The reporters have found a connection between real estate and the fentanyl crisis but I fear they’re going to jump to the conclusion of banning all foreign ownership. Which is not going to stop the drug trade. It is such a sexy narrative that the real estate crisis and opioid crisis can be blamed on Chinese foreigners which leads the reader to conclude that banning them is the solution. The piece is pushing all sorts of buttons.
lets just say the vast majority of canadians arnt going to shed any tears that chinese money cant inflate real estate prices to an even higher extent than they already are.
Sexy yes, but also true. Or do you think the Fentanyl and other criminality is spread evenly through all demographics? I'm curious where you might you have picked up this idea, because it certainly didn't come from the newspaper - perhaps intuition?
The article makes no assertion about the demographics of Fentanyl dealing or trafficking, just that these Chinese lenders are involved with these activities.
Are you saying that the opioid crisis can be fully blamed on Chinese foreigners? Is that really what this article is saying? Or is that your intuition.
It's been routinely reported on in the newspaper, I can't be bothered to post any proof as no enforcement = anecdotal evidence only = checkmate, racist.
If you'd like to pretend that is controversial, you're welcome to it, it is an utter waste of time to try to convince people, but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe.
It definitely gives me the feeling that the popular solution will be something xenophobic. Maybe there's hope for less knee-jerk reactions, like some regulations where when you lend money, the source of that money must be properly tracked. That way when someone claims a mortgage or lien on a house, it won't be respected unless the money lent was confirmed to be legit.
Banning foreign ownership is the populist measure that is the price of admission for passing some incredibly unpopular measures (That are needed to solve this crisis.)
There is a missing step in the transaction that the article does not explain.
1. Bad person sells drugs for cash.
2. Bad person has cash.
3. Bad person lends borrower cash to buy real estate.
Step 3 is the mystery.
— Bad person could give a bag of cash to the borrower. Now the borrower has a banking problem. How does that cash get into a bank account so the real estate purchase can happen?
— Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem.
— Bad person masquerading as a lender can give a bag of cash to the closing agent who is facilitating the real estate transaction. Now the closing agent has a banking problem.
There will be a huge pile of cash that must somehow enter the banking system. Someone must do this. How does it happen?
And no it doesn’t not suffice to tell the seller or the closing agent “I brought a giant bag of Canadian currency with me when I flew in from China to buy this property.” Banks didn’t fall off the back of the turnip truck yesterday.
As the article notes, this is a money laundering problem. But the article postulates a moment of magic — the moment where a bag of tainted cash becomes a recorded mortgage lien on real estate.
I’m saying this as an international tax lawyer who has structured hundreds of millions of dollars of US real estate purchase by foreigners. Maybe I just deal with legit people. We always get wire transfers from real banks, whether the investment is debt or equity.
The article is pretty clear about this. The people who borrow the cash spend it. Often lavishly, they take it to casinos and so on.
They are very wealthy people and have that kind of lifestyle, but their problem is that they can't get their money out of China. They borrow against the property by accepting this Canadian cash, and then repay the loan in China via the banking system there.
Both parties need to launder money, one in one direction and one in the other, that's the obvious beauty of the scheme.
Thanks for pointing that out. I missed that explanation. The transaction is:
1. Own property.
2. Borrow big bag of cash from Bad Guy.
3. Gamble or spend the cash.
4. Pay back the loan from clean sources.
I understand it, but I guess I have never dealt with the KYC people at a casino. I still see obvious choke points (for the conversion of drug-laden currency into gambling chips, for instance) at which Explanations Must Be Made, but perhaps there are channels that I do not know about.
Let’s just say my experiences with the KYC systems have been rigorous.
The channel you're not aware of is that explanations don't have to be made - everyone knows it's happening, and it has the blessing of at least the powerful parts of the legal system, if not the odd idealistic beat cop here and there. Not too much to worry about.
EDIT: Is the downvoter aware of some criminal charges being laid sometime within the many years this has been known to be going on? If not, what might be the nature of your disagreement?
