From at least 2009, many high officials in British Columbia were repeatedly warned of a massive escalation of “bulk cash” flooding into BC Lottery Corporation casinos that “undoubtedly has its origins in the drug trade,” according to the RCMP.
At the same time, in relation to the explosion of casino money laundering, three of the most powerful transnational crime networks in the world — Mexican and Colombian cartels, Chinese Triads and Middle Eastern gangs — were taking over B.C.’s underground economy and causing “unprecedented gang violence.”
Italian organized crime and outlaw biker gangs were high-level players as well, as gun violence and opioid overdose deaths surged on Canada’s West Coast.
Vancouver had become “a hub for the importation of illegal and dangerous substances including fentanyl, cocaine, and methamphetamine,” according to the RCMP.
Meanwhile, over and over again, in memos, emails, face-to-face meetings and even hasty hallway conversations, concerned investigators from B.C.’s Gaming Policy and Enforcement Branch, RCMP and the BC Lottery Corp. urged B.C. officials to reject a torrent of $20 bills entering casinos in bags in commonplace transactions of hundreds of thousands, and coming from “middle men” and “loan sharks” and even a B.C. politician, into the hands of scores of high-limit baccarat bettors — the “vast majority … from Mainland China.”
The gamblers were paying back the bags of suspected drug cash they used to buy casino chips with electronic fund transfers in China and Canada, according to a 2011 RCMP report, meaning that the “loan sharks” were not only profiting from interest on their criminal loans, but also successfully washing criminal money in international banks.
But this sophisticated, professional money laundering scheme continued “unfettered,” according to the RCMP in 2011, before Mounties finally struck the Triads at the heart of the crime model in October 2015, with a series of raids and arrests in Richmond, B.C.
It was also in October 2015, in reaction to the RCMP investigation, that B.C.’s government finally ordered the BC Lottery Corp., through the power of a ministerial letter, to determine the source of every suspicious stack of cash entering casinos. But the corporation didn’t actually heed this mandate until 2018, when former RCMP executive Peter German yet again made the recommendation, in his Dirty Money report.
These are the stunning set of facts and assertions argued by lawyers for Canada’s federal and B.C.’s provincial government, in closing arguments for the province’s money laundering inquiry.
Participants in the Cullen Commission, mandated to examine whether inaction or corruption enabled money laundering to take root in B.C. casinos and real estate, started to make their final submissions Friday. After all participants conclude on Tuesday, commissioner Austin Cullen will have months to deliberate for his findings of fact and recommendations.
On Friday, lawyers for B.C. and Canada made mostly technical arguments about jurisdictional issues and regulatory mandates. And while lawyers for both governments agreed money laundering is a major concern in B.C., the provincial government argued it has made significant regulatory improvements in the casino sector and expects that a unification of regulators in real estate will help fight dirty money in property investments.
Canada also argued it has improved its anti-money laundering regime in recent years, and advised the commissioner that his mandate in a provincial inquiry is limited, and that for constitutional reasons, he should not offer opinion on how federal policing and anti-money laundering systems can be improved.
In an interview with Global News, former RCMP federal investigator Calvin Chrustie, one of Canada’s key witnesses on the incursion of transnational gangs in B.C., said that after monitoring the hearings and reviewing the closing submissions from the provincial and federal lawyers, he is concerned the commission has lost its way.
He said while it has focused on gaming and real estate issues, “the real issue is about Canada being the soft underbelly for transnational organized crime and national security threats due to the failure at the federal and provincial levels to address the need for updated legal reform.”
Chrustie said he believes the outcome of the commission should be the creation of “a separate federal policing agency unfettered by regional politics of provincial policing interests, and collaboration of all agencies and our international partners.”
“The current legal system and government structures will continue to alienate Canadian police and security entities from collaborating with our international partners and we will continue to see fentanyl deaths, corruption, public shootings, dirty money, and the erosion of our democratic systems,” Chrustie said, “unless we look at this issue as a global phenomenon and one that requires urgent legal reform versus the continuation of the blame game and a strategic budget-grabbing exercise by bureaucrats.”
Canada's closing arguments
The federal government said evidence shows that the most powerful transnational gangs are profiting from money laundering, which increases the harms of human trafficking, weapons trafficking, violent gang crime, “as well as the opioid crisis that has harmed communities across the country.”
Specifically, the high-level Triad network that is subject of the commission is “based in B.C. and in Ontario and represents several key service providers nationally and internationally,” the federal government submitted, “and are known to conduct complex money laundering operations through their exploitation of casinos, underground banking systems, illegal gaming houses, nominees/shell companies, trade-based money laundering and real estate investments.”
