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Mahatma Gandhi

2.2
MONEY LAUNDERING/
FINTRAC

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 2.2 Money Laundering/ FINTRAC

MONEY LAUNDERING
the process used to disguise the source of money
earned from criminal activities.

Money laundering is a criminal offence in Canada

under section 462.31(1) of the Criminal Code:

an offence is committed whenever someone deals in

any manner with property or the proceeds of
property with the intent to conceal or convert it,
knowing or believing that some or all of it was
obtained or derived as a result of the commission of
a designated offence
(e.g., drug trafficking, fraud, stock manipulation, tax
evasion) Real estate is attractive for money launderers for a variety of
reasons:
1. High Value: large amounts can be laundered in a single
transaction.
Negative Impacts of Money Laundering 2. Security: fairly secure and stable asset that cannot be stolen
1. May lead to increased corruption of public 3. Simplicity: does not require a high degree of sophistication
officials 4. Potential for Profit: typically increases in value over the long
2. Threatens the “rule of law” (accountability of term Conduct Unbecoming a Licensee
persons, institutions, and entities to follow our 5. Various Methods to Launder Money: use of separate legal
laws) entities• in
is contrary to the
real estate best interests ofand
purchases/sales, the unregulated lenders
public;
in financing
3. Erodes the public trust of professionals who
• undermines
6. Subjective Value:public
pricesconfidence in the
can be manipulated to control the
assist money launderers
real estate industry;
amount of money laundered in a transaction.
4. Facilitates and encourages criminal activity
• bringsthere
7. Oversight: the real
areestate
“weakindustry
spots”into
in the industry that
5. Reduces tax funds for public services (tax
disrepute
criminals can exploit
evasion)
6. Causes distortions in the market (real property) 8. Anonymity: The identity can be hidden through the use of
corporations, trusts, and nominees.
9. Speculative Component: criminals can flip properties as part
of their money laundering activities without necessarily raising
suspicion.

STAGES in the Money Laundering Process:

Stage 1: Stage 2: Stage 3:

Placement Layering Integration

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 2.2 Money Laundering/ FINTRAC

Stage 1: Stage 2: Stage 3:

Placement Layering Integration

Stage 1 - PLACEMENT:
Process of placing the proceeds of crime into the financial system
Examples:
• use of smurfs - arranging for multiple people to deposit small
amounts of cash at different financial institutions
• using dirty money to repay loans
• using dirty money for gambling (and then converting the
chips back into cash)
• blending dirty money with clean money in a cash-based
business
Stage 2 - LAYERING:
Converting the criminal funds into another form in order to conceal the criminal origins
of the proceeds
Most complicated part of the money laundering process
• Involves several complex transactions
• May involve sophisticated professionals (lawyers, accountants, investment
bankers)
Examples: cash deposits in other bank accounts, Split and merge between bank account

Stage 3 - INTEGRATION:
Reintroducing and reintegrating the laundered funds into the legitimate economy to
create the perception of legitimacy and having the funds appear to have been legally
earned
Examples:
• May renovate a property by paying cash, with the sale of the improved
property and the resulting profit appearing to be legally earned
• Purchasing high value item

Money Laundering Methods in Real Estate

1. Use of Corporate Entities, Trusts & Nominees 3. Unregulated Lenders

Beneficial ownership is not recorded in any land title offices Private and unregulated lenders are not subject to
in Canada reporting requirements under PCMLTFA.

2. Use of Cash
Purchasing, renting, renovating, lending, discharging
mortgages without lender involvement minimizes exposure
to suspicion
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 2.2 Money Laundering/ FINTRAC

“FINTRAC”

the Financial Transactions and Reports

Analysis Centre of Canada
Must know what FINTRAC
stands for

The PCMLTFA applies to:

• Real estate brokers FINTRAC is an independent government agency which
• Sales representatives operates at arm’s length from law enforcement.
• Real estate developers
FINTRAC collects, analyzes, & discloses information to
“Reporting entity” -acting as an agent for the purchase and law enforcement and national security agencies to
sale of any type of real estate. combat money laundering and terrorist financing.

DOES NOT APPLY: to a licensee’s Property Management

activities (e.g., leases or rental management)

Licensees have 4 KEY OBLIGATIONS:

1. Compliance 2. Know Your 4. Record

3. Reporting
Program Client Keeping

1. Compliance Program Parts of the Compliance Program:

- the overarching document for PCMLTFA compliance, at the brokerage
level 1. Compliance officer
2. Policies and Procedures
Managing brokers must establish a compliance program for their 3. Risk assessment
brokerage, which provides the structure that ensures that the obligations 4. Training Program
under the PCMLTFA are fulfilled. 5. Review – every 2 years

2. Know Your Client (KYC)

- each licensee identifies their own client only
KYC obligations can also extend to non-
A. Government-Issued Photo Identification Method clients, if they are not represented by
• “authentic, valid and current” another licensee
• must either examine the document in person, or virtually through
sophisticated software that will analyze its security features
NOT Permitted: viewing identification through video conferencing (Zoom, Skype)
FOUR TRIGGERS to Identify the
person/entity
B. Credit File Method: Matching personal information provided by the client to a
Trigger #1: Receipt of Funds
Canadian credit file that has been in existence for at least three years
Trigger #2: Purchase or Sale Transaction
Trigger #3: Large Cash Transaction
C. Dual Process Method: the name, address, date of birth, or confirmation of
Trigger #4: Suspicious Transactions
account must match what the individual provided to the licensee.

