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Money-laundering inquiry must judge whether corruption reached top of B.C. government

Click to play video: 'Closing submissions underway in B.C. money laundering probe' Closing submissions underway in B.C. money laundering probe
After testimony from some 200 witnesses concluded last month, closing arguments are underway at the inquiry into money laundering in B.C. Casinos. John Hua has more on what this stage involves - and why the parties are asking the Cullen Commission to focus on what's happened since - and not hindsight – Oct 15, 2021

A B.C. Supreme Court judge has months to decide whether corruption and inaction allowed vast quantities of suspected drug money to be laundered through suspicious transactions in the province’s casinos, real estate and national banks in financial schemes sometimes facilitated through B.C. courts and law offices.

Since 2019, Justice Austin Cullen, the head of B.C.’s money-laundering inquiry, has heard from 198 witnesses, including former premier Christy Clark and several former gaming ministers, in hundreds of hours of hearings that produced bombshell testimony and 70,000 pages of evidence. He was granted a six-month extension, until May, to weigh a mountain of records and transcripts.

An analysis by Global News suggests key questions stemming from the evidence that Cullen must answer include:

  • Did former B.C. gaming minister Rich Coleman ignore credible warnings from his subordinates that suspected drug-money laundering was growing exponentially in B.C. casinos?
  • Did former B.C. premier Christy Clark receive the same alerts as Coleman and other gaming and financial ministers who reported to her?
  • Did executives at the BC Lottery Corporation allow highly suspicious cash transactions to continue in their casinos because the transactions resulted in higher government revenue and pay bonuses?
  • Did the private operators of B.C. casinos pressure the Lottery Corp. to refrain from banning high-rolling patrons who were suspected by casino investigators of being drug traffickers?
  • Were RCMP investigations of casino money laundering in B.C. discouraged by the provincial government or hindered by a lack of federal funding?
  • Were the alerts, including reports on suspicious transactions at the big five Canadian banks and law firms, from Canada’s anti-money laundering watchdog Fintrac ineffective in triggering regulation and police investigations?
  • Were casino and real estate loans connected to B.C. gangs and involving B.C. court cases used to facilitate the growth of underground banking from China into Canada?

The B.C. government and its casinos

Cullen has heard that from about 2008, B.C.’s casino regulator recognized that transnational gangs based in China appeared to be increasing the amount of suspected drug money coming into BC Lottery Corporation casinos, especially Richmond’s River Rock Casino and New Westminster’s Starlight Casino.

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This money laundering involved loan sharks delivering bundles of $20 bills packaged consistently with drug-trafficking proceeds to high rollers who primarily travelled from China to Canada to play high-stakes baccarat in secluded and exclusive areas of the casinos.

Many of the high rollers were loan sharks themselves, Cullen heard, and were well-known to the RCMP and some Lottery Corp. investigators as transnational drug-trafficking suspects. The corporation’s criminal intelligence records filed as evidence show, for example, that the biggest high roller in 2015, who completed more than $6-million in cash and bank draft transactions in half a year, was also connected to fentanyl traffickers and suspected by the Canada Border Services Agency of being a loan shark and importer of narcotics precursors.

Click to play video: 'Rich Coleman testifies at Cullen Commission on money laundering' Rich Coleman testifies at Cullen Commission on money laundering
Rich Coleman testifies at Cullen Commission on money laundering – Apr 28, 2021

The gangs in China used private high-limit betting rooms, which B.C. casinos had built specifically for Chinese high rollers, to get rid of massive volumes of drug cash in Vancouver, Cullen heard. Meanwhile, their Chinese casino clients paid low commissions for cash loans and repaid them by transferring their wealth in China to organized-crime bank accounts.

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Records from Fintrac filed for Cullen’s review suggest these bank accounts in China funded fentanyl-precursor imports to Canada.

The regulatory investigators testified that the transnational gangs involved were so hazardous to public safety, due to their access to restricted firearms in B.C., that it was deemed too dangerous to question loan sharks and high rollers linked with them. A report on loan-shark money laundering was escalated to B.C. government officials in 2009, Cullen heard, and then-gaming minister Coleman was warned in detail in 2010.

