Information for REALTORS about the new FINTRAC compliance requirements. (including forms you can reference for compliance)

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1 Information for REALTORS about the new FINTRAC compliance requirements (including forms you can reference for compliance) REVISED: August 7, 2008

2 Index The Political Page 1 How we got here 2 The requirements 3 Identification Requirements 4 Receipt of Funds 6 Privacy Issues 6 Record Keeping Requirements for Brokers 7 Changes In Office Compliance Policy 9 Questions a REALTOR should ask about a transaction 10 Definitions you need to know 13 Scenarios 14 Forms to help compliance Risk Assessment Form Individual Identification Information Record Corporation/Other Entity Identification Information Record Receipt of Funds Record 21 NOTE There have been ongoing discussions and negotiations with Finance Canada and FINTRAC about different aspects of the new legislation and supporting regulations. Finance Minister Flaherty has written to CREA to advise that two aspects of the published regulations will be amended as soon as possible, but not finalized prior to June 23rd, The forms and compliance recommendations published by CREA are based on compliance instructions communicated to the Association during this process.

3 The Political Page The Canadian Real Estate Association (CREA) has been working with both the Finance Department and FINTRAC since 2005 to ensure it would be possible for REALTORS to comply with the new Canadian law, and that the new regulations would not put REALTORS at a business disadvantage in the buying and selling of real property. This process included a number of meetings with Finance Minister Jim Flaherty and his staff, officials of the Finance Department, and officials from FINTRAC. Because of significant concerns raised by CREA, and an impasse in discussions with government, in the Fall of 2007 the national Association initiated a REALTOR call-to-action to raise awareness of the issues among members of Parliament. This resulted in a meeting with the Finance Minister, and redress on some significant concerns. PAC Reps were also asked to raise some of the Association s objections during the annual visitation to MP offices on parliament hill in April. The government is well aware that some of these new regulations represent major changes to the process of buying and selling real estate in Canada. CREA received an interim response letter from Finance Minister Jim Flaherty dated May 15th, 2008, indicating the government would propose regulatory revisions addressing some of the Association s concerns, especially those dealing with unrepresented parties in a transaction. In other words, changes would be made to the regulations after they came into effect. Please note the intent of those revisions has already been incorporated into this publication. The specific regulations for the real estate sector for anti-money laundering and anti-terrorist financing take effect on June 23rd, Criminal penalties for willful non-compliance also take effect in June, followed by the civil penalties, including administrative monetary penalties (AMPs) that take effect on December 31st, FINTRAC has assured CREA that enforcement of the new regulations will be gradually phased-in, and that considerable efforts will be made by the federal government to promote a better understanding of both money laundering risks and the new measures developed to combat them - as they did when the initial requirements became law in FINTRAC has also advised that criminal charges will only be imposed for repeated and deliberate or willful non-compliance during this unofficial phase-in period. 1

4 How we got here International efforts by governments to curb money-laundering activity took root at the 1989 G7 Summit in Paris, continued throughout the 1990 s, and escalated dramatically following the terrorist attacks on New York City in September of The result of this activity led to the creation of an intergovernmental body in 1990 called the Financial Action Task Force, or FATF, an organization of 35 member countries of which Canada is a member. This international body sets global legislative and regulatory standards for member countries in order to assist them in developing frameworks to better combat the financing of criminal and/or terrorist financing activity. Following the attack on the World Trade Centre, the Government of Canada introduced the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) late in This legislation was accompanied by new regulations requiring targeted high-risk industries, including real estate, to implement client identification and record keeping requirements. Then, in 2003, FATF issued 40 new counter-measures on money laundering and nine special recommendations on terrorist financing to its member governments, and asked that they update their legislative and regulatory framework in order to better monitor and track suspicious financial transactions. In response to this call, the Government of Canada developed and issued a consultation paper in July of This document contained proposals designed to address these international requirements, including concerns raised by the Auditor General in her 2004 report to Parliament. Following a period of industry consultations, Finance Canada published proposed regulations in March These amendments captured nine priority industries, including real estate brokers and salespersons. In December 2007, CREA and the International Consortium of Real Estate Associations (ICREA), represented by then President Ann Bosley, also met with FATF officials in Berne, Switzerland to discuss how the real estate sector was expected to apply a risk-based approach to their compliance programs. 2

