Comment by philiphodgen | Hacker News Reader

Comment by philiphodgen | Hacker News Reader

There is a missing step in the transaction that the article does not explain.

1. Bad person sells drugs for cash.

2. Bad person has cash.

3. Bad person lends borrower cash to buy real estate.

Step 3 is the mystery.

— Bad person could give a bag of cash to the borrower. Now the borrower has a banking problem. How does that cash get into a bank account so the real estate purchase can happen?

— Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem.

— Bad person masquerading as a lender can give a bag of cash to the closing agent who is facilitating the real estate transaction. Now the closing agent has a banking problem.

There will be a huge pile of cash that must somehow enter the banking system. Someone must do this. How does it happen?

And no it doesn’t not suffice to tell the seller or the closing agent “I brought a giant bag of Canadian currency with me when I flew in from China to buy this property.” Banks didn’t fall off the back of the turnip truck yesterday.

As the article notes, this is a money laundering problem. But the article postulates a moment of magic — the moment where a bag of tainted cash becomes a recorded mortgage lien on real estate.

I’m saying this as an international tax lawyer who has structured hundreds of millions of dollars of US real estate purchase by foreigners. Maybe I just deal with legit people. We always get wire transfers from real banks, whether the investment is debt or equity.

The article is pretty clear about this. The people who borrow the cash spend it. Often lavishly, they take it to casinos and so on.

They are very wealthy people and have that kind of lifestyle, but their problem is that they can't get their money out of China. They borrow against the property by accepting this Canadian cash, and then repay the loan in China via the banking system there.

Both parties need to launder money, one in one direction and one in the other, that's the obvious beauty of the scheme.

Thanks for pointing that out. I missed that explanation. The transaction is:

1. Own property.

2. Borrow big bag of cash from Bad Guy.

3. Gamble or spend the cash.

4. Pay back the loan from clean sources.

I understand it, but I guess I have never dealt with the KYC people at a casino. I still see obvious choke points (for the conversion of drug-laden currency into gambling chips, for instance) at which Explanations Must Be Made, but perhaps there are channels that I do not know about.

Let’s just say my experiences with the KYC systems have been rigorous.

The channel you're not aware of is that explanations don't have to be made - everyone knows it's happening, and it has the blessing of at least the powerful parts of the legal system, if not the odd idealistic beat cop here and there. Not too much to worry about.

EDIT: Is the downvoter aware of some criminal charges being laid sometime within the many years this has been known to be going on? If not, what might be the nature of your disagreement?

>> 4. Pay back the loan from clean sources.

Except that the source is not in fact clean. China forbids the transfer of such wealth out of the country. But this system accomplishes exactly that. (Settlement of debt is a form of wealth transfer.) It isn't clean. only apparently clean. So the loan on the house has been paid off using dirty money, a proceed of a Chinese crime, and therefore could theoretically be seized through civil forfeiture.

This settlement between two foreign subsidiaries for a transaction in another jurisdiction should sound familiar - it's what global multinationals have been doing for decades. While it could theoretically be viewed as a domestic crime in China, the reality of bringing action against them from Canada is virtually nil.

Canadian (state operated!) casinos are notoriously lax in checking the source of the funds that people bring to gamble. A bunch of people in Canada that I ran a gas station with made off with several hundred thousand $CAN in cash and spent it all in the Sault Ste. Marie casino without so much as a single question. Gambling with illegally obtained funds is A-Ok in Canada as long as the government is on the receiving end.

Yup, winnings under $10G are not reported to revenue Canada. Want to launder money? Go into a casino and have a good time for a few hours. Do not spend more than a couple of hundred.

Revenue Canada asks where the money came from? "I 'won' it at the casino". Rinse and Repeat.

Why would you (a) pay a margin to the house an (b) process such piddly amounts when you can clear 100's of thousands or millions in one go, plus make substantial return on your "investment"?

A) I wasn't referring to the methods in the article, instead, from the previous poster. B) The way I mentioned, is 100% legal, C) its also useful to mere mortals.

The article doesn't say that drug money is used to buy properties. The drug money is loaned out to people who are already homeowners. What they've done is created an unexpected mechanism to launder drug money by loaning the money to homeowners and as part of the process getting a builders lien on each property, even though the lenders are not actually builders. They target borrowers that have a high need because they don't actually have a significant amount of income or cash in Canada. All their cash is in China, and they can't get it out of China, so it's a financial marriage made in hell or heaven, depending on the perspective.

>>— Bad person masquerading as a legit lender could give a bag of cash to the seller at closing. Now the seller has a banking problem.

Not necessarily. If the price in cash makes up for the inflation losses you can easily pay for most things in cash. Or buy a money order when you can't. You can launder maybe as much as 60% of your income. Cash is spent and your legit salary goes to the bank.

Eating out? Cash

Vacation? Cash

Babysitter? Cash

Buy a used car? Cash (maybe even a new car...go to a like minded dealer)

Furniture? Cash

Home improvements? Cash

Clothes, jewelry? Cash

Obviously gotta do it in stages or else you stand out.

That would severely limit the potential sellers. Many, if not most, sellers need to make a large lump sum payment when they leave their house. This can either be to pay off a current mortgage payment, buy another property, education expenses, ect, ect.

A family that received a million dollars in cash for a house, but then financed their new home as if they were first-time home buyers, would probably take 10-15 years to spend a million dollars in cash.

It just doesn't make sense, and the details are probably deliberately left out of the article. My (probably wrong) guess is that someone is selling cryptocurrency for paper cash, and that someone else is buying cryptocurrency with funds that are inside the banking system.

When talking to the dealer at Carmax (which is large and theoretically reputable as far as car dealerships go) he said it wasn't that uncommon for people to pull out rolls of $100s and pay for cars in cash. He told us a story that implied the money was not from above board income, given the way the guy and his supposed wife was dressed and how they acted. Had no problem selling them a Caddy.

I dunno if there is some alternative verification that happens as part of the process, but he didn't make it sound like it.

Bottom line is that they want the sale. So they have figured a system where they do it x% of the time and get away with it. Maybe they place a part of the cash with another car transaction?

In theory all transactions above $10k in cash must be declared, but penalties are only if you get caught and bonus time /end of qtr is 18 days away.

Come to think of it, I wonder if the "wife" was there solely to put her name on the transaction so if the feds come knocking it would be her name that they put on the warrant?

My dad until recently has bought new vehicles every few years in cash.

Probably the most cash I've ever seen at once was when we bought a chunk of property in cash-we took a paper grocery sack full of cash to the real estate agency. You could tell they'd never seen that much cash in person.

Ban cash. Most people use cards in the UK. We should push for that in North America.

Nope, not for me. Cash beats everything, where it's practical to use. And there's privacy

Please no. The privacy and cant-buy-without-a-middleman concerns greatly outweigh the concerns of a small minority of bad-faith use.

I like cash. It's the only semi-anonymous method of making payments.

For instance, I can offer cash to folks so their bosses don't snatch their tips.

I think you only feel this way as you generally agree with the process and "rules" around payment and settlement. Would you feel differently if you had a embarrassing or frowned-upon hobby, or didn't agree with some change to the centralized, public payment system?

I would think we should fund research and studies that deal with why such a hobby is embarrassing or frowned upon, if not illegal. Try to improve society by tackling the problem, not covering up for someone's misgivings.

a guy i knew used to say something like “the british are a slave people without the torch of liberty in their hearts.” i used to think it was funny and weird but it just seems more true as time goes on.

Say it into the CCTV camera.

An underground lender issues a credit > dodgy debtor than pays him up to his limit of $50k usd per year he can take out of China

Simple

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