Offshore income scams orchestrated to obtain loans from local banks, along with the massive transfer of illegal funds from China to Canada, have caused significant harm to the Canadian real estate market, a recent investigative report has indicated.
In one instance, the whistleblower alleged that a Chinese immigrant falsified her income to the tune of $763,689 in Canadian dollars. Using forged Chinese employment records, she secured HSBC mortgages, increasing her real estate portfolio to at least five properties in the Greater Toronto area. The woman, whom The Bureau called “Ms. D.” variously described herself as a realtor, a homemaker, a schoolteacher, and a medical technology company executive.
Although the bank “exited” her family over money laundering concerns in April 2016, Ms. D. went on to “easily” obtain mortgages from other major Canadian banks, the Bureau report said. Moreover, HSBC’s offshore verification team and branch staff went on to approve mortgages for her in 2020, despite the money laundering concerns.
With thousands of similar cases involving massive loan funds, that sort of diaspora mortgage scam has exacerbated Canada’s housing affordability crisis, according to the report.
Systemic Problems
D.M. raised concerns that HSBC Canada may have systemic problems with highly questionable loans to overseas Chinese homebuyers with unverified sources of income.
He found it inconceivable that the bank’s employees, despite being trained in fraud prevention, would issue mortgages based solely on false proof of income.
In his whistleblower letter, D.M. told management that HSBC Canada staff likely colluded with scam centers in China that verified fake banking and employment records.
In response to D.M.’s whistleblowing, Sharon Wilks, head of communications at HSBC Bank Canada, said, “As a global bank, HSBC is at the forefront of efforts to identify, prevent and deter financial crime … We will not do business with individuals or entities we believe are engaged in illicit conduct.”
Faked Chinese Income
D.M. is a Canadian business school graduate who worked at an HSBC bank in Aurora, Toronto. While working on the branch’s mortgage approval team, he discovered a number of dubious mortgages. The number rose during the COVID-19 pandemic, when the bank’s mortgage offerings to Chinese homebuyers skyrocketed.After delving into the bank’s loan books and questioning colleagues, D.M. made an alarming assessment. Since 2015, more than 10 HSBC branches in the Toronto area had issued at least CAD$500 million in mortgages to Chinese homebuyers claiming substantial incomes that were either inflated or non-existent.
D.M. surmised that the overseas income scams spiked during the COVID-19 outbreak because borrowers could plausibly claim to be working remotely while living in Canada during the pandemic.
One day in April 2022, D.M. sent a four-page email to bank executives exposing the potential for loan fraud and expressing suspicion that bank employees might have benefited from it.
The complaint led to some internal changes at HSBC, but D.M. was dissatisfied with the result. More than a year later, he took the risk of exposing the allegations to the media.
D.M. cites several cases in the report, almost all involving borrowers who asserted that they had extravagant incomes in China. For instance, a woman who owned three homes worked part-time as a hairdresser in Canada, while claiming to earn CAD$536,280 as a “business manager” in Guangzhou, a city in southern China.
“These people don’t have steady jobs or income in Canada, but what they are doing is scams to launder money, and get mortgages using fake documents,” he said.
“Canadian workers have been put out of the real estate market by people working as a hairdresser that own a couple homes … How is that fair?” D.M. said in an interview.
An Epoch Times reporter recently reached out to a Chinese loan agent in Queensland and asked how large a mortgage he could get and whether it was related to his income. The agent replied that “as long as we help ‘package’ you,” [the actual] earnings amount is not essential. What you need to do is just come in person and sign some agreements.”
Behind Canada’s Real Estate Bubble
The number of Chinese fleeing China has been increasing for years. However, pulling large amounts of money out of China is problematic because China has placed a $50,000 annual limit on money transferred outside of China. As a result, underground money laundering businesses have proliferated.As per The Bureau’s probe, Canadian banks may have issued billions in shady mortgages to Chinese diaspora buyers. Illicit fund transfers from China to Canada, along with unscrupulous bank lending, were major factors in Canada’s real estate bubble, the probe found, especially in Toronto and Vancouver.
FINTRAC found that during the pandemic, as Canadian casinos closed, the money laundering methods of Chinese underground money launderers began to diversify, with large amounts of money being wired from China, particularly Hong Kong, to Canadian bank accounts. The owners of these accounts often claimed to be students, housewives, office managers, or unemployed and were unrelated to each other.
Those account owners acted as “money mules” in the complex criminal network, FINTRAC found. They also sometimes served as “straw buyers,” buying home with funds received from overseas individuals or entities.
A “money mule” is a person who accepts cash from others and then uses their account to transfer the funds on behalf of others. This method has become a primary means of moving illicit funds while evading regulation.
The FINTRAC report noted that the bank accounts of the suspected money mules showed a high volume of cash deposits or wire transfers from China or Hong Kong. Those funds flowed into the real estate, securities, automotive, and legal sectors, the report said.
