Real estate industry has major role in fighting money laundering: Info for citizens

Below we provide links and excerpts of information about the obligations of the real estate industry to fight money laundering. Materials are from the Real Estate Council of British Columbia (RECBC), British Columbia Real Estate Association (BCREA), and Canadian Real Estate Association (CREA).

In society, professional bodies like these are expected to monitor and maintain standards, investigate complaints against licensees, and impose disciplinary sanctions. Most real estate deals are done by licensed individuals and brokerages in the real estate industry. So their role is huge. The public counts on them and their industry associations to do their part in fighting money laundering.

Much of this is based on the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (http://laws-lois.justice.gc.ca/eng/regulations/SOR-2002-184/) and related Regulations.

Under the Act, brokerages must conduct “ongoing monitoring” (going back five years) of clients with whom they have business relationships.

According to BCREA the requirements for ongoing monitoring of clients with business relationships include:

  • keeping client information up-to-date with any new or changed information;
  • maintaining records documenting the purpose and intended nature of the brokerage’s business relationship with the client;
  • ensuring that measures to monitor the business relationship with the client during the transaction are recorded;
  • ensuring the client’s level of risk of money laundering or terrorist financing is re-assessed; and
  • any suspicious transactions are reported.

But it is not only up to the real estate industry.

Everyone has a role to play to ensure things don’t slip through the cracks. Often, actions start only with citizen intervention or complaints, so members of the public (including buyers and sellers) are encouraged to know this stuff. Past transactions are fair game for investigation. Enforcement of legislation can go back five years. Consequences for violations are serious.

The Province newspaper carried two excellent stories this week by investigative journalist Sam Cooper about the influence of money from overseas on the Metro Vancouver housing market.

 

  • “Real-estate exec on Chinese money: ‘There is a huge stake for a lot of local people in keeping this thing going’ ” (4-Mar-2015): Link
  • “Chinese police run secret operations in B.C. to hunt allegedly corrupt officials and laundered money: Vancouver officials mum on links to foreign police working here” (5-Mar-2015): Link

As we wrote in “Is there a peak for Metro Vancouver housing prices? What about the question of (infinite) demand?” our elected officials have an obligation to society to deal properly with the DEMAND side of the housing equation, not just SUPPLY. A major factor (perhaps the biggest one) underlying housing unaffordability is the influence of money from other countries, and these new articles suggest that a major component of this demand for real estate is driven by money that could be from corruption, illegal activities, and money laundering.

Mayor Gregor Robertson and the rest of City Council cannot be permitted to look the other way any longer. Legislation is in place. Professional associations have rules, guidelines, and codes of conduct and they are expected to enforce them in the event of any violations.

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EXCERPTS AND LINKS
(downloaded 5-Mar-2015)

  1. Real Estate Council of British Columbia (RECBC)
  2. British Columbia Real Estate Association (BCREA)
  3. Canadian Real Estate Association (CREA).

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1. REAL ESTATE COUNCIL OF BRITISH COLUMBIA (RECBC)

“The Real Estate Council of British Columbia (Council) is a regulatory agency established by the provincial government in 1958. Its mandate is to protect the public interest by enforcing the licensing and licensee conduct requirements of the Real Estate Services Act. The Council is responsible for licensing individuals and brokerages engaged in real estate sales, rental and strata property management. The Council also enforces entry qualifications, investigates complaints against licensees and imposes disciplinary sanctions under the Act.”

Professional Standards Manual: http://www.recbc.ca/licensee/psm-all-content.html

Excerpt:

(e) Duty To Report Illegal Activities

Occasionally, licensees will come across a situation where a property they have listed for sale, or are providing rental property or strata management services for, is being used for illegal purposes (e.g., a marijuana growing operation, fraud with respect to a new home, and the application of the Goods and Services Tax (GST)). The general rule is that no citizen has an obligation to report to the authorities an activity which may appear to them to be illegal. Exceptions to this general rule include the obligation to report to the authorities a child in need of protection and the requirements under the provisions of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

While this general rule would apply to licensees, they must be careful not to appear to be aiding or abetting the carrying on of the illegal activity. Aiding and abetting is a criminal offence if a person does or omits to do something with the purpose of aiding another person to commit an offence, and there is a guilty intent behind the action or omission. There would be no guilty intent if a licensee, having observed the illegal activity, walked away from it because he or she did not want to become involved.

