As part of the protracted litigation involving several defendants from China that we wrote about here, in which $480 million was stolen by the Bank of China by low level managers and parked in banks and real estate in Vancouver and spent at casinos in Las Vegas, the Bank of China has obtained a judgment for over $600 million against the mother and wife of Chao Fan Xu, one of the men who stole from the Bank. The case is very James Bond-like and for background, you can read about it here.
The two defendants were Fang Kuang, the wife of Chao Fan Xu, one of the bank managers, and Wen Jing Tan, the mother of Mr. Xu.
The decision is unusual in that according to the Reasons for Decision, the Bank of China, rather than establishing any of its own evidence in respect of money laundering of funds from China that went through Hong Kong to Vancouver, relied upon re-cycled evidence by US prosecutors from other proceeding in Nevada who prosecuted the relatives of the defendants for, inter alia, money laundering and pursuant to which Ms. Kuang was sentenced to 96 months incarceration and Mr. Xu to 300 months. In that US prosecution, the US government obtained a restitution order against them for US$7.8 million in favour of the Bank. But only $20 million of the $482 million stolen by multiple defendants from the Bank of China was part of the US proceedings, so at maximum only $20 million was capable of piggy-backing upon US proceedings in Canada for evidentiary purposes. In other words, the US evidence that was solely replied upon to claim against the defendants here only covered $7.8 million yet a claim from $600 million was alleged in British Columbia.
The decision is also unusual in that an expert reviewed the bank records of the defendants (but not it seems, of the financial institutions involved in the moving of money), and rather than finding evidence of actual money laundering, such an expert opined that there were mere “patterns of money laundering”, and while the Court admitted evidence from foreign proceedings, it rejected the most competent evidence of all by anti-money laundering experts in the US who deposed as to the matters in the US criminal proceeding.
The Court found, based on the US conviction (even though it rejected the evidence from American experts that led to the US conviction), that Ms. Xu assisted those who stole from the Bank to launder the funds from the Bank and was therefore liable to the Bank.
With respect to the mother, Ms. Tan, because she was not a party to US prosecution, the Bank had to rely on making its own case for money laundering in British Columbia, rather than rely on the US government evidence in the US prosecution. In that respect, it relied upon the opinion of evidence of a pattern of financial transactions that it believed were indicative of money laundering (rather than evidence of actual money laundering). There really is no such thing as “patterns of money laundering” except when we are talking about risk patterns that computer systems pick up and detect as indicative of high risk for a certain activity.
In any event, the Court made interesting observations about money laundering, namely that the “very objective” of money laundering is to make it impossible to trace funds back to its illegitimate source.
But the objective of money laundering is to convert it from its original source so that the next organization involved in the layer in the movement of that money does not suspect its source, and ergo report it. Take for example, washing money by refining at a casino – if its money laundering then there is a predicate offence from whence the funds were tied and so there is no secret as to the source of the funds and neither is there a secret that the funds in this example were laundered at casino because the casino, as with all reporting entities, record and report the transaction.
The person, after refining, obtains a casino cheque which they then take to a bank for deposit. The bank in the example is not suspicious as to the source of funds because they see that, on its face, it is from a casino and involved winnings. Unless we are dealing with cash, it is not difficult to trace funds.
In any event, Ms. Tan was found liable to the Bank because she could not explain or prove that the money in her possession was not proceeds of crime, so a reverse onus was imposed upon her.
As a result, the two defendants were ordered to pay the Bank over $600 million collectively.
In terms of a precedent, the Supreme Court of British Columbia seems to have set precedent that it is permissible to rely solely upon evidence in foreign proceedings for cases of money laundering in the civil context to reclaim assets and secondly, that a reverse onus applies whereby a defendant must prove that money is their possession is not proceeds of crime.
It is not known whether the defendants appealed the case on the ground that it established new law in Canada in respect of the reverse onus, and its constitutionality.