Three so-called unexplained wealth orders have been launched by the province but experts say B.C. is in for a legal battle
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On Oct. 25, 2017, a Columbian man, Aristobulo Barrios Miranda, sent instructions by fax to Roger Knox, a U.K. citizen, to have a company named Hilton Capital wire $1.15 million Canadian to a Royal Bank account on Bay Street in Toronto.
Hilton is a company in the Marshall Islands, a tiny island in the Pacific Ocean, 4,300 kilometres northeast of Australia, known as an offshore banking haven.
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The money was to be sent in trust to a West Vancouver law firm, Biancardi Law Corp., for the purchase of a house on Salt Spring Island.
The money was wired in four instalments between Oct. 30 and Nov. 2 and was “purported” to be a loan to Geordie Lee, also known as Skye Lee.
A day later, Alicia Valerie Lee, Geordie’s then-recently separated spouse who later went back to her maiden name, Davenport, paid $1 million in cash to buy the Salt Spring Island home at 435 Stewart Rd.
The money trail is outlined in documents filed in a B.C. Supreme Court case where the province alleges the wire transfers through the shell company come from a $225-million international pump-and-dump stock fraud. In pump-and-dump schemes, the secret owners of stocks hype them to raise the price and then sell out to unsuspecting investors.
Knox, a key player in the $225-million fraud, pled guilty in 2020 to charges he helped others hide their ownership of stocks in the scheme and funnelled money back to them.
B.C.’s Civil Forfeiture Office has filed a court action to have the Salt Spring Island home, now worth $1.8 million, forfeited as proceeds of crime, including violating securities laws in the U.S. and B.C., money laundering and tax evasion.
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But this case has a new twist.
In a first in Canada, B.C. is using recent changes to the B.C. Civil Forfeiture Act to file an unexplained wealth order to force Davenport, who is listed as a homemaker on property records, and her former spouse Lee to explain where the money came from to buy the house. (Manitoba has also introduced unexplained wealth orders but hasn’t used them yet).
The unexplained wealth orders, which have to be approved by a judge, put a reverse onus on defendants to prove there is no illegality to their money or other assets. The information from the orders can then be used in a case to forfeit property or clear a defendant. And if the defendants refuse to disclose the source of money, it creates a presumption that it was criminal.
It’s a substantial change in how courts normally treat allegations, where the responsibility is on the Crown to prove defendants are guilty, and until then they’re considered innocent, experts say.
“It’s a fundamental reshaping of the way the law works,” observes University of Manitoba law professor Michelle Gallant.
The B.C. government describes wealth orders as a new tool that can help pierce the secrecy of shell companies and offshore transactions, and assets hidden with family members and associates, in its fight against money laundering.
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But legal experts and observers say the new law will be challenged, perhaps right up to the Supreme Court of Canada. B.C. Premier David Eby, formerly a human rights lawyer, has also acknowledged the new law will be challenged.
Gallant says there is little doubt that it will be an effective tool because when money crosses borders, it’s difficult to see what happened, for example, in a trust in the Cayman Islands.
The Caymans are another known offshore tax haven.
“By fixating on the property in the province (here), they cut through all that. There’s no need to follow anything,” said Gallant, whose areas of expertise include money laundering.
But there’s also little doubt B.C.’s. new law will be challenged over this fundamental shift, she said.
The unexplained wealth order was a recommendation of the Cullen inquiry into money laundering in B.C., delivered in 2022 ,and another B.C.-government commissioned report into money laundering in real estate completed in 2019.
The province has filed three of these cases since introducing the new law in the spring of last year.
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Charter and constitutional challenges
Both Lee, 42, and Davenport, 37, deny any knowledge or connection to the stock fraud and their lawyers have filed several defences against the unexplained wealth orders, including that there are constitutional and Charter of Rights violations.
Similar defences have been cited in the unexplained wealth order case of Kevin Patrick Miller, 54, where the province is seeking to have forfeited $4.5 million held for him in the trust account of recently disbarred Vancouver lawyer Ronald Norman Pelletier. The province alleges the money is the proceeds of an $105-million pump-and-dump stock fraud, which Miller denies.
Documents filed by Miller in his defence show the money was transferred to Pelletier’s trust accounts from Malta and Lebanon. Miller’s last known location is Malta.
In the third case, the province wants Michael Patryn, 40, a co-founder of the failed cryptocurrency firm QuadrigaCX to explain the source of funds used to obtain cash, gold bars, jewelry and luxury watches valued at more than $600,000 in a safety deposit box in Vancouver. Patryn, whose last known location is Thailand, has responded in court generally to the forfeiture case but not to the unexplained wealth order.
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No hearing dates have been set yet in any of the three cases.
None of the lawyers in the cases responded to Postmedia News’s requests to comment on their planned defences to the unexplained wealth orders or the new law itself.
