Judges: CIBC bank supports clients who break China’s cash-export laws, to buy Vancouver homes

Canadian banks are not obliged to follow China’s rules, and nor are they obliged to report clients whom they know to have broken them – so long as they are not breaking any Canadian rules in the process.

How far, then, will a financial institution go to satisfy the flood of Chinese millionaires looking to find new Canadian homes for their family and their funds?

For CIBC, the answer is: Far enough to get its clients’ money out of China, regardless of Beijing’s US$50,000 annual export limit - but within the bank’s own ethical limits (and Canadian law, of course).

Court rulings in a wrongful dismissal case involving the bank and Guiyun Han Ogden, a former Vancouver financial advisor, make both points clear.

With more than 50,000 rich immigrants having arrived in Vancouver in the past decade, these newcomers have become a lucrative business. From 2004 to 2011, satisfying them was Ogden’s job at CIBC, and she was apparently very good at it, overseeing a C$233 million portfolio of clients made up primarily of wealthy Chinese immigrants.

A Chinese immigrant herself, Ogden was eventually fired after allowing the late-night transfer of about US$100,000 of a client’s Chinese funds into Ogden’s personal Canadian account and another account shared with her husband. Ogden moved the money into the client’s Canadian CIBC account the next morning, but by temporarily “commingling” her own funds with those of a client – one Xuelan Xu, who was transferring just over C$500,000 in total as a deposit on a C$5.7 million Vancouver home - Ogden broke CIBC’s rules and was fired.

This triggered Ogden’s still-unresolved wrongful dismissal case – a 2014 ruling in her favour was overturned on appeal by CIBC four months ago, and a new trial ordered.

That CIBC would draw a line at mingling a banker’s money with their client’s seems like good common sense – but it’s what CIBC deemed to be on the “acceptable” side of the line that is striking.

According to both the original judgment and the appeal ruling, it was the practice of CIBC to support clients dodging China’s US$50,000 export limit. This was done by the client arranging for multiple individuals to make wire transfers of up to US$50,000 on their behalf, with the funds eventually reunited in Canada.

Mr Justice Randall Wong described this practice in his original ruling. Although Wong’s verdict was later overturned, this identical passage was cited by the appeal court on April 27 in its background facts to the case, regarding China’s US$50,000 limit: “Working around these regulations was a challenge and a complicated process, but it was a practice CIBC supported. There is no issue about this. If, for example, a CIBC client wanted to send $150,000 from China to Canada, the money had to come from three accounts belonging to three different account holders in China and be transferred to three separate accounts belonging to three separate account holders in Canada. As long as all the appropriate accounts were set up, the money could be moved.”

According to barrister Christine Duhaime, an anti-money-laundering expert, the practice of co-ordinating multiple smaller depositors - sometimes, hundreds of them - in order to perform and conceal a larger deposit is known as “structuring”. Also useful in concealing the ultimate performer of a transaction, it’s a well-known money-laundering technique, though there is no suggestion in this case that Ms Xu was engaged in anything illegal under Canadian law. A cuter nickname for the practice is “smurfing” (those busy little depositors being the smurfs).

Duhaime said that in Canadian banking circles, the practice was “quite widespread for money moving from China to Vancouver”, at least among individuals if not companies. It is done to prevent the Chinese government becoming aware of the funds’ movement, or existence (sometimes, both).

Duhaime said that someone seeking to send a large amount of money from China would seek out smurfs (sometimes by advertising in newspapers), then pay them a commission to perform their share of the transfer. “They just load up as many smurfs as they need to transfer the amount of money they need in Canada,” she said on Monday.

Typically this would be sent directly to the recipient’s Canadian account, she said. As described by the judges, the CIBC case represents a case of “double smurfing”, with smurfs also receiving the money in Canada before transferring the money again to be reunited in the client’s account (Xuelan Xu ran out of smurfs at the Canadian end, which is why she called on Ogden for help).

The general position among some Canadian banks was that they “feel they are not bound by Chinese law, in terms of what their clients do”, Duhaime said.

I asked Kevin Dove, CIBC’s head of external communications, specifically whether CIBC facilitated clients' circumvention of Chinese cash-export laws. His answer on Monday specifically cited Canadian law instead.

“When our clients are moving money from other jurisdictions to CIBC accounts, our obligation is to ensure it is transferred in compliance with all Canadian laws,” he said. “We carefully review any unusual transactions, including from an anti-terrorist and anti-money laundering perspective.”

As for all those smurfs, it seems there’s nothing illegal about them in Canada, as described by the judges in the CIBC-Ogden case, anyway. There is little doubt they remain as busy as ever

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The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email [email protected] or on Twitter, @ianjamesyoung70. RSS feed here.