Real Estate Law Blog

Recent unexplained wealth orders offer another good reason to keep proper documentation that explains the source of money and reasons for its transfer.

The introduction of unexplained wealth orders in British Columbia has given the government the power, where the province has reasonable grounds to suspect that a person or company, or their affiliate, is involved in unlawful activity, to require owners to prove that there is no illegality to their money or the assets acquired with such money. Unexplained wealth orders can be far reaching and can apply even to funds transferred to spouses and relatives.

On September 9, 2024, Mike Farnworth, Minister of Public Safety and Solicitor General (the “Minister”) released a statement regarding filing of the fourth unexplained wealth order application. This article aims to provide an overview of past unexplained wealth order applications and law surrounding unexplained wealth orders in British Columbia.

What They Do

Once the court grants an unexplained wealth order, a respondent or a responsible officer must provide particulars about the nature of the interest that the respondent has in a property (both real and personal) located in British Columbia, particulars of the respondent’s acquisition and maintenance of the property or the interest or the portion of the interest in the property, and if the respondent is a corporation, trustee or partnership, additional particulars about the entity as specified by the court.

Of note, in all four past applications, the British Columbia Director of Civil Forfeiture (the “Director”) is seeking forfeiture orders on top of unexplained wealth orders, for the properties and money in question to be forfeited to the British Columbia government. The exact scope of information disclosure or forfeiture is unclear as there has been no court decision released in relation to unexplained wealth orders.

The Past Applications

The first four applications for unexplained wealth orders are summarized below.

On August 25, 2023, the Director filed its first application for an unexplained wealth order under the British Columbia Civil Forfeiture Act (the “Act”) against the registered owner of the property in Salt Spring Island, British Columbia and all others with an interest in the property, particularly the spouse of the registered owner in this case. The Director is seeking an unexplained wealth order in relation to the property, requiring the registered owner to provide, among other things, a statement setting out particulars of the registered owner’s acquisition and maintenance of the property, including how any costs incurred in acquiring and maintaining the property have been met.

The Director alleges that it has reasonable grounds to suspect that the registered owner, or someone affiliated with the registered owner, possessed, directly or indirectly, proceeds of an unlawful scheme related to securities fraud and money laundering in the United States and such funds were used in the purchase of the property. In light of the foregoing, the Director alleges that there is reason to believe that there is a serious question to be tried as to, among other things, whether income lawfully obtained by the registered owner would have been insufficient to acquire or maintain the property and whether the property was used to engage in unlawful activity.

On December 14, 2023, the Director filed its second application for an unexplained wealth order. This time, the action is to compel an individual to explain millions of dollars held in a Vancouver lawyer’s trust account, which funds were alleged to be illicit trading profits gained from securities fraud of Jammin’ Java Corp in the United States. Relief sought under the notice of civil claim includes a forfeiture order and an explained wealth order requiring the defendant to provide particulars of their acquisition and maintenance of the funds.

The government’s third application for an unexplained wealth order relates to an action against a defendant that is alleged to be a co-founder of a British Columbia company that conducted business under the name Quadriga CX and/or Quadriga Coin Exchange (“Quadriga”). Quadriga has been the subject of a Netflix documentary and Law and Order Toronto.^[1] The Ontario Securities Commission determined that a deceased co-founder committed fraud and over 76,000 clients were owed a combined $215 million in assets by February 14, 2019.^[2] In the matter involving Quadriga, the forfeiture order is for the forfeiture of $250,200 in cash, 45 gold bars, four luxury watches and a number of pieces of expensive jewelry.

On April 17, 2024, the Director filed an amended application under the Act to its fourth unexplained wealth order application originally filed on December 4, 2023. This application is an action against two individuals who hold interests in three properties in British Columbia with an aggregate 2024 assessment value of over $5.6 million as well as over $1.4 million cash seized by the Vancouver Police Department. The Director claimed that the properties and money had been used by the defendants to engage in unlawful activities, including illegal growth and sale of cannabis.