Guilty intent may, however, be implied if a licensee, knowing of the illegal use, promotes that use as if it were not illegal. For example, the Council has previously advised licensees that they are to avoid advertising illegal suites as a possible source of revenue for homeowners.

The same principle applies to the situation where a builder claims that no GST is payable on a new home and a licensee knows this is not true. Licensees must be cautious not to knowingly make a false or fraudulent statement in advertising or representations to buyers. Do not advertise ‘‘No GST’’ if you know or suspect other wise.

All licensees have the obligation to advise their clients of all known material information. Therefore, if licensees discover that a property that they are managing or offering for sale is being used to grow an illegal cash crop, they are obligated to advise the owner.

Licensees are advised to read Legally Speaking column # 296 (available on www.realtorlink.ca), which discusses the question of licensees’ duties if an illegal activity, such as a marijuana growing operation, is discovered on a listed property.

Excerpt:

(w) Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The following summary of the legislative requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act applies to licensees when acting as an agent regarding the purchase or sale of real estate. These requirements do not apply to licensee’s activities related to property management. If you are an employee of a licensee, these requirements are the responsibility of your employer except with respect to reporting suspicious transactions and terrorist property, which is applicable to both. If you are a licensee acting on behalf of a brokerage, these requirements are the responsibility of the brokerage except with respect to reporting suspicious transactions and terrorist property, which is applicable to both.

(i) Reporting Suspicious Transactions

You must report where there are reasonable grounds to suspect that a transaction or an attempted transaction is related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence.

See Guideline 2: Suspicious Transactions and Guideline 3: Submitting Suspicious Transaction Reports to FINTR AC at www.fintrac-canafe.gc.ca.

(ii) Terrorist Property

You must report where you know that there is property in your possession or control that is owned or controlled by or on behalf of a terrorist or a terrorist group.

See Guideline 5: Submitting Terrorist Property Reports to FINTR AC at www.fintrac-canafe.gc.ca.

(iii) Large Cash Transactions

You must report large cash transactions involving amounts of $10,000 or more received in cash.

See Guideline 7: Submitting Large Cash Transaction Reports to FINTR AC at www.fintrac-canafe.gc.ca.

(iv) Record Keeping

You must keep the following records:

  • large cash transaction records
  • receipt of funds records
  • client information records
  • copies of official corporate records (binding provisions)
  • copies of suspicious transaction reports.

See Guideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(v) Ascertaining Identity

You must take specific measures to identify the following individuals or entities:

  • any individual who conducts a large cash transaction
  • any individual or entity for whom you have to keep a client information record or a receipt of funds record
  • any individual for whom you have to send a suspicious transaction report (reasonable measures and exceptions apply).

SeeGuideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(vi) Third Party Determination

Where a large cash transaction record or a client information record is required, you must take reasonable measures to determine whether the individual is acting on behalf of a third party.

In cases where a third party is involved, you must obtain specific information about the third party and their relationship with the individual providing the cash or the client.

See Guideline 6B: Record Keeping and Client Identification for Real Estate at www.fintrac-canafe.gc.ca.

(vii) Compliance Regime

The following five elements must be included in a compliance regime:

(1) The appointment of a compliance officer

(2) The development and application of written compliance policies and procedures

(3) The assessment and documentation of risks of money laundering and terrorist financing and measures to mitigate high risks

(4) Implementation and documentation of an ongoing compliance training program

(5) A documented review of the effectiveness of policies and procedures, training program and risk assessment.

See Guideline 4: Implementation of a Compliance Regime at www.fintrac-canafe.gc.ca. For further information call 1-866-346-8722 or visit www.fintrac-canafe.gc.ca.

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NEWSLETTER OF RECBC, JUNE 2014
http://www.recbc.ca/2014/06/june-2014-report-from-council-newsletter/#money_laundering

Changes to Canada’s Anti-Money Laundering Regulations Affect Brokerages

Recent changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations mean that brokerages are now required to perform increased customer due diligence, in order to better evaluate their clients’ risk of money laundering and terrorist financing. Canada’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), made the changes to bring Canada’s antimoney laundering policies in line with international standards.