Except that the source is not in fact clean. China forbids the transfer of such wealth out of the country. But this system accomplishes exactly that. (Settlement of debt is a form of wealth transfer.) It isn't clean. only apparently clean. So the loan on the house has been paid off using dirty money, a proceed of a Chinese crime, and therefore could theoretically be seized through civil forfeiture.
This settlement between two foreign subsidiaries for a transaction in another jurisdiction should sound familiar - it's what global multinationals have been doing for decades.
While it could theoretically be viewed as a domestic crime in China, the reality of bringing action against them from Canada is virtually nil.
Canadian (state operated!) casinos are notoriously lax in checking the source of the funds that people bring to gamble. A bunch of people in Canada that I ran a gas station with made off with several hundred thousand $CAN in cash and spent it all in the Sault Ste. Marie casino without so much as a single question. Gambling with illegally obtained funds is A-Ok in Canada as long as the government is on the receiving end.
Yup, winnings under $10G are not reported to revenue Canada. Want to launder money? Go into a casino and have a good time for a few hours. Do not spend more than a couple of hundred.
Revenue Canada asks where the money came from? "I 'won' it at the casino". Rinse and Repeat.
Why would you (a) pay a margin to the house an (b) process such piddly amounts when you can clear 100's of thousands or millions in one go, plus make substantial return on your "investment"?
A) I wasn't referring to the methods in the article, instead, from the previous poster. B) The way I mentioned, is 100% legal, C) its also useful to mere mortals.
The article doesn't say that drug money is used to buy properties. The drug money is loaned out to people who are already homeowners. What they've done is created an unexpected mechanism to launder drug money by loaning the money to homeowners and as part of the process getting a builders lien on each property, even though the lenders are not actually builders. They target borrowers that have a high need because they don't actually have a significant amount of income or cash in Canada. All their cash is in China, and they can't get it out of China, so it's a financial marriage made in hell or heaven, depending on the perspective.
>>— Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem.
Not necessarily. If the price in cash makes up for the inflation losses you can easily pay for most things in cash. Or buy a money order when you can't. You can launder maybe as much as 60% of your income. Cash is spent and your legit salary goes to the bank.
Eating out? Cash
Vacation? Cash
Babysitter? Cash
Buy a used car? Cash (maybe even a new car...go to a like minded dealer)
Furniture? Cash
Home improvements? Cash
Clothes, jewelry? Cash
Obviously gotta do it in stages or else you stand out.
That would severely limit the potential sellers. Many, if not most, sellers need to make a large lump sum payment when they leave their house. This can either be to pay off a current mortgage payment, buy another property, education expenses, ect, ect.
A family that received a million dollars in cash for a house, but then financed their new home as if they were first-time home buyers, would probably take 10-15 years to spend a million dollars in cash.
It just doesn't make sense, and the details are probably deliberately left out of the article. My (probably wrong) guess is that someone is selling cryptocurrency for paper cash, and that someone else is buying cryptocurrency with funds that are inside the banking system.
When talking to the dealer at Carmax (which is large and theoretically reputable as far as car dealerships go) he said it wasn't that uncommon for people to pull out rolls of $100s and pay for cars in cash. He told us a story that implied the money was not from above board income, given the way the guy and his supposed wife was dressed and how they acted. Had no problem selling them a Caddy.
I dunno if there is some alternative verification that happens as part of the process, but he didn't make it sound like it.
Bottom line is that they want the sale. So they have figured a system where they do it x% of the time and get away with it. Maybe they place a part of the cash with another car transaction?
In theory all transactions above $10k in cash must be declared, but penalties are only if you get caught and bonus time /end of qtr is 18 days away.
Come to think of it, I wonder if the "wife" was there solely to put her name on the transaction so if the feds come knocking it would be her name that they put on the warrant?
My dad until recently has bought new vehicles every few years in cash.
