FINTRAC steps up examinations

Officials from FINTRAC say sales reps and brokers need to understand that every FINTRAC obligation and every transaction comes together to form a bigger picture. By Tony Palermo

In spring 2016, a spokesperson for the Fintrac Transaction and Reports Analysis Centre (FINTRAC), Canada’s financial intelligence unit, told REM that significant deficiencies in how some real estate salespeople and brokerages in the Vancouver area were handling their obligations under Canada’s anti-money laundering laws prompted them to increase the number of examinations they perform in the real estate sector right across the country.

REM has learned that since spring 2016 FINTRAC stepped up its examinations of salespeople and brokerages by more than 33 per cent from coast-to-coast, and actually quadrupled them in British Columbia. The majority of those examinations occurred in the Greater Vancouver Area.

The increased scrutiny revealed even more of what the financial watchdog calls “significant” and “very significant” non- compliance across all areas of the sector’s obligations under Canada’s Proceeds of Crime (money laundering) and Terrorist Financing Act (PCMLTFA) including with overall compliance regimes, policies and procedures ( or lack thereof), training, recordkeeping and reporting.

The three levels of non-compliance are limited, significant and very significant, says Renee

Bercier, senior communications officer with FINTRAC, adding that the overall degree of non­compliance is measured based on the severity and number of deficiencies found during an examination.

Bercier says that significant non-compliance “may include the presence of an excessive number of minor deficiencies, the presence of some serious deficiencies, or a combination of factors that places the entity within the threshold for significant non­compliance.”

Very significant non-compliance can include an unacceptable number of minor and serious deficiencies; or deficiencies of a very serious nature.

Michael Boole, manager, Regional Support Unit with FINTRAC’s Compliance Sector, says criminals who want to launder funds generally look towards industries that aren’t taking their obligations as seriously as others. He says money laundering is a huge problem, but it’s difficult to pinpoint how much money is laundered each year.

Still, Boole says it would be safe to estimate it is billions annually.

“And, when you have an industry that’s operating where even a minority, but a loud minority, are saying that money laundering isn’t occurring in their sector, it almost makes it worse for that sector, he says.

Boole says sales reps and brokers need to understand that every FINTRAC obligation and every transaction comes together to form a bigger picture. Frontline salespeople and brokers, he adds, are absolutely key to fighting money laundering, which is why it’s really important they understand every aspect of the transaction and embrace the idea that one obligation isn’t necessarily more important than another.

“It’s important for Realtors, and all reporting entities for that matter, whether they’re major franchises or independents, to meet their obligations in all areas (in order) to fight money laundering because every area really is intertwined,” says Boole.

Under Section 7 of the PCMLTFA, salespeople must report suspicious transactions to FINTRAC when there are reasonable grounds to suspect that a transaction (or an attempted transaction) is related to the attempted commission of a money laundering or terrorist activity offence.

“The “reasonable grounds to suspect’ part, that’s key, says Boole, adding that people are sometimes hesitant to report on others if they aren’t positive the individual is a criminal or that money laundering is definitely occurring. But as he says, it comes down to suspicion.

“Sometimes reporting entities look for a higher threshold they feel there is higher burden of proof where they have to prove their suspicions says Boole. But that’s not the case.

If you have reasonable grounds to suspect the indi­vidual is involved in criminal activity, at that point you’ve met your threshold to report it to FINTRAC.”

Behind the scenes, tactical analysts take all of the Suspicious Transaction Reports from across the different sectors and reporting entities and combine them together to produce a disclosure for law enforcement. As Boole says, it’s like piecing together a complex puzzle. The more pieces you have to work with, the better the picture becomes.

“So, certainly, the message is, if your part of the puzzle is missing or deficient in some way, it can really have a domino effect on the rest of our disclosure products and the intelligence that’s going out to law enforcement,” he says.

Boudreault agrees. “The role of the real estate agent is really important in the regime because they’re the ones with the face-to­face relationship with the client,” he says. “Sometimes, I’ll personally hear from the real estate sector that they don’t feel like they belong to the regime because all of the transactions go through the financial system and banks, but the banks don’t have the same face-to-face-dealings like the agent. The agent (is the one who) can help raise those flags to FINTRAC.”

It’s a message FINTRAC is trying hard to get across. So, in addition to increasing its exami­nations and enforcement within the real estate sector, FINTRAC also launched an education campaign, working closely with real estate associations and boards to educate all levels of the industry about its obligations under the act, and to better show how money laundering is occurring.

“What we’ve done since April 2016 is a lot of outreach,” says acting manager Alain Boudreault with FINTRAC’s Relationship Management Unit, Compliance Sector. “Something that had been brought up in the discussions last year with CREA and other Realtors was that they needed more specific information about how money was being laundered in real estate.”

This resulted in FINTRAC developing the recently released

12-page operation brief titled Indicators of Money Laundering in Financial Transactions Related to Real Estate (www.fintrac.gc.ca/publications/operation/real-eng.asp), which details 39 indicators that may indicate suspicious activity.

Last August, FINTRAC also released a risk-based approach workbook for the real estate sector