Greater Toronto’s soaring prices got a lift from mortgage fraud at a major bank. Earlier this month investigative journalist Sam Cooper and The Bureau, revealed whistleblower allegations of a massive mortgage fraud scheme at HSBC Canada’s Greater Toronto operations. RBC acquired the bank shortly after the alleged incidents occurred, with the government approving the sale just a few weeks ago. Now a Canadian lawmaker wants an investigation into the issue and for the country’s largest bank to set aside $100 million for any resulting fines.
Mortgage Fraud At HSBC Helped Fuel The Toronto Real Estate Boom
Cooper’s investigation reveals Toronto has its very own unique real estate money laundering model, not unlike Vancouver. The Toronto Model involves purchasing a home with a mortgage obtained with fake income, verified by a fraudulent remote job overseas. Payments are then made with overseas funds deposited into their account by a laundering broker on the other end. Enterprising entrepreneurs then need more properties as their “income” grows.
The method does not trigger immediate alarms on a quantitative basis, since there is little to identify. The deposits appear just like regular income from the job verified by the bank. Yes, you just figured out the potential issue—how much effort actually goes into this employment verification? Cooper’s HSBC whistleblower implies at least one branch had staff that was in on it.
“The whistleblower informed his bosses the fraud was sophisticated and likely involved HSBC Canada staff and scam centres in China that verified fake banking and employment records”
Sam Cooper, The Bureau.
The Greater Toronto Area branch, located in the affluent suburb of Aurora, suddenly saw explosive growth in 2020. They estimate the branch was doing nearly 4x the business one of its size was expected to do. Despite its size, it managed to attract a number of people without steady jobs in Canada, but high-paying executive roles overseas.
Their review of mortgage documents from the branch show quite the list of characters. There’s a part-time casino worker with 3 Greater Toronto homes that claimed an income of $345k/year as a data analyst in Beijing. Or the part-time hairdresser with homes in Aurora, Markham, and Scarborough that also earned $536k/year as a “business manager” in Guangzhou.
Heck, it’s not even clear income needed to be made at all. One homemaker “with no annual income” was able to purchase at least four homes with mortgages from the bank.
Despite the success of HSBC’s mortgage lending business, the company chose to exit Canadian banking suddenly. What’s the rush?
Canada Approved HSBC Sales Despite Knowledge of Mortgage Fraud
HSBC recently wound up its Canadian business after this sudden surge, and was acquired by RBC. As Cooper’s reporting emphasizes, the timeline leaves significant questions about who knew what, and whether the country swept this issue under the rug.
FINTRAC identified a Greater Toronto Area mortgage fraud scheme involving the Chinese diaspora community that had occurred during the pandemic. It was publicly disclosed after an investigation in 2023, describing a similar scenario to the one alleged at HSBC.
Canadian Finance Minister Chrystia Freeland would have been well aware of the issue by the time her department approved the sale in December 2023.
Canadian Lawmaker Wants Investigation, $100m Set Aside For Fines
One Canadian lawmaker wants to know how these issues were glossed over? MP Adam Chambers, of Simcoe North, notified Parliament of his notice of motion to investigate the circumstances around HSBC. He also wants RBC to set aside a significant sum of cash to cover any fines that may result from an investigation into HSBC’s Canadian operations.
“With respect of Royal Bank of Canada’s purchase of HSBC Canada, the Committee call on the government to require an amount equal to no less than $100M be set aside in escrow for a period of 18 months to cover any fines, penalties or levies that may potentially be against HSBC Canada in connection with any current or future investigations by regulators or authorities under relevant legislation or regulations, including the Proceeds of Crime and Money Laundering Terrorist Financing Act,” stated MP Chambers in Parliament.
Another fine would just be the latest for RBC, which appears to have been caught off guard. This past December, FINTRAC announced it had issued the bank a $7.4 million fine for lapses in its suspicious transaction reporting. It was the largest fine ever delivered by the agency.
Earlier this month, a US-based subsidiary of RBC called City National Bank was also hit with a whopping US$65 million fine for a similar issue. Those Americans take this stuff a lot more seriously, apparently.
The bank and its subsidiary have since corrected the issues observed by regulators. It’s not clear that RBC discovered the issues prior to Cooper’s reporting. That’s what MP Chambers hopes to discover.
Cooper’s full bombshell investigation into HSBC’s alleged Greater Toronto Area mortgage fraud can be read at the Bureau.
