(This
column was published in the North
Shore News on
June 7, 2000)
Our
money-laundering legacy
By Leo Knight
A
rather innocuous study was released last week in the United
States which has dramatic ramifications for Canada.
The
study, done by two Florida International University College of
Business Administration finance professors, found that the
United States government lost more than $42 billion in tax
revenues in 1999 due to the artificial overpricing and
underpricing of products entering and leaving the United States.
Now
this, in itself, means little, albeit $42 billion is a heck of a
lot of money. Even Jane Stewart would have trouble losing that
much. But the phrase "overpricing and underpricing"
caught my attention.
Moving
forward in the report we learn that Canada is the number one
culprit in the facilitation of this. The study cites $15.5
billion crossed the border in 1999 in these bogus transactions.
In fact, Canada is responsible for almost 25% more than that of
its nearest rival, Japan. Mexico, number three on the list, is
over 30% less than Canada.
Now,
what the study shows, when it refers to overpricing and
underpricing is money laundering pure and simple. Examples of
Canadian exports to the U.S. cited are things like $7,000
hacksaw blades. How about Christmas tree lights for $815 each?
They
must have extraordinarily good water in the Netherlands because
it costs $3,050 per litre. China evidently produces wristwatch
batteries for their notorious Rolex knockoffs. They only cost
$8,252 per battery. Anybody interested in ballpoint pens from
Thailand for $8,500 each?
Examples
of things exported from the U.S. cited are things like airliner
seats, sold to China for 10 cents each. Bulldozers went to
Venezuela for $387.83 a pop. Tractors came to Canada for the
princely sum of $448.41 each.
Now,
I'm no expert in tilling the fields, but I'm willing to bet that
John Deere couldn't survive very long selling tractors for that
price.
So,
what we see are things being sold to companies in the U.S. from
companies in Canada for ridiculously high prices. The reverse is
true for products leaving the U.S.A. This makes no business
sense, obviously, so we draw the conclusion that this is one of
the methods used by organized crime to launder their money
between their legitimate corporate fronts.
"Criminals
and tax evaders have discovered that laundering money through
the banking system is dangerous, but it is virtually
undetectable in international trade," said John Zdanowicz,
who co-authored the study.
Dr.
John Evans wrote The Proceeds Of Crime: Problems Of
Investigation And Prosecution for The International Centre
for Criminal Law Reform and Criminal Justice Policy, a United
Nations organization. He explains the issues around money
laundering in the opening paragraph.
"Criminals
engage in money laundering to thwart investigation and make
prosecution impossible. Their goal is to protect themselves and
the proceeds of their criminal operations from the reach of
courts and tax authorities. In this pursuit criminals have had
the advantage. They have learned to manipulate and use financial
systems and standard business practices to disguise the origin
of capital," said Evans.
"They
have learned to use professional advisers and develop complex
structures that make detection unlikely and the collection of
evidence particularly onerous. They have learned to operate
internationally to compound the difficulty of tracing proceeds
of crime," he continued.
Evans
wrote his document in the latter part of 1996 and it was
published in early 1997 in textbook format as part of an
international project. I spoke to him this week and showed him
the report out of the U.S.A.
He
chuckled and agreed with my assessment of the material.
The
RCMP estimates that $17 billion is laundered through Canada
annually. This is through all methods of laundering. The study
out of the States would seem to indicate the number is much
larger than that. According to Evans there is no way to know for
certain how much money is being laundered each year in Canada,
but Evans said the amount is at least the equivalent of 40% of
the entire federal government's budget.
That
staggered me. Jane Stewart's budget alone is over $60 billion.
So why is this happening? Are the citizens of Canada apathetic
on the issue of organized crime?
Partly,
according to Evans.
"It's
partly because they don't know," said Evans. "But it's
partly because the numbers are so huge they can't comprehend
it."
So
organized criminal activity is literally overtaking our economy.
Last week, the governor of the Bank of Canada showed his
complete lack of understanding of the nature of the problem when
he announced that $1,000 bills would be taken out of circulation
to combat the money launderers. If his comprehension of money
laundering is that shallow, he should not be in the position
he's in.
Canada,
unlike our neighbours to the south, does not have mandatory
reporting by financial institutions. Thus far it has been a
voluntary reporting process. Needless to say it has failed
absolutely.
On
July 25 1997, Finance Minister Paul Martin announced tough new
measures to combat money laundering through amendments to the
Proceeds of Crime legislation, making reporting mandatory.
"These
amendments respond to the evolving problem of money laundering
and the concerns of law enforcement authorities," the
minister said.
Well,
the legislation didn't hit the order paper as a Bill (C-22)
until Feb. 9, 2000. And it's still not passed despite the
Opposition's agreement with the bill. Apparently the federal
government's commitment is as strong as the depth of the
governor of the Bank of Canada's knowledge on the issue.
While
all this is going on, our federal police force, the RCMP, is
struggling just to maintain its core services while the
government is rolling around in an $11 billion (and growing)
budget surplus.
The RCMP are having to make private deals with the Royal Bank and other private entities to get funding desperately needed for things like community policing initiatives.
The
Mounties are now finding themselves the butt of fiscal jokes.
Mordecai Richler's column in last Saturday's National Post
discussed the recent PQ convention and a hotel room where a
strategy session was being held.
Richler
said, " Their suite was first swept of listening devices,
although, if the truth were told, the most the RCMP can afford
these days is a Victorian ear trumpet pressed to the wall of an
adjoining suite, providing it was available at the corporate
rate."
Witty, poignant and, as with everything emanating from his talented pen, appallingly true.
-30-