Probably the most cash I've ever seen at once was when we bought a chunk of property in cash-we took a paper grocery sack full of cash to the real estate agency. You could tell they'd never seen that much cash in person.
I think you only feel this way as you generally agree with the process and "rules" around payment and settlement. Would you feel differently if you had a embarrassing or frowned-upon hobby, or didn't agree with some change to the centralized, public payment system?
I would think we should fund research and studies that deal with why such a hobby is embarrassing or frowned upon, if not illegal. Try to improve society by tackling the problem, not covering up for someone's misgivings.
a guy i knew used to say something like “the british are a slave people without the torch of liberty in their hearts.” i used to think it was funny and weird but it just seems more true as time goes on.
Government: "We will crack down VERY VERY HARD (to the extent that it doesn't stop the flow of cash pouring into our real estate market)!" Visualize a very very serious and determined politician at a press conference.
Governments know that the massive outflow of cash from China into global real estate markets is bound to be corrupt and in many cases the proceeds of crime but they really have no interest or incentive in any way in preventing that.
Governments will express ourage and a rock solid determination to ensure all Chinese money is clean but will in fact do nothing because at so many levels that cash is wanted. Consider for example that most politicians will own multiple houses. They don't want the real estate prices to drop, they want them sky high. Chinese cash, corrupt or not, still results in the best possible real estate dollar so the politicians will speak loud and act quiet on this.
The irony is that investment in share markets requires some level of proof that the money being invested is clean but there is no such regulation on real estate cash.
When I read the article, it doesn't seem to say that Chinese cash is propping up real estate prices.
Rather, Chinese drugs get smuggled into Canada, the Canadian proceeds from selling those drugs then get loaned to homeowners who don't have Canadian money themselves, and then when the home sells, the Canadian money goes back to the lender. If the lenders can be paid back, they don't get paid back with Canadian cash or Chinese cash in Canada. They get paid back with Chinese cash in China.
Of course, the question might arise how did the homeowners get enough money to buy the property in the first place. Well, that's probably Chinese money. Getting enough money out of China for a down payment should only take a few years with a $50,000 per year limit.
OK, so maybe Chinese money is paying a lot of down payments, and maybe drug money is being loaned out to homeowners. But where does the money to buy the home when it's later sold or foreclosed come from? Drug money, Chinese money, or other? That's the real question for figuring out what's causing real estate prices to soar.
And the only reason it came to light was because it is a civil suit between individuals, the Canadian legal system most definitely isn't trying to catch anyone breaking laws as described in this story. Despite confessions on record in Canadian court, there will not even be an investigation of these people, as there won't be for those laundering hundreds of thousands of dollars in casinos in broad daylight, or paying people (and getting reported to the media with extensive reporting in the newspaper) for phony job offers for immigration scams.
All of this very clearly has the blessing of all levels of government in Canada. Whether it is merely for the much needed economic boost or if there's something more sinister in play, we'll never know.
I believe Chinese cash is contributing to soaring real estate prices in specific cities worldwide, though I do not believe it's the sole root cause. That being said, I was attempting to clarify what the article was discussing, not my personal perspective on what causes real estate prices to soar in Canada.
After so many years of government indifference the housing situation in Vancouver is so incredibly screwed up. Hard to say whether it'll be possible at all to undo the damage.
The expectations for action on housing in the first budget of the new NDP government tomorrow are sky-high.
Hello from a fellow white hot property market (London). The probability of anything worthwhile being done in BC is approximately zero. The govt will do stupid shit like issue cheap loans to young people to "get them on the housing ladder" which just inflates prices more. If you're rrally unlucky, your lot might even invent new and more stupid ways to heat up a too hot market.
Yep! Issuing cheap loans to young people is literally what the previous neo liberal government did. Of course local economists which warned against the plan found after that it increased prices.
Now however the province has elected a labour government which has mentioned numerous times to expect action on the demand side and expectations are sky high that they'll be a bit different.
