The Vancouver Stock Exchange: A Legacy of Fraud and Money Laundering Part II

Updated: Jul 8, 2020

In part one of our Vancouver Stock Exchange blog, we covered the history of the exchange as it evolved to become a haven for scam artists and fraudulent ventures. If you haven’t already, you can read part one here.

On the Vancouver Stock Exchange trading floor (1979). Photo credit: The Vancouver Sun

Written by Matteo Miceli

This past year, the term “money-laundering” has dominated the local news cycle. The problem has permeated many different corners of the BC economy: the real estate market, casinos, horse racing tracks and luxury car sales. 

BC accounts for a significant chunk of the money laundered through the country and its biggest city, Vancouver, has garnered a global reputation as being a haven for illicit gains. But this reputation isn’t a new one. Vancouver—and Canada as a whole—have had a money laundering problem since the late 1980s. Some may remember a time, not so long ago, when concerns were being raised; not about the housing market and casinos, but about financial institutions like banks and brokerage firms.

Criminals launder money when they want to hide the origin of funds obtained through illegal activity. Someone involved in the drug trade, for example, may use “dirty” cash to purchase property, luxury goods or even stocks, in order to make the funds seem legitimate. The more layers of legitimate purchases in a laundering scheme, the more difficult it is for authorities to trace the original criminal source. 

In the 1980s, the Vancouver Stock Exchange (VSE) was trading at record volume while, at the same time, facing criticism for corruption and market manipulation. Confidence was waning and there seemed to be a general understanding among the public that the VSE was a playground for scam artists, crooked brokers and organized crime; if you wanted to make money, you were better off investing elsewhere. 

The laundering of criminal proceeds through member brokerages had always been a concern for the exchange, but the nature of money laundering made it nearly impossible to understand the full extent of the problem. It wasn’t uncommon for brokers to accept large sums of cash, no questions asked. Once the cash was exchanged for stock certificates, it was difficult, if not impossible, to trace its origin. But new laws came about in the late 1980s, with the objective of cracking down on money laundering across the country.

A lively day on the trading floor (1983). Photo credit: Toronto Public Library tspa_0105177f

In 1989, the brokerage, First Vancouver Securities, had its license revoked for its connection to the infamous Filipino dictator Ferdinand Marcos. Marcos embezzled millions during his time as president, storing much of it overseas via a complicated laundering scheme. First Vancouver Securities was suspected to be a part of this multi-layered system, facilitating the laundering of a portion of Marcos’s vast, illicit fortune.

In 1993, two former VSE regulators announced that the exchange was vulnerable to laundering by organized crime, and the former VP of listings, William Pedrutchny, suggested that the BC government should step in to run the exchange as a public utility. At the same time, RCMP Superintendent Ernie MacAulay confirmed that the RCMP had knowledge of criminal proceeds being laundered through VSE brokerages, though they had not yet moved forward with any charges. MacAulay also made a powerful statement when he told regulators that, because of the potential for making commissions, it was in brokers’ best interests to turn a blind eye to illegal trade activity.