GROW-OP FINANCED BY BANKS

Forfeiture Office Seeks Mortgage Proceeds From Seized Property

Alarm bells should have gone off the moment Hai Le walked into the
Bank of Montreal and asked to refinance the mortgage on his
million-dollar home in Vancouver's up-and-coming Marpole area.

His alleged inability to provide proof he had the means to make the
hefty monthly payments of about $4,000 should have been reason enough
to crumple up and toss the application into the nearest trash can.

Le, a "sales manager," was also asking the bank to mortgage the
property for its full value, a strategy that authorities say
marijuana growers often use to minimize their losses should and when
they get busted.

Yet despite these blatant red flags, the bank approved Le's
application for a $976,000 mortgage on Oct. 22, 2008, some 15 months
after he'd bought the house from a Viet Van Truong for $980,000.

Ten months after the purchase, in August 2009, Vancouver police
raided Le's West 63rd Avenue home and uncovered a massive grow-op.
Two days later, Le sought and received a $70,000 mortgage from the
Royal Bank of Canada.

The property is now before B.C. Supreme Court in a potentially
precedent-setting civil forfeiture case that calls into question the
role banks play, knowingly or unwittingly, in the province's
multibillion-dollar drug trade.

It also marks the first time, since civil forfeiture legislation came
into effect in 2006, that the Victoria-based Civil For-feiture Office
has fingered a bank as an interested party in a court action.

This means the CFO is seeking full or partial forfeiture of the
bank's interest, the mortgages. In all past property cases, the banks
have been repaid outstanding mortgages following sale of the seized property.

The eventual ruling could present a public-relations nightmare for
the banks, especially the BMO, which is already dealing with an
alleged mortgage-fraud scam in Calgary estimated to be in the tens of
millions. In a tersely worded writ of summons filed in Vancouver, the
CFO accused both banks of being reckless in granting Le the mortgages
- -- a charge that directly challenges their due-diligence processes.

In both instances, Le was allegedly unable to provide evidence he had
the means to make the mortgage payments through legitimate means.
Further, the writ alleges, the RBC mortgage was given when the house
had zero equity.

The writ goes even further in suggesting the banks were either aware
or "wilfully blind" to the fact that approving the mortgages would
allow Le to launder money through the property and their respective
institutions.

"All or part of Mr. Le's income is derived from unauthorized
production of cannabis marijuana," the writ claims. "BMO and RBC . .
. had actual knowledge, were recklessly indifferent towards, or were
wilfully blind to the fact that the approval of funding of the BMO
Mortgage and RBC Mortgage permitted the West 63rd property to be used
as an instrument to launder the proceeds of crime."

The case also provides an interesting, if not disturbing, look at how
crime groups successfully use B.C.'s financial institutions to fund
their enterprises and launder their illegally earned cash.

According to the writ, Le was part of a "group" of at least three
other persons, including a "cashier" and "cook," who've owned the
house at different times since 2001 and used it to grow pot and launder money.

This was accomplished through the repeated sale and transfer of the
house to the varying group members and the use of illegal money to
pay for the down payments and monthly mortgage bills.

"Each time legal ownership What of [the property] transferred Do
during the time period from 2002-09, the Group has received the
proceeds from the sale of [the property]," the writ claims.

"The Group's involvement in [the property] transfers has allowed for
the Group to put monies realized by illegal " activities towards the
purchase price of [the property] and the monthly mortgage payments,
thereby allowing the proceeds from the Group's unlawful activities to
be laundered through the lending institutions who held mortgages over
the Property."

Mortgages for the other purchases before Le took ownership in 2007
were also taken from RBC and BMO, according to the writ. Before the
2009 bust, the property was busted twice for being a grow-op.

No arrests or charges were ever made in connection to these busts,
according to police, who could provide no further comment, given that
the property in question is the subject of a civil-forfeiture action.

Brad Desmarais, officer in charge of drugs and gangs for the
Vancouver Police Department, said property is just one way that
criminal groups launder their money. And it's not unheard of that an
insider at a lending institution might be part of the scam, Desmarais said.

"Whenever you have a broker relationship with a lending institution,
I think there is potential for abuse," he said. "But the vast
majority of brokers that we are aware of are scrupulously honest."

And he stressed that just because the banks were named in the writ,
it didn't mean they were guilty of wrongdoing.

"It just means some agency has decided that a judge should look at
conduct. I think citizens should be happy there are checks and
balances that make sure [our institutions] are acting appropriately."

Both banks, meanwhile, have filed statements of defence denying all
allegations outlined in writ of summons. They've also filed petitions
to the court asking that their interests be protected and repaid. The
lawyer representing both banks refused to comment, as the case is
still before the courts.

A BMO spokesperson said the bank exercises "appropriate due diligence
for each mortgage application." A spokesperson for RBC offered a
similar comment, noting "employees are educated about fraud
prevention and how to spot red flags leading to mortgage fraud."

