FINTRAC steps up brokerage audits

FINTRAC steps up brokerage audits
FINTRAC steps up brokerage audits

Significant deficiencies in how some salespeople and brokerages in the Vancouver area are handling their obligations under Canada’s anti-money laundering law has prompted Canada’s financial intelligence unit to increase the number of examinations it performs in the real estate sector right across the country.

“I don’t want to identify specific areas but I think it’s safe to assume FINTRAC is targeting larger markets where concerns have been raised,” says Darren Gibb, communications manager with The Financial Transactions and Reports Analysis Centre (FINTRAC).

In early to mid 2015, Gibb says FINTRAC received intelligence that prompted it to significantly increase its scrutiny of Vancouver real estate brokerages. Federal examiners looked at approximately 80 firms and discovered 55 instances of “significant and very significant deficiencies” in how some salespeople were fulfilling their obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In order of importance, Gibb says deficiencies were related to policies and procedures, risk assessment, recordkeeping and client identification.

Taking identification as an example, Gibb says all real estate salespeople have a responsibility to identify their clients, determine whether third parties are involved in transactions and keep accurate records. Verifying a client’s identity, he says, is as simple as checking and recording their government-issued identification.

“The international community and Government of Canada have acknowledged the real estate industry is vulnerable to money laundering,” says Gibb. “Money laundering is like the flow of water; it takes the path of least resistance. And, quite frankly, we’re seeing how real estate is being used to launder money.”

CREA vice president of government and public relations Randall McCauley says in this day and age, there is absolutely no excuse for Realtors not to ascertain their client’s ID during a transaction.

“Look, I’m on the road right now and I have to show my ID at least four times,” says McCauley. “I show it when I check in to the airport, again when I get to the airport gate, when I rent my car and when I check in to the hotel. So, I think it’s fair to say we need to do a better job collectively – organized real estate and Realtors – at respecting the rules, which are pretty clear and simple to understand.”

Still, McCauley also believes FINTRAC needs to do a better job at understanding the real estate business in its risk-based guidance approach to ensuring compliance. As an example, he points to a situation where a transaction is considered riskier and subject to enhanced due diligence if it’s the client’s second transaction within a five-year period with the same broker. This, says McCauley, fundamentally misunderstands the nature of the real estate business and helping families.

“Maybe the family has become larger and needs more space or are downsizing because the kids are off to a different school,” says McCauley. “I can’t give you any hard numbers but I can tell you this is very common and happens all of the time.”

As McCauley says, in this context, “there is no way that family should fit any definition of greater risk.”

Both sides agree there is more work to do to ensure compliance. Gibb says although the rules don’t change very often and are well-documented with plenty of support, FINTRAC is putting more attention on educating Realtors about why the rules are in place. He points to a recent webinar as early signs of success where the feedback received from Realtors was positive.

“The first half of the webinar went through the requirements under the act, but in the second half we had one of our intelligence officers explain and show how FINTRAC is seeing money laundering in the real estate sector,” says Gibb. “We’re trying to educate and break the denial (by Realtors) that money laundering doesn’t happen or that ‘it really doesn’t apply to me.’”

Although Gibb would not release any specific details about the Vancouver cases, he says where FINTRAC determines there are significant deficiencies, “enforcement action” is taken. Where “very significant deficiencies” are discovered as found in Vancouver, monetary penalties are levied. And those penalties can be high.

On Jan. 14, FINTRAC imposed an administrative penalty of $34,175 against Groupe Mackay, a real estate brokerage in Lachine, Que. for four identified deficiencies, one of which was “incomplete and inaccurate record keeping of client information, including those related to ascertaining client identity.”

The Real Estate Council of British Columbia responded to REM’s request for an interview by pointing to a press release dated March 18, which says the council supports FINTRAC in taking appropriate action against brokerages that do not comply with federal law, and another dated Apr. 1, which announces the hiring of a staff lawyer who will assist in the council’s investigations of potential licensee misconduct.

Leave a Reply

Your email address will not be published. Required fields are marked *