Financial transaction

Organized Crime and Corruption Reporting Project

For eight years, Chinese property developer Chen Runkai used hundreds of wire transfers to transfer tens of millions of dollars to accounts at Canadian banks – a technique that experts say is the hallmark of money laundering.

Both Chen and his daughter own mansions on this street in Vancouver’s Point Gray neighborhood. (Photo: Darryl Dyck for the Toronto Star/OCCRP)

Yet Canada’s biggest banks – including Royal Bank of Canada, CIBC, TD and Bank of Montreal –– all accepted the money without reporting it to the country’s financial regulator.

Only one financial institution took action: the Vancouver branch of Swiss bank UBS filed a suspicious activity report in 2012 after seeing massive flows of unexplained money into a Chen family account.

“All kinds of alarm bells should have been ringing,” said Garry Clement, a former Royal Canadian Mounted Police superintendent who specializes in proceeds of crime.

“It almost feels like they’re sleeping at the switch… It just shows the system is down,” added Clement, who is now chief anti-money laundering officer for VersaBank.

At a time when governments are grappling with the effects of the influx of illicit foreign funds on overheated real estate markets in Vancouver and Toronto, the unchallenged flow of Chen’s money has raised due diligence concerns. and rigor employed by Canadian banks in the fight against money. money laundering detection and reporting.

The Toronto Star and OCCRP contacted the banks that received Chen’s funds and asked why the flow of money had not raised concerns or official reports to authorities. The banks each said they could not comment on individual customers. They added that they take their anti-money laundering obligations seriously, have controls in place and comply with all regulations.

Chen’s story –– how he moved to Canada from China in 2006 with modest means, then racked up tens of millions of dollars and luxury homes in Vancouver, while facing charges back home origin for alleged bribery — was detailed in a recent investigation.

The mysterious source of Chen’s ostensible wealth, and his move to Vancouver where he now lives with his family, has been investigated by Canada’s Financial Intelligence Unit, as well as an investigation by a British Columbia commission studying the impact of money laundering. in this province.

In 2012, the year Chen’s financial dealings were first reported by UBS, his daughter bought a mansion with a tennis court and pool near the beach in Vancouver for C$14.7 million. . She paid for it without a mortgage, while listing her profession as “student”. Chen bought a C$15.6 million mansion on the same street in 2016.

“He was able to get and make a lot of money in real estate development in China without being involved in corruption,” said Lorne Waldman, a Toronto immigration attorney representing Chen. “He didn’t do anything wrong.”

A flurry of transactions

UBS closed Chen’s account in 2012 due to a lack of explanation of the source of the funds, according to a report the bank filed with the Financial Transactions and Reports Analysis Center (Fintrac), the financial intelligence unit of the Canada.

The high volume of transactions in a short period of time was indicative of a money laundering technique called “layering”, in which “complex layers of financial transactions are used to obscure the source of ownership of funds”, reads- on in a suspicious transaction report from UBS.

But Chen had no trouble finding major Canadian banks to receive millions from China using the same methods, the documents show. None of them reported the transactions to Fintrac.

In August 2020, the British Columbia Cullen Commission issued subpoenas to 11 financial institutions in Vancouver seeking information about any transfers made to Chen and his family members from offshore accounts since 2009. Responses from major banks revealed transfers totaling nearly C$170 million over eight years. The sources of the transactions were three Hong Kong exchange companies and an individual.

Experts say Canadian banks have moved more slowly in the fight against money laundering than many of their international counterparts.

“Unfortunately, these issues have not been taken seriously enough for so long in Canada,” said James Cohen, executive director of the national chapter of advocacy group Transparency International.

“Canada has lagged for so long on issues… It’s hard to say if it’s better (today). There’s definitely more public attention. So hopefully the banks redouble their efforts.”

Although the banks that received funds for Chen told reporters they had strong anti-money laundering controls, Clement, who reviewed the Cullen Commission documents, wonders how they were able to pass up so many suspicious payments. in their systems.

“Our banks, despite having spent I would say several million dollars on systems, continue to fail in a number of areas,” Clement said. “In a case like this, you have to ask yourself, how could you…ignore the filing of a suspicious transaction report?”

“You have to wonder, is this a case of greed overriding ethics?”