The federal government said contrary to others’ arguments in the inquiry, starting in 2010, the RCMP explicitly warned BC Lottery Corp. managers that organized crime was using Vancouver casinos in massive money laundering, and that casinos should turn away bulk cash.
Starting in 2010, the report said, an RCMP proceeds-of-crime unit started surveillance on many high rollers from Mainland China who appeared to be using drug cash from loan sharks to move their wealth out of China and launder the funds through casinos and banks.
“Simply put, there is a significant money laundering problem identified within casinos, as they provide the opportunity for the criminal element to introduce large bulk cash, believed to be derived from illicit activity, into the financial system,” the report said.
It added there was “great concern” that a Burnaby city councillor had close relationships with upper management at Richmond’s River Rock Casino, and that he was also close to the high-limit gamblers, making sure they received cash whenever they needed it.
The Burnaby councillor had been banned for apparent loan-sharking activities, but was still a concern, RCMP believed. And their report said a River Rock manager called him a “go boy” for the high rollers, and that he and a casino manager had travelled to China together.
However, the RCMP’s investigation into the gangs and potential corruption involved was shut down in 2012 because of tactical priorities on other files and federal budget cuts, and the assessment that enforcement opportunities on the casino file were a challenge, according to evidence submitted at the Inquiry.
B.C.'s closing arguments
Lawyers for the province said that as early as 2009, evidence suggests that Rich Coleman, then-minister responsible for gaming, was informed that B.C. casinos should be rejecting all suspicious cash transactions, rather than accepting and reporting suspected money-laundering transactions, which was the BC Lottery Corp.’s view of how business should be conducted.
This recommendation, in a memo from B.C.’s Gaming Policy and Enforcement Branch, was forwarded to the lottery corporation’s then-CEO Mike Graydon as well, lawyers for B.C. submitted to the commission.
Next, in 2010, according to the enforcement branch’s former director, Coleman was directly informed in a face-to-face meeting that the province should crack down on suspected drug cash.
While Coleman testified at the inquiry that he didn’t remember the warning from his subordinate, a B.C. government anti-money laundering report followed soon after, the province’s lawyers argued. And yet, suspicious transactions continued to skyrocket despite the report’s recommendations and the government decided to raise baccarat betting limits to $100,000 per hand in 2014.
The change came when Graydon contacted then-gaming minister Mike de Jong’s office, although neither de Jong nor former B.C. Liberal premier Christy Clark recalled in their testimonies how the move, which went against the regulator’s money-laundering risk concerns, was approved.
“The timing of the increase was unfortunate as it occurred during the upwards trend in large cash transactions and was considered by some witnesses to have exacerbated the risk of money laundering,” B.C. government lawyers argued.
Finally, in October 2015, after de Jong learned of the RCMP’s money-laundering investigation at the River Rock Casino, the enforcement branch directed the BC Lottery Corp. to not accept any cash in casinos unless the source of funds could be determined.
However, the corporation responded with a letter, saying: “You have directed that BCLC evaluate the source of wealth and source of funds prior to cash acceptance in all instances … Implementing a process that will require source of wealth and source of funds confirmation prior to any transaction will in all likelihood put much of the 77 percent of slot and table revenue that is cash based in jeopardy,” B.C. provincial lawyers submitted.
And meeting notes of the lottery corporation board said: “Discussion followed as to the most appropriate board response, given management estimates the effect of the direction for BCLC, if fully implemented, would be hundreds of millions of dollars.”
Finally, according to B.C. government lawyers, an email from November 2015 from de Jong’s office said, “In a meeting with (former lottery corporation board chair) Bud Smith yesterday, Minister committed to clarify through the mandate letter, that the evaluation of source of funds prior to cash acceptance, does not imply that they need to check every $20 bill that comes in the door.”
And it wasn’t until 2018, despite steady complaints from the enforcement branch, that B.C.’s government finally instituted a source-of-funds vetting requirement for cash transactions, the lawyers submitted.
In their own closing submissions on Friday, lawyers for the BC Lottery Corp. said management acted appropriately in applying “risk-based” anti-money laundering measures, and that the commissioner should not judge what occurred in B.C. casinos in hindsight.
Management understood that wealthy businessmen from China were making the majority of suspicious cash transactions, but the lottery corporation believed these men had a “cultural preference” for cash and therefore, B.C.’s government had to be careful not to base anti-money laundering on “racial profiling,” corporation lawyer Bill Smart argued.
“The cash may have been suspicious, but the patrons and the source of wealth was not,” he said.
A lawyer for Jim Lightbody, the current lottery corporation’s CEO, said the province’s arguments that Lightbody inappropriately allowed revenue-generation considerations to trump anti-money laundering actions are false.
Closing arguments with other parties will continue Monday.
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