BC’s Underground Economy Is Huge. And Deadly

[Editor’s note: A version of this piece first appeared on Geoff Meggs’ site Lotusland.]

Before a bullet crashed through the front window of a Richmond sushi restaurant in 2020 and killed him, Jian Jun Zhu was alleged to be one of B.C.’s biggest money launderers, handling more than $80 million in one five-month period in 2015 and as much as $220 million annually.

The director of Silver International, an underground bank, Zhu could turn over millions of dollars a day, according to B.C.’s Civil Forfeiture Office, converting the ill-gotten gains of Mexican cocaine smugglers and countless other criminals into apparently legitimate funds.

If a single group of money launderers could do more than $200 million a year in business, then how big is B.C.’s total underground economy? If police can’t bring people like Zhu to justice, why should any money launderer fear justice?

The answers are elusive but point to the massive size of B.C.’s drug business. It’s fair to assume that the underground economy that includes the narcotics business is as large in some respects as mining or tourism, employs tens of thousands of British Columbians but pays no taxes, drives huge policing costs and has made fentanyl overdoses the largest single cause of death.

Unwinding such a huge part of the economy is no simple task, particularly when it is so hard to see. The Manzo restaurant shooting was a rare instance of the underground economy briefly becoming visible, thanks in particular to reporting by the Vancouver Sun’s Kim Bolan, who covered the entire Zhu murder trial.

According to prosecutors, the shot that killed Zhu was probably intended for Paul King Jin, who was injured in the hail of bullets.

Jin was a target of the RCMP’s massive E-Pirate investigation, a multi-year effort that collapsed as a result of inadvertent disclosures and administrative errors by the RCMP. Jin escaped prosecution when E-Pirate folded in 2018, and later beat eight separate charges in 2023, when a special prosecutor concluded there was insufficient likelihood of a conviction.

While Jin must be presumed innocent, the Silver International people clearly kept dangerous company. Two other guests that night at the Manzo were later killed in separate shootings. In September, B.C. Supreme Court Justice Jeanne Watchuk will announce her verdict in the trial of Richard Reed, the man accused of firing seven shots at the Manzo, killing Zhu and wounding Jin.

Tip of the iceberg

Yet even if Reed is convicted, there is little or no prospect British Columbians will learn who paid for the hit and why.

The Silver International saga is just the tip of a money-laundering iceberg that economists have struggled to measure. One of the most ambitious efforts anywhere was undertaken here in B.C. in 2019, when then finance minister Carole James struck an expert panel on money laundering in B.C. real estate.

The panel’s report, “Combatting Money Laundering in B.C. Real Estate,” concluded that B.C.’s underground economy was probably equivalent to about 2.5 per cent of provincial GDP, an admittedly conservative estimate at the low end of previous guesses.

With B.C.’s real GDP estimated at $300 billion in 2023, that puts the size of the underground economy at as much as $7.5 billion annually. To put that in perspective, that’s bigger than tourism’s estimated contribution to the provincial economy, about $5 billion in 2021, and similar to mining, at $5.9 billion. Narcotics is a large but unknown share of that total.

Unlike tourism and mining, however, the narcotics business pays no taxes — tourism paid $1.4 billion in 2021 — and offers its employees, if they can be called that, high-risk work for unreliable rewards. British Columbians pay an enormous price for fentanyl trafficking in countless ways, from targeted shootings to the deadly toll of fentanyl overdoses.

Chaired by law professor and former deputy attorney general Maureen Maloney, the expert panel noted that not all the revenues of organized crime are laundered. Some are plowed straight back into the business in cash payments or purchases. The narcotics business, in other words, is worth billions of dollars a year.

In the drug business, about 20 per cent of the cash is plowed back in, but 80 per cent of the proceeds need laundering to hide the proceeds of crime from police. International capital flows make a good home for dark money, and “some countries are more attractive than others for launderers due to their high GDP, which makes it easier to hide criminal proceeds in lucrative businesses or assets, or due to the financial expertise and low corruption generally associated with high GDP, which makes such countries safe havens for the money.”

If this sounds like a description of British Columbia, it is.

As far back as 2004, the Fraser Institute’s Stephen Easton made the credible calculation that the cannabis industry, then illegal, was worth $2 billion annually in wholesale value, making it equivalent then to between 1.5 and 4.6 per cent of GDP.

Now legalized, the cannabis industry operating under B.C. government regulations is still worth $2 billion annually, but an additional and significant share of the business is still underground. (Thirty per cent of cannabis users say they still access the illegal market.) It was the massive illicit cannabis trade, of course, that incubated the growth of the violent cocaine and bud-smuggling industry that now traffics fentanyl.

Given the very large size of the narcotics business and the underground economy, it is reasonable to assume that its participants are all around us, in law offices, driving trucks, operating warehouses, selling real estate.

Or celebrating a deal at a restaurant. When Jian Jun Zhu died and Paul King Jin escaped by a hair in 2020, it was a brief and violent glimpse of a world that exists, unseen, all around us.

Frustrated by the collapse of E-Pirate, B.C. prosecutors sought to seize at least some of Zhu’s wealth through a civil forfeiture action directed at Caixuan Qin, his wife. After several years of legal battle, the province settled for $1 million in cash, jewels and casino chips, less than the average daily turnover at Silver International.

The message seems clear: B.C. money launderers have little to fear from police. It’s others in their illicit business they need to watch out for.