What home builders need to know about anti-money laundering compliance

What is FINTRAC?

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada’s financial intelligence unit. Its mandate is to detect, prevent, and deter money laundering and terrorist financing activities. It’s enabling legislation – the Proceeds of Crime (Money Laundering) and Terrorist Financing Act – is aimed at meeting Canada’s international obligations to fight cross-border crime and terrorism, and to help Canadian law enforcement respond to organized crime. It achieves this by placing obligations for customer identification and record keeping on businesses susceptible to money laundering.

Records of financial transactions reported to FINTRAC are used to provide intelligence to law enforcement. This intelligence is only as good as the information provided to it from those business required comply with the Act. As a result, FINTRAC can audit the compliance programs of those businesses to ensure there are effectively designed and operating to help FINTRAC meet its obligations. Program deficiencies and inadequate record keeping can result in monetary penalties ranging from $1,000 to $500,000 per violation. In cases of deliberate violations of the Act, criminal charges can be laid with penalties including imprisonment.

In 2021, FINTRAC administered separate penalties of $31,350 and $66,742.50 to real estate businesses for non-compliance. The consequences can be significant, but they are avoidable.

FINTRAC and Real Estate

Those businesses required to be FINTRAC-compliant include real estate developers, brokers, and sales agents. Concerns about money laundering in the real estate sector have been front-page news for some time, prompting concerns about attracting the illicit profits from organized crime and eroding housing affordability for Canadians. It’s no wonder that for the past three years in a row, the real estate sector has seen the most compliance audits by FINTRAC.

Learn more about money laundering and the Canadian real estate sector:

https://www.macleans.ca/economy/realestateeconomy/b-c-s-money-laundering-crisis-goes-national/

Compliance for Real Estate Developers (Home Builders)

FINTRAC defines a real estate developer as anyone who, in any calendar year since 2007, has sold to the public:

• Five or more new houses or condominium units,
• One or more new commercial or industrial buildings,
• One or more new multi-unit residential buildings each of which contains five or more residential units, or
• Two or more new multi-unit residential buildings that together contains five or more residential units.

If your business has met these thresholds, in any year since 2007, you are required to implement and maintain a FINTRAC compliance program as long as you are developing real estate, even if not at this volume.

FINTRAC Program Requirements

The required elements of a FINTRAC compliance program are:

1. Appoint a compliance officer responsible for the implementation and oversight of the compliance program;
2. Develop and apply written compliance policies and procedures that are kept up to date and approved by a senior officer;
3. Apply and document a risk assessment, including mitigation measures and strategies;
4. Develop and maintain a written training program for employees, agents, and others authorized to act on your behalf; and
5. Review your compliance program every two years for the purpose of testing its effectiveness.

A key part of your compliance program is Know Your Client, requiring specific methods to confirm the identity of persons purchasing real estate units, including identification of transactions made on behalf of third parties. Additional on-going monitoring is required for high-risk clients or politically exposed persons.

You are also required to provide FINTRAC with specific reports in certain circumstances:

• Suspicious Transaction Reports: when you have reasonable grounds to suspect that a transaction is related to the commission or attempted commission of a money laundering or terrorist financing offence
• Terrorist Property Reports: when you know that property in your possession is owned or controlled by a terrorist or terrorist group
• Large Cash Transaction Reports: when you receive $10,000 or more in a single transaction or in multiple transactions within a 24-hour period

FINTRAC can assess sanctions for missing, incomplete, or inadequate program elements, client and transaction records, or required reports. Those businesses sanctioned by FINTRAC are named on the Government of Canada’s website.

How MNP Can Help

For those real estate developers who have recently committed to meeting their FINTRAC compliance obligations, MNP can work with your team to develop some or all of your compliance program elements. Our subject matter expertise can be a resource for your staff in writing the policies and procedures or training program, or support the development of a risk assessment. For resource-constrained developers, we have a foundational compliance program that can be readily customized to your specific business, allowing you to move into compliance with relatively minimal effort and cost.

Once your compliance program has been developed and implemented, let MNP support your continued compliance efforts through the required biennial compliance effectiveness review. Our independent anti-money laundering experts review your program, provide insight into regulatory changes and program enhancements, and help you balance your compliance obligations with the realities of your current business.