A brief summary of the law around unexplained wealth orders is provided below:

The Law

Unexplained wealth orders stem from recommendations from the Cullen Commission and are expected to be a key tool to address money-laundering schemes.^[3]

Starting on June 17, 2024, the previous Civil Forfeiture Act SBC 2005, c 29 has been replaced by Civil Forfeiture Act, SBC 2024, c 1, but the substantive contents in relation to the unexplained wealth orders have not changed. Under Section 22 of the Act (Section 11.09 under the previous Act), the Director may apply to the court for an unexplained wealth order in relation to property (both real and personal) located in British Columbia and require a respondent or a “responsible officer” to provide, among other things, particulars about the nature of the interest that the respondent has in the property, particulars of the respondent’s acquisition and maintenance of the property or the interest or the portion of the interest in the property, and if the respondent is a corporation, trustee or partnership, additional particulars about the entity as specified by the court.^[4] A “responsible officer” means, among others, an individual who is a director or senior officer of a corporation, a general partner in a limited partnership, or a partner in a partnership other than a limited partnership, and when a general partner or a partner is a corporation or a partnership, an individual who is a responsible officer in relation to the corporation or the partnership.^[5]

Section 24(2) of the Act (Section 11.11(2) under the previous Act) provides a three-part test that must satisfied on a balance of probabilities in order to grant an unexplained wealth order:

1. the director has reasonable grounds to suspect that:
2. a person or a company is involved in unlawful activity,
3. a person or a company is affiliated to a person or company who is suspected of involvement in unlawful activity, or
4. there are questions raised about assets that a person from a foreign country who is politically exposed has in B.C.;
5. the director has reason to believe that the person or company holds assets in B.C. by meeting one or more circumstances under Section 24(3) (Section 11.11(3) under the previous Act), including holding assets as a registered or unregistered owner and as being connected to a person that holds an interest in the property, and those assets are worth more than $75,000; and
6. there must be a serious question about how the person or company acquired the property or funds based off lawfully reported income.^[6]

The terms “affiliated”, “unlawful activity” and “property” are all defined in the Act. Specifically, “property” under section 1 of the Act means “a parcel of real property or tangible or intangible personal property and, for greater certainty, includes cash”. Many types of assets may be caught by this definition, including high value cars, gold bars, jewelries, real estate, bank accounts or even monies held in trust accounts. The meaning of “affiliated” is also quite broad and includes, but is not limited to, an individual’s spouse, a relative of the individual or the individual’s spouse or a person that is connected to the company, partnership or trust. The wide breadth of possible respondents and connected persons is intentional to allow the legislation to capture complex money-laundering regimes used by high-level criminals.^[7]

There is no time limit as to when the director must commence proceedings for a forfeiture order requiring that the whole or portion of an interest in a property that is proceeds of unlawful activity to be forfeited to the government.^[8]

The extent to which unexplained wealth orders will be used remains uncertain but the first four unexplained wealth orders have been filed and there may be more to come. When it comes to explaining the flow of funds, clear and proper documentation can be very helpful. Double check your records to ensure that you have proper documentation in place.

^{[1] Minister’s statement on unexplained wealth order related to luxury goods dated March 27, 2024: https://news.gov.bc.ca/releases/2024PSSG0022-000430}

^{[2] QuadrigaCX: A Review by Staff of the Ontario Securities Commission: https://www.osc.ca/quadrigacxreport/index.html}

^{[3] Official Report of Debates (Hansard) by the Legislative Assembly of B.C.: https://www.leg.bc.ca/hansard-content/Debates/42nd4th/20230405pm-Hansard-n300.html#300B:1530}

^{[4] Section 22, Civil Forfeiture Act, SBC 2024, c 1}

^{[5] Section 1 “responsible officer”, Civil Forfeiture Act, SBC 2024, c 1}

^{[6] Section 24(2), Civil Forfeiture Act, SBC 2024, c 1}

^{[7] Official Report of Debates (Hansard) by the Legislative Assembly of B.C.: https://www.leg.bc.ca/hansard-content/Debates/42nd4th/20230405pm-Hansard-n300.html#300B:1530}

^{[8] Section 91, Civil Forfeiture Act, SBC 2024, c 1}