British Columbia (B.C.) has recently begun employing unexplained wealth orders (UWOs) to combat money laundering within the province. This legal mechanism, which requires individuals to prove that their wealth is legally obtained, aims to pierce the secrecy surrounding shell companies and offshore transactions. The province has already launched three such orders, but experts predict a series of legal challenges ahead. This article explores how B.C. is using UWOs, the cases involved, and the potential legal battles that could reshape this new approach.
The Case of Aristobulo Barrios Miranda and Roger Knox
On October 25, 2017, Aristobulo Barrios Miranda, a Colombian national, sent fax instructions to Roger Knox, a U.K. citizen, to have Hilton Capital wire $1.15 million CAD to a Royal Bank account in Toronto. Hilton Capital, based in the Marshall Islands, a known offshore banking haven, transferred the money to a West Vancouver law firm, Biancardi Law Corp., for purchasing a house on Salt Spring Island. The funds were wired in four installments between October 30 and November 2, 2017, purportedly as a loan to Geordie Lee, also known as Skye Lee. The following day, Alicia Valerie Lee, Geordie’s estranged spouse, paid $1 million in cash to buy the Salt Spring Island home at 435 Stewart Rd.
Allegations of Pump-and-Dump Fraud
The financial transactions surrounding the Salt Spring Island home are detailed in documents filed in a B.C. Supreme Court case. The province alleges these wire transfers are linked to a $225-million international pump-and-dump stock fraud. In such schemes, the secret owners of stocks artificially inflate their value through misleading statements, only to sell them at the peak, leaving unsuspecting investors with worthless shares. Knox, a key figure in the fraud, pleaded guilty in 2020 to charges of helping conceal ownership of stocks and funneling money back to the fraudsters.
Introducing Unexplained Wealth Orders in B.C.
B.C.’s Civil Forfeiture Office has filed to have the Salt Spring Island home, now valued at $1.8 million, forfeited as proceeds of crime, citing violations of securities laws, money laundering, and tax evasion. However, this case marks the first use of an unexplained wealth orders in Canada. The order, approved by a judge, places a reverse onus on the defendants to prove the legality of their assets. If they fail to do so, the property is presumed to be criminally obtained.
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Legal Framework and Challenges
Unexplained wealth orders represent a significant shift in legal procedures, as they reverse the burden of proof from the Crown to the defendant. Traditionally, the Crown must prove guilt, while defendants are presumed innocent until proven otherwise. The B.C. government views these orders as a powerful tool to break through the secrecy of offshore transactions and assets hidden by family and associates.
Anticipated Legal Battles
Despite their potential effectiveness, Unexplained Wealth Orders are expected to face considerable legal challenges, potentially reaching the Supreme Court of Canada. B.C. Premier David Eby, formerly a human rights lawyer, has acknowledged the inevitability of such challenges. Gallant emphasizes that Unexplained Wealth Orders can cut through the opacity of international financial transactions, particularly those involving offshore tax havens like the Cayman Islands.
The Cullen Inquiry and Legislative Changes
The unexplained wealth orders were recommended by the Cullen inquiry into money laundering in B.C., which delivered its report in 2022. Another B.C.-government commissioned report on money laundering in real estate, completed in 2019, also supported this measure. Since the introduction of the new law last spring, B.C. has filed three such cases, signaling a robust approach to tackling money laundering.
In the case involving Geordie Lee and Alicia Valerie Lee, both defendants deny any connection to the stock fraud. Their lawyers have mounted several defenses against the UWOs, including claims of constitutional and Charter of Rights violations. Similar defenses have been cited in the case of Kevin Patrick Miller, where the province seeks to forfeit $4.5 million held in trust. Miller, alleged to be involved in a $105-million pump-and-dump fraud, denies the accusations and argues that the funds were legally obtained.
The Case of Michael Patryn
In another case, the province has targeted Michael Patryn, co-founder of the failed cryptocurrency firm QuadrigaCX. Authorities are seeking to explain the source of funds used to acquire cash, gold bars, jewelry, and luxury watches worth over $600,000. Patryn, currently in Thailand, has responded to the forfeiture case but not to the UWO.
Legal experts, including Jeffrey Simser, a former legal director with the Ontario Ministry of the Attorney General, believe that UWOs will withstand broader constitutional challenges. Simser notes that a legal opinion commissioned for the Cullen inquiry by former Supreme Court of Canada justice Thomas Cromwell suggests that UWOs are likely to be upheld. Simser, who testified at the Cullen inquiry, anticipates that legal challenges will take years to resolve.
The B.C. Civil Liberties Association has criticized UWOs, arguing that they undermine constitutional rights and could be costly to implement. Viberg Jack, the association’s litigation director, contends that Unexplained Wealth Orders violate the principles of fundamental justice and the presumption of innocence. He also points out that civil forfeiture is judged on a balance of probabilities rather than beyond a reasonable doubt, which is the standard for criminal prosecutions.
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B.C. Government’s Preparedness
The B.C. Ministry of Public Safety, responsible for introducing the Unexplained Wealth Orders provision, has expressed readiness to defend the new legislation. Phil Tawtel, executive director of B.C. Civil Forfeiture, stated, “We anticipated legal challenges to the regime and look forward to these issues proceeding through the courts.” He emphasized that the province aims to make the process of acquiring evidence more efficient, thus building stronger forfeiture cases.
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Lessons from International Experiences
The use of UWOs in countries with legal systems similar to Canada’s, such as the U.K., Australia, and Ireland, has seen mixed success. In the U.K., the National Crime Agency has pursued a few cases since 2017, including a notable settlement involving $17 million CAD in assets. However, other cases, such as those involving a Kazakhstan oligarch and a former Azerbaijan banker’s wife, have faced legal setbacks.
B.C. appears to have learned from the experiences of other countries, adjusting its approach to improve the effectiveness of Unexplained Wealth Orders. Despite these preparations, it remains early days for this legal tool. As Phil Tawtel remarked, “Ultimately, it will be the court that decides.”
The introduction of unexplained wealth orders in B.C. marks a significant step in the province’s fight against money laundering. While the legal battles ahead are inevitable, this new approach could fundamentally reshape how illicit wealth is addressed in Canada. The success of Unexplained Wealth Orders will depend on their ability to withstand constitutional challenges and their effectiveness in piercing the secrecy of global financial transactions.