Additionally, the new Solicitor General is a tough as nails guy who previously sued the conservative federal government into allowing supervised injection sites for addicts, and then beat the former premier in her own riding, forcing her to move 350km.
I can't say this quote (from the article) inspires a lot of faith.
"This story confirms our government's commitment to taking action to crack down on money laundering and criminal activity in B.C.," David Eby said.
I'm not even sure how to parse it. In my mind this story does anything but "confirm" the government's commitment to stopping this; in my mind it confirms that someone was asleep at the wheel. Perhaps he meant to say "this story has inspired us to crack down..." but the cynical part of me thinks that a politician would never admit there was a problem that they did not already know about.
In any case, I will pay more attention to what David Eby does than what he says.
The context is that this is a new government. The old BC Liberal government didn't care about any of these problems at all and allowed them to fester for years. The new NDP government suspected there were severe problems and were starting to act on them. The article "confirms" that indeed the problems are severe, and the new government is correct in their belief that it's an important issue for their government to address.
Speaking as someone who lives in the Vancouver area, I don't know why this story was posted on this site. I generally come here to avoid reading about politics and the toxic discussions that inevitably follow.
The Zhangs charge interest rates of up to 39.6 per cent, with some private lenders demanding up to 120 per cent. Court records show that one of the Zhangs' associates is among those allegedly charging that extortionate level of interest, which is double the maximum legal rate.
OK, this I don't get. Why would you charge someone to launder your money? Typically you pay them.
EDIT: Never mind. It's in the article. This seems less like a money-laundering scheme and more like loan sharking. Getting clean money in the end is just icing on the cake.
I believe the connection to real estate is incidental. Drug dealing, laundering occurs everywhere, including places without a hot RE market. Take the Hells Angels for instance. They seem to survive without a connection to the RE market. Criminals will find a way to launder money. The money from selling drugs is too irresistible to pass up for them.
One other thing, notice at the start of the article they say "the cash was contaminated with fentanyl and other street drugs". Back in the 80s and 90s, this was used as an excuse for why the cops would seize people's money in the us - often it was a poor person without ability to challenge it. One of many problems with this was that all cash was "contaminated", having some trace of drugs. Canada should strive not to fall into the civil forfeiture hole we have in the us, where the govt seizes people's property separately from charging them with crimes, because it dirty drug money or something. of course they should stop money laundering, but the govt should strive to use factual reasons for taking someone's money.
"They weren't charged with any crimes"
and yet...
"The Zhangs did lose their cash, though, for good: A judge ordered it forfeited to the provincial government as "proceeds of crime."
The government should not be allowed to just declare the money was obtained illegally and seize it without due process, never to be returned. That's the Canadian equivalent of civil asset forfeiture. I don't know Canadian law, but it seems they are falling into the same morality pit that the US has been engaging in. Yes, I realize that these people are guilty. But this kind of thing is what leads to this:
https://listverse.com/2015/06/29/10-egregious-abuses-of-civi...
There is one big difference - Canada does not have the same heavy-handed legal punishment system that the US does. Possession for distribution doesn't run the same risks for (essentially permanent) jail time like it does in the US, but costs as much or more to the legal system.
I don't agree with the civil forfeiture policies but I can certainly see how & why they are developing here. It's an attempt to remove the profit motive of crime without adding to the already clogged and expensive legal system. Again, I'm not judging the "rightness", just understanding the logic behind it.
Yeah, I understand the logic as well. In the US it was designed to put a major dent into organized crime by seizing what amounts to their working capital. The problem, though, is that it's the easy way out and due process was specifically designed to keep government from overreaching in exactly the manner which they are doing. They are simply circumventing due process by separating property from its owner. The huge amount of law has to do specifically with property rights and torts against it. People (in the US) supposedly have a 4th amendment right to help protect their property. I'm sure Canada has a similar law. But now, they are separating property from the person who owns, removing the 4th amendment protections. How the SCOTUS hasn't struck this down with extreme prejudice boggles my mind.