Read more: B.C. government waited 9 years to heed recommendations to reject drug cash in casinos, inquiry hears

The regulator’s former executive director of investigations, Larry Vander Graaf, told the inquiry of a face-to-face meeting with Coleman in 2010. He said he told Coleman the Gaming Policy and Enforcement Branch feared that drug traffickers were using government casinos to launder warehouses of drug money in Vancouver.

“He sat across from me, and Mr. Coleman opened the conversation, and said, ‘What about this money laundering?’” Vander Graaf testified. “And I said, ‘They are bringing it in — in $10,000 bundles.'”

He told the inquiry that he and the regulator wanted the Lottery Corp. to put a daily cap on the amount of $20 bills any single casino could accept.

But the government didn’t act. By 2014, Vander Graaf’s staff estimated suspected drug-money laundering had reached about $200 million per year in Lottery Corp. casinos.

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Both Vander Graaf and his subordinate, Joe Schalk, testified that they believe they were fired by the B.C. government in 2014 because they were making increasingly urgent warnings about money laundering and the integrity of government to their superiors.

Read more: ‘BCLC could have stopped this’: Former casino investigators question whether officials unwilling to stop criminal activity

Coleman testified that he remembered the 2010 meeting with Vander Graaf, but his government didn’t have proof that money laundering was actually occurring in B.C. casinos. He insisted he didn’t turn a blind eye to the growing danger of organized crime infiltrating casinos, which grew into a $1.6-billion revenue powerhouse for the province, although numerous regulatory and police officials testified they provided credible evidence to Coleman and other high officials, directly and indirectly.

In her examination, Clark, who was premier from 2011 to 2017, testified that it wasn’t until 2015, when then-finance minister Mike de Jong took over casinos from Coleman that she was directly informed of an “all-time high” in suspicious cash transactions.

Click to play video: 'Former Premier Christy Clark kicks off series of marquee witnesses at B.C. money laundering inquiry' Former Premier Christy Clark kicks off series of marquee witnesses at B.C. money laundering inquiry
Former Premier Christy Clark kicks off series of marquee witnesses at B.C. money laundering inquiry – Apr 20, 2021

Finally, Cullen heard, the RCMP launched its so-called E-Pirate investigation in 2015, which uncovered a single underground banking operation in Richmond calculated to launder more than $1 billion annually by moving drug money between Canada, China, Mexico, Colombia and Peru, and facilitating casino loans for Chinese high rollers in B.C.

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And while the inquiry focused mostly on casino and cash transactions, a case study filed by its lawyers revealed that a handful of currency exchanges in Hong Kong, linked to the same Triad networks operating in B.C. casinos, had wired at least $166 million into B.C. branches of major Canadian banks. And, according to the case study, these transactions helped a corruption suspect from China and his daughter, a B.C. university student, purchase at least $32 million in Vancouver properties.

The RCMP

Cullen will need to consider why E-Pirate, believed to be Canada’s largest ever money-laundering investigation, ultimately fell apart, as problems with RCMP evidence disclosure surfaced in court and charges against a core group of suspects were dropped in late 2018, leaving a bloody path of deaths and violence that later threatened innocent people.

In 2019, an elite Vancouver drug trafficker and E-Pirate suspect who was involved in Triad networks was murdered in Colombia. In late 2020, the primary underground banking suspect in E-Pirate was murdered in a crowded Richmond sushi restaurant, while the primary loan-sharking suspect suffered facial injuries caused by an explosion of shrapnel from bullets fired through the restaurant’s front window.

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However, Cullen will also have to consider why a previously unknown RCMP anti-money laundering investigation — of the very same loan-sharking and high-rolling suspects — ran from 2010 to 2012 but didn’t advance. That investigation essentially identified the transnational crime scheme that has come to be known as the “Vancouver Model” of money laundering, but not the source of criminal cash, as well as underground international currency exchanges in Richmond later uncovered in E-Pirate.

Click to play video: 'Cullen Commission testimony on ‘conflicting directions’ from then-minister' Cullen Commission testimony on ‘conflicting directions’ from then-minister
Cullen Commission testimony on ‘conflicting directions’ from then-minister – Feb 5, 2021

Federal government documents filed as evidence showed that the RCMP reported in a 2012 case summary that the River Rock Casino and the Starlight Casino were targeted by an RCMP anti-money laundering team because they were “a very significant source of money-laundering activity, using wealthy People’s Republic of China gamblers as willing pawns in their activity.”

