FINTRAC Requirements for Real Estate

Transcription

1 FINTRAC Requirements for Real Estate COPYRIGHT NOTICE: THESE MATERIALS ARE PROTECTED BY CANADIAN COPYRIGHT LAW AND MAY NOT BE REPRODUCED, DISTRIBUTED, TRANSMITTED, DISPLAYED, OR OTHERWISE PUBLISHED WITHOUT THE PRIOR WRITTEN PERMISSION OF MNP LLP. YOU MAY NOT ALTER OR REMOVE ANY TRADEMARK, COPYRIGHT OR OTHER NOTICE DISCLAIMER: THE CONTENTS OF THIS DOCUMENT INCLUDE INFORMATION RELATING TO GENERAL PRINCIPLES AND SHOULD NOT BE CONSTRUED AS SPECIFIC INSTRUCTIONS OR ADVICE. IT IS NOT A SUBSTITUTE FOR LEGAL AND OTHER PROFESSIONAL ADVICE. IF ANY READER REQUIRES LEGAL ADVICE OR OTHER PROFESSIONAL ASSISTANCE, EACH SUCH READER SHOULD ALWAYS CONSULT HIS OR HER OWN LEGAL OR OTHER PROFESSIONAL ADVISORS AND DISCUSS THE FACTS AND CIRCUMSTANCES THAT APPLY TO THE READER Presented by: Date: Content and Presentation by: Hayley Howe, CAMS; UDI Breakfast Panel Legal Update 2017 September 19, 2017

2 Agenda 1. What is Money Laundering 2. Who is covered 3. Overview of the compliance regime 4. ID Requirements new regulations 5. STR Reporting the key to it all! 6. FINTRAC Exams Page 2

3 WHAT IS MONEY LAUNDERING, REALLY? Page 3

4 Real Estate Developers (*Do you sell to the public?) A real estate developer means an individual or an entity other than a real estate broker or sales representative who in any calendar year after 2007 has sold the following to the public: at least five new houses or condominium units; at least one new commercial or industrial building; at least one new multi-unit residential building each of which contains five or more residential units; at least two new multi-unit residential buildings that together contain five or more residential units. Page 4

5 Laundering Through Real Estate (It s not always about cash) Use of third parties Use of loans and mortgages Manipulation of property values (under valuation/over valuation and shadow flipping or quick resale) Purchase of real estate to facilitate other criminal activity Renovations and improvements Use of front companies, shell companies, trusts and company structures Use of professional facilitators or gatekeepers Overseas-based criminal investing in Canadian real estate. Page 5

6 AML Requirements for Real Estate Brokers and Developers Towards the fulfilment of those responsibilities, brokers must put in place a compliance program A person in charge of compliance Policies and procedures Training Risk management plan There are everyday responsibilities brokers are required to fulfill Identifying clients Keeping transaction records Reporting suspicious transactions Reporting cash transactions Reporting terrorist property Manage money laundering risk There are two levels of checks to assess whether the compliance program is working AML audit every two years FINTRAC examinations...size matters, but doesn t change the obligations Page 6

7 Identification of Clients Option 1. Photo identification Documents or information to review Photo ID issued by government Federal, provincial, or foreign government (not municipal) Identification details that must match Name & Photograph Record keeping obligations Client identification information Type of document Document Number Issuing Jurisdiction and country Expiry date Date of verification 2. Credit File Canadian credit file in existence for at least three years 3. Dual Process Two original, valid and current documents or information from independent and reliable sources Name, Address & Date of Birth Name, Address & Date of Birth Client identification information Source of credit file Reference number Date of verification Client identification information The name of the two different sources used to identify your client The type of information Account or reference number Date of verification Table taken from FINTRAC Guidance document Page 7

8 Suspicious Transaction Reports What s that? An STR is a report required to be made to FINTRAC when you have reasonable grounds to suspect that the transaction is linked to criminal activity or terrorist financing. Reasonable grounds are as simple as would a reasonable person think this transaction is suspicious. Your client must not be told you are filing a report with FINTRAC. Even if you are incorrect in your assessment you are protected provided the report is filed in good faith. Page 8

9 Attempted or Completed Transactions STRs must be filed on both Attempted or Completed transactions. An attempted transaction is one that would have gone ahead, but you asking for additional information (identification, source of funds information or third party details) resulted in the client stopping the transaction and you to have reasonable grounds to suspect. Page 9

10 STR Red Flags Client purchases property in someone else's name such as an associate or a relative (other than a spouse). 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 Offers to Purchase, closing documents and deposit receipts. Client pays initial deposit with a cheque from a third party, other than a spouse or a parent. Client pays substantial down payment and balance is financed by an unusual source (for example a third party or private lender) or offshore bank. Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition, and anticipated repair costs, etc. of each property. Client insists on providing signature on documents by fax only. If a property is re-sold shortly after purchase at a significantly different purchase price, without corresponding changes in market values in the same area. Funds for a down payment are wired in from offshore locations from a number of third parties to avoid currency restrictions. Page 10

11 And More Red Flags! Client exhibits a lack of concern regarding risks, commissions, or other transaction costs. Client persists in representing his financial situation in a way that is unrealistic or that could not be supported by documents. Transactions carried out on behalf of minors, incapacitated persons or other persons who appear to lack the economic capacity to make such purchases. Transactions in which the parties are foreign or non-resident for tax purposes and their only purpose is a capital investment (that is, they do not show any interest in living at the property they are buying). Transactions in which the party asks for the payment to be divided in to smaller parts with a short interval between them. Transactions which are not completed in seeming disregard of a contract clause penalizing the buyer with loss of the deposit if the sale does not go ahead. Transaction is completely anonymous transaction conducted by lawyer all deposit cheques drawn on lawyer's trust account. Page 11

12 Criteria for Being Examined Eventually all real estate companies will be examined A percentage of firms will be re-examined Chance of FINTRAC conducting follow-up exam higher if any issues discovered at first exam Timing of second/third exam also depends on issues found Anywhere from 6 months to 3 years Page 12

13 Types of FINTRAC Exams Three types of enforcement currently utilized Compliance assessment report Questionnaire to gauge high-level understanding of organization s compliance program Desk Exam Offsite meaning all documentation is sent to FINTRAC office Telephone interviews to determine the organization s level of compliance Onsite Exam Documents requested by phone and FINTRAC compliance officers will visit your premises Page 13