62 comments
[ 2.8 ms ] story [ 109 ms ] threadAre you saying that the opioid crisis can be fully blamed on Chinese foreigners? Is that really what this article is saying? Or is that your intuition.
If you'd like to pretend that is controversial, you're welcome to it, it is an utter waste of time to try to convince people, but there are still some people in the world who like to know what's actually going on instead of believing what they're told to believe.
I'm confused, is that the people who listen to what is routinely reported in the newspaper, or other people?
1. Bad person sells drugs for cash.
2. Bad person has cash.
3. Bad person lends borrower cash to buy real estate.
Step 3 is the mystery.
— Bad person could give a bag of cash to the borrower. Now the borrower has a banking problem. How does that cash get into a bank account so the real estate purchase can happen?
— Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem.
— Bad person masquerading as a lender can give a bag of cash to the closing agent who is facilitating the real estate transaction. Now the closing agent has a banking problem.
There will be a huge pile of cash that must somehow enter the banking system. Someone must do this. How does it happen?
And no it doesn’t not suffice to tell the seller or the closing agent “I brought a giant bag of Canadian currency with me when I flew in from China to buy this property.” Banks didn’t fall off the back of the turnip truck yesterday.
As the article notes, this is a money laundering problem. But the article postulates a moment of magic — the moment where a bag of tainted cash becomes a recorded mortgage lien on real estate.
I’m saying this as an international tax lawyer who has structured hundreds of millions of dollars of US real estate purchase by foreigners. Maybe I just deal with legit people. We always get wire transfers from real banks, whether the investment is debt or equity.
They are very wealthy people and have that kind of lifestyle, but their problem is that they can't get their money out of China. They borrow against the property by accepting this Canadian cash, and then repay the loan in China via the banking system there.
Both parties need to launder money, one in one direction and one in the other, that's the obvious beauty of the scheme.
1. Own property.
2. Borrow big bag of cash from Bad Guy.
3. Gamble or spend the cash.
4. Pay back the loan from clean sources.
I understand it, but I guess I have never dealt with the KYC people at a casino. I still see obvious choke points (for the conversion of drug-laden currency into gambling chips, for instance) at which Explanations Must Be Made, but perhaps there are channels that I do not know about.
Let’s just say my experiences with the KYC systems have been rigorous.
EDIT: Is the downvoter aware of some criminal charges being laid sometime within the many years this has been known to be going on? If not, what might be the nature of your disagreement?
Except that the source is not in fact clean. China forbids the transfer of such wealth out of the country. But this system accomplishes exactly that. (Settlement of debt is a form of wealth transfer.) It isn't clean. only apparently clean. So the loan on the house has been paid off using dirty money, a proceed of a Chinese crime, and therefore could theoretically be seized through civil forfeiture.
Revenue Canada asks where the money came from? "I 'won' it at the casino". Rinse and Repeat.
Not necessarily. If the price in cash makes up for the inflation losses you can easily pay for most things in cash. Or buy a money order when you can't. You can launder maybe as much as 60% of your income. Cash is spent and your legit salary goes to the bank.
Eating out? Cash
Vacation? Cash
Babysitter? Cash
Buy a used car? Cash (maybe even a new car...go to a like minded dealer)
Furniture? Cash
Home improvements? Cash
Clothes, jewelry? Cash
Obviously gotta do it in stages or else you stand out.
A family that received a million dollars in cash for a house, but then financed their new home as if they were first-time home buyers, would probably take 10-15 years to spend a million dollars in cash.
It just doesn't make sense, and the details are probably deliberately left out of the article. My (probably wrong) guess is that someone is selling cryptocurrency for paper cash, and that someone else is buying cryptocurrency with funds that are inside the banking system.
I dunno if there is some alternative verification that happens as part of the process, but he didn't make it sound like it.
In theory all transactions above $10k in cash must be declared, but penalties are only if you get caught and bonus time /end of qtr is 18 days away.
