Purchased for $1-million in cash by Alicia Davenport, this Salt Spring Island home, in a photo taken from Steward Road on Sept. 11, is one example of unexplained wealth that authorities are cracking down in British Columbia.Chad Hipolito/The Globe and Mail
First, authorities moved to seize a house on British Columbia’s Salt Spring Island, bought for $1-million cash by the former spouse of a man accused of having ties to a global pump-and-dump stock scheme.
Next, they went after millions of dollars held in the trust account of a recently disbarred lawyer on behalf of an alleged participant in a securities fraud involving a Bob Marley-themed coffee venture.
Then there was the downtown Vancouver safety deposit box stuffed with cash, gold bars and luxury watches belonging to the co-founder of a defunct cryptocurrency exchange.
These asset seizures were carried out with a new legal tool that some Canadian provinces are using to go after the proceeds of alleged crimes. Unexplained wealth orders, as they’re known, put a reverse onus on the owner of the property in question to prove that he or she acquired it through legal means, or risk having it confiscated – making it easier for law enforcement to seize property without having to prove that a specific crime occurred. British Columbia and Manitoba have both recently implemented the tool, although Manitoba has yet to use it.
Proponents of unexplained wealth orders argue that they allow law enforcement to disrupt the operations of organized crime groups, which often employ sophisticated money laundering techniques that make it extremely challenging for investigators to follow the money.
“This is a huge tool for law enforcement to really go after the funds of criminal organizations, and that makes a big difference in sending a message that they can’t operate with impunity here in Manitoba,” said Matt Wiebe, Manitoba’s Minister of Justice and Attorney-General.
But critics argue that the orders infringe on the Canadian Charter of Rights and Freedoms, for instance by removing the presumption of innocence.
“They’re being asked to come to court and actually prove that they haven’t committed a crime,” said Vibert Jack, the litigation director of the B.C. Civil Liberties Association, which is opposed to unexplained wealth orders and civil forfeiture in general. “It’s up to the state to prove that a person has committed a crime before they punish them.”
Ultimately, experts say, the matter will be resolved in court. If the new legal tool passes muster, other provinces are expected to follow suit.
British Columbia got the idea for unexplained wealth orders from Britain, which implemented the legal tool in 2018. Nicknamed “McMafia” orders after a book and television series of the same name, they were introduced amid growing concern that London’s luxury real estate market had become a haven for dirty money.
Australia and Ireland have similar regimes. In fact, more than 100 countries have laws that target illicit enrichment, according to an analysis by Andrew Dornbierer at the Basel Institute on Governance.
B.C. was mainly focused on learning from Britain’s experience when it crafted its unexplained wealth regime, according to Phil Tawtel, executive director of the B.C. Civil Forfeiture Office. “We certainly looked at other models, but that was the one that most informed us of where we wanted to go and how we wanted to frame our legislation,” Mr. Tawtel said in an interview.
That work was already well under way when the Cullen Commission – a task force struck up by the provincial government to conduct an inquiry into money laundering in B.C. – issued its recommendations in June, 2022. Recommendation No. 101, which urged the province to introduce unexplained wealth orders, “gave us the sense we were on the right path,” Mr. Tawtel said.
The first unexplained wealth order filed in B.C. court related to a global securities fraud scheme operated through a Switzerland-based asset management firm originally called Silverton SA. (It was later renamed Wintercap SA.)
The multiyear scheme generated more than US$165-million in illegal stock sales in at least 50 microcap companies, according to the U.S. Securities and Exchange Commission. It was so complex that unravelling it required the help of more than a dozen international regulators and an analysis of close to 400 bank and brokerage accounts, the SEC said. British citizen Robert Knox, the founder and operator of the firm, was sentenced last year to 36 months in prison after pleading guilty to securities fraud charges.
Last November, B.C.’s director of civil forfeiture filed a court order seeking an explanation for a Salt Spring Island home purchased for $1-million in cash by Alicia Davenport, the ex-wife of Skye Lee, also known as Geordie Lee.
The forfeiture office alleges in court documents that Ms. Davenport, who listed her occupation as homemaker on a property record, didn’t earn enough money to buy the home. The funds, authorities allege, were proceeds of the Silverton fraud, which had been wired to a West Vancouver law firm called Biancardi Law Corp., supposedly for a loan to Mr. Lee.
In court filings, Mr. Lee and Ms. Davenport state that they have not been involved in any criminal activity and that the money was passed to Ms. Davenport as part of a divorce settlement. Mr. Lee argues that the unexplained wealth order is unconstitutional and violates his Charter rights.
