Canada’s real estate market represents a large, vulnerable target for money laundering, according to new guidance from the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) that focuses on the under-reported money laundering risks that may arise in real estate transactions.
“Minimal filings of suspicious transaction reports regarding real estate transactions indicate a clear need for operational guidance,” FINTRAC’s guidance says, noting that firms involved in real estate transactions are vulnerable to being exploited to enable money laundering. This includes real estate agents and brokers, but also financial services firms such as banks and securities dealers.
“The exploitation of real estate by criminals for money laundering purposes is well recognized internationally and underscores the importance of quality reporting on relevant suspicious transactions,” FINTRAC’s guidance says.
Many countries are steeping up their efforts to combat the use of the real estate sector for money laundering after a report from the Financial Action Task Force found it to be “highly susceptible” for many reasons, including the variety of complex options for selling/purchasing/financing these sorts of deals with anonymity, FINTRAC’s guidance says.
“Although illicit funds seem to be laundered primarily through residential homes, corporate properties also play a role,” FINTRAC’s guidance notes, adding that its compliance examinations has revealed “deficiencies in most aspects of the real estate sector’s compliance programs that render it more vulnerable of being used by criminals to launder illicit funds.”
The report indicates that real estate brokers and agents may believe that money laundering risks are non-existent due to the involvement of heavily regulated financial services institutions in these transactions. In contrast, financial services institutions and securities dealers “may under-report because of an erroneous belief that brokers/agents/developers have already submitted suspicious transaction reports,” the guidance says.
“In fact, real estate involves many distinct types of financial transactions that may warrant the reporting of suspicious transaction reports,” FINTRAC’s guidance says. “For example, the suspicions surrounding deposits for a purchase may be primarily visible to and reported by real estate agents, brokers and developers, whereas those related to loans may be more visible to and reported by financial institutions.”
The guidance sets out indicators designed to help firms meet their obligations to report suspicious transactions or attempted suspicious transactions. FINTRAC uses these indicators, along with other sources of information, to assess compliance with reporting obligations.