The New Anti-Money Laundering Regulations The Canadian Real Estate Association

New FINTRAC Regulations In this presentation we’ll cover: Background & Players Current Requirements Major Changes Issues to be resolved CREA Resources Questions and Answers The Canadian Real Estate Association

New FINTRAC Regulations Some of the key players include: FATF – Paris-based agency sets international standards. They are concerned about the real estate industry globally. Finance Canada – studies FATF standards, then creates policy & law for Canada. FINTRAC – Canadian agency that implements laws, promotes compliance, gathers information and refers cases to police. The Canadian Real Estate Association

New FINTRAC Regulations Some of the background: PCMLTFA - Created in 2002 following the September 11th attacks on NYC. Real estate has been captured since 2002 because it has been identified as a “high risk” sector. (All Money Laundering cases have some real estate component) Other “high-risk” industries: banks, credit unions, securities dealers, foreign exchange dealers, casinos, etc The Canadian Real Estate Association

New FINTRAC Regulations These are the timelines: June 2005 – Canada responds to FATF recommendations 2 years of consultations, C-25 passed in 2006 Negotiations with CREA cut off in April 2007 New Regulations passed in June 2007 Guidelines prepared in winter 2007 & 2008 Real estate sector implementation date – June 23, 2008 The Canadian Real Estate Association

There have been 4 “pillars”: Current FINTRAC Requirements There have been 4 “pillars”: Compliance Officer required in every broker office; Develop and deliver compliance training program for all designated employees; Create office policies and procedures, and update them with new regulatory requirements; Report all large cash and suspicious transactions to FINTRAC The Canadian Real Estate Association

A summary of what’s new: New FINTRAC Requirements A summary of what’s new: Expanded reporting requirements; Expanded record keeping requirements; Expanded client identification (ID) requirements; New “5th pillar” of compliance – a broker self-assessment of risk and mitigation Now, let’s look at each one in a little more detail….. The Canadian Real Estate Association

New FINTRAC Requirements Expanded Reporting Requirements Receipt of Funds Record must be completed for every transaction by buyer agent; Suspicious ATTEMPTED transactions must be reported within 30 days. The “offer” triggers the need to report an attempted transaction (up to time of closing); You must not “tip off” the individual that you have, or intend to file, a report The Canadian Real Estate Association

New FINTRAC Requirements entre New FINTRAC Requirements Expanded Record Keeping Five kinds of information must be kept: Large Cash Transaction (not new) Form is on FINTRAC website Receipt of Funds Records(new) Form is on WEBForms™ or in Compliance Centre Client Information Record(new) Forms are on WEBForms™ or in Compliance Centre Suspicious Transaction Record (not new) The Canadian Real Estate Association

New FINTRAC Requirements Expanded Record Keeping ALL funds received must be recorded on a new “Receipt of Funds” record; Detailed individual information must now be obtained and kept on file; Detailed Corporate client identification must be obtained and kept on file; All reports must be secured in the brokerage, in electronic or hard copy, for five years; If requested by FINTRAC – all records must be produced within 30 days. The Canadian Real Estate Association

New FINTRAC Requirements When Records must be created Discuss FINTRAC compliance requirements before any real estate documents are signed. This is to ensure your client will not refuse to provide the required information after you have signed listing or buyer agency agreement. The Canadian Real Estate Association

New FINTRAC Requirements When Records must be created Individual Identification Information Record must be completed by closing. Corporate/Other Entity Identification Information Record should be completed at same time as Receipt of Funds Record. CREA Recommendation: identification records be completed for buyers when an offer is submitted and/or deposit made; identification for sellers be completed when they accept an offer. The Canadian Real Estate Association

New FINTRAC Regulations

New FINTRAC Requirements Receipt of Funds Record reflects money handled by real estate practitioner in transaction, NOT total value of the transaction; Must be completed by buyer agent, no matter where the deposit ends up; In transaction where one party may not be represented, real estate agent representing other party must complete this Record; Buyer agent must make reasonable effort to acquire trust account info of listing broker. If info is not available, indicate that on Record. The Canadian Real Estate Association

New FINTRAC Requirements Receipt of Funds Record If deposit ends up directly in the account of an unrepresented sector (lawyer, notary, builder, developer) then a Receipt of Funds Record is not required. The Canadian Real Estate Association

New FINTRAC Regulations

New FINTRAC Requirements Client ID Requirements This is area with most substantive changes. Brokers and Agents must: Verify client ID, date of birth, and occupation; Confirm the existence of the entity they represent; For unrepresented buyers or sellers attempt to collect identification and record findings; If suspicious, report to FINTRAC. Lorne Weiss section begins with this slide The Canadian Real Estate Association

New FINTRAC Requirements Special Client ID Requirements If the client is not present, you must use an agent (representative) or mandatary to identify clients on your behalf You MUST have a contractual agreement with the agent or mandatary in question If no agent/mandatary – you must use 2 of 5 methods approved by FINTRAC (Only for clients residing in Canada) CREA has provided template agreement for mandatary/agent service brokers can use. The Canadian Real Estate Association

New FINTRAC Requirements Special Client ID Requirements If the prospective buyer or seller resides overseas – “offshore buyers and sellers” You must use an agent or mandatary to identify your clients (i.e. an accredited real estate agent) You MUST have a contractual agreement with the agent or mandatary in question They must verify ORIGINAL identification documents, send copies to broker office You are ultimately responsible for what they do The Canadian Real Estate Association

New FINTRAC Requirements Identification of Corporations Confirm legal existence of corporation or entity; Verify certificate of corporate status; Verify records filed manually under provincial securities legislation; Confirm the names of the Directors of the corporation; Confirm individual’s mandate to represent the corporation in a real estate transaction. The Canadian Real Estate Association

New FINTRAC Requirements Identification of Entities Existence of entity must also be confirmed. Verify a partnership agreement Verify articles of association/corporation Verify an original document confirming the existence of entity. Verify mandate of individual representing entity in real estate transaction. The Canadian Real Estate Association

New FINTRAC Regulations

New FINTRAC Requirements Identification of Third Party Existence of third party must also be confirmed. Question of third party involvement in transaction must be asked of individual and corporate clients; If client denies involvement of third party but REALTOR® is suspicious, that should be noted on Identification Record; Third party defined by FINTRAC as someone/corporation issuing instructions to REALTOR® client. The Canadian Real Estate Association

New FINTRAC Regulations

New FINTRAC Requirements Self-Assessment of Risk This is the new “5th Pillar” of compliance. Engaging senior management in the detection and deterrence of money laundering and terrorist financing Built on a Risk-Based Approach Risk assessment of your business Risk mitigation, i.e. controls to handle risks Ongoing monitoring of higher risk transactions The Canadian Real Estate Association

New FINTRAC Requirements Self-Assessment of Risk Consider the following factors: Products & services + delivery channels Geographic locations where you operate Your clients & business relationships Any other relevant factor that exposes you Must be conducted once every 2 years Risk mitigation steps – to be determined CREA has prepared a checklist to assist brokers The Canadian Real Estate Association

New FINTRAC Regulations There is support available: Compliance Centre – 5 new modules CREA forms (P. 13 of booklet, or on REALTOR Link® Receipt of Funds Record Client Information Record Self-Assessment of Risk Checklist Support from Staff Consumer Brochure Compliance training video

Questions? New FINTRAC Regulations Many issues are addressed and explained in CREA booklet on FINTRAC Compliance, or on internet reference centre on www.realtorlink.ca. The Canadian Real Estate Association

The New Anti-Money Laundering Regulations The Canadian Real Estate Association