5 The requirements before. There have been basic compliance requirements for federal Money Laundering and Anti-Terrorist Financing regulations since Every broker office had to appoint a Compliance Officer ; Every broker office had to develop and deliver a training program for all designated employees; Every broker office had to create a compliance program incorporating office policies and procedures, and update them with new FINTRAC regulatory requirements on an ongoing basis; Every broker office was required to report all large cash and suspicious transactions to FINTRAC. Every broker was required to verify that the names of their clients were not on the Canadian or United Nations list of known terrorists, or terrorist organizations. The new requirements The original requirements are still in effect. Every broker office has to have a Compliance Officer, but now there s a lot more for the broker and the Compliance Officer to do. The legislation sets out that effective June 23, 2008, when you receive funds in any form and in any amount, you must keep a Receipt of Funds Record and identify the client who gave you (or provided) the funds. It is the agent of the buyer who must complete the Receipt of Funds Record, even in situations when the deposit goes directly into the account of the listing broker. There are some exceptions, such as a transaction where the buyer is not represented, or when the deposit goes directly into the account of a party not licenced in real estate (builder, lawyer, etc.) Details are provided on Page 11. For any purchase or sale of real estate, you must complete an Identification Record (either Individual or Corporation), take steps to verify the identification of the client, and keep related records if there is a third party involved (or if you do not meet your client in a face-to-face scenario) Some of the other new compliance requirements include: The compliance program and office policies have to be in writing. That used to be a regulation; now it is in the legislation. This makes it easier to enforce. There is a significant increase in identification and record keeping requirements. See Page 4. There is the introduction of reporting suspicious attempted transactions. See Page 7. Record keeping is now required for ALL receipts of funds. See Page 11. A broker must determine whether third parties are involved in a transaction. See Page 5. A broker must also have verified identification for offshore buyers and sellers, and do that by using approved agents. See Page 4. Once every 2 years a broker must complete a self-assessment of risk of being implicated in money laundering or terrorist financing situations because of their real estate business, and identify what measures must be taken to reduce the risk. See Page 8. There are also several other changes to the Compliance Regime requirements. In addition to reporting requirements, you must also have a procedure in place to update information about ongoing or existing clients on file, as it becomes available. It is also recommended that brokers keep a copy of the information that FINTRAC sends in the acknowledgement message about each report processed. This provides the date and time the report was received along with its identification number. It is also important for brokers to know that under privacy legislation, they are responsible for the secure safekeeping of the personal information collected in the compliance process. The new federal regulations require that all FINTRAC reports be kept for five years. 3

