If it looks and feels suspicious, report it

On November 14, 2016, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) released a document entitled Operational Brief: Indicators of Money Laundering in Financial Transactions Related to Real Estate.

At first blush, the document seems straight-forward enough. It emphasizes how important suspicious transaction reports are to fighting money laundering and terrorist financing and outlines indicators that should be consulted to determine if a transaction is suspicious in the real estate sector. Nothing new there, you might think. Possible indicators of suspicious transactions have long been outlined in FINTRAC’s Guideline 2: Suspicious Transactions; this document just goes into more detail.

However, upon closer inspection, two lines stand out:

  1. “Minimal filings of suspicious transaction reports regarding real estate transactions indicate a clear need for operational guidance…”
  2. “FINTRAC will use these indicators, along with other source of information, to assess compliance with reporting obligations.”

In other words, FINTRAC doesn’t appear too pleased with the level of suspicious transaction reports that have been filed in the real estate sector. They are telling the real estate sector – in hot pink neon lights – that they may take action against REALTORS® who fail to file reports when they are obligated to do so.

REALTORS® should continue to be vigilant about filing reports when they suspect that a completed or attempted purchase or sale transaction is related to money laundering or terrorist financing. Some of the indicators to keep an eye out for include:

  • A client inadequately explains the last minute substitution of the purchasing party’s name.
  • A company or individual has no email address, physical address, home or business telephone number (disconnected or fake), company logo or contact person.
  • A client refuses to provide their own name on documents or uses different names on offers to purchase, closing documents and deposit receipts.
  • Transactions carried out on behalf of minors, incapacitated persons or other persons who…appear to lack the economic capacity to make such purchases.

Take a look at the operational brief for more information.

Of course, each transaction is different, which means that some judgement and analysis is going to be required before filing a suspicious transaction report. Talk to your compliance officer to help you figure out what to do. That’s what they’re there for.

Now I suspect many REALTORS® question what impact reporting a suspicious transaction will have on their business. It’s important to remember that filing a suspicious transaction report does not mean the client is guilty of anything. It just means that something about the transaction is “off.” Filing a report does not mean you can’t go through with the transaction. You are free to do so, although you may want to chat with your compliance officer about whether it’s in your best interests to proceed. Also, keep in mind that FINTRAC is obligated by law to keep the suspicious transaction report confidential. The public will not know you filed a report.

Regardless, failing to file a suspicious transaction report when there are grounds to do so could make your life very unpleasant. There are significant penalties for failing to file (up to five years imprisonment and/or a fine of up to $2,000,000). Perhaps even worse, consider the damage to your reputation should you be found to have contravened the law.

As mentioned earlier, FINTRAC is telling the real estate sector they may be taking action against someone.

Do not be that someone.

The article above is for information purposes and is not legal advice or a substitute for legal counsel.

Simon Parham, Legal Counsel, is always on hand to provide helpful advice to CREA, Boards, and Associations on all aspects of federal legislation that can be reduced to an acronym, including: PIPEDA; FINTRAC; and the DNCL. In his spare time, Simon enjoys running, camping, discovering the world with his daughter, and planning his “big year.”

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