By Paul Pimentel

With media reports and international policy-making bodies pointing to Canadian real estate as a high-risk area for money laundering, and the promise of increased enforcement by regulators, it may be time for real estate brokers to review their compliance programs to ensure they’re up to snuff.

Real estate brokers and developers are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and, as such, are required to have compliance programs in place. As the sector has been subject to the act for more than a decade, it is likely that most brokers already have some form of compliance program in place.



The issue is whether these compliance programs meet the evolving requirements under the act – and there are many indications that they don’t. For example, between 2012 and 2016, FINTRAC, the agency charged with enforcing many of the provisions under the act, conducted 823 examinations of real estate companies and found that 60 per cent of those companies had “significant” or “very significant” deficiencies in their compliance programs.

Penalties for non-compliance are significant – companies can be subject to administrative penalties of up to $500,000 per violation. For example, in April 2016, FINTRAC fined Manulife Bank $1.15 million for reporting violations under the act. That said, the act has been largely unenforced since 2016, after the Federal Court of Appeal ruled that the way FINTRAC calculates fines is opaque and requires more transparency. FINTRAC essentially stopped issuing administrative monetary penalties until it completed a review of its penalty program. That review is scheduled to be completed by summer 2018, so more penalties may be on the way.

In the meantime, FINTRAC has increased audits of real estate companies. During the last two years, it conducted 343 real estate audits across the country, a significant increase from the number of annual examinations conducted between 2012 and 2016.

Given the context, it may be a prudent for brokers to review their compliance programs to ensure they are up to date and comply with the act. What follows is a review of the five basic compliance program requirements based on FINTRAC guidelines and some of the pitfalls brokers may face in implementation.

1. Compliance officer:

The first requirement of a compliance program is the appointment of an appropriate compliance officer, who is responsible for implementing the compliance program, including the necessary policies and procedures, ongoing training, risk assessment and effectiveness review. The challenge here is appointing an appropriate person. This is not a role for junior administrative staff. The compliance officer must have the authority and access to resources to effectively implement the program and make changes to it as necessary. In the case of a small business, the compliance officer could be a senior manager, or owner or operator of the business. In a larger business, it should be someone at a senior level who has direct access to senior management and the board of directors.

2. Compliance policies and procedures:

Compliance policies and procedures must be written and accessible to the intended audience. They must be frequently reviewed and always kept up to date in line with any material changes, such as changes to the act, newly identified non-compliance issues, the addition of new products or services or as a result of the required effectiveness review of the compliance program.

Compliance policies and procedures must describe the compliance program, including your risk assessment and mitigation measures, training program and procedures for reviewing the effectiveness of the program. Policies and procedures should also, among other things, detail “know your client” requirements (how you verify client identification), and the special measures that are implemented when high-risk transactions or clients are identified.

They must also cover your transaction reporting requirements, including suspicious transaction reports, terrorist property reports and large cash transaction reports, among others.

Suspicious transaction reporting is a particular area in which the real estate sector may be deficient. For example, FINTRAC estimates that five million real estate purchase and sale transactions took place between 2003 and 2013, yet they only received 127 suspicious transaction reports from real estate brokers, agents or developers.

CREA has made template policies and procedures available to brokers to help them meet this requirement. It is important to keep in mind that these must still be adapted for the specific brokerage. Each brokerage is different and the CREA templates must be customized to reflect the context of each individual brokerage.

3. Risk assessment:

The third basic compliance program requirement is an analysis of risks and vulnerabilities that could expose the business to money laundering activities. In conducting this assessment, risks associated with clients, business relationships, activity patterns and geographic locations, among other things, must be considered. The risk assessment should document the risks considered and the mitigation measures introduced to address factors that are high risk. They should be repeated every two years in conjunction with the required effectiveness review of the compliance program. The risk assessment and implementation of enhanced measures to mitigate high risks is perhaps one of the most challenging aspects of a compliance program. CREA has template risk assessment documents that can be drawn upon for this purpose. In addition, last year, FINTRAC released a real estate-specific workbook to assist brokers in conducting this risk assessment.

4. Ongoing training program:

A compliance program must include ongoing training, which must be in writing. The training program must detail who must be trained, what type of training is required and the topics covered, how training is provided and how often training is needed. It must document whether the training has taken place. The training itself, however, does not need to be in writing. The program should cover, among other things, money laundering concepts, your compliance policies and procedures, how to detect and prevent money laundering, reporting requirements, “know your client” and record keeping obligations.

