Recognizing Money Laundering
Notice to reader
Please note that the following article has not yet been updated since the coming into force of the new Real Estate Brokerage Act on May 1, 2010. The OACIQ positions which are conveyed in this article may have evolved since the date of its publication. It is your responsibility to ensure, at all times, that you are acting or that you are exercising your rights or recourse in accordance with the Real Estate Brokerage Act, its regulations or any other applicable law.
If you have any questions, please contact the Info OACIQ Information Centre at 450 462-9800 or 1 800 440-7170, or by sending us a message.
Knowing the market is an important skill for every real estate professional. Clients depend on their brokers and agents to make sense of the deal and to bring their expertise to the transaction. As part of their professional knowledge, real estate agents should understand certain types of criminal behaviour that might be part of real estate transactions. Awareness of different types of fraud may help a broker advise his clients. Knowledge of potential money laundering schemes may also help the broker meet his legal obligations. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, legislation that was passed in July 2000, made it a legal requirement for all real estate agents and brokers to report transactions that they suspect were linked to money laundering when the broker or agent is acting as an intermediary on the deal. When the broker or agent is acting in this role, there can be additional requirements such as record keeping and ascertaining the identity of the client.
The warning signs
There are number of things that may give rise to suspicions of money laundering in a real estate transaction.
- The client arrives at a real estate closing with a significant amount of cash.
- The client purchases property in the name of a nominee such as an associate or a relative (other than a spouse).
- The client does not want to put his or her name on any document that would connect him or her with the property, or uses different names on Promises to Purchase, closing documents and deposit receipts.
- The client inadequately explains the last minute substitution of the purchasing party’s name.
- The client negotiates a purchase for market value or above asking price, but records a lower value on documents, paying the difference under the table.
- The client sells property below market value with an additional under the table payment.
- The client pays initial deposit with a cheque from a third party, other than a spouse or a parent.
- The client makes a substantial down payment in cash and the balance is financed by an unusual source or offshore bank.
- The client purchases personal use property under corporate veil when this type of transaction is inconsistent with the ordinary business practice of the client.
- The client pays rent or the amount of a lease in advance using a large amount of cash.
When considering what might be a suspicious transaction, it is important to take into many factors. If more than one of these indicators is part of the transaction, there may be grounds for suspicion and a report to Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) should be filed.
Filing a Suspicious Transaction Report
What are the steps to report a suspicious transaction? In circumstances in which you have reason to suspect a transaction may be related to money laundering or terrorism, reporting entities must file a Suspicious Transactions Report with FINTRAC within 30 days. In some cases, suspicion might not be detected right away. In such instances, the 30?day time limit begins once these facts have been detected. There is a form available at the FINTRAC website, together with instructions as to what information should be included in a report. The report can also be readily filed via the Internet. Once a transaction has been reported to FINTRAC, what should a reporting entity do about their client? That’s up to the business. There is no requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to cancel or refuse a transaction when it has been reported or is in the process of being reported. However, for many businesses, the next steps to take are determined by their own internal policies, standards and procedures about dealing with inappropriate or questionable transactions or clients. FINTRAC has prepared a series of guidelines to help individuals and businesses identify suspicious transactions. It also explains the required steps to submit suspicious transactions reports. It explains reporting timelines, how reports have to be sent, and what information has to be included in these reports. These guidelines are available on the website of the Financial Transactions and Reports Analysis Centre of Canada. Additional printed materials can be obtained by calling the Centre toll free at: 1-866-346-8722.