Anti-Money Laundering Information

• Information
  
  BCFSA’s information is clear, concise, easy-to-read explanations of the requirements for real estate professionals under the Real Estate Services Act (“RESA”), Real Estate Services Regulation (“Regulation”), Real Estate Services Rules (“Rules”), and other applicable legislation.

  This information is intended for use by real estate professionals, to support their understanding of the standards they must meet in the delivery of real estate services.

There are two pieces of anti-money laundering legislation that B.C. real estate professionals need to be aware of. You must ensure that you are familiar with the federal and provincial legislation, their purpose, and their application.

Federally, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) imposes requirements on various reporting entities (securities dealers, financial entities, casinos, real estate professionals, etc.) to assist in the fight against money laundering. Canada’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), is responsible for enforcing the PCMLTFA. The guidance specific to the real estate obligations under PCMLTFA are available through the FINTRAC Website.

In B.C., the Land Owner Transparency Act (“LOTA”) received royal assent in May 2019. LOTA requires disclosure of those who hold an indirect interest in land and establishes a publicly accessible registry of beneficial interests in land in B.C. – the Land Owner Transparency Registry (“LOTR”). The creation of LOTR is part of the actions that the B.C. government has undertaken to combat money laundering in the province. Find further information on LOTA here.

PCMLTFA and its associated regulations, apply to real estate brokerages, real estate developers and real estate sales representatives. It requires the development of an effective brokerage anti-money laundering and anti-terrorist financing compliance program that ensures all record keeping and reporting obligations are met. For more information on brokerage compliance programs.

Identifying Warning Signs for Money Laundering in Real Estate

Money laundering in real estate can take a variety of forms. It does not necessarily involve buying a property with cash. Even if you do not accept cash deposits or a property is not paid for in cash, there can still be a risk of money laundering. Real estate professionals are in a unique position to identify suspicious transactions because of their close relationship with clients in real estate transactions.

General Warning Signs

• Use of corporations, other legal entities, nominees.
• Ownership by foreign persons.
  • Example: Transactions in which the parties are foreign or non-resident for tax purposes and their only purpose is a capital investment (that is, they do not show any interest in living at the property they are buying)
• Purchase without a mortgage.
• Use of unregulated lenders.

Client Behaviour Warning Signs

• Client arrives at a real-estate closing with a significant amount of cash.
• Client over-justifies or over-explains the purchase.
• Client expresses unusual concerns about government reporting requirements and the real estate brokerage anti-money laundering or counter-terrorist financing policies.
• Client shows a lack of concern about risks, commissions, or other transaction costs.
• Client is known to have paid large remodeling or home improvement invoices with cash.

Unusual Transaction Warning Signs

• Client sells or buys property significantly below or above market value.
• Client buys property without inspecting it.
• Frequent change of ownership of same property, particularly between related or acquainted parties.
• If a property is re-sold shortly after purchase at a significantly different purchase price, without corresponding changes in market values in the same area.
• Client buys back a property that he or she recently sold.
• Client negotiates a purchase for the market value or above the asked price, but requests that a lower value be recorded on documents, paying the difference “under the table”.
• Client purchases multiple properties in a short time, and seems to have few concerns about the location, condition, and anticipated repair costs, etc. of each property.
• Client wants to build a luxury house in non-prime locations.
• Transactions in which payment is made in cash, bank notes, bearer cheques or other anonymous instruments.
• Transactions in which the parties show a strong interest in completing the transaction quickly, without there being good cause.

Person/Entity Financial Profile Warning Signs

• Client persists in representing their financial situation in a way that is unrealistic or that could not be supported by documents.
• Transactions carried out on behalf of minors, incapacitated persons or other persons who appear to lack the economic capacity to make such purchases.

Use of Other Parties Warning Signs

• Client does not want to put their name on any document that would connect them with the property or uses different names on Offers to Purchase, closing documents and deposit receipts.
• Client inadequately explains the last-minute substitution of the purchasing party’s name.
• Client purchases property in someone else’s name such as an associate or a relative (other than a spouse).
• Client pays initial deposit with a cheque from a third party, other than a spouse or a parent.
• Client pays substantial down payment in cash and balance is financed by an unusual source (for example a third party or private lender) or offshore bank.
• A transaction involving legal entities, when there does not seem to be any relationship between the transaction and the activity carried out by the buying company, or when the company has no business activity.
• Transaction is completely anonymous — transaction conducted by lawyer –- all deposit cheques drawn on lawyer’s trust account.

Warning signs, red flags or indicators of potential suspicious transactions may lead a brokerage to have reasonable suspicion that the real estate transaction they are conducting may be at risk of a money laundering offence. The following link provides some additional indicators that are specific to real estate.