6 Identification Verification Requirements Collecting Personal Information Before dealing with individual forms, it is important to know the details of the personal information you must collect for FINTRAC compliance. This is because effective June 23rd, 2008, you must keep an Identification Information Record for every real estate transaction you are involved in. The information you must keep on file (depending on the situation) must include the individual involved, including name, address, date-of-birth, occupation or principal business, the type of ID provided and unique ID number as verification of this personal information. When identifying individuals for creation of a record, you must identify the individual yourself, or if the individual is not present, you must: Use two of five verification methods if the individual resides in Canada;or Use an agent or mandatary. If identification was done in person you have to record the number on the original identification issued by government, but keeping actual photocopies of the ID is not required. Provincial heath cards are OK except in Ontario, Manitoba, and PEI. It is recommended NOT to use a Canadian social insurance (SIN) card because FINTRAC will not accept the information from it. IMPORTANT: When you are using approved credentials to verify identification of an individual, you must complete an Individual Identification Information Record. Making a photocopy of a drivers licence, for example, and sticking the copy in the file doesn t meet the requirements for compliance. As a broker, you are responsible for identifying the individual, or confirming the existence of the entity you represent (buyer or seller) If there are unrepresented buyers or sellers involved in the transaction, the broker representing the other party is responsible for collecting the required identification information, and keeping it on file. If the unrepresented individual refuses to provide the required personal information, document this and keep this record on file. If you have reasonable grounds for suspicion about the unrepresented individual and their reasons for refusal, you must file a report with FINTRAC. In other words, in this situation you should file a Suspicious Transaction where there is suspicion; otherwise, you are only required to keep a record or report of the attempt to "identify", as well as the reason(s) the unrepresented individual stated for refusing to be identified, or provide identification documents. There are also new requirements for verifying identification of a client if there is no face-to-face meeting where that information can be collected and recorded. In this case the new FINTRAC regulations require the broker to use an approved agent or representative (legally known as a mandatary) to identify clients on their behalf. There MUST be a contractual agreement with the agent or representative whose services are being used. CREA has prepared a template agreement you can use for this purpose. The brokerage must receive the following information to meet the compliance requirements for client identification: Type of identification (drivers licence, passport, etc) Identification number of that document; and The issuing jurisdiction (country, province, etc.) The broker s contracted representative must verify ORIGINAL identification documents, of the client, then send copies to the broker office. You are ultimately legally responsible for what these representatives do! 4

7 If the non face-to-face client resides in Canada, and there is no contractual agent/mandatary, then you must use two of five methods approved by FINTRAC. 1. Verify an independent ID product (Must have a photo and registration number, such as bus pass or club membership card) 2. Verify a credit file (i.e. Equifax) 3. Attestation of ID from a Commissioner of Oaths or guarantor (the detailed list of guarantors is on the FINTRAC website) 4. Cleared cheque drawn on a deposit account from a Canadian financial institution 5. Confirm existence of a deposit account from a Canadian financial institution NOTE: Neither 1 & 2, nor 4 & 5, can be combined as the two required methods CREA has created an Individual Identification Information Record (report form) to assist brokers and agents report the necessary information. It is available in the Money Laundering Compliance Centre on REALTOR Link, or in WEBForms. An example is also on Page 17 of this booklet. This document must be completed by the REALTOR whenever they act as an agent in respect of the purchase or sale of real estate. The broker is responsible for keeping this document on file for five years. Collecting Entity Information If there is an entity (corporation, partnership, charity, etc) involved in the transaction, the broker or agent must verify its existence. The existence of the entity must be confirmed within 30 days of the transaction by presentation of: a partnership agreement; or the articles of association; or any other original document confirming the legal existence. In addition, you must also confirm the names of the corporation s Directors. It is recommended that this verification take place It is recommended that this verification be completed (i) for a buyer when the offer is submitted and/or a deposit made, and (ii) for a seller when the seller accepts the offer. You are required to keep a copy of the record of the entity s existence (e.g. certificate of corporate status, published annual report, govt. notice of assessment) If the record is an electronic version, a record of the corporation s registration number and type and source must be kept (e.g. Corporations Canada website). For corporations specifically, the legal existence must be confirmed by verification of the certificate of corporate status, or through records filed manually under provincial securities legislation. You can also use any other legal record confirming the existence of the corporation, and then also confirm the names of the corporation s Directors. CREA has created a Corporation/Entity Identification Information Record to assist brokers and agents report the necessary information. It is available in the Money Laundering Compliance Centre on REALTOR Link, in WEBForms and an example is included on Page 19 of this booklet. This document must be completed by the REALTOR whenever they act in respect of the purchase or sale of real estate. The broker is responsible for keeping this document on file for five years. CREA has also prepared a template letter a member can use to request information from the legal or corporate representative of a buyer, specifically for use in verification of information required for FINTRAC Compliance. It is also posted in the Compliance Centre on REALTOR Link. Verification of Third Parties When completing an Individual or Corporate/Entity Identification Information Record, you must also try to determine whether or not the individual or the entity is acting on behalf of a third party. If you cannot determine if there is a third party, but there are reasonable grounds to suspect that the client is acting on behalf of someone else (third party) you must keep a record of that fact. 5

