The BC government’s recent focus on tax evasion and money laundering in the real estate market has led to proposed legislation, the Land Owner Transparency Act (Bill 23 – 2019), which will impose potentially onerous disclosure requirements on those who own real estate through corporations, trusts and partnerships. As we discuss below, the information required to be disclosed may be made available to government authorities for purposes of investigations into tax or other criminal offences both in Canada and abroad.
A recent report of the Expert Panel on Money Laundering in BC Real Estate (the “Report”) discusses the importance of what is described as “layering” in money laundering. “Layering” is “using a series of transactions that disguise beneficial ownership” to distance the proceeds from the underlying offence. The Report indicates that trusts, corporations and the use of nominees to disguise beneficial ownership are important tools in layering.
One of the Report’s conclusions is that there should be increased data sharing to combat against these offences. More particularly, the Report concludes that “[d]isclosure of beneficial ownership is the single most important measure that can be taken to combat money laundering but is regrettably under-used both internationally and in Canada” and that the BC Land Owner Transparency Act will be the first registry to be “fully compliant with best practices” for addressing the issue of money laundering through real estate.
The proposed Land Owner Transparency Act is far reaching in the ownership information it would compel to be disclosed, the mechanisms it includes for enforcing the disclosure requirements, the administrative punishment and offence provisions that it includes, and the information sharing that it specifically provides for.
The proposed legislation is detailed but, in summary, “relevant corporations”, partners of a “relevant partnership”, and trustees of a “relevant trust” become “reporting bodies” which are required to file “transparency reports” in relation to their registered interests in real estate. The “transparency report” is a certified declaration containing information about the individuals who have an interest in the corporation, partnership or trust. This information includes the primary identification information, date of birth, address, and social insurance number of each interest holder, and “a description of how the individual is an interest holder”.
Not only is the information required to be disclosed highly detailed, but the enforcement mechanisms are significant:
- Without a transparency report that is signed and certified, the registrar of land titles must refuse to accept an application to register an interest in land.
- Existing owners must file a transparency report within a prescribed period after the Act comes into force.
- If a reporting body becomes aware or “reasonably ought to have become aware” that a transparency report no longer discloses the current interest holders, a new report must be filed.
- There is a positive obligation to obtain and confirm the accuracy of information about interest holders and settlors.
- There is a corresponding duty on the part of interest holders and settlors to provide the required information.
- Transparency reports will be made available for inspection for “tax and related purposes”, including the enforcement of tax laws within the province, Canada, and jurisdictions outside of Canada.
- Transparency reports will be made available for “law enforcement” within Canada and to assist jurisdictions outside of Canada. “Law enforcement” includes “policing or criminal intelligence operations in Canada.” In other words, it appears that transparency reports may be available to law enforcement for the purpose of investigations but also for the purpose of intelligence gathering.
- For the purpose of determining compliance, “enforcement officers” are permitted to enter into a location where a reporting body carries on business or where records relating to the reporting body are kept.
- There is a duty to cooperate with the enforcement officer and the duty includes providing information to the officer.
- The enforcement officer’s powers may be used to inspect records at a law office unless a claim of solicitor-client privilege is made in relation to the records.
- An enforcement officer may require a written statement in relation to specified issues and may require proof that a transparency report is accurate and complete.
- Non-compliance may result in an administrative penalty or prosecution for an offence.
- The administrative penalty is a maximum of 5% of assessed property value or $50,000, whichever is greater.
- The offence provisions include maximum fines of 15% of the assessed property value or $50,000, whichever is greater.
- There is a prohibition against providing false or misleading information in a transparency report and a prohibition upon obstructing an enforcement officer or withholding or concealing information or records from the officer.
- If required by law, an enforcement officer may be compelled to provide information, documents or records.
- Officers, directors, managers and agents who authorized, permitted or participated in an offence may be personally liable.
It is clear that this proposed legislation, if passed, will impose very significant compliance obligations on those who are subject to its reporting requirements. Further, what might in some instances be complicated and previously private ownership structures will become subject to scrutiny from tax and law enforcement officials both within and outside of Canada. Finally, non-compliance with the Act may result in prosecution. This proposed legislation deserves very careful attention.