The documents explained how the RCMP placed high-rollers and loan sharks who frequented the two casinos under surveillance.

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“The individuals actually conducting the buy-ins at the casino, and doing the gambling, were wealthy Chinese businessmen, many with little to no ties to Canada,” the RCMP case summaries said. “These high-roller players typically pay-back (sic) their losses via bank-deposits (sic) in the People’s Republic of China or Hong Kong, which are ultimately brought back to Canada by the loan-sharks (in non-cash form) as ‘legitimate’ money. This is often done by international money-laundering groups.”

Read more: Great Canadian Gaming staff tried to ‘smooth’ over sexual assault involving high roller: inquiry

One of those investigated was a Burnaby city councillor who was closely associated with River Rock upper management, RCMP probe documents say.

The undercover RCMP investigation ended in 2012, Cullen heard, partly because the Mounties couldn’t find a concrete link between suspicious casino transactions and drug deals.

The commissioner also heard that Barry Baxter, a police officer who blew the whistle about suspicious cash transactions uncovered in the aborted RCMP investigation, was publicly discredited by then-gaming minister Coleman and silenced by RCMP brass in B.C., and federal funding pressures could have impacted the police probe.

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Senior B.C. official ‘stepped around me and left’ when asked about money laundering, inquiry hears – Nov 3, 2020

Another former RCMP officer, Fred Pinnock, testified about stunning secret tapes that he recorded in 2018, in which he and former B.C. Liberal solicitor-general Kash Heed discussed suspicions that Coleman and RCMP brass caused a “tsunami” of casino money laundering by shutting down Pinnock’s illegal gaming unit in 2009, and that it was “all about the money.”

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Pinnock testified his team was effectively barred from investigating the infiltration of organized crime inside B.C. government casinos, and that when he and his successor proposed beefing up his unit and focusing on corruption and money laundering inside Lottery Corp. venues, it was disbanded.

Coleman testified that he judged Pinnock’s unit was underperforming, and that he didn’t shut it down to protect Lottery Corp. revenue streams. Heed testified that Pinnock had improperly recorded him and that their discussions were merely gossip.

The BC Lottery Corporation

Cullen also heard from Lottery Corp. casino investigators that money laundering could have been enabled because those who tried to ban suspicious high rollers were impeded by their upper-level managers, who in turn were getting pressure from River Rock managers.

Former Lottery Corp. anti-money laundering director Ross Alderson and his colleague, Stone Lee, testified that when Alderson intervened in one suspected money-laundering transaction, in which he believed a River Rock high roller was laundering $100,000 worth of $20 bills, the casino’s general manager told him he had no authority to question gamblers or reject their cash transactions. River Rock management then complained to the Lottery Corp.’s bosses, they said.

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Click to play video: 'Gaming enforcement branch didn’t have authority to investigate money laundering' Gaming enforcement branch didn’t have authority to investigate money laundering
Gaming enforcement branch didn’t have authority to investigate money laundering – Nov 2, 2020

Alderson, Lee and a third investigator testified they were then called into a meeting with management and ordered not to intervene in suspicious cash transactions in River Rock’s high-limit baccarat room, and to not even approach their “VIP” high rollers. One boss admitted “it’s all about revenue,” Alderson testified, while another stated that River Rock management was pressuring then-Lottery Corp. CEO Michael Graydon because his investigators “were banning all his players and losing revenue.”

Great Canadian’s legal team argued that while the company sought to protect its business model, it never impeded money-laundering investigations and was not involved in corruption.

Read more: International students and offshore banking flagged in Canadian real estate money laundering

Cullen also heard from Lottery Corp. investigator Mike Hiller about escalating a report to his boss in 2014 that outlined basic details of the Vancouver Model, and that known drug-trafficking suspects were major players in loan-sharking and high-roller networks funneling massive amounts of cash into B.C. casinos.

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According to Hiller, Lottery Corp. management didn’t respond to his warnings, and in 2015, they bragged about record revenues the year prior while suspicious cash transactions spiked to all-time highs.

“I didn’t believe we, as a provincial organization, should be taking money from organized crime,” Hiller testified.

Lottery Corp. lawyers, however, argued the corporation took steps to limit cash buy-ins from gamblers flagged as high-risk, and that managers adhered to Canadian anti-money laundering laws which required it to log suspect transactions with Fintrac.

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