If you identify a warning sign for money laundering, this triggers a requirement for you to conduct an assessment on whether you have reasonable grounds to suspect that the transaction may involve money laundering or terrorist financing. Examine the facts, context and indicators and use your professional judgement to assess whether a Suspicious Transaction Report (STR) should be filed. Whether the assessment results in a determination of reasonable grounds to suspect or not, it should be documented by a real estate professional/brokerage as part of their business relationship ongoing monitoring records so that it can be provided to FINTRAC if they are examined at a later date. The obligation to file an STR are discussed further in the AML Guidelines here.

For more information on money laundering and terrorist financing warning signs/indicators, review FINTRAC’s guidelines.

Know Your client

The PCMLTFA requires real estate professionals to verify their clients’ identity for certain activities and transactions. It is important to always know who your client is and to gather the information required under the PCMLTFA. Clients can include individuals, or entities such as corporations, trusts, partnerships, funds and unincorporated associations or organizations.

You must identify your clients. You are also obligated to take reasonable measures to identify any unrepresented party in a real estate transaction. In either case you must confirm the individual’s identification or confirm the existence of an entity. These steps to know your client should be undertaken at the following points:

• Complete a Client Information Record in regards to all of your clients involved in a real estate transaction;
• Ensure that a Receipt of Funds Record is completed whenever you receive funds in relation to a real estate trade transaction. This may involve having to identify third parties as the source of funds, if applicable;
• Take “reasonable measures” to identify an unrepresented party that may be involved in one of your transactions;
• If you have multiple transactions with the same client, conduct additional steps to assess and determine any potential risks associated;
• Ensure that your client information records are complete if you have to submit a report to FINTRAC;
• Be able to identify suspicious or attempted suspicious transaction indicators that may result in a potential STR to FINTRAC;
• Should your brokerage accept cash or virtual currency over a value of $10,000 CAD, be able to submit the necessary report to FINTRAC.

You must identify every individual or entity in each of the steps discussed above. You must also keep your client information up to date for the purpose of meeting your business relationship and ongoing monitoring requirements. Click here for further information on Know your Client requirements, and acceptable methods to verify your client information.

There are exceptions to the “know your client” requirements as follows:

• You do not need to re-identify a person or entity if you previously did so and have no doubts as to their identity subsequently;
• You do not need to verify the existence of public bodies, very large corporations or trusts or their subsidiaries, or funds received directly from a Financial Entity; and
• You do not need to verify the identity of a person or entity if you believe doing so would inform them that you a submitting a STR related to them.

Find more information on FINTRAC’s “know your client” requirements.

Politically Exposed Persons and Heads of International Organizations

As a reporting entity under the PCMLTFA, real estate professionals are required to take reasonable measures to determine whether their client is a politically exposed person (“PEP”), a head of an international organization (“HIO”), or a person related or closely associated with a PEP or HIO, in the following scenarios:

• When entering into a business relationship;
• When conducting periodic monitoring of your business relationships; and
• When a fact is detected about an existing business relationship that indicates a PEP or HIO connection.

A PEP or an HIO is a person entrusted with a prominent position that typically comes with the opportunity to influence decisions and the ability to control resources. The influence and control a PEP of HIO has puts them in a position to impact policy decisions, institutions and rules of procedure in the allocation of resources and finances, which can make them vulnerable to corruption. PEP applies to both domestic and foreign individuals.

Real estate professionals must also take reasonable measures to make PEP, HIO, family member or close associate determinations for specific large cash or VC transactions (typically the receipt of an amount of $100,000 or more in cash or VC equivalent). Refer to the FINTRAC guidance for more information.

If a real estate professional determines that their client is a PEP, HIO, family member or close associate of a PEP or HIO, they must take reasonable measures to establish their client’s source of wealth, and undertake enhanced measures as part of their risk assessment for this high risk client. Brokerages should have compliance program policies and procedures in place, which can assist in taking the appropriate enhanced measures when this type of high-risk client is identified. In this scenario, real estate professionals must also keep PEP and HIO business relationship records. Consult FINTRAC’s guidance for more information.

FINTRAC’s Reporting Requirements

It is crucial to understand what needs to be reported, when and to whom. Below is a list of situations where real estate professionals and brokerages must report to FINTRAC. Please check with FINTRAC often as the information is subject to change.

Suspicious Transactions

When you or your brokerage have reasonable grounds to suspect attempted money laundering or terrorist financing in a real estate transaction, a STR must be submitted as soon as practicable. For more information on how to make a determination regarding reasonable grounds to suspect or on submitting an STR click here. For further guidance on indicators for filling an STR, visit FINTRAC’s guidance.