The second unexplained wealth order was made in a forfeiture case involving more than $3.5-million sitting in a trust account belonging to Ronald Pelletier, a Vancouver lawyer who has since been disbarred. The funds were being held on behalf of Kevin Miller, a Malta resident accused of participating in a multimillion-dollar pump-and-dump scheme involving the stock of Jammin’ Java, a coffee company that used trademarks of the late reggae artist Bob Marley.
Mr. Miller has taken the Law Society of B.C. to court in an effort to recover the frozen funds. In a court document, he states that there is “no direct connection” between the money in Mr. Pelletier’s trust account and the “alleged unlawful activity,” and that he did not acquire the funds through any unlawful activity.
The third order was filed in a civil forfeiture matter involving Michael Patryn, the co-founder of defunct cryptocurrency exchange QuadrigaCX. Mr. Patryn is a convicted felon who served time in the United States for his role in an online marketplace called Shadowcrew.com that trafficked in stolen credit-card numbers and identities. At the time, he went by the name Omar Dhanani.
Mr. Patryn is being asked to prove that he legally obtained the assets seized by the RCMP from a safety deposit box in downtown Vancouver. In court documents, B.C.’s Director of Civil Forfeiture alleges that the more than $250,000 in cash, 45 gold bars, four luxury watches and other pricey jewellery are the proceeds of unlawful activity linked to Mr. Patryn’s involvement in Quadriga. The Ontario Securities Commission said in a 2020 report that the crypto exchange “operated like a Ponzi scheme,” although the watchdog concluded at the time that Mr. Patryn had left the company in 2016.
In a court filing, Mr. Patryn said the contents of the safety deposit box are “neither the proceeds nor instruments of unlawful activity” and that the manner in which the investigation was conducted violated his Charter rights.
A fourth unexplained wealth order, which was filed on Sept. 9, relates to a black-market cannabis growing operation discovered by police in September, 2023, when they responded to a shooting at a Vancouver home.
All four unexplained wealth orders are before the courts, and none of the allegations contained within them have been proven.
In Britain, only a limited number of orders have been issued since the inception of the regime. That may be in part owing to a high-profile case known as Baker, which seems to have had a chilling effect, according to Jeffrey Simser, a lawyer and asset forfeiture and anti-money-laundering expert.
In that case, the court discharged unexplained wealth orders relating to London properties owned by the wife and son of a Kazakh official who died in an Austrian jail while awaiting trial for murder charges, noting that the use of complex offshore trusts is not, by itself, evidence of money laundering.
In contrast, a recent settlement in an order against Zamira Hajiyeva, the wife of a banker from Azerbaijan who is currently serving a 16-year jail sentence in that country for embezzlement and fraud, is “a monster win” for Britain’s National Crime Agency, according to Mr. Tawtel. After a lengthy legal battle, Ms. Hajiyeva agreed last month to forfeit two properties – a golf club and a £14-million (about $24.9-million) mansion near Harrods, a London luxury department store where she liked to shop – as part of a settlement.
Experts say that in order to become an effective anti-money-laundering tool in Canada, unexplained wealth orders will have to withstand legal challenges.
“It’s inevitable when we have a new tool like this that it’s going to be tested and it’s going to be held up against the Charter,” said Amber Scott, chief executive officer and co-founder of anti-money-laundering consultancy firm Outlier Solutions Inc. “I think if it ends up being successful in B.C., it’s something that we’ll see from coast to coast to coast,” she added.
Former Supreme Court of Canada justice Thomas Cromwell wrote in a legal opinion for the Cullen Commission that an unexplained wealth order regime modelled after the one in Britain “would not constitute unjustified infringements of any right guaranteed by the Charter.”
Not everyone agrees. The B.C. Civil Liberties Association argues that the orders violate the presumption of innocence as well as privacy rights enshrined in the Charter. Mr. Jack, the association’s litigation director, believes these cases belong in the criminal courts, where there are protections to ensure that innocent people are not punished.
Sanaa Ahmed, a professor in the faculty of law at the University of Calgary and an anti-money-laundering expert, concurs. “The problem that I have with [unexplained wealth orders] is that it’s taking a civil law tool and it’s applying it to criminal law problems,” Ms. Ahmed said. “If money laundering is a crime, then why is it that you think we need to do away with criminal law safeguards?”
Ultimately, it will be up to the courts to decide.
“Our goal is to take these cases into court and let the court adjudicate these applications and weigh in on civil forfeiture writ large, and also the tools employed by this civil forfeiture program,” Mr. Tawtel said.