But in a response filed in court, Davenport’s lawyers, Owais Ahmed and Tricia Milne with Harper Gray, say it wouldn’t be in the public interest to forfeit the property where she and her three children have lived exclusively since a separation agreement that included the money to buy the home. Public interest is a safeguard in the province’s forfeiture law. Her lawyers also cite several violations of Canada’s Charter of Rights, including the right not to be deprived of life, liberty and security, and not to be subjected to unreasonable search and seizure.
In a court response, Lee’s lawyer, Patrick Sullivan, a leading securities lawyer with Whitelaw Twining, also cites Charter violations and argues the unexplained wealth order is unconstitutional and violates the divisions of power between the federal government and the province. This is an argument that an unexplained wealth order deals with the criminality of a person, the exclusive jurisdiction of the federal government, and isn’t strictly a civil matter for which provinces have authority.
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Jeffrey Simser, a lawyer and leading expert on asset forfeiture and anti-money-laundering law, said the legal challenges to the unexplained wealth orders are the kind that were anticipated.
He points to a legal opinion commissioned by Cullen for B.C.’s money laundering inquiry from former Supreme Court of Canada justice Thomas Cromwell. That opinion found unexplained wealth orders were likely to stand up to legal challenges that argue they overstep provincial powers or violate Charter rights.
“Cromwell is not super-definitive, but I think the (unexplained wealth orders) are probably going to be fine generally on the broader constitutional issues,” said Simser, a former legal director with the Ontario Ministry of the Attorney General and the author of books on civil forfeiture and anti-money-laundering law.
Simser, who testified at the Cullen inquiry, says any legal challenges of the new measures will likely take years to work their way through the courts, a point with which Gallant concurs.
There are critics of unexplained wealth orders, including the B.C. Civil Liberties Association, who have argued these types of measures undermine constitutional rights, haven’t been adequately tested and would be expensive to implement.
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Viberg Jack, the litigation director for the civil liberties’ association, acknowledges that previous challenges of civil forfeiture laws all the way to the Supreme Court of Canada have failed.
But Jack, a lawyer, says unexplained wealth orders are new and different, and the association believes they violate sections of the Charter, including the principles of fundamental justice and the presumption of innocence. Another concern is that civil forfeiture is tested at a lower threshold than criminal prosecutions, a balance of probabilities rather than beyond a reasonable doubt.
“It’s hard to say what the outcome will be, but from our point of view there’s a very strong argument that the (unexplained wealth order) regime is not Charter compliant,” said Jack.
B.C. learned from lessons in U.K.
The B.C. Ministry of Public Safety, which introduced the unexplained wealth order provision, didn’t make anyone available for an interview on how the province intends to fight Charter and constitutional challenges.
In a written statement to Postmedia, B.C. Civil Forfeiture executive director Phil Tawtel said they’re ready to defend the new legislation.
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“We anticipated legal challenges to the regime and look forward to these issues proceeding through the courts,” he said.
The B.C. Civil Liberties Association has raised the issue that unexplained wealth orders will be expensive to implement and there is little evidence they will be effective, let alone cost effective.
In these first three cases using unexplained wealth orders, the total amount the province seeks forfeited is about $7 million.
Since its inception in 2006, civil forfeiture has led to the collection of $150 million in money and assets through court wins and settlements, just a little more than $8 million a year, so the $7 million isn’t insignificant.
About $73 million obtained from cases have been distributed through community safety grants and another $1.7 million in victim compensation. The rest has gone to fund the forfeiture office and its operations, which has about 10 staff.
Asked whether the province did a cost benefit analysis of the new unexplained wealth order provisions, Tawtel said when the forfeiture office decides to take on a case, it analyzes the strength of the evidence, considers the public interest and interests of justice.
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Tawtel added the unexplained wealth orders are expected to make the process of acquiring evidence more effective and efficient as it relates to whether property is the proceeds of unlawful activity, which in turn will assist the forfeiture office to build stronger cases.
The use of unexplained wealth orders in other countries with court systems similar to Canada — such as the U.K., Australia and Ireland — has met with mixed success.
The U.K.’s National Crime Agency has pursued only a handful of cases since its introduction in 2017.
It was successful in reaching a settlement with a wealthy British businessman to forfeit dozens of houses and cash valued at $17 million Canadian. But the U.K. lost another unexplained wealth order case where it claimed London properties worth $135 million had been bought with illicit money laundered by a Kazakhstan oligarch.
Another case involving the wife of a former Azerbaijan banker who spent tens of millions of dollars on houses, a jet and at luxury department store Harrods continues to work its way through the courts.
As a result of setbacks, the U.K government is introducing changes to unexplained wealth orders to help better pierce the secrecy ownership of trusts and put more onus on the defendants to demonstrate they obtained property by legal means.
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Simser, the former legal director with the Ontario Ministry of the Attorney General, said it looks like B.C. has learned from the U.K. experience, a point also stressed by Tawtel on a panel last December on what has happened 18 months after the Cullen inquiry delivered recommendations to combat money laundering.
Still, Tawtel said during the panel discussion it’s early days in the use of unexplained wealth orders.
“Ultimately, it will be the court that decides,” he said.
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