8 Receipt of Funds A Receipt of Funds record is required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act for every amount of funds that a REALTOR receives in the course of a single real estate transaction. Amendments made by the federal government in July 2008 stipulate it is the Buyers Agent who is responsible for completing and retaining the Receipt of Funds Record in a transaction when all parties are represented. If one party is unrepresented, the Receipt of Funds Record must be completed by the real estate agent representing the other party. A REALTOR does NOT have to keep a Receipt of Funds Record if the funds are received from a financial entity or a public body that is buying or selling, or if a Large Cash Transaction Record must be completed. A REALTOR does NOT have to keep a Receipt of Funds Record if the deposit goes directly to an individual not licensed for the trading of real estate. For example, if the deposit goes directly to: A builder or developer not represented by a REALTOR A lawyer or notary Any professional not licensed for trading in real estate then the buyer agent is NOT required to complete the Receipt of Funds Record. When a Receipt of Funds Record IS required, it is the responsibility of the broker to ensure that a record is kept for five years from the date it was created. (i) (ii) (iii) When a REALTOR completes a Receipt of Funds Record, they must also complete an Identification Information Record at the same time, unless the Identification Information Record was completed prior to the receipt of funds. As per the July 2008 amendments, when both the buyer and seller are represented, it is the agent of the buyer who is required to complete and retain a Receipt of Funds Record in respect of the deposit made, regardless of who retains the deposit. If one of the parties in the transaction is unrepresented, the real estate agent representing the other party is responsible for the Receipt of Funds Record, and must make reasonable attempt to gather the information about the deposit. If the information is unavailable, you should indicate why. You are not required to include the number and type of any account affected by the transaction or the name of the person or entity that is the holder of the account, if after taking reasonable measures you are unable to do so. (iv) Where both parties are represented and the funds are deposited in the listing agent s account, the buying agent must indicate that fact but is NOT required to include the number of the trust account, or the name or entity that holds the trust account. Privacy issues The requirement that REALTORS confirm identification also increases a REALTOR 's responsibility under the Personal Information Protection and Electronic Documents Act (PIPEDA). The anti-money laundering legislation has now defined a new category of information which it deems "necessary" for the purposes identified. The advice CREA has always given to REALTORS is that they should be diligent in collecting only the information absolutely necessary for the transaction, based on the premise that the more information you collect, the greater your exposure in terms of adequately protecting it and ensuring there is no further unauthorized disclosure. Principle 7 of PIPEDA and the Privacy Code requires REALTORS to protect information with safeguards appropriate to the sensitivity of the information. Tools used to confirm identification - such as drivers licenses, health cards, or other government issued identification - are all sensitive and require the highest form of protection. It is the responsibility of the REALTOR to protect that personal information collected as part of the FINTRAC compliance process against loss, theft, unauthorized access, disclosure or copying. 6

9 Record Keeping Requirements for Brokers The official copy of all reports or forms required for FINTRAC compliance must be kept in the brokerage, or the files must indicate where the official copy is being stored. Records must be kept on file for five years from the date they were created. Records can be kept in a machine-readable or electronic format provided that a paper copy can be produced upon request. If requested by FINTRAC, forms must be produced within 30 calendar days. These are the reports or forms that brokers are required to keep on file: Large Cash Transaction Report There are new requirements for this report, so do not rely on forms or information prepared prior to June In addition to the following, this report must include all of the personal or entity identification requirements as detailed on Page 4. You can do this by using the form developed by CREA. The specific details about the Large Cash Transaction report now required are: The amount/the currency/details of how funds were received. The transaction date/purpose/nominees (if any). Receipt of Funds Record This report tracks information on amount of funds received, including currency, and details how the funds were received. It must also include the date of transaction, details of individuals involved, and the reason for the financial transaction (i.e. deposit, etc). This does NOT have to be completed if the deposit goes directly to someone not licensed in the trading of real estate, such as a builder or developer. If the builder is represented by a REALTOR in the transaction, however, the Receipt of Funds Record is required. If one of the parties in the transaction is unrepresented, the real estate agent representing the other party is responsible for completing and retaining the Receipt of Funds Record, and must make reasonable attempt to gather the information about the deposit. If the account information is unavailable, you should indicate why. Where both parties are represented and the funds are deposited in the listing broker s account, the buying agent must indicate that fact. They are NOT required to include the number of the listing brokers trust account, or the name or entity that holds the account. Suspicious (Attempted) Transaction Report This report is unchanged. If you have reasonable or factual grounds to suspect that a transaction, or an attempted transaction, may be linked to criminal activity or the proceeds of crime, you must submit a report to FINTRAC within 30 days, and the broker office must keep the report on file for five years. Once you have recorded this information, if individuals are involved you must make a reasonable effort to also track their name, address, date of birth, and occupation or principal business. Where entities are involved, you must track the name of that entity, their address and principal business. This information must be obtained within 30 days of the receipt of funds. Where corporations are involved, you must record a copy of the part of the official corporate records that give an individual the power to sign documents on behalf of the corporation. This information must be obtained within 30 days of the receipt of funds. 7