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 2.2 Money Laundering/ FINTRAC
1. Compliance 2. Know Your 4. Record
3. Reporting
Program Client Keeping

- 3rd party - a person/entity who instructs another person/entity to conduct

THIRD PARTIES an activity or financial transaction on their behalf.
- Creates separation between the criminal and the transaction by using
“nominees”
- Nominees: corporations, trusts, associates, friends, and family members
- 3rd party determination is required in purchase and sales transactions
and large cash transactions - take reasonable measures to determine if a
client is acting on behalf of someone else
- Done through a “Reasonable Measures Record”

How to Confirm the Existence of a Corporate Entity?

Corporations, Trust, Partnerships, Funds
Any record that confirms the corporation’s existence:
• Certificate of incorporation
• Certificate of active corporate status
• Record that has to be filed annually

Licensees must also verify the corporation’s name, address, and

the names of its directors.

3. REPORTING
- provide certain reports to FINTRAC (Not to BCFSA!)

A.Terrorist Property - report must also be sent to the RCMP and the Canadian Security Intelligence Service (CSIS).

B. Large Cash Transactions - $10,000 or more in cash in a single transaction, or multiple payments of cash that add up to
$10,000 or more in a 24-hour period (Report within 15 days)

C. Suspicious Transactions - is a key obligation upon licensees

Suspicious Transaction Reports (“STRs”) must be submitted to FINTRAC electronically as soon as practicable by a licensee
when you determine that there are reasonable grounds to SUSPECT that a transaction is related to money laundering (ML) or
terrorist financing (TF) offence

.
5. RECORD KEEPING
- Records must be kept in a manner such that they can be provided to FINTRAC within 30 days of a request
Must be kept for at least 5 years from the date it was submitted to FINTRAC:
• Suspicious Transaction Reports
• Large Cash Transaction Reports
• Client Information Records
• Receipt of Funds Record
• Unrepresented Party Record
.
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 2.2 Money Laundering/ FINTRAC
Administrative Monetary Penalties (“AMPs”)

o AMPs may range from $1 to $100,000 per violation

o AMPs are not issued automatically in response to non-compliance
o FINTRAC may disclose cases of non-compliance to law enforcement when there is extensive non-compliance
o FINTRAC must make public all AMPs imposed, including the names or entities that committed the conduct warranting an AMP.
Much of FINTRAC’s updated published guidance show a heightened readiness to impose AMPs against those who violate the policies
and objectives behind the PCMLTFA.

Non-compliance can result in administrative monetary penalties (“AMPs”), and/or criminal proceedings
Maximum criminal penalties include up to $2 million and/or 5 years of imprisonment

QUESTIONS:
1). Which of the following is an example of an action that a criminal may take during the placement stage of the money-laundering process?
(1) Arranging for multiple people to deposit small amounts of cash at different financial institutions
(2) Transferring money through a succession of bank accounts in different jurisdictions
(3) Selling real estate that was originally purchased using illicit cash to an unsuspecting buyer
(4) Frequently transferring ownership of a particular property between multiple acquaintances

2). Which of the following describes a method of identifying an individual that meets a licensee’s “Know Your Client” obligations under the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act?
(1) Viewing a client’s government-issued photo identification during a videoconferencing call
(2) Matching personal information provided by the client to a Canadian credit file that has been in existence for at least three years
(3) Reviewing a client’s provincial driver’s licence that has been expired for less than 6 months
(4) Referring to information from an offshore financial entity that confirms that the client holds a deposit account with that entity

3). A licensee is required to file a Suspicious Transaction Report when they think a transaction is related to a money laundering or terrorist
financing offence and it meets which of the following burdens of proof?
(1) Reasonable grounds to believe
(2) Reasonable grounds to suspect
(3) Belief beyond a reasonable doubt
(4) A simple suspicion

4). Which of the following is TRUE with respect to suspicious transactions under the Proceeds of Crime (Money Laundering) and Terrorist
Financing Act?
(1) The threshold for reporting a suspicious transaction is “reasonable grounds to believe”
(2) Suspicious Transaction Reports must be filed within 30 days of meeting the threshold for the filing of a Suspicious Transaction Report
(3) Suspicious Transaction Reports must be submitted electronically to the BCFSA
(4) Potential red flags that could initiate suspicion or indicate that something may be unusual without reasonable explanation are known as
money laundering/terrorist financing (“ML/TF”) indicators

5). Which of the following statements about FINTRAC’s Administrative Monetary Penalties (“AMPs”) is TRUE?
(1) FINTRAC is required to publish the names of the individuals or entities that have committed violations resulting in an AMP.
(2) FINTRAC will automatically issue an