FROM MEDIAN INCOME TO MONEY LAUNDERING

I've been writing about this for twenty years and it's as excruciatingly tiresome as it is bleak, like watching a slow motion immolation. Alas.

Data from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) shows money laundering audits in real estate dropped from nearly 200 investigations in 2018-19 to just 53 in 2020-21. But the drop in investigations didn't just happen in real estate. The same decline occurred across all financial sectors including banks, securities dealers, and money service businesses. Audits in these areas plummeted from nearly 400 in 2019-20 to just 151 last year.

The decline was not due to a sudden lack of abundant or obvious problems. Those 53 real estate investigations that did take place last year uncovered nearly 230 significant problems with folks failing to meet their anti-money laundering and anti-terrorist financing obligations. And this absence of auditing, still revealing hundreds of issues, arrived alongside a report from the Criminal Intelligence Service Canada (CISC) showing as much as $113 billion being laundered annually in this country.

Sadly, I don’t think the lack of investigations and enforcement is explained by COVID. After all, government and industry continued, and in some cases were more productive and efficient. And we also gladly stuffed kids into unventilated classrooms for six hours a day (at what we presumed to be the height of the pandemic while telling ourselves we did so "for their own well-being.") At the same time the pandemic was getting going, residential real estate sales abruptly leapt up something like 35%, reaching record highs. So, it's doubtless there was more work at this time than ever before. In fact, data from FINTRAC also shows they received around 200,000 suspicious transaction reports back in 2018 but by 2021 these had grown to 468,000 – so something was then and is now afoot. As such, it seems to me everyone in this field of work should have dramatically increased their workload recently, probably fourfold, and not cut their hours in half.

I think its more like we’re are simply refusing to prosecute what is framed as white-collar crime, and largely because so many people benefit. But no part of this is anything like tax fraud or insider trading and yet that is how we talk about it. And we talk in these terms and fail to address the problem at the very moment we're most aware of the problem and understand that not addressing it only invites more organized crime into our lives while devastating communities in a whole variety of ways.

So, it seems worth spelling out what money laundering actually is. Well, of course, the proceeds from every form of corruption needs stashing and legitimizing. And that corruption can cover the spectrum from fairly benign to devastating. Often uglier and deadlier spoils are involved, however. Things like kidnapping ransoms, funds from human, weapons, and drug smuggling operations are all commonly laundered. Similarly, regimes or individuals seeking to acquire or trade in the tools, technology, and materials for chemical, biological, radiological, and nuclear weapons first have to procure and obscure tremendous sums of money. And Canada's totally opaque real estate laws, along with financial institutions keen to help (Canadian banks openly facilitate the obfuscation of clients' deposit trails), make laundering all too easy here. Even the EU uses Vancouver as an example of how obscenely corrupt an entire managerial class must be to encourage high-end property flipping by faceless shell companies.

And how is this money actually laundered? Money laundering is often about moving as much money as possible, which is why real estate is such a common target. We also know high-end automobile, boat, and plane sales are key laundering avenues. The more expensive the better. The CISC has identified 176 organized crime groups in Canada, with half of those linked to international money laundering operations. And they know of eight major organized crime groups engaged in significant real estate laundering and mortgage fraud alone, operating mostly in BC and Alberta. These folks manipulate property values, acquire loans against hugely overvalued property, and regularly flip these investments. As the CISC explains of their investigations, corrupt regulated professionals such as appraisers, real estate agents, accountants, notaries, and lawyers are everywhere and make these transactions possible, transactions that can easily turn over billions in proceeds from serious crimes every year. More sophisticated operations use illicit funds to purchase a property in a seemingly legitimate manner, often by way of helping regular families falsify mortgage documents, and then use large regular cash payments for things such as renovations or rent to or from involved parties to move money. Naturally, they will place ads for a room to let or work that needs doing to conjure what appears to be a legitimate paper trail. This artificially (and criminally) drives up property values and rental rates simultaneously and at rates both impossibly high and fast.

Even if you think the impacts are minor and distant or the benefits outweigh the harms – or you're just happy to personally profit from illicit arms sales or kidnapping when selling your home – there are significant and immediate local impacts that are harder to ignore. The ripple effects or knock-on impacts of all this criminal activity, or even just a little of it, are well understood by anyone in urban studies or who pays attention to social and economic trends.

For instance, Canada’s national average home price just hit $816,000, up 20% from last year. There’s nothing rational or even coherent about that. How out of whack is it? To compare, the US national average house price sits at $489,000 CAD (and, of course, they have ten times the population and half of that country isn’t Arctic tundra and permafrost, either); however, it should be noted that living a middle-class lifestyle in America’s major cities does appear to require $450,000 CAD in earnings...

