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Untangling money laundering regulations for Canadian real estate

Untangling money laundering regulations for Canadian real estate

Synopsis
5 Minute Read

Better understanding what regulations exist to prevent money laundering in the Canadian real estate industry can go a long way to keeping yourself and your business from being taken advantage of by criminals. In this article we discuss:

  • Why it’s important to safeguard your business
  •  Who federal PCMLTFA regulations apply to
  •  What you need to do to implement the federal compliance program

Help is available to meet compliance and give yourself peace of mind your business is safe.

Disclaimer: A version of this article was originally published on buildingexcellence.ca. It has been shared with permission.

Those who produce and sell property — including home builders, real estate investors, brokers, and sales representatives — have their attention pulled in many directions in the current Canadian real estate market. As a business owner or practitioner in this industry, you are responsible for ensuring anti-money laundering (AML) compliance doesn’t fall to the back burner, especially now.

Many real estate companies and practitioners don’t understand that they must comply with Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its associated regulations. We’re here to help clarify the essentials that you need to know.

Why it’s important

The real estate sector in Canada has always been attractive to criminals and potential money launderers for many reasons, including, but not limited to, the following:

  • Money launderers can use the property as a residence or to conduct criminal activities
  • Large sums can be moved during property purchases or renovations without arousing suspicion
  • Real estate’s reputation as a safe investment

Some criminals thrive in environments of economic turbulence, like what we are currently seeing in Canadian real estate; they want to take advantage of people, especially those who may be unaware, confused, distracted, or tired. This makes it essential to ramp up your AML knowledge and vigilance.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), is Canada’s regulator that oversees AML issues. FINTRAC has the authority to issue serious criminal and financial penalties when they spot non-compliance with AML regulations, including fines up to $2 million and jail time up to five years in the most serious cases.

Who it applies to

Not all organizations and practitioners working in real estate need to comply with the PCMLTFA. Currently, more than 20,000 real estate practitioners in Canada qualify as “reporting entities,” meaning they fall under the scope of FINTRAC’s oversight and regulations.

Here’s how it breaks down:

  • Did you sell at least five new houses to the public in any calendar year after 2007?
  • Did you sell at least five new condominium units to the public in any calendar year after 2007?
  • Did you sell at least one new commercial or industrial building to the public in any calendar year after 2007?
  • Did you sell at least one new multi-unit residential building which contained five or more residential units to the public in any calendar year after 2007?
  • Did you sell at least two new multi-unit residential buildings with five or more residential units to the public in any calendar year after 2007?

If your answer to any of the above questions is “yes,” then you’re considered a Real Estate Developer by FINTRAC. All Real Estate Developers are reporting entities.

You’re also considered a reporting entity as a real estate broker or sales representative. FINTRAC considers you a sales representative or broker if you act as an agent for the purchase or sale of a real estate property (including land, houses, commercial buildings, etc.) and are provincially registered and licensed to do so.

Some exemptions exist where you may not be required to comply with the PCMLTFA. But if you have any doubts, the safe approach is to assume the regulations will apply to you and then speak with a qualified money laundering practitioner to confirm your status.

What you need to do

If you’re a reporting entity, the PCMLTFA and FINTRAC require you to implement a formal AML compliance program.

Your compliance program must be upheld by five pillars:

  1. Compliance Officer: Responsible for your compliance program and the first point of contact for FINTRAC.
  2. Policies and Procedures: Outlines what requirements you need to meet and how your program will meet them.
  3. Risk Assessment: Determine the AML risks specific to your business, along with measures that will be taken to mitigate such risks.
  4. Training: Develop a training program for all staff and agents, including those involved in real estate deals. It should outline the role they play in helping you stay AML compliant.
  5. Effectiveness Review: A biennial (at a minimum) testing program to review the AML program and ensure it’s effective and current. It may be conducted by either internal or external auditors.

Understanding the full scope of your obligations may sound daunting, but with the proper advice and expertise, it doesn’t have to be. It’s important to remind yourself that all the complex rules and responsibilities can essentially be boiled down to strong record keeping, maintaining a healthy level of scrutiny, and reporting suspicious transactions, amongst others.

Your mandate is to act as a first layer of defence against Canadian real estate being used to facilitate crime. It is generally better to be overly diligent when reporting to FINTRAC and have them respond that it’s a non-issue. The alternative is to become complacent and miss something you should have reported.

Although it is not an exhaustive list, below are examples of questions you should be asking yourself to ensure you’re vigilant about AML:

  • Am I dealing with the buyer directly, or are they trying to shelter themselves or their identity through a third party?
  • Does the buyer hold a political position?
  • Does client activity not match client profile?
  • Is the corporate structure too complex?
  • Is there a clear purpose for the transaction?
  • Am I selling the property to someone who owns or controls a substantial stake in another entity? If so, is it a legitimate and trustworthy entity?
  • Am I aware of the types of reports I can (and should) send to FINTRAC, such as Suspicious Transaction Reports (STR), Terrorist Property Reports, Large Cash Transaction Reports (LCTR), and Large Virtual Currency Transaction Reports?
    • For example, an LCTR is warranted when you, as a real estate professional, receive $10,000 or more in cash in a single transaction, either in a single payment or multiple payments that add up to that amount.
  • Do I maintain adequate records of the movement of funds, identification of unrepresented parties, and the reports I’ve filed with FINTRAC?

You don’t need to take on AML compliance alone

If your AML compliance program needs work, the good news is that you have access to the guidance and resources you need to get started. A qualified AML practitioner and advisor can inform you what regulations apply to you (if any), educate you about the compliance regime and FINTRAC’s expectations, and walk you through how to build your compliance program.

Some tasks, like conducting your effectiveness review, drafting your policies and procedures document, and training your staff, can be delegated to an outside expert. The AML compliance process can provide confidence and peace of mind for your real estate business. Stay informed and ahead of the regulations so you can focus on the opportunities that matter most to your bottom line.

Contact us

To learn more, contact Corey Anne Bloom, FCPA, CPA•IFA, CFF, CFE, ACFE Regent Emeritus, Eastern Canada Leader, Forensics and Litigation Support.

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