Terrorist Property

If you are aware that a property you are listing or have listed in the past is owned or controlled by a terrorist or terrorist organization, you must immediately cease working with the client and submit a report to FINTRAC.

These reports cannot be filed electronically and must also be submitted to the Royal Canadian Mounted Police (“RCMP”) and the Canadian Security Intelligence Service (“CSIS”) as well as FINTRAC.

FINTRAC provides additional information here on terrorist property.

Large Cash Transactions

Large cash transactions include a transfer of funds over $10,000 CAD. During a real estate transaction, this is most often seen with purchase deposits. Large cash transactions can include a single transfer of $10,000 CAD or more, or multiple small transactions and transfers within a 24-hour period that add up to $10,000 CAD or more.

You must submit a Large Cash Transaction Report to FINTRAC within 15 calendar days after the transaction(s). You are reminded that this reporting requirement is only triggered when you or your brokerage receives cash. This does not apply if the funds are received by way of a bank draft, cheque, or wire transfer.

Large cash transaction reports must be submitted to FINTRAC electronically.

If the circumstances warrant the filing of a suspicious transaction report to FINTRAC, the disclosure of information about your client in that report would not be a breach of your duty of confidentiality to that client, because the disclosure is required under federal law (“PCMLTFA”).

Find more information here on Large Cash Transactions.

To submit reports electronically to FINTRAC, you must register your brokerage and ensure that you have assigned such tasks to an individual within your brokerage. For specific information on what steps you need to have in place please see FINTRAC’s web reporting system webpage.

Beneficial Ownership

At times, the names on legal documents in a real estate transaction may contain the name of an entity (which includes a corporation, partnership, or trust). Under the PCMLTFA, beneficial owners are the individuals who are trustees, known beneficiaries and settlors of a trust, or who directly or indirectly own or control 25% or more of a corporation or an entity other than a corporation or trust, such as a partnership. In other words, beneficial owners are the actual individuals behind the transaction.

Identifying beneficial owners is an important piece of Canada’s anti-money laundering and anti-terrorist financing regime. As a real estate professional, when you confirm the existence of an entity, you are required to collect and confirm the accuracy of beneficial ownership information under the PCMLTFA, including:

• Information that describes the ownership, control and structure of the entity, including corporations and trusts; and
  • If the entity is a corporation, obtaining the names of all the directors, as well as the names and addresses of the beneficial owners;
  • If the entity is a trust, obtaining the names and addresses of all trustees and known beneficiaries and settlors of the trust;
  • If the entity is other than a corporation or trust, obtaining the names and addresses of the beneficial owners; and
• Taking reasonable measures to confirm the accuracy of the information obtained, and keeping records of the information obtained and the measures taken to confirm its accuracy.

• Note: The definition of beneficial owners under PCMLTFA is broader that the definition under LOTA, so it is unlikely that you will be able to collect all necessary information through a LOTR search.

For more information on beneficial ownership, and how the Land Owner Transparency Registry may assist you in obtaining this information, click here.

On-going Business Relationship

Under the PCMLTFA, a business relationship is defined as a relationship established between a reporting entity and a client. As a real estate professional, you are considered a reporting entity under the PCMLTFA, and you enter into a business relationship with a client the first time that you are required to verify their identity. For more information about your obligations related to when to verify the identity of your clients, see FINTRAC’s guidance.

On-going Monitoring Requirements

Once you have entered into a business relationship with a client you have on-going monitoring obligations based on your risk assessment of the client. As part of its compliance program requirements, brokerages should have written compliance policies and procedures that include enhanced measures to mitigate risk. When conducting a risk assessment of on-going business relationships, real estate professionals should consult their brokerage’s compliance program policies to assist with their risk assessment of those relationships.

Ongoing monitoring is a process used to regularly review information collected about clients with whom there is a business relationship, in order to:

• Detect any suspicious transactions that are required to be reported to FINTRAC;
• Keep client identification information, beneficial ownership information, and the purpose and intended nature of the business relationship record up to date; and
• Determine whether transactions or activities are consistent with the client information obtained and the risk assessment of the client.

If, subsequent to completion of a transaction, you become aware of information which causes you to reassess the risk associated with a client, you should review the new information with your managing broker to decide if any action should be taken.

Ongoing monitoring for a client only ends after the business relationship with them ends. A business relationship ends when a period of at least five years has passed since the last transaction when required to verify the identity of the client.

For more information on on-going monitoring obligations and risk assessment requirements click here.

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