Each year, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) audits hundreds of real estate brokerages across Canada to determine if they’re complying with anti-money laundering obligations.

If FINTRAC finds a brokerage isn’t meeting obligations, the broker can face a fine that can reach more than $250,000.

There are misconceptions about the role REALTORS^® play in helping the government stop money laundering and how these obligations may impact a broker’s business.

Understanding the following misconceptions will help you meet your obligations and minimize risk. 

Reality: Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), just because an agent or broker files a Suspicious Transaction Report doesn’t mean they can’t complete the real estate transaction. However, agents may wish to talk to the brokerage’s compliance officer to discuss how to proceed as the brokerage may have its own practices and procedures (for example, enhanced risk mitigation measures) when dealing with such transactions.

Reality: Account numbers don’t need to be recorded on a Receipt of Funds Record when funds are received in cash.

For greater clarity, account numbers are only necessary when an account is affected. Some examples of when accounts are affected are listed in D.2 of CREA’s Receipt of Funds Record. For all other forms of funds (cheque, wire transfer, e-transfer, certified cheque, or money order or bank draft when not paid for in cash) the account from which the money is withdrawn is deemed to have been affected and needs to be recorded on a Receipt of Funds Record.

Reality: Reports such as a Suspicious Transaction Report, which are designed to provide information to FINTRAC regarding possible money laundering activities, fall within a limited exception to privacy legislation. A Suspicious Transaction Report is submitted without the knowledge or consent of the individuals concerned. In fact, the PCMLTFA Regulations note you must not disclose that you have made, are making, or will make a Suspicious Transaction Report submission.   

Reality: Although FINTRAC temporarily permitted such methods during the beginning of the COVID-19 pandemic, it has since withdrawn those temporary measures. Now looking at a photo ID through video conferencing software such as Facetime, Google Meet, or Zoom is not enough.

You can use technology to verify the ID of a client if the technology can determine the document’s authenticity. This may require you to ask the client to scan their valid and current ID using the camera on their mobile device, and then use the technology to compare features of the ID to authenticate characteristics, security features, or markers. FINTRAC’s guidance on the subject.

Reality: In this case, the funds are going directly to a lawyer’s trust account. The onus for recording receipt of funds no longer rests with the broker or agent.

It’s important to note the interpretation of “receiving funds”. CREA’s understanding, through correspondence with FINTRAC, is that a broker or agent receives funds when funds are deposited into the brokerage’s trust account. However, if the funds don’t get deposited into the brokerage’s account, then no funds are deemed to have been received and no Receipt of Funds Record needs to be kept by the brokerages.

In other words, if no Realtor sees the money, then no Receipt of Funds Record is kept by the brokerage.

Reality: There are two exceptions to this practice.

1. If the agent has identified the client in a past transaction and the agent has no doubts about the information that was previously used to verify the identity/confirm existence of the client.
2. Brokerages don’t need to identify certain public bodies and very large corporations, a very large trust, or a consolidated subsidiary of these entities. A public body may include:
   1. a Canadian provincial or federal department or Crown Agency;
   2. incorporated Canadian municipal body (a town, for example); or
   3. a Canadian hospital authority.

A very large corporation or trust may include:

• an entity with net assets of $75 million or more on its last audited balance sheet.

FINTRAC provides more information on its website.

Reality: The strict legal position is that a failure to identify a client, for any reason, would place the broker in non-compliance with the PCMLTFA. However, FINTRAC has stated whether penalties are invoked for such a failure depends upon a complete analysis of a broker’s compliance history as well as their office’s compliance systems.

It’s entirely at a broker’s discretion whether or not to proceed with such transactions and, if a broker does proceed, FINTRAC advises the broker should submit a Suspicious Transaction Report.

Resources on member.CREA.ca, including an office FINTRAC policy manual template, FAQs, helpful contact details, and forms that can be used as step-by-step guides to a politically exposed person (PEP) and beneficial ownership obligations.

CREA also offers a free introduction to FINTRAC webinar on the CREA Learning Hub.

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

Source: Alim Jessa, CREA’s Legal Counsel.