Economists at the National Bank of Canada estimated back in 2020 that households needed an annual income between $150,000-$250,000 to carry a mortgage for an average home in our hottest housing markets. For scale, this is typically more than 200% above median household income in those same places. And what about terrible condos not updated since 1974 and in need of hundreds of thousands worth of work? Those require earnings only 80% above median income. And they also tell us that, just to save for a minimum down payment in Vancouver would take most folks just 30-40 years. Not for a nice home or one in a neighbourhood you would wish to live in, not a house that doesn't need hundreds of thousands of dollars in essential upgrades and repairs or that would be better torn down, but just a home. (And yet, obviously, all of this fiction would require wages to keep pace with inflation and the cost of living and property values to not bound upward 15-30% annually. That impossible alignment strikes me as more unlikely and miraculous than someone inventing time travel.)

Most folks I encounter in the wilds are astoundingly out of touch with all of this. I hear them on the street, in coffee shops, on the brewery patio. They seem to have no idea the kind of work people are doing or what that labour earns them, in real terms. I hear a gaggle of young doctors in a Hamilton dive bar weighing the pros and cons of whether it's better to buy a third property in southern Ontario or to diversify and "pick up something in Calgary or Vancouver." I hear a couple in a cafe in Victoria discussing how to juggle their many income properties to provide them in retirement the $10,000 a month of disposable income they've become accustomed to. They say this stuff out loud and in public all while acting as though they're middle income earners and struggling to get by.

For context, according to Statistics Canada, median income for individuals in Vancouver is around $32,600. After tax that’s $29,500. Being ‘median’ income, we're talking about half the population, millions of your neighbours, earning far less. And almost everyone, 3.28 million of 3.73 million tax payers, fall below the $70,000 after tax earnings threshold. Even the lucky folks we tend to consider to be among the wealthiest cohort, “couple economic families without children or other relatives,” have a total household income average less than $89,000 after tax. Just to be clear what I'm getting at here, fewer than 160,000 households (less than 3% of the population) in all of BC earn enough income to hit the aforementioned National Bank of Canada figure of $200,000 in household earnings to buy a home today (but, of course, none of that 3% are prospective first-time home buyers.)

To make sense of what these numbers really mean for real people, I like translating all of this into something more tangible. I like to consider what foundational careers undergird society and occur in every city. What, for example, are important jobs filled by a good swathe of society and are still backed by strong unions? Well, how about teachers, nurses, police officers, and postal workers? Could these jobs (secure ones with benefits, collective bargaining, and far-better-than-average pay) land someone, or a pair of them, a merely average home?

According to the BC Teachers’ Federation, a minimum requirement of a degree and an additional year of teacher education will land a new teacher in the city of Vancouver a “Category 4” salary of $50,900, with an annual increase of around $2,000 to a maximum of $76,800. The top teaching salary on their grid is $95,700 which, for comparison, is almost 290% above the city’s median income (that's not 'minimum wage' but median income!) With none of the education requirements, a probationary police constable in Vancouver starts at a salary of $78,000 (with “many opportunities to work overtime.”) After four years of service a first-class constable earns $111,500 (Better than 340% over median income.) Similar to a teacher and a cop, a newly graduated registered nurse in BC can expect to earn $69,000. Their salary also peaks at $91,000 after nine years. Wages at Canada Post are far lower, starting at just over minimum wage. Many of these jobs are part-time too. Most of the full-time positions at CanPo look to be in the $65,000 range while specialist jobs seem to top out around $88,000. As low as that may seem to some, that’s 270% above the median in this province.

So, what does that mean? Well, with no student loan to pay off or debts of any kind, and even if they had the 20% minimum down payment after ten years in the workforce, a couple composed of the highest earners I've pointed to, a police officer and a teacher, would probably not earn enough to put them in a situation to take on a mortgage on a house in the city within which they work. And their earnings won’t see them buying a home in the next city over, either. Fixer-uppers in Ladysmith, a hundred kilometres way, are asking $800,000. And the same goes for a pile of mossy rocks on the back end of Galiano (with no house and where there are no teaching or police jobs.)

The personal and cultural impact of all this, what has become the norm, is truly devastating now and will be so long into the future. From minimum wage to median income and money laundering to terrorism financing, all of the above exposes Canada and its political, legal, and financial leadership as far more comparable to places like Venezuela or Azerbaijan than we would ever admit.