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Land/corporate ownership registries need to verify ID: anti-money laundering experts

The Land Owner Transparency Registry (LOTR) began accepting filings from non-individual landowners on Monday but experts are calling on loopholes to be closed
The Commission of Inquiry into Money Laundering in B.C. heard on Monday from experts on beneficial ownership registry policies

If a proposed public registry for beneficial ownership of corporations and trusts is to succeed in B.C., it should not proceed like the recently launched Land Owner Transparency Registry (LOTR) , according to anti-money laundering policy experts.

The LOTR began accepting filings from non-individual landowners on Monday; however, the system’s initial standards may prove counterintuitive for government officials, private enterprise and members of civil society to counter corruption, fraud and money laundering – the very goal of the registry.

Experts say the LOTR lacks functionality since it has imposed fees on the public and has no identification verification process, among other less severe concerns.

“The biggest flaw in the [LOTR] is that there is no requirement that registry officials, or any other persons, independently verify all identification information filed on the registry,” wrote corporate lawyer Kevin Comeau of the CD Howe Institute in an unflattering review of the registry.

“Money launderers can avoid detection by simply making up a name and creating a non-existent beneficial owner,” added Comeau, also a member of Transparency International Canada’s Working Group on Beneficial Ownership Transparency.

The LOTR is the world’s first such registry for real estate and was a key recommendation from the Expert Panel on Money Laundering in BC Real Estate in 2018.

Sasha Caldera of Publish What You Pay Canada, an England-based charity advocating for financial transparency, says the land registry is “ambitious” and likely to evolve, however, “we hope that the requirements are going to be stronger.”

A $5 fee may not be too cost prohibitive for some but there will be a deterrence effect, he said.

“Whenever you add fees to the registry it makes it easy for a higher risk criminal to be buried in a record somewhere,” said Caldera.

Furthermore, “there needs to be a verification and data validation component.

“Somebody could still lie and obscure their identity and it could be buried in a record,” said Caldera.

As the LOTR launches, B.C. is now past the consultative phase of establishing a provincial public registry for beneficial ownership of corporations (BOC), which would be a first in Canada as the federal government lags behind most Western nations in establishing either a public or private registry (as passed last month by the U.S. Senate).

B.C. has already compelled companies to store beneficial ownership information privately in anticipation of inputting the data into the BOC registry.

The matter of BOC public registries took centre stage at an expert panel speaking at the Commission of Inquiry into Money Laundering in B.C. on Monday.

“In my view there is no principled justification at large for anonymity of companies,” said Ottawa-based corporate lawyer Mora Johnson.

Anonymity costs governments with tax avoidance and evasion and public procurement benefits from transparency, said Johnson.

On registry fees, Peter Dent, a Deloitte Forensic partner, told the commission these public registries have the support of legal professionals and large financial institutions, as it lifts some anti-money laundering (AML) burden from them by collecting information vital for Know-Your-Client (KYC) protocols.

Similarly, Comeau said a well-verified and trusted registry could benefit real estate professionals with KYC.

Dent suggests since financial institutions, law firms and real estate companies are beneficiaries, they could have a sliding scale of costs imposed on them. As such, these larger users can get broader access to the registry and in doing so they can match the registry data against their own KYC data.

“For better or worse in Canada we’ve decided to offload money laundering detection to financial institutions …which are spending hundreds of millions of dollars each year to comply,” said Dent.

Johnson suggested a BOC registry could benefit small businesses so they understand who they are conducting business with.

Nevertheless, no registry, free or with fees, would work if identities are not verified, experts suggest.

“It’s difficult to prove this person is not acting on behalf of someone else. You can’t prove if there is some side agreement with someone else. Those sorts of things are difficult to find,” said Chris Taggart, co-founder and CEO of OpenCorporates.

Taggart said in the United Kingdom the government is now looking at imposing prison terms for those caught cheating its relatively new registry.

But in B.C. the LOTR has no such terms, only fines, which is problematic, according to Comeau.

“A frontman can sell the house, pay any fine and remain silent. But when faced with five years in prison, he is much more likely to cooperate with the police,” stated Comeau.

“Filers should be required to submit proof of identity, such as independently certified copies of government-issued photo identification documents (e.g., a passport or driver’s license) for all beneficial owners and other persons for whom identity information is required under the Act,” stated Comeau.

Taggart suggests a three-pronged approach (not found in LOTR): One: Make it open (and free). Two: Collect information accurately and keep it up to date. Three: Have professional attestation and digital identities.

“We need robust reporting so layers of ownership can be sussed out to find any contradictions,” said Taggart.

On privacy, Johnson suggests what B.C. has imposed on LOTR: The ability for persons to apply for non-disclosure if they have legitimate reasons, such as fear of domestic abuse or harassment.

Privacy concerns about the public knowing who owns what should otherwise be tempered, said Caldera.

“This isn’t about Bob in the basement finding things out about people,” he said.

Comeau suggests other measures for LOTR (which can theoretically be applied to a BOC registry) such as enabling keyword searches that can parse data, including owners from foreign jurisdictions.

As it stands, “if someone in a foreign country wished to obtain a list of all persons on the [LOTR] with a connection to his country, he would have to either enter the parcel identifier number for every separate parcel of land in BC or enter the name of every person in his country.”

Comeau also suggests universal registration of beneficial ownership upon launch of a registry (which is not happening) and a confidential tip line to the RCMP and CRA. Comeau also stated names not just be in English, but also in the script of the freign government-issued identification document filed.

So far, the private beneficial ownership disclosure requirement for corporations has a 25% ownership reporting threshold, which aligns with the Federal-Provincial-Territorial Working Group on Beneficial Ownership but goes against international best practices and B.C.'s own LOTR (10% – also the reporting threshold for securities insiders).

“Uniformity is important,” said Dent.

Furthermore, the BOC registry will not — at least initially — include partnerships or trusts or charities.

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