To me the most exasperating part of our business is we are not doing what we are supposed to be doing,” he said. “We are kidding ourselves that we have good systems, because we don’t.”
What is disturbing is that while the $30 million loss is huge, it really is a drop in the bucket compared to the Bank of Montreal’s income.
$30 million would represent approximately 1.67% of Bank of Montreal’s 2009 net income if my math is correct.
It would have been comforting to read that the Bank is taking forward and systematic steps to change the balance of things in order to prevent this from reoccurring from a structural and strategic standpoint, rather than focusing on recovery of their lost money and the pursuit of the fraudsters, which, at least from the CBC article, appears to be the focus of the Bank’s actions. After reading the article, I am left with the feeling that everything is not as it seems….
(Hat tip to Deborah Gillis QC for passing along this article!).