10 Individual Identification Information Record This is the record you must prepare to confirm the identity of any individual involved in a transaction. It must be completed by closing. It is very important that an Individual Identification information Record be completed prior to, or at the same time as a Receipt of Funds Record is completed As a result it is recommended it be completed for a buyer when an offer is submitted and/or a deposit made, and completed for a seller when the seller accepts an offer. If you think the individual is representing a third party, you must also attempt to verify the identification of that third party (Section B of the form). Corporation/Entity Identification Information Record This is the record you must prepare to confirm the existence of any corporation or other entity. In the case of a corporation, in addition to confirming its existence, you also have to determine the corporation s name, address and the names of its directors. It is very important that a Corporation/Entity Identification information Record be completed prior to, or at the same time as a Receipt of Funds Record is completed. As a result it is recommended it be completed for a buyer when an offer is submitted and/or a deposit made, and completed for a seller when the seller accepts an offer. To confirm the existence of a corporation as well as the corporation's name and address, you must refer to the corporation's certificate of corporate status; any record filed annually under provincial securities legislation; or any other record that confirms the corporation's existence. Examples of these include such other records as the corporation's published annual report signed by an independent audit firm, or a letter or a notice of assessment for the corporation from a municipal, provincial, territorial or federal government. In the case of an entity other than a corporation, you can refer to a partnership agreement, articles of association or any other similar record that confirms the entity's existence. The record you use to confirm the existence of an entity can be paper or an electronic version. Although such information may be available verbally (such as by phone), it is not acceptable for these purposes, as you have to refer to a record. If the record is in paper format, you have to keep the record or a copy of it. If the record is an electronic version, you have to keep a record of the entity's registration number, the type and source of the record. An electronic version of a record has to be from a public source. Self-Assessed Risk Management Report This must be completed at least once every two years, and is intended to engage management in the detection and deterrence of money laundering and terrorist financing opportunities. It is based on a risk-based approach, and an overview or risk assessment of the broker business. You will be required to identify risk mitigation processes or procedures if required (i.e. controls to handle risks) and maintain ongoing monitoring of higher risk transactions. The form developed by CREA on Page 15, is designed to help you meet this compliance requirement. It is also posted in the Money Laundering Compliance Centre on REALTOR Link. 8

11 Changes In Office Compliance Policy In addition to the existing requirement of appointing a person responsible for implementing your office compliance regime, you will also have to include the following in your Office Compliance Policy once the new regulations come into effect in June 2008: Develop, apply, and keep up-to-date written compliance policies and procedures. If you are an entity such as a real estate firm, they need to be approved by a senior officer. This was a requirement of the regulations in the past; now it is in the legislation. 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 any other relevant factor. Develop and maintain a written ongoing compliance training program for your employees, agents, or other individuals authorized to act on your behalf. In an interpretation to CREA, FINTRAC has advised that it is the responsibility of the brokerage to keep records retained for the brokerage. In other words, your office policy should state that any FINTRAC compliance records collected by any employee or contractor acting on behalf of the broker, shall be retained by the brokerage. If that employee or contractor leaves the brokerage, the records they acquired while representing the brokerage shall remain with the brokerage. 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 once every two years by either an internal or external auditor or by an individual of your organization if you do not have an auditor. CREA has developed a Risk Assessment Form to help you in this process. If you are an entity (e.g., real estate firm), then 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 the broker of record, or senior management. If you determine that the risk is high for money laundering or terrorist financing to occur through the services you provide, 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. 9