The suspicious account closed by UBS in 2012 supposedly belonged to Chen’s mother, for whom he held power of attorney. A UBS client advisor first questioned Chen’s mother about the source of the funds, according to the Fintrac report. She said they were the product of a land deal in China, but could not provide further details.

The UBS adviser then interviewed Chen, who was the “electronic funds transfer ordering client” on the account, according to the documents. He was “unwilling to provide satisfactory documentation confirming legal title to the land…or in connection with any land sale transaction”.

Mary-Jane Bennett, a former criminal lawyer from Vancouver recently commissioned by Massey College in Toronto to investigate and write a report on money laundering, says Canada is well behind countries like the United States and the UK in detecting and reporting suspicious financial activity.

“I found it interesting that the only bank that questioned this money was this Swiss bank,” she said. “They probably had a much longer and more detailed history with money laundering than we have here in Canada.”

Cohen of Transparency International says there needs to be accountability – not just for so-called money launderers, but for the system that allows them to thrive in Canada.

“Our law enforcement and prosecution services on the financial crime front have been seriously understaffed and under-resourced for ages.”

Vancouver-Mansions-6Chen’s Tudor-style mansion in Vancouver. (Photo: Darryl Dyck for the Toronto Star/OCCRP)

Clandestine banks and organized crime

If Canadian banks had probed the sources of the funds going into the Chen family accounts, they might have discovered what the Cullen Commission researchers found: most of Chen’s money was transferred through entities offshore linked to a Hong Kong family with ties to organized crime.

Members of the Fang family run a network of businesses, jewelry stores and money changers in Hong Kong and Macau, according to a case study that was one of more than 1,000 exhibits presented to the Cullen Commission. .

Fang Jinghua was accused in a Hong Kong trial of running an “underground bank”, although the court ruled the transfers were legal, according to the Cullen Commission case study. A redacted document cited in the case study also accused him and another family member of running an underground bank.

Hing-Wah-Cullen ReportThe Hing Wah Currency Exchange in Hong Kong is owned by a company that transferred funds to Chen. (Photo: Cullen Commission)

Two companies of which Fang was a director transferred millions of dollars to Chen’s accounts in Canada. The case study says the Fangs “are connected to a large number of businesses in Hong Kong”, which publicly release “little or no information about their operations”.

It’s a “really, really common” setup for illegally moving money out of China, said Christine Duhaime, a financial crime expert who noted the government restricts individuals from transferring US$50,000 to China. abroad per year, but allows businesses to send larger amounts.

To circumvent these restrictions, dozens of private companies will be set up with banking access in Hong Kong and mainland China so that personal funds can be sent under the guise of a business transaction.

“It looks like they will be doing a normal business transaction with a private company, when in fact it is an underground banking transaction,” Duhaime said. “The company’s services are really about withdrawing money from China with a 5-20% fee.”

The model is also commonly used in so-called “gambling junkets”, she said: underground networks that bring mainland Chinese gamblers to Macau or Hong Kong and give them money to gamble. By the time they leave the casinos, gamblers are often heavily indebted to organized crime figures.

A member of the Fang family, who transliterates his name into English as Fong Siu Lok, has ties to gambling and organized crime figures through a Macau jewelry store he runs, research shows of the Cullen Commission.

The store, Christine Jewelry, shares the same general secretary as a gambling junket run by Lin Szeto Yuk, who also goes by the English name “Christine.” She is a “gambling mogul sometimes referred to as the ‘big sister’ of the Macau gambling world”, the case study reads.

It is widely reported that Lin has a close relationship with Wan Kwok-koi, or Broken Tooth Koi, an infamous 14K triad leader from Macau, who is wanted in Malaysia and is believed to be in hiding. The US Treasury Department sanctioned Wan in 2020, citing alleged involvement in criminal scams including bribery and kickbacks.

Chen’s attorney, Waldman, said his client had no knowledge of the Fang family’s alleged ties to organized crime. He added that strict limits on transferring money out of China are forcing people to make transactions that look suspicious, but really aren’t.

“There are often reasonable explanations, especially when you’re dealing with countries like China, where there are restrictions on transferring foreign currencies, as to why people transfer money the way they do,” he said. Waldman.