Bitcoins and the Risks of Real Estate Fraud: 3 Facts You Need to Know
Recent media reports about a BC house advertised online for bitcoins have got licensees and some consumers asking questions about the electronic currency. While bitcoins can be used legitimately for many purposes, there are also significant risks associated with them, including the risk that the currency may be used to disguise the source of money derived from criminal activities – commonly known as money laundering.
Here are three questions and answers about bitcoins that every licensee should be aware of.
What’s a bitcoin?
Bitcoin is an unregulated electronic currency, also called a “cryptocurrency”. Each bitcoin is created using a complicated mathematical equation and is “policed” by other computers called “miners”. An owner of bitcoins stores them in a virtual “wallet” and can trade them online with other wallets.
When you buy or sell something using bitcoins, no personal information is transmitted. However, the transaction is not completely anonymous: the address you use to receive the bitcoin will be stored in a public online ledger that holds every bitcoin transaction connected to the network.
Can bitcoins be used to purchase real estate?
Buyers can legally use bitcoins to purchase real estate, but brokerages cannot accept deposits in bitcoin. In BC, deposits must be held in trust by a stakeholder unless otherwise stated in the Contract of Purchase and Sale. Because bitcoins exists outside of the purview of banks and governments, they cannot be held in trust. This means that brokerages and lawyers cannot receive a bitcoin deposit and hold it in a trust account.
Because the source of a bitcoin payment may not be discoverable, as in a cash transaction, licensees should carefully consider their FINTRAC reporting requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). In its guide for real estate industry members, Operational Brief: Indicators of Money Laundering in Financial Transactions Related to Real Estate , FINTRAC reminds licensees that “Under section 7 of PCMLTFA, all reporting entities subject to the Act must report suspicious transactions, and attempted suspicious transactions, to FINTRAC”. See the guide to review indicators of suspicious transactions.
Are there risks for consumers?
There are reports that bitcoins have been used in some jurisdictions in real estate scams involving identity theft and title fraud. In some cases, a fraudster steals the identity of a property owner, and advertises their property for sale online for bitcoins. The buyer registers title and immediately takes out loans against the property, fleeing with the funds and leaving the actual homeowner in debt.
In other cases, identity thieves have targeted properties already listed in the MLS and created fraudulent secondary advertisements to sell the same home for bitcoins. Neighbours and family who may come across the advertisement will know the house is being legitimately sold and may assume this is just another advertising point. Often the licensee and the actual owner are unaware of the fraud.
Licensees should strongly advise any members of the public considering accepting bitcoin in a real estate transaction to get expert legal advice to ensure they are fully informed about the risks of using the currency.