12 Questions a REALTOR should ask about a transaction Is client identification required? Yes. You now have to identify the client in each and every real estate transaction where you are acting as the agent. That means it is required for every purchase and sale of real property, and it must be completed at the time of the transaction. Under the previous regulations, if you have identified an individual before, you do not have to do so again if you recognize the individual. Under the new regulations, if you have doubts about the information collected about an individual s previous identification, you must go through the identification process again. You do not have to go through the identification process again if you think that doing so would tip off the individual that you intend to submit a report to FINTRAC. What client identification is required? To identify an individual, refer to the individual's birth certificate, driver's licence, passport, record of landing, permanent resident card or other similar government-issued document. You can refer to an individual's provincial health card, but not if it is issued by Ontario, Manitoba or PEI. In Quebec, you cannot ask to see a client's health card, but you can accept it if the client wants to use it for identification purposes. For a document to be acceptable for identification purposes, it must have a unique identifier number. The document must be a valid one and cannot have expired. The use of a social insurance number (SIN) card to verify the identity of a client is not recommended, because the SIN (i.e. the number itself) is not to be provided to FINTRAC on any type of report. What if my client is a corporation or legal entity? You have to confirm the existence of any corporation or other entity for which you have to keep a Corporate Identification Information Record or a Receipt of Funds Record. You also have to determine the corporation s name, address and the names of its directors. You must also verify that the individual involved has a mandate to represent the corporation or entity. If the record is an electronic version, you have to keep a record of the corporation's registration number, including the type and source of the record. An electronic version of a record has to be from a public source. For example, you can get information about a corporation's name and address and the names of its directors from Industry Canada's Strategis federal corporations database on the Corporations Canada page of the Strategis Web site ( As another example, you may also get this type of information if you subscribe to a corporation searching and registration service, or to a provincial registration data base. In the case of an entity other than a corporation, you can refer to a partnership agreement, articles of association or any other similar record that confirms the entity's existence. The record you use to confirm the existence of an entity can be paper or an electronic version. Although such information may be available verbally (such as by phone), it is not acceptable for these purposes, as you have to refer to a record. If the record is in paper format, you have to keep the record or a copy of it. If the record is an electronic version, you have to keep a record of the entity's registration number, including the type and source of the record. An electronic version of a record also has to be from a public source. 10