Under the new regulations, which came into force on February 1, 2014, some alterations to brokerages’ existing FINTRAC compliance policies and procedures will be necessary as a result of the regulations’ introduction of the concept of a “business relationship.” A business relationship is deemed to exist when a licensee conducts a second purchase or sale transaction with a particular client within five years. Brokerages must conduct “ongoing monitoring” of clients with whom they have business relationships.

The requirements for ongoing monitoring of clients with business relationships include:

  • keeping client information up-to-date with any new or changed information;
  • maintaining records documenting the purpose and intended nature of the brokerage’s business relationship with the client;
  • ensuring that measures to monitor the business relationship with the client during the transaction are recorded;
  • ensuring the client’s level of risk of money laundering or terrorist financing is re-assessed; and
  • any suspicious transactions are reported.

The business relationship between the client and the licensee is considered to have expired when five years have passed since the last purchase or sale transaction.

Only brokerages engaged in trading services are responsible for fulfilling the compliance regime requirements. Full details of the new requirements can be accessed in FINTRAC’s Guideline 4: Implementation of a Compliance Regime.

FINTRAC’s Guideline also includes the following tools for assessing risk levels:

  • Checklist: Products, Services Delivery Channels and Geographic Locations Assess your business’s risk of encountering money laundering or terrorist financing.
  • Checklist: Clients Within and Clients Outside of Business Relationships Assess a client’s risk factors for involvement with money laundering or terrorist financing.
  • Risk Level Assessment Matrix

To make compliance with FINTRAC regulations easier, the Canadian Real Estate Association is developing a number of resources which members can access online through Realtorlink.ca.

If you have concerns or questions about these new reporting requirements, get in touch with your real estate board, seek legal advice, or contact FINTRAC directly at guidelines-lignesdirectrices@fintraccanafe.gc.ca or 1-866-346-8722. The changes bring Canada’s anti-money laundering policies in line with international standards.

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2. BRITISH COLUMBIA REAL ESTATE ASSOCIATION (BCREA)

“The British Columbia Real Estate Association represents the interests of the Real Estate Boards and Associations and their licensees on all provincial issues.”

Financial Transaction Requirements:
http://www.bcrea.bc.ca/working-with-a-realtor-/financial-transaction-requirements

Excerpt:

What Your REALTOR® Needs to Do to Comply With the Law

New federal laws and regulations dealing with money laundering and anti-terrorist financing that went into effect on June 23, 2008 require real estate agents and brokers to collect and verify more personal information from buyers and sellers. Real estate agents must also now track the source of funds received during the course of a real estate transaction, such as the deposit.

REALTORS® require this identification information to comply with the law. It is the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act that requires financial institutions and real estate agents, among other professionals and services covered by the legislation, to identify customers who conduct financial transactions.

Click here to read a brochure created by the Canadian Real Estate Association for buyers and sellers of real estate.  [This is a four-page PDF document entitled “Your REALTOR® is asking questions because it’s the law.

See also:

Buying and Selling Canadian Property: An Overview for Non-Residents: 
http://www.bcrea.bc.ca/working-with-a-realtor-/buying-and-selling-canadian-property

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3. CANADIAN REAL ESTATE ASSOCIATION (CREA)

Code of Ethics and Standards of Business Practice: http://crea.ca/sites/default/files/files/The_REALTOR_Code.pdf#view=FitV

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4. MEDIA

Real-estate exec on Chinese money: ‘There is a huge stake for a lot of local people in keeping this thing going’ 
BY SAM COOPER, THE PROVINCE MARCH 4, 2015
http://www.theprovince.com/business/mortgages/Chinese+money+making+Vancouver+more+more+unaffordable/10858619/story.html

Chinese police run secret operations in B.C. to hunt allegedly corrupt officials and laundered money. 
Vancouver officials mum on links to foreign police working here
BY SAM COOPER, THE PROVINCE MARCH 4, 2015
http://www.theprovince.com/business/Chinese+police+secret+operations+hunt+allegedly+corrupt/10861987/story.html

 

 

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