FINTRAC Policy

Understanding the Why...

Money laundering and terrorist activities continue to plague the globe. The government of Canada, along with other countries belonging to the FATF (Financial Action Task Force), has instituted legislation that aims to hinder illegal activities that fund crime. There are certain responsibilities that REALTORS®, their brokers, and other sales representatives have in order to suppress illegal financial transactions. In Canada, FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) and the PCMLTFA (Proceeds of Crime (Money Laundering) and Terrorist Financing Act) dictate the guidelines and best practices which must be followed.

The Canadian Real Estate Industry operates in compliance with the Federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).  Which is overseen by Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).   

The Financial Transaction and Reports Analysis Centre of Canada (FINTRAC) is Canada’s Financial Intelligence Unit (FIU). FINTRAC was created in 2000, through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Its mandate is to receive, collect, analyze, and disclose financial transactions which may be related to money laundering.

Since 2000 we have had a legal responsibility in Canada’s efforts to combat money laundering and terrorist financing.  Under these legal requirements, we are obligated to document proof of the identity and occupation of our client’s in each and every sales transaction and leases that involve large cash transfers.  We also need to be identifying all the bank accounts affected on deposits and sale transaction and large cash transfers on leases. 

Recommended Reading:  

https://globalnews.ca/news/6608644/canadian-real-estate-abysmal-anti-money-laundering-grades/

Understanding the What...

What is Money laundering?  Money laundering is the method by which criminals disguise the illegal origins of their wealth and protect their asset bases. They do so to avoid suspicion of law enforcement, and to prevent leaving a trail of incriminating evidence. In short, it is a multi-phase process designed to transform “dirty money” gained through illegal activities, into “clean money”, making it difficult to identify its origin. Money laundering typically has three stages: Placement simply places the proceeds of crime into the financial system. Layering transforms the “dirty money” into another form of currency and creates complex layers of financial transactions. Layering may involve transactions such as the buying and selling of stocks, commodities, or even property. Integration allows the funds to re-enter the economy under the perception of legitimacy.

The money laundering process is cyclical, with new dirty money constantly entering the financial system under the pretence of being legitimate. Money laundering offences involve a variety of acts committed with the intention of concealing or converting property, or the proceeds of property (such as money or real estate), knowing that they have been derived from the commission of a crime. 

What is Terrorist Financing?  The main objective of terrorist activity is to intimidate a population or compel a government to do something. This is done by intentionally killing, seriously harming or endangering an individual, or causing substantial property damage that is likely to seriously harm people. It can also be done by seriously interfering with, or disrupting, essential services, facilities, or systems.   Terrorists need financial support to carry out terroristic activities and achieve their goals. In one respect, terrorists are very similar to other types of criminal organizations in their manipulation of the financial system. A successful terrorist group is able to build and maintain an effective financial infrastructure. Terrorist groups need to ensure there is a way to have rapid access to funds in order to continue to commit terrorist acts. Terrorist financing is any use of funds intended to further terrorist activity. It may involve funds raised from money laundering, but also involves funds obtained from legitimate sources, such as personal donations, and profits from business and charities.

Recommended Reading:  

https://www.cbc.ca/news/canada/toronto/anti-corruption-group-claims-criminals-laundering-money-through-toronto-real-estate-1.5065777

The Global Strategy

Global Strategy The global anti-money laundering strategy crystallized in 1988 following the adoption of the United Nations Convention against Illegal Traffic in Narcotic Drugs and Psychotropic Substances. From this, the term of “proceeds of crime” was adopted, and the removal of these proceeds from the criminal environment was the primary goal. Depriving criminals of their illegal gains was not a new concept but doing so through the financial aspect was. 

Suspicious Transactions Report 

As the concept of involving the financial system evolved, the idea of suspicious transaction reporting was born. Governments, understanding that illegal funds were primarily transferred using cash, went to great lengths to focus on making illegal cash transactions more difficult. With the elimination of large denomination bills ($1000 for example), criminals now found it easy to amass large sums of small bills and hide them in large transactions. While the intent of suspicious financial reporting was initially to solely hinder the drug trade, over time, it was realized that suspicious transactions apply to all serious crimes, and the phrase “follow the money” was ever valuable. 