While unable to speak to the specifics of the case, Maura Drew-Lytle,
the director of media relations for the Canadian Bankers Association,
said Canadian banks are "prudent and conscientious mortgage lenders."

Before granting a mortgage, Drew-Lyttle said, banks complete a
thorough due-diligence process including a credit check, a request
for employment details and an accurate appraisal of the property.
They will also check whether the information being provided is
legitimate, she said.

How then, with no proof of legitimate income, Le was able to get
approval for two large mortgages from two different financial
institutions will be the question on everyone's mind when a trial
date is finally set.

"That remains to be seen," said Lisa Lapointe, the assistant deputy
director of the CFO. "It is concerning, that's why we added the bank
as a party. What we are saying is the mortgage is being paid with
money that is obtained unlawfully and that Mr. Le had no evidence of
any lawful income. You can draw the conclusion."

[sidebar]

House's history

Court documents say Hai Le was part of a group that's used the West
63rd Avenue property since 2001 as a grow-operation and
money-laundering tool. Proceeds from the sale of the house have gone
to the group, documents allege. And down payments and monthly
mortgage payments have been made with illegal money. Here is a
history of the house since it allegedly came under the group's control.

- - July 2001: Yan Hua Yu , a "cashier," buys the house on July 5, 2001
for $516,000. Down payment of $183,000 is made. Documents allege down
payment is made with the "group's money." Mortgage of $333,000 is
granted by RBC. In May 2002, a grow operation is discovered at the property.

- - August 2002: Maggie Shao Hong Ho , a "cashier," buys the house for
$420,000. Ho, sister of Yu's sister's ex-husband, puts a down payment
of $130,000 on the house. Documents allege payment is made with the
"group's money." RBC grants a $270,000 mortgage.

In June 2006, Vancouver police bust a grow-op at the property.
Shortly after, Ho hires Viet Van Truong as a contractor to repair the
house, condemned by the City of Vancouver.

- - October 2006: Viet Van Truong , a "cook," buys the property for
$775,000. A $310,000 down payment is made. Documents allege it is
paid with "group's money." At time of purchase, house is subject to
no-occupancy order. BMO grants a $465,000 mortgage Oct. 6, refinanced
Dec. 12 for $499,000. Hai Le's name, initially on transfer documents
as half-interest, is taken off. On Jan, 11, 2007, the city allows the
house to be reoccupied.

June 2007: Hai Le , also known as "sales manager" Henry Hai Le , buys
house for $980,000. A down payment is not mentioned. Le allegedly
used income from producing marijuana to buy house. BMO grants
$784,000 mortgage June 18, 2007, refinanced for $976,000 Oct. 22,
2008. Police bust house Aug. 4, 2009. Two days later, Le is granted
$70,000 mortgage from RBC. Mortgage documents say RBC is aware of BMO mortgage.

[sidebar]

By the numbers

More than 5,300 files were opened in B.C. by the RCMP relating to the
production and cultivation of marijuana in 2009. Of this number, at
about 2,300 cases were investigated. provletters@ Of the total files
opened in the Lower Mainland District, 1032 were investigated by
RCMP. Since the new year, RCMP have investigated com. 943
grow-operations in the province, 442 of these investigations Include
being carried out in the Lower Mainland District. The number of
investigations related to seizures of pot-growing operations in the
Lower Mainland District is on pace to meet or slightly exceed the
number name of seizures conducted last year. The North and Southeast
Districts are showing the greatest rate of increase in the number of
seizures. Vancouver police, meanwhile, last year investigated 81
marijuana operations in 2009, the lowest number and since 2001, when
police investigated address. 455 operations. -- Source RCMP/VPD

[sidebar]

Crimefighting forfeitures ZoomBookmarkSharePrintListenTranslateThe
Civil Forfeiture Act has proved invaluable to authorities in B.C.
since it passed in 2006, providing them with alternative
crimefighting tools when criminal convictions seem unlikely.

Referrals are made to the Civil Forfeiture Office by police and other
law-enforcement agencies, such as the Revenue Programs Division of
the Ministry of Finance and the B.C. Securities Commission.

If the CFO believes there is sufficient evidence of unlawful
activity, a civil action will be launched. The onus then falls on the
defendant to show he or she did not gain the asset in question
through illegal means.

If a judge rules the asset forfeited, the money is deposited into the
civil forfeiture special account. Payments out of this account, under
S ection 27 of the Civil Forfeiture Act, are made for the following
reasons: For the compensation of victims of crime;
prevention/remediation of unlawful activities; and for costs
associated with administering the act.

One recent high-profile example was the $40,000 grant given to
Vancouver police in 2008 for its Con Air program. More than $1.5
million has been disbursed in grants and compensation since the
program's inception.

As of last March, there have been 124 successful forfeitures
representing about $8.6 million in proceeds. Of the 124 cases, 65 per
cent were currency, 25 per cent were property and 10 per cent were
"other," such as vehicles and jewelry.

There are currently 121 cases before the courts; 23 per cent of them
currency, 70 per cent of them property and six per cent "other."