5. Effectiveness review:

At least every two years, a broker must review the effectiveness of the compliance program. This review should address whether the policies and procedures, risk assessment and training program are effective and comply with the relevant legislative and regulatory requirements. The review should be conducted by someone who is not directly involved in the compliance program, such as the compliance officer. Though not required, a third party with adequate knowledge of the broker’s obligations under the act and its regulations would be an ideal candidate to conduct the review. Finally, the results of the review must be reported in writing to a senior officer in the organization within 30 days after the completion of the review.

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14 COMMENTS

  1. Private sellers of Real Estate are not required to do Fintrac as far as I know….that seems like a large loop hole…or am I mistaken. An individual could sell their property to a terrorist or money laundering group and no one would ever know…should they not have to comply as well?

    • A few years ago I had a local possible seller/owner in my farm area where I had had recent sales at the time of nearby properties, and he was living stateside. He refused to supply the ID I requested, telling him he needed to have his ID notarized by someone local where he was cut renting living. He refused unless I first agreed to his requests.

      He had turned a semi-detached house here into a illegal rooming house full of segments separated by deadbolts but only partially attached divider walls. The supposed Canadian owner lived in the states and was requesting that I handle and get rid of illegal tenants, and sell the property, and deal with the City, and deal with all his related money situations.

      I talked to the city who instructed that the now illegal structure had to be put back to its original floor-plan and status.

      I called a recommended by our BOR contact at FT to see what they had to say about the cross-border seller who seemed not quite straight. I was told not to bother reporting anything suspicious to FT unless and until money actually changed hands. No money changed hands.

      Some other agent did take the listing and after a long time, it did sell on MLS as a single family dwelling misrepresented I believe. But I was not involved.

      Since land registry must be involved with ALL changes of ownership maybe LRO should be the only ones to have to account for govt paperwork? eliminating the need for everyone else’s participation? That’s when the real money changes hands. Although the money itself doesn’t pass through LRO hands.

      We never hear of anything to do with LRO because only lawyers can “close and register” changes of ownership, since it is all done electronically. At least that is what I have been told.

      But recent REM reports say that lawyers have been disengaged by govt requirements regarding FT. Is that really true?

      Until money changes hands, FT does not want calls from real estate agents. No wonder there is such confusion.

      Carolyne L 🍁

  2. What ever happened to the trust that was given to Realtors to report suspicious transactions without having to fill out and maintain files on innocent people? Now we have to fill out 4 pages (really only one page) and keep these on file otherwise be liable for large fines. The banks and the lawyers also have to take ID when processing these deals so my questions is why do we have to do it as well? On our trade record sheets we have the lawyers name, the source of deposit (cash or if cheque bank and check number) and it would not be hard to add the bank financing the deal. This should be all that is required of real estate agents. If we think a transaction is suspicious then report it and submit a copy of the trade record sheet so the investigators can do their work. This sure would save a hell of a lot of time, money, resources and trees. I am from a smaller city and have been a realtor for almost 30 years. I have probably done about 1200 deals in this time and not once felt someone was laundering money or operating a terrorist cell. If a realtor is knowingly working with terrorists or money launderers then treat them like a criminal – not the rest of us innocent realtors who are helping innocent people buy and sell their homes.

  3. Mention the acronym FINTRAC and it seems the conspiracy theorists on the real estate side of the world very quickly get on with launching their beliefs. Thank heavens there are over 100,000+ realtors in Canada and the conspiracy theory’ army is so small — only 8 this time around.

  4. If the gov’t. would pay a bonus to every real estate agent who reported a suspicious transaction which resulted in a conviction, we’d still be waiting for our first cheque !!

  5. As usual, like any policy or program thought up by government, it targets the wrong people, and helps the ones with the most money or lobbying power. FINTRAC,as it is administered, is, and always will be, only smoke and mirrors to satisfy the international compliance requirements. CREA as usual is rolling over for their friends who host free cocktail evenings and rubber chicken dinners in Ottawa. Realtors are and always have been a soft target for government, mostly because we do not have powerful representation to resist unnecessary and unjust rules and burdens like the law profession does. Anyone with an ounce of common sense at any level of any governing body knows full well that the stats clearly show there is absolutely no need to have the residential real estate industry be burdened with such draconian rules.

