Kreller Hot Topic Report | Beneficial Ownership in Real Estate Transactions

By Lauren Caryer, PhD

Snowed in Toronto
In March 2019, Transparency International Canada released a comprehensive new report, in conjunction with Publish What You Pay Canada and Canadians for Tax Fairness, examining the ways in which Canada’s “lack of beneficial ownership transparency” contributes to money laundering (or “snow-washing”, as it’s known up North) within the Toronto real estate market. The report points to serious weaknesses in Anti-Money Laundering policies (AML) in the real estate sector, through which Canada’s property registers allow real estate purchases to be made through straw men, including shell companies and nominee buyers. Additionally, large-scale real estate purchases are often made through cash transactions, thereby circumventing scrutiny from lenders. The report found that 35% of the properties acquired by corporate entities in the Greater Toronto Area between 2008 and 2018 were paid for through cash transactions; and the overall percentage has been rising: in 2018 nearly half of these purchases were made in cash.

As the report points out, the lack of AML policy in the Canadian real estate market makes cities such as Vancouver and Toronto attractive destinations for dirty money. Furthermore, the situation creates “perverse incentives” for launderers to overstate the value of properties, causing negative effects in already tight real estate markets, and posing serious risks to unknowing partners. The report gives the example of CLJ Everest Ltd, a shell company controlled by “disgraced fund manager and alleged fraudster Clayton Smith”. Reportedly, CLJ Everest acquired a “sprawling” CAD 2.7 million (USD 2 million) dollar estate in a Toronto suburb with misappropriated investor funds in January 2015. Reportedly, the property was later sold by court appointed receivers in 2018 for a substantial loss.

Source: Transparency International Canada