Beneficial Ownership Transparency
November 22, 2018
The Honourable Senator Yuen Pau Woo :
Honourable senators, I would like to add my voice in support of Senator Wetston’s inquiry on beneficial ownership transparency with a focus on real estate.
To be clear, the problem that this inquiry is addressing is the lack of transparency on the person or persons who enjoy the benefits of ownership of an asset such as property. The so-called “beneficial owners” are not listed on the titles of the properties in question, and their identities are masks by way of shell companies, trusts and nominees. The relevant ease with which identities can be masked makes real estate an attractive vehicle for money laundering. Hidden ownership in property deprives the government of tax and other revenue. It also hinders the collection of accurate data, making it difficult to analyze the impact the different types and sources of ownership have on the real estate market.
In its 2017 Budget report, the Canadian government stated that it would implement strong standards for corporate and beneficial ownership transparency that provide safeguards against money laundering, terrorist financing, tax evasion and tax avoidance while continuing to facilitate the ease of doing business in Canada. I was pleased, therefore, to learn at the Bill C-86, the second budget implementation bill for 2018 on which we have begun pre-study, tackles this issue. Specifically, Division 6 of Part 4 amends the Canada Business Corporations Act to set out criteria for identifying and keeping a registry of individuals with significant control over a corporation.
The new act includes a list of applicable offences and associated punishments for failure to comply. Under the proposed amendment to the act, ownership of 25 per cent or more is considered as having significant control.
The government’s actions in this area are timely. Canada has been falling behind the rest of the world in terms of beneficial ownership transparency. A 2018 report by Transparency International, the global coalition against corruption, lists Canada as a laggard on its legal framework on beneficial ownership reporting. Three years after the G20 adopted a set of beneficial ownership principles, progress across Canadian provinces is patchy, with some companies’ registers requiring little or no information on shareholders.
In turn, lawyers, accountants and real estate agents are not required to identify the beneficial owner in transactions that they facilitate, and financial institutions are able to proceed with transactions without beneficial ownership information.
There is, however, some positive news from British Columbia where the provincial government is working to increase land owner transparency. Consultation on draft legislation took place through the summer of 2018 and a bill is expected to be tabled early next year. The plan is to include beneficial ownership information and property transfer tax forms and to make the information available in a public registry subject to some privacy considerations.
The importance of strengthening beneficial ownership transparency has been on the agendas of industrialized countries other than Canada. The United Kingdom, for example, has published proposed legislation requiring foreign companies and entities owning land or involved in government procurement in the U.K. to register and disclose their beneficial ownership.
The principal requirement is for an overseas entity to provide information about its beneficial owners on the new register, which will be operated by the U.K. Registrar of Companies. The intention is that most of the information on the register will be available to members of the public, again subject to some privacy considerations. Once an organization has registered, there will be an ongoing obligation to update the information annually or to confirm that the information does not need to be updated.
The objective of both the U.K. and the British Columbia bills is similar. It is “to prevent and combat the use of land for the purposes of laundering money or investing illicit funds by increasing transparency.” All property types in B.C., including residential and commercial, will be affected by the new legislation.
Honourable senators, land ownership registration is provincial responsibility, and there are limits to the extent that the federal government can be helpful in improving greater transparency. Indeed, the challenges are even greater than in the case of the registration of corporations where there is at least the possibility of federal incorporation of companies.
Nevertheless, the federal government can encourage co-operation among provincial jurisdictions to improve beneficial ownership information across all sectors, including real estate. After all, money laundering and terrorist financing will migrate from one asset class to another as the transparency rules tighten in one area compared to another.
Since December 2017, the federal, provincial and territorial finance ministers have been working on amendments to their respective corporate statutes to ensure corporations hold accurate and up-to-date information on beneficial owners that will be available to law enforcement, tax and other authorities; to eliminate the use of bearer shares and bearer share warrants or options; and to replace existing ones with registered instruments.
The federal, provincial and territorial finance ministers pledge their “best efforts” to bring those amendments into force in all jurisdictions by July 1, 2019. They should also look at establishing goals for beneficial ownership information on real estate and measures to share information across different provincial jurisdictions.
Colleagues, in my home province of British Columbia, the discussion on the need for better information on beneficial ownership in real estate has been driven in large part by concern about housing affordability in metropolitan areas, especially the Lower Mainland. The issue of beneficial ownership has a link to housing affordability, but it is only one piece and likely not the major piece in the problem of housing affordability. We need to address beneficial ownership transparency in real estate in order to combat money laundering and tax evasion, but doing so will not solve the problem of housing affordability in cities like Vancouver where demand or housing simply exceeds supply.
Likewise, the beneficial ownership problem has been conflated with the issue of foreign buyers. Lack of transparency in real estate transactions, however, is not limited to foreign buyers. A simplistic view of beneficial ownership as the key problem in housing affordability and the presumption that lack of transparency in beneficial ownership is limited to foreign buyers of real estate produces the following erroneous syllogism: (a), that foreign buyers lack transparency; (b), that lack of transparency leads to housing unaffordability; and (c), therefore foreign buyers equals housing unaffordability. In fact, the 2018 CMHC study shows that foreign buyers account for only about 5 per cent of the ownership of properties in Greater Vancouver. We should address information gaps in ownership data on domestic and foreign buyers alike, but closing our doors to foreign capital will not solve the problem of housing affordability.
In addressing gaps about beneficial ownership of land, we should be careful to make a distinction between criminals and corrupt individuals who are using lax reporting standards in Canada to launder the proceeds of their ill-gotten wealth, and others who are operating within the law to pursue their private interests.
Senators, there should be no ambiguity about the need to identify and root out the former. In the latter situation, the issue is not that these individuals are acting criminally but that our laws provide a way for them to reduce their tax exposure. The fault is in the law and not necessarily in the people who take advantage of the law. The use of bare trusts in real estate transactions is an excellent example, and I’m glad to see the B.C. government taking steps to close that loophole.
In our zeal to address these “tax gap” type issues we should be careful to look at the overall public interest in addressing such gaps rather than treating them necessarily as issues of criminality or morality.
Honourable senators, let me conclude by reiterating my support for Senator Wetston’s inquiry on beneficial ownership. I look forward to his further leadership on how the Senate can play a constructive role in improving transparency on beneficial ownership in order to strengthen the integrity of our market economy as well as the protection and welfare of Canadians.