(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.





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