  6. The only place that the “DIRTY LAUNDRY” is being done now is in the Lawyers office after hours, because they got themselves except from FINTRAC reporting. Its time to “WAKE UP” FINTRAC and you Gov’t “BOZOS”

  7. FINTRAC is a useless and expensive organization. They know it very well. I already wrote a couple of letters. Even one of them was answered by a Director. Of course, her answer was stupid, naive and with no sense (basically, she gave me the “politician version”) and she didn’t have the guts to answer my “second answer” (even after I left her a message in her voicemail)
    The problem is that they are still there because REM is an “insider magazine” and all the articles are read mostly by Realtors. (We have no power) I think that in order to make it more public and rattle their cage, we should send letters to newspapers. Any suggestion about this ?
    If FINTRAC would had been a private company and the employees would had salaries based on performance, FINTRAC would had declared bankruptcy a decade ago and all the employees would be surviving thanks to unemployment cheques.
    In the meantime, they are wasting $60M per year (more than SEVEN Billions since created). Can you imagine how much better our hospitals could be by using that money to have more and better equipments and more doctors to provide better services ??.
    HEY FINTRAC: Wake up and have the guts to answer !

  8. This is only for large cash transactions, right? What if you don’t have ANY, don’t accept cash, wouldn’t that be best? They are complaining they only had 127 suspicious transactions, out of 5 million, reported to them in 10 years……maybe that’s a good thing, maybe there weren’t any more, maybe all the rest were above board and did not need to be reported. Why would they complain there were not enough bad guys out there?

  9. Ok – for those of you having trouble getting the gist of this – I’m providing a glossary of terms:

    When you see “Terrorist” – insert “Tax Evader”
    When you see “Money Launderer” – insert “Tax Evader”
    When you see “Realtor” – insert “Unpaid Informant”
    When you see “Fintrac Auditor” – insert “Commissioned Fine Collector”
    When you see “Compliance” – insert “effective snitching”
    When your see “Compliance Officer” – insert “Unpaid Tax Collector”

    Do this and it becomes clearer.

    Honestly – if anyone is confused about the TRUE underlying objective of FINTRAC – and the reason Realtors seem to bear an undue burden – Phone your favorite Law Office and ask who their FINTRAC compliance officer is. They’ll think you just landed from the Planet Koozbane. (well, Mr Pimental? – Big as Denton’s is – you might have a Compliance Officer – do you?)
    The Canadian Bar Association had the foresight and cajones to tell CCRA and the Senate that client confidentiality created real limitations upon the disclosures Lawyers were prepared to make, without a Court Order.

    CREA, on the other hand, made no submissions to the Senate Sub-Committee what-so-ever.

    So – the Legal Profession who are, after all, usually the last line of defense on RE transactions and usually far more qualified to ascertain malfeasance – have established large exemptions from the more draconian aspects of the Legislation. Meanwhile – us poor schmoos line up to take our kicks if we fail to perform a disingenuous job we don’t really understand and are certainly unqualified to perform, even if we did.

    So much for national political advocacy. We remain, as always, soft targets for any Politician having a bad day.

  10. And the bureaucratic state continues to grow.

    Substantial rewards should be offered by FINTRAC to Realtors who report suspicious activities that result in charges and guilty verdicts. The A.M.P. stick won’t always work, but carrots might.

    I wonder how many automobile salespeople are targeted by FINTRAC for A.M.P.s? There must be hundreds of car sales for every real estate sale. Seems to me that many automobile deals are concluded with cash only. How hard can it be for a money launderer to buy a new $50,000. car with cash-in-hand and sell it the next day to another money launderer for $45,000. …cash? My example might seem to be simplistic, but organized crime often seems to be one step ahead of the bureaucrats. Maybe that is because chancy criminals are motivated by big payoffs whilst bureaucrats are nine-to-five salaried folks who simply shuffle files until quitting time. The motivational disparity is obvious. So is the motivational disparity between FINTRAC officials and Realtors, the chancy latter folks who have heretofore worked for big payoffs without the mantle of big government’s FBI-like librarian nit-picking hovering over them. SSSHHHHH! You are barking up the wrong tree FINTRAC.

    There is an old saying that goes like this: If you want something done right, do it yourself.

  11. Given the amount of time and resources to ensure compliance FINTRAC should be paying a salary to any compliance officer since the fines are quite hefty.

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