Financial Intelligence 

The increase in worldwide terrorist attacks put extreme pressure on governments worldwide to focus on financial intelligence as a critical element in both understanding, and deterring, acts of terrorism. The FATF adopted the FIU’s as a focal point for financial intelligence, and added nine recommendations to the initial 40, including adding counter-terrorism financing as a key focus. 

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated Regulations designate “real estate brokers” and “sales representatives” as reporting entities covered under the act and its regulations. 

The Brokerage is responsible for

It is the responsibility of every broker to establish a comprehensive compliance regime to prevent money laundering and terrorist financing on the front lines. In addition to the broker’s responsibility, sales representatives and all other employees play an important role in reducing money laundering and terrorist financing by strictly and consistently following established policies and procedures. 

The PCMLTFA requires brokers to establish a strict compliance regime. 

Each compliance regime must contain several elements, with the minimum being:

 • A compliance officer 

• Written policies and procedures which detail the brokerage’s approach to a PCMLTFA compliance program 

• Documented assessment of money laundering and terrorist financing risks, as well as documentation of all mitigation measures used during high risk activities 

• Ongoing training for all employees, sales representatives, and other persons acting on the brokerage’s behalf 

• A comprehensive review every two years on the policies, the training program, and their efficacy.

While the brokerage is ultimately responsible for the actions of all those employed by the brokerage, sales representatives hold key responsibilities under PCMLTFA regulations. 

Sales representatives are responsible for reporting

- Suspicious transactions, suspected terrorist property, large cash transactions Record Keeping 

- Large cash transactions, receipt of funds records, client information records, official corporate records, suspicious transaction reports, nature of business relationships, mitigation tools used to monitor business relationships 

Confirming Identity 

- Taking specific measures to identify any individual who conducts a large cash transaction, any individual or entity for whom a client information record or receipt of funds is kept, and any individual for whom a suspicious transaction report is sent 

Managing Business Relationships 

- Keeping records of any business relationship (meaning any individual or entity with whom the brokerage conducts two or more transactions in a 5 year period with) 

Third Party Determinations 

- Determining, to the best of their ability, if the client is performing a transaction on behalf of a third party, and when the client is acting on behalf of a third party, obtaining specific information about the individual providing the cash 

Responding to FINTRAC Requests 

- Brokers and sales representatives must provide information to FINTRAC at any time that a request to respond to FINTRAC’s compliance assessment report is received

Our Compliance Officer is Karen Grunlund – FINTRAC@HouseSigma.com

The duties of the Compliance Officer are as follows

1. to collaborate with the Fintrac web Administrator enroll with FINTRAC and obtain an ID number, logon id, and password for reporting purposes (It is not necessary to do this until you are faced with a situation that needs to be reported to FINTRAC);

2. to collaborate with the Fintrac Web Administrator to file any necessary reports with FINTRAC relating to suspicious transactions, large cash transactions, large virtual currency transactions or terrorist property;

3. to maintain associated records as required by FINTRAC;

4. to implement and administer a compliance regime for money laundering and terrorist property financing reporting; this includes the completion of the Compliance Assessment Report form when requested to do so by FINTRAC. 

5. to ensure that all employees/agents of the firm receive training and to keep a record indicating when those requiring such training received it; 

6. to ensure that all employees/agents receive ongoing training as required to remain current with legislative changes or changes to our firm’s policies and procedures; 

7. to collaborate with the Fintrac Web Administrator to prepare any necessary forms to facilitate reporting by employees/agents within our organization to the Compliance Officer;

8. to maintain lists of terrorist individuals and organizations available on the identified web sites for review by the firm’s staff/agents;

9. to assess the need to review compliance policies and procedures; 

10. stay up-to-date on FINTRAC information by subscribing online to the “FINTRAC Mailing List”  < https://www.fintrac-canafe.gc.ca/contact-contactez/list-liste-eng>; 

11. to advise agents if a business relationship has been entered into with a client and what actions agents must perform as a result; and

12. for the purposes of ongoing monitoring, to collaborate with the Fintrac Web Administrator to review the purpose and intended nature of business relationships and conduct risk re-assessments of clients.