13 When do I have to complete the Identification Information Record? We recommend that an Identification Information Record be completed for a buyer when a deposit is made. We recommend it be completed for a seller when the seller accepts the offer. When a REALTOR completes a Receipt of Funds Record, they must also complete an Identification Information Record at the same time, unless the Information Record was completed prior to the receipt of funds. When both the buyer and seller are represented, it is the agent of the buyer who is required to complete and retain the Receipt of Funds Record, regardless of who retains the deposit. What happens if I never have a face-to-face meeting with my client how do I verify their identification. If that client resides in Canada, there are two methods specified by FINTRAC: the identification product or credit file method, or the Attestation method (agent or mandatary). For the first option (ID product or credit file) there are a total of five resources you can use to comply, but some cannot be done in combination with others. These are explained in detail on Page 5 of this booklet, or on the FINTRAC website. For the second option (Attestation) a broker office must have a contracted agent in place who can meet the individual, review the required identification documents, and forward a report for the file. That agent can be a REALTOR or licensed real estate practitioner, or a lawyer or notary. You can use this contracted agent, or mandatary, in your city, province or any other country when you are not meeting your client face-to-face. A template agreement for use of an agent or mandatary is posted in the Money Laundering Compliance Centre on When do I have to have an Identification Information Record completed? It must be completed by the date of the transaction, which FINTRAC defines as the closing, usually done in a lawyers office. It can be completed at any time before that, but must be completed and on file by the date the deeds are signed. However, when funds are received both the Identification Information Record and the Receipt of Funds Record must be completed at the same time. Do I have to track all funds received, or only those of $10,000 or more? You must have a report on file for all funds a REALTOR receives, called the Receipt of Funds Record. A sample form for this purpose is posted on REALTOR Link, and is available in WEBForms. A sample is also provided on Page 21 of this booklet. The content of this new record will be very similar to that of a large cash transaction record. However, it will apply when you receive any amount, whether or not it is in cash. If you have to keep a large cash transaction record, you will not have to keep a receipt of funds record for the same transaction. Also, if the information in a receipt of funds record is readily available in other records you have to keep under these rules, you do not have to keep it again. If the Receipt of Funds Record is about an entity, you will have to include the entity s address and nature of their principal business. In addition, if the record is about a corporation, you will also need to keep a copy of the part of the official corporate records that give the individual the power to sign documents on behalf of the corporation regarding the transaction. Is there a cash deposit of $10,000 or more? If yes, it must be reported to FINTRAC within 15 days of the cash being offered by the client, or potential client by using the Large Cash Transaction Report. No report is required if the funds are from a financial entity such as a chartered bank or Credit Union, or from the federal, provincial or municipal government, any crown agency, or a public hospital if these entities are involved as buyers or sellers. Please refer to the Definitions section on Page 13 for the parameters used for determining what a large cash transaction is. This requirement has been in effect since The potential penalty for non-compliance is up to $500,000 for the first offence, and a fine up to $1 million for all subsequent offences. 11

14 Are the buyers or sellers known terrorists? There is a registry of known terrorists or terrorist groups to use for verification on the FINTRAC website. Known terrorist property must be frozen under the Criminal Code. If anyone on the list is involved, you must not complete the transaction. Immediately report it to FINTRAC, and alert the security agencies or police. This requirement has been in effect since Are the buyers or sellers suspected terrorists? This may be a judgment call by the REALTOR. If you suspect control by a terrorist group, you must file a Suspicious Transaction Report (STR). This report must only be sent by hard copy to FINTRAC, which means registered mail or fax. The report must be filed within 30 calendar days. This requirement has been in effect since Failure to comply is viewed as a serious offence. The potential penalty for non-compliance is up to five years in prison, and a fine up to $2 million for each offence. Is there something suspicious about this transaction? This is a judgment call by the REALTOR. You must report if you have reasonable grounds to suspect a transaction is related to a money laundering or terrorist financing offence. If in doubt - better to report, than not to report. Those reasonable grounds can include substantial down payments in cash, or unusual sources for cash; funds drawn from an offshore bank; someone purchasing personal property under a corporate veil; no inspection of property, or multiple properties purchased in a short period of time, or buyer completing the closing with cash. This requirement has been in effect since What s new is the requirement to report even a suspicious attempted transaction. Attempted is defined as when an offer is presented, and not before. It means you have to file a report whether the transaction is completed or not, based on the suspicions of the REALTOR. Please refer to the Definitions section on Page 13 for the parameters used for determining what a suspicious attempted transaction is. In cases where a REALTOR has decided to file a suspicious report, they must not let the individual know they intend to, or have filed a report. They must not ask any questions that will arouse the client s suspicions. There is protection from civil or criminal liability for filing a FINTRAC report as long as it is done in good faith. The potential penalty for non-compliance is up to five years in prison, and a fine up to $2 million for each offence. 12

