Anti-Money Laundering Guidelines

Published on 7 March, 2020

Young women sitting by bookshelf talking on phone with computer

Anti-money Laundering Guidelines

Issued: January 27, 2020

 

Purpose

Money laundering is a significant concern in Canada.  Criminals may use real estate to hide or “clean” ill-gotten funds.  Real estate professionals can help maintain public confidence in the real estate industry, by:

  • complying with the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

  • being alert to indicators of potential money laundering, and
  • knowing the steps to take when you see warning signs for money laundering.

These guidelines help you understand and comply with your professional obligation to report suspected money laundering and terrorist financing activities.

 

Background

There are two pieces of anti-money laundering legislation that BC real estate professionals should be aware of. You must ensure that you are familiar with the federal and provincial legislation, their purpose and their applications.

Federally, the PCMLTFA imposes requirements on financial institutions and other businesses 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 PCMLTFA. Find further information on PCMLTFA  — will open in a new tab.

In BC, the Land Owner Transparency Act (LOTA) received royal ascent in May 2019 but has not yet been enacted. LOTA requires disclosure of those who directly or indirectly hold a beneficial interest in a property. Find further information on LOTA obligations and guidelines  — will open in a new tab.

FINTRAC and RECBC have partnered to fight money laundering. In 2019 the two organizations signed a memorandum of understanding to better facilitate anti-money laundering enforcement activities in BC’s real estate sector.

 

Applicable sections of RESA/Regulation/Rules/Bylaws

Section 25, RESA [<em>Brokerage Records</em>]

Section 26, RESA [<em>Obligation to maintain trust account</em>]

Section 27, RESA [<em>Payment into trust account</em>]

Section 35(2), RESA [<em>Professional misconduct</em>]

Section 3-2(b), Rules [<em>Associate broker and representative responsibilities</em>]

Section 3-4, Rules [<em>Duty to act honestly and with reasonable care and skill</em>]

 

Definitions

client: in relation to a licensee, the principal who has engaged the licensee to provide real estate services to or on behalf of the principal;

money laundering offence: an offence under subsection 462.31(1) of the Criminal Code  — will open in a new tab. 

terrorist activity financing offence: an offence under section 83.02, 83.03 or 83.04 of the Criminal Code  — will open in a new tab or an offence under section 83.12 of the Criminal Code  — will open in a new tab arising out of a contravention of section 83.08 of that Act. 

trust account: in relation to a brokerage,

 

(a) a brokerage trust account maintained under section 26 [obligation to maintain trust account] of RESA, or

 

(b) a commission trust account maintained under section 31 [payment of licensee remuneration] of RESA;

 

Guidelines 

1. Identify 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 the close relationship with clients in real estate transactions.

General

  • 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

  • Client arrives at a real estate closing with a significant amount of cash.

  • Client over-justifies or over-explains the purchase
  • Client shows 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

  • 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 period, 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

  • 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

  • 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

If you identify a warning sign for money laundering, you have obligations under PCMLTFA to report it. These obligations are discussed further in the guideline section “Consider your Professional and Ethical Obligations”.

For more information on money laundering and terrorist financing warning signs, review FINTRAC’s guidelines  — will open in a new tab.

 

2. Know Your Client 

It is important to always know who your client is and to gather the required FINTRAC information to verify your client’s identity. Clients can include individuals, or entities such as corporations, trusts, partnerships, funds and unincorporated associations or organizations.

When there are unrepresented parties to a transaction, you must also take reasonable steps to identify the individual or confirm the existence of the entity that is unrepresented. This would take place at the following points:

  • Receipt of funds at the time the transaction takes place;

  • Collection of client information records at the time the transaction takes place;
  • Submission of large cash transactions at the time the transaction takes place;
  • Identification of suspicious transactions involving unrepresented party before submitting a suspicious transaction report.

You must attempt to identify every individual involved in each of the steps discussed above and must ensure that you keep your client information up to date for reporting purposes.

Find more information on FINTRAC’s requirements  — will open in a new tab.

 

3. Understand 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 brokers must report to FINTRAC.  Please check with FINTRAC   — will open in a new tab often as the information is subject to change.
A. Suspicious Transactions
When you have reasonable grounds to suspect attempted money laundering or terrorist financing in a real estate transaction, you must submit a Suspicious Transactions Report (STR) within 30 days after the transaction.

B. Terrorist Property
If you are aware that a property you are listing or have listed is owned or controlled by a terrorist or terrorist organization, you must submit a report to FINTRAC immediately.
You must also submit a report to the Royal Canadian Mounted Police (RCMP) and the Canadian Security Intelligence Service (CSIS).
Find more information on submitting terrorist property reports to FINTRAC  — will open in a new tab.

C. 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.
You must submit a Large Cash Transaction Report to FINTRAC within 15 calendar days after the transaction(s).

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. This is because the disclosure is required under federal law (Proceeds of Crime (Money Laundering) and Terrorist Financing Act).
Find more information on FINTRAC’s reporting requirements  — will open in a new tab.
 

4. Consider Your Professional and Ethical Obligations

If you become concerned about the possibilities of money laundering in a real estate transaction, you should analyze the situation and make decisions by asking yourself questions such as:

  • What warning signs have I seen?

  • What do I know about my client?
  • Have I fully discussed the situation with my managing broker?
  • Should I or my brokerage file a suspicious transaction report?
  • If I go ahead with the transaction and it emerges that money laundering was involved, what will the impact be on my own professional career?
  • What will the impact be on the reputation of all real estate professionals?

If you have any concerns at any time you should discuss the matter with your managing broker.

 

Managing Broker Considerations

Managing brokers are responsible for setting up a comprehensive and effective anti-money laundering compliance program.  A compliance program provides the structure to ensure that your brokerage fulfils its obligations under the PCMLTFA.  The following are the necessary elements of a compliance program:

  • Compliance officer – Appoint a compliance officer who will be responsible for the implementation and oversight of the compliance program. The compliance officer must have the necessary authority to carryout the requirements of the program.

  • Policies and procedures – Develop and apply written policies and procedures and keep them up to date. They must be approved by a managing broker or their delegate.
  • Risk assessment – A risk assessment is an analysis of the potential risks that could expose your business to money laundering. You must document and apply the risk assessment, including mitigation measures and strategies. The risk assessment must consider:
    • your clients and business relationships;
    • the products, services and channels you offer;
    • the geographic location where you conduct your business;
    • new technologies and their impacts;
    • other relevant factors affecting your business.
  • Training program – Develop and maintain a written training program for employees, agents, and others authorized to act on behalf of the brokerage.
  • Review of compliance program – Review your compliance program every two years to ensure its effectiveness.

You are required to provide certain reports to FINTRAC. The quality of your reporting will be part of FINTRAC’s examination of your business.

Find more information on FINTRAC’s transaction reporting requirements  — will open in a new tab.