Probably the most cash I've ever seen at once was when we bought a chunk of property in cash-we took a paper grocery sack full of cash to the real estate agency. You could tell they'd never seen that much cash in person.
For instance, I can offer cash to folks so their bosses don't snatch their tips.
Simple
Governments know that the massive outflow of cash from China into global real estate markets is bound to be corrupt and in many cases the proceeds of crime but they really have no interest or incentive in any way in preventing that.
Governments will express ourage and a rock solid determination to ensure all Chinese money is clean but will in fact do nothing because at so many levels that cash is wanted. Consider for example that most politicians will own multiple houses. They don't want the real estate prices to drop, they want them sky high. Chinese cash, corrupt or not, still results in the best possible real estate dollar so the politicians will speak loud and act quiet on this.
The irony is that investment in share markets requires some level of proof that the money being invested is clean but there is no such regulation on real estate cash.
Rather, Chinese drugs get smuggled into Canada, the Canadian proceeds from selling those drugs then get loaned to homeowners who don't have Canadian money themselves, and then when the home sells, the Canadian money goes back to the lender. If the lenders can be paid back, they don't get paid back with Canadian cash or Chinese cash in Canada. They get paid back with Chinese cash in China.
Of course, the question might arise how did the homeowners get enough money to buy the property in the first place. Well, that's probably Chinese money. Getting enough money out of China for a down payment should only take a few years with a $50,000 per year limit.
OK, so maybe Chinese money is paying a lot of down payments, and maybe drug money is being loaned out to homeowners. But where does the money to buy the home when it's later sold or foreclosed come from? Drug money, Chinese money, or other? That's the real question for figuring out what's causing real estate prices to soar.
Try this one on for size:
http://www.timescolonist.com/news/b-c/explosive-b-c-court-ca...
And the only reason it came to light was because it is a civil suit between individuals, the Canadian legal system most definitely isn't trying to catch anyone breaking laws as described in this story. Despite confessions on record in Canadian court, there will not even be an investigation of these people, as there won't be for those laundering hundreds of thousands of dollars in casinos in broad daylight, or paying people (and getting reported to the media with extensive reporting in the newspaper) for phony job offers for immigration scams.
All of this very clearly has the blessing of all levels of government in Canada. Whether it is merely for the much needed economic boost or if there's something more sinister in play, we'll never know.
The expectations for action on housing in the first budget of the new NDP government tomorrow are sky-high.
Now however the province has elected a labour government which has mentioned numerous times to expect action on the demand side and expectations are sky high that they'll be a bit different.
Here's an article about people are expecting today. A tax on foreign capital is expected. http://www.cbc.ca/news/canada/british-columbia/bc-ndp-govern...
"This story confirms our government's commitment to taking action to crack down on money laundering and criminal activity in B.C.," David Eby said.
I'm not even sure how to parse it. In my mind this story does anything but "confirm" the government's commitment to stopping this; in my mind it confirms that someone was asleep at the wheel. Perhaps he meant to say "this story has inspired us to crack down..." but the cynical part of me thinks that a politician would never admit there was a problem that they did not already know about.
In any case, I will pay more attention to what David Eby does than what he says.
OK, this I don't get. Why would you charge someone to launder your money? Typically you pay them.
EDIT: Never mind. It's in the article. This seems less like a money-laundering scheme and more like loan sharking. Getting clean money in the end is just icing on the cake.
The government should not be allowed to just declare the money was obtained illegally and seize it without due process, never to be returned. That's the Canadian equivalent of civil asset forfeiture. I don't know Canadian law, but it seems they are falling into the same morality pit that the US has been engaging in. Yes, I realize that these people are guilty. But this kind of thing is what leads to this: https://listverse.com/2015/06/29/10-egregious-abuses-of-civi...
I don't agree with the civil forfeiture policies but I can certainly see how & why they are developing here. It's an attempt to remove the profit motive of crime without adding to the already clogged and expensive legal system. Again, I'm not judging the "rightness", just understanding the logic behind it.