As housing prices in B.C. have risen over the past several decades, money laundering has received increased public scrutiny as a potential source of the increase. A recent report from an expert panel established by the provincial government tackled this issue, finding that housing prices in B.C. are between 3.7 to 7.5 percent higher than they would be in the absence of money laundering. Though clearly not the primary cause of B.C.’s housing affordability crisis, there are gains to be made from a more effective anti-money laundering regime.

So, who is accepting the bags of cash? As the report’s authors point out, the stereotypical view of money laundering in real estate is of a criminal buying a house with a patently suspect  briefcase stuffed with $100 bills. This perception is so ubiquitous that a real estate industry association made the point of telling the panel that they don’t accept cash and aren’t aware of any instances where cash was used to purchase real estate.

Despite what happens in the movies the briefcase full of cash would obviously raise red flags. Cash is also not the only type of dirty money requiring laundering. The proceeds of fraud, blackmail, extortion, bribery, and other crimes can involve bank transfers that nonetheless need to be distanced from the crime so that they can be used for legitimate transactions.

When criminals do need to wash their cash, depending on their level of sophistication, there can be as many as three phases to the money laundering process: placement, layering, and integration/extraction.

• Placement (which may involve cash) is the process of moving the proceeds of crime into the legitimate financial system. The use of casinos for this stage of the process is well documented in B.C.
• Layering involves the steps taken to further distance the money from the original crime. This could include trust corporations to disguise beneficial ownership.
• Integration/extraction is the final phase during which laundered money is made available to fund expenditures in a manner that does not raise suspicion. For example, the sale of real estate built or purchased with laundered money.

In the view of the panel, most money laundering transactions involving real estate take place after funds have been placed in the financial system, during the layering, or integration/extraction phases.

However, the report does identify several types of transactions where dirty cash could enter the real estate market, such as via the construction of a custom home or a major renovation where cash is used to pay trades people. The report does not provide estimates regarding the percentage of money laundering related real estate transactions that fall into the three phases.