15 Definitions you need to know Individual Identification Information Record As of June 23rd, 2008, you must keep an Individual Identification Record for every purchase or sale of real estate. This form or report will set out the name, address, and date of birth of the client or customer, and the nature of the their principal business or occupation. Compliance Regime This is the compilation of broker office policies, and procedures required to comply with the federal legislations and regulations. A compliance regime must include appointment of a compliance officer, compliance policies and procedures in writing, a procedure for updating records, and an assessment and documentation of risks related to money laundering and terrorist financing for the office. Large cash transaction This is defined as any cash involved in a real estate transaction of $10,000 Cdn or more. Two transactions each of $5,000 or more executed within a 24 hour period should be considered as one. Mandatary A Mandatary is an agent or representative who has a specific mandate that does not detract from their regular profession. The mandate is usually specified in a service agreement. Receipt of Funds Record As of June 23rd, 2008, a REALTOR may have to complete and retain a new report called a Receipt of Funds Record. It will apply when you receive any amount, whether or not it is in cash. Suspicious transaction Defined as when there are reasonable grounds for a REALTOR to be suspicious of those involved in the transaction, or in the future use of the property. Those reasonable grounds can include a substantial down payment in cash, unusual sources for cash, a transfer from an offshore bank, someone purchasing personal property under a corporate veil, no inspection of property, multiple properties purchased in a short period of time, multiple sources of funds for deposit, or a buyer coming to the closing with cash. Suspicious attempted transaction Now the reasonable grounds used for a suspicious transaction also apply to an attempted transaction, and the report must be filed to FINTRAC once an offer is made. The report must be filed whether the client completes the transaction or not. Unrepresented entity A buyer or seller in a transaction not represented by a licensed real estate practitioner or member of the provincial bar association (lawyer). 13

16 These scenarios have been developed to help clarify who is responsible for what under the new compliance requirements. CREA recommends that REALTORS advise clients of the FINTRAC requirements BEFORE any real estate documents are signed. This is to avoid members being involved in a buyer agency or listing agreement, only to discover the client later refuses to provide the identification information now required by law. A REALTOR who continues to represent a client who refuses to provide identification information is in non-compliance of the law. Scenario One Two individuals are involved a buyer and a seller. The agent for each must complete the Individual Identification Report for their own client. The agent of the buyer must complete the Receipt of Funds record, even though the deposit may end up in the listing broker s account. The two agents do not share or exchange reports. The buyer s agent is required to make reasonable effort to get the information about the listing brokers trust account, where the deposit ended up. Each agent is responsible for filing a suspicious transaction report, if required. Scenario Two Two individuals are involved a buyer and a seller, but one of the individuals is unrepresented. The agent representing a client must complete the Individual Identification Information report for their own client, and take all reasonable measures to also acquire identification information of the unrepresented party and complete the Individual Identification Information Record. If the unrepresented individual refuses to provide the required information, this must be noted on the Record and the agent must also decide whether to send a suspicious transaction report to FINTRAC. If the agent represents the buyer, they must complete the Receipt of Funds record depending on where the deposit ends up. If it goes directly to an unlicenced individual, then a Receipt of Funds Record is not required. If there is no buyer agent, the listing broker would be responsible for the Receipt of Funds record. Scenario Three Two individuals are involved a buyer and a seller, but the same agent is representing both the buyer and the seller. In this case who does what is very clear. In this case it s that agent who completes the Individual Identification Information Record for the buyer and the seller, and must complete the Receipt of Funds record. Scenario Four There are two individuals involved, and one agent representing the buyer and another the seller. However, the buyer is in another country and will never meet their agent face-to-face. It is the responsibility of the broker representing the buyer to have a contract in place with an agent or mandatary who can then meet the buyer, and verify the identification information. Once that information has been verified, the rest of Scenario One would apply. Scenario Five Two individuals are involved. The real estate agent is representing the buyer, and the seller is a builder not licenced in the trading of real estate. The deposit goes directly from the buyer to the builder s trust account. In this case the buyer agent completes the Individual Identification Verification Record for their own client, and no Receipt of Funds Record would be required. 14

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24 Any questions or comments about the services or products CREA provides? You can contact us at CREA THE CANADIAN REAL ESTATE ASSOCIATION 200 CATHERINE STREET, 6TH FLOOR, OTTAWA, ONTARIO, K2P 2K9, TEL: (613) , FAX: (613)