IDENTIFICATION

The PCMLTFA and its regulations require that any time a REALTOR® acts as an agent in respect to a real estate transaction, they are required to create and maintain records on: 

- Client information Records

- Receipt of Funds Records

- Suspicious (complete or incomplete) transactions 

- Copies of official corporate records 

- Third Party Records

- Reasonable Method Records

- Politically Exposed Persons and Heads of International Organization Records

- Large cash transactions 

- Large Virtual Currency Transactions

Note:  Our Brokerage does not accept Cash Deposit or Virtual Currency.  This is noted on our Deposit Instruction Form

IDENTIFICATION METHODS 

are itemized on our  FINTRAC GUIDE and are in align with https://www.fintrac-canafe.gc.ca/guidance-directives/client-clientele/Guide11/11-eng

IDENTIFICATION REQUIREMENTS

The brokerage requires that

All transactions must have a completed (via Fintracker)

• Individual Identification each of the purchaser and/or third party or deposit provider

• Corporate Identification (if applicable)

• Receipt of Funds (If we are representing the buyer or when triggered by a large cash transaction)

The Individual Identification must

• use a valid means of identification

• include a full description of clients profession

• if an unrepresented party who was declined to be identified record the reasonable measure you took

• include a determination as to whether the client is acting on behalf of a 3rd party (and an earnest effort to identify that 3rd party)

• include an earnest effort to identify the risk level of the client

• include the reporting and recording of Business Relationship (ie is this a repeat client)

The Corporate Identification must

• be accompanies by the Articles of Incorporation. 

• must also include Individual Identification of the person signing for the corporation

• must include Individual Identification of any beneficiary owners (those listed on the Incorporation Documents with more than 25% ownership)

Additional Important Identification

• When completing their Identification due diligence the representative must be be watchful for individuals who could be identified as Politically Exposed or Heads of International Organizations as outlined in the section below

The Receipt of Funds must

• be completed for each purchase deposit

• record the information on the type of funds and how/why the funds were provided for each instance of deposit funds

• flag any instance of foreign currency

• flag any CASH deposits

• include the transactional reference number associated with the deposit (such as wire transfer)

• include the source account number the deposit was drawn on along with all other “affected” affected accounts.

• if the funds or a portion of the funds were provided by anyone other than the purchaser you must complete an Individual Identification for the deposit provider

On Leases

You are not required to identify your lease clients UNLESS they are providing a deposit in excess of 10,000 or prepaying a majority portion of the rent.

On Failed Transactions

On transactions where a Mutual Release has been required by our buyer and the deposit is being returned you must complete the identification and receipt of funds report along with all other FINRAC duties and obligations.

HouseSigma Policy on When to Use Remote Identification:

While HouseSigma provides agents with Fintracker for remote identification capability, face-to-face identification remains the preferred professional standard when practical.

Remote identification should be used when circumstances make face-to-face verification impractical, including when a client resides in a different province or territory, is temporarily outside Canada, has documented health or mobility limitations preventing travel, or when significant distance (2+ hours travel) makes an in-person meeting genuinely impractical.

Remote identification should NOT be used merely for agent or client convenience when face-to-face meeting is readily achievable, to avoid scheduling coordination, or as a routine default for local clients.

When remote identification is used, agents must document in the client file a brief explanation (1-2 sentences) of why remote ID was necessary instead of face-to-face verification. Examples of appropriate documentation include: "Client resides in Ontario, purchasing BC property remotely"; "Client currently overseas for work, transaction timeline requires completion"; or "Client has mobility limitations, unable to travel to office."

Known as Money Laundering / Terrorist Financing Indicators ML/TF indicators are potential red flags that could initiate suspicion or indicate that something may be unusual in the absence of a reasonable explanation. Red flags typically stem from one or more factual characteristics, behaviours, patterns or other contextual factors that identify irregularities related to financial transactions or attempted transactions. These often present inconsistencies with what is expected of your client based on what you know about them.  Our Fintrac Guide assists our realtors in identifying potentially suspicious transactions.

Any suspicious transactions should be brought to the attention of the Compliance Officer.  The Compliance Office will them meet their duty in reporting any suspicious transactions as outlined https://www.fintrac-canafe.gc.ca/guidance-directives/transaction-operation/Guide3/str-eng

Property is anything owned or controlled by a person or entity, whether tangible or intangible. It includes real and personal property, as well as deeds and instruments that give a title or right to property, or to receive money or goods. It also includes any property that has been converted or exchanged, or acquired from any conversion or exchange.

Criminal Code

Under subsection 83.1(1) of the Criminal Code, every person in Canada and every Canadian outside Canada must disclose without delay to the Commissioner of the Royal Canadian Mounted Police (RCMP) or to the Director of the Canadian Security Intelligence Service (CSIS) the existence of property in their possession or control that they know is owned or controlled by or on behalf of a terrorist group. In addition, you must disclose, to the RCMP or CSIS, information about any transaction or proposed transaction in respect of that property.

According to subsection 83.01(1) of the Criminal Code, a terrorist group is defined as:

• an entity that has as one of its purposes or activities facilitating or carrying out any terrorist activity,  

• a listed entity, or

• an association of such entities.

According to subsection 83.01(1) of the Criminal Code, a listed entity is one that appears on a list established under section 83.05 of the Criminal Code. This list is a public means of identifying a group or individuals as being associated with terrorist activity. You can consult this list on the Public Safety Canada website. An entity for these purposes could include a person, group, trust, partnership or fund, or an unincorporated association or organization.

Through the course of your normal business activities, you may come across information that leads you to determine that a client is associated with or is part of a terrorist group. This can occur when you come across:

• publicly-available information or media articles stating that your client has carried out or facilitated terrorist activity; or

• official, publicly-available lists relating to terrorist activity (for example, the Office of Foreign Assets Control (OFAC) and European Union (EU) lists).

The following records are retained in accordance with the published directive

Reports—a copy of every report sent to FINTRAC

1. • Suspicious Transaction Reports

   • Terrorist Property Reports

   • Large Cash Transaction Reports

   • Large Virtual Currency Transaction Reports

Large cash transaction records

Large virtual currency transaction records

Receipt of funds records

Information records

Identification of unrepresented party records

Further,

Identification, Information and Receipt of Funds Records are completed using the template forms provided by CREA in conjunction with our Local Real Estate Boards

The required Records are submitted by our sales representatives via our Deal Information Sheet with the appropriate "FINTRAC Designated fields"  complete.

The forms are stored on the secure HouseSigma Server and are filed by Transaction Address

The Deal Submission "FINTRAC Designated Fields" were added to facilitate our Risk Assessment  Reviews and Audits.

The compliance officer along with the web reporting administrator completes reporting on the following

Suspicious Transactions

• Large Cash Transactions - 24 Hour Rule  (not accepted) 

• Large Virtual Currency Transactions - 24 Hour Rule (not accepted)

• Electronic Funds Transfers (in or out of Canada)

• Terrorist Property

Without adherence to the policy we will not be paying out commissions on the transactions.

Our expectations is that you will work collaboratively and respectfully with our deals department

Non-Compliance or Non-Co Operation will result in any of the following

• Lead Pause

• Written Warning

• Termination of Contract

• Report to Fintrac Authority

• Report to RECO

Business Relationships

Where business relationship exists (meaning any individual or entity with whom the brokerage conducts two or more transactions in a 5 year period with), additional information and records must be kept: 

- Information on the purpose and intended nature of the business relationship 

- Information on the measures the broker and his representative have taken to continually monitor the business relationship 

These records must be maintained for 5 years.

As of June 1, 2021, any time a brokerage is required by law to identify your client, this is considered an “activity” that causes the broker and their brokerage to enter into a “business relationship” with that client under the PCMLTFA. See Section 3.1.2.12 below for more information.

Given the practical difficulty in tracking “activities” that create a business relationship HouseSigma Inc. Brokerage has chosen to to assume that we are in a business relationship with all of our clients.

All of our client records are documented on CREA’s template Client Information Record form

To assist in the ongoing monitoring of Business Relationships the Brokerage has added to our Deal Submission form  "FINTRAC Designated Fields" where-in sales representatives are asked to indicate if the client has transacted previously.

HouseSigma has implemented Fintracker to manage the ongoing monitoring required by Fintrac.