April 7th - 2008

Money laundering law taxes REALTORS®

Changes to Canada’s anti-money laundering legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA) come into effect on June 23, 2008,

Changes to Canada’s anti-money laundering legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA) come into effect on June 23, 2008, burdening REALTORS® with requirements CREA and OREA see as unrealistic and virtually impossible to implement.
 
The forthcoming amendments will affect how real estate transactions are conducted in Canada, adding to existing requirements and building on obligations that have been in place since 2001.
 
The most significant changes require REALTORS® to identify clients, keep a client identification/receipt of funds record for every real estate transaction and report attempted suspicious transactions.
 
The government has also announced its intention to include real estate developers in future regulations, subjecting them to many of the same rules that apply to real estate brokers and sales representatives. The details regarding obligations for real estate developers will be outlined in future regulations.
 
Unrealistic expectations
CREA’s lobbying efforts to have implementation delayed until all professions are required to comply with the same regulations fell on deaf ears. The disparity remains: under the current proposal, lawyers would not be required to comply with regulations, while REALTORS® would.
 
CREA has met with FINTRAC to discuss the three key points for real estate that would be impractical or unrealistic to implement: the requirement for a firm’s self assessment of its potential risk or exposure to money laundering and terrorist financing; a definition of a suspicious attempted transaction, and; the requirement for identification of foreign or non face-to-face buyers.
 
CREA has asked for guidelines on how risk assessment should be done, but at press time FINTRAC had not yet responded. CREA has developed a risk assessment questionnaire for each broker to complete, in the hopes that FINTRAC will accept it as compliance, and the national association plans to provide REALTORS® with education and compliance materials for the new regulations. An updated compliance manual and Money Laundering Compliance Centre on the CREA web site are in the works.
 
Below, FINTRAC identifies the new requirements.
 
Keep records
Keep a client information record for every purchase or sale of real estate, setting out your client’s name, address, date of birth and the nature of the client’s principal business or occupation.
 
If the client is a corporation, also keep a copy of the part of the official corporate records showing the provisions relating to the power to bind the corporation regarding the transaction.
 
Identify your clients
Currently, if you have identified an individual before, you do not have to do so again if you recognize the individual. Once the changes come into effect, if you have doubts about the information collected concerning an individual’s previous identification, you will have to identify that individual again.
 
If the parties in the transaction are each represented by a different real estate broker or sales representative, you will have to identify the individual or confirm the existence of the entity that you represent in the transaction.
 
If some parties in a real estate transaction are not represented by a real estate broker or sales representative while other parties are, each real estate broker or sales representative that represents a party to the transaction will have to identify or confirm the existence of the parties that are not represented.
 
Develop a compliance program
Currently, you are required to appoint a person responsible for implementing your compliance regime. After June 23, 2008, you will be required to make enhancements to your compliance regime including the following:

  • Develop, apply and keep up-to-date written compliance policies and procedures. If you are an entity, they need to be approved by a senior officer;
  • Develop and maintain a written ongoing compliance training program for your employees, agents or other individuals authorized to act on your behalf;
  • Establish and document a review of your policies and procedures, risk assessment and training program for their effectiveness. The review will have to be done every two years by either an internal or external auditor or by an individual of your organization if you do not have an auditor;
  • New fifth element – Risk-Based Approach
    • Assess and document the risk related to money laundering and terrorist activity financing in a way that is appropriate to you considering:
      • your clients and your relationships;
      • your products, delivery channels and geographic areas where you do your business activities; and
      • any other relevant factor.

If you are an entity, within 30 days after the above review, its findings, any updates to your compliance policies and procedures, including their implementation, will have to be reported in writing to one of your senior officers.
 
If you determine that the risk is high for money laundering or terrorist financing, you will have to take measures to mitigate the risk, and take reasonable measures to keep client identification information up to date; and conduct ongoing monitoring of financial transactions to detect suspicious transactions.
 
To learn more visit FINTRAC’s web site at www.fintrac.gc.ca or call 1-866-346-8722. OREA also offers the continuing education course Money Laundering and Grow Houses which discusses many of the new FINTRAC changes. Contact your board for details.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA. Used under license.

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