In part one of our Vancouver Stock Exchange blog, we covered the history of the exchange as it evolved to become a haven for scam artists and fraudulent ventures. If you haven’t already, you can read part one here.
This past year, the term “money-laundering” has dominated the local news cycle. The problem has permeated many different corners of the BC economy: the real estate market, casinos, horse racing tracks and luxury car sales.
BC accounts for a significant chunk of the money laundered through the country and its biggest city, Vancouver, has garnered a global reputation as being a haven for illicit gains. But this reputation isn’t a new one. Vancouver—and Canada as a whole—have had a money laundering problem since the late 1980s. Some may remember a time, not so long ago, when concerns were being raised; not about the housing market and casinos, but about financial institutions like banks and brokerage firms.
Criminals launder money when they want to hide the origin of funds obtained through illegal activity. Someone involved in the drug trade, for example, may use “dirty” cash to purchase property, luxury goods or even stocks, in order to make the funds seem legitimate. The more layers of legitimate purchases in a laundering scheme, the more difficult it is for authorities to trace the original criminal source.
In the 1980s, the Vancouver Stock Exchange (VSE) was trading at record volume while, at the same time, facing criticism for corruption and market manipulation. Confidence was waning and there seemed to be a general understanding among the public that the VSE was a playground for scam artists, crooked brokers and organized crime; if you wanted to make money, you were better off investing elsewhere.
The laundering of criminal proceeds through member brokerages had always been a concern for the exchange, but the nature of money laundering made it nearly impossible to understand the full extent of the problem. It wasn’t uncommon for brokers to accept large sums of cash, no questions asked. Once the cash was exchanged for stock certificates, it was difficult, if not impossible, to trace its origin. But new laws came about in the late 1980s, with the objective of cracking down on money laundering across the country.
In 1989, the brokerage, First Vancouver Securities, had its license revoked for its connection to the infamous Filipino dictator Ferdinand Marcos. Marcos embezzled millions during his time as president, storing much of it overseas via a complicated laundering scheme. First Vancouver Securities was suspected to be a part of this multi-layered system, facilitating the laundering of a portion of Marcos’s vast, illicit fortune.
In 1993, two former VSE regulators announced that the exchange was vulnerable to laundering by organized crime, and the former VP of listings, William Pedrutchny, suggested that the BC government should step in to run the exchange as a public utility. At the same time, RCMP Superintendent Ernie MacAulay confirmed that the RCMP had knowledge of criminal proceeds being laundered through VSE brokerages, though they had not yet moved forward with any charges. MacAulay also made a powerful statement when he told regulators that, because of the potential for making commissions, it was in brokers’ best interests to turn a blind eye to illegal trade activity.
Just one year after MacAulay spoke out against the VSE, another brokerage, Canaccord Capital Corp., came under investigation when one of their clients, Georges Van Volsem, was arrested in Belgium for defrauding the government out of $8 million. Van Volsem was suspected of laundering some of his illicit gains through the Vancouver Stock Exchange.
Despite efforts to try and change public perception in the 1990s, the VSE faced controversy and scandal until it eventually merged with the Canadian Venture Exchange in 1999. Weak regulators, corruption and low standards are often cited as the major reasons for the exchange’s failure, leaving it vulnerable to stock manipulation schemes and money laundering. Numerous attempts by politicians and the VSE regulatory body to straighten out the exchange proved unsuccessful as long as the same “bad eggs” still held licenses and continued to do business.
Even more than twenty years after the VSE, Vancouver has not kicked its reputation as a laundromat for criminal proceeds. As a major port city with international connections, lax financial reporting requirements, a lenient justice system and a thriving real estate market, Vancouver remains a refuge for criminal proceeds from around the world.
Recently introduced regulations in the BC gambling sector and new real estate transparency laws are working to change that reputation by making it harder for criminals to launder money. But only time will tell whether Vancouver will shake the reputation it has struggled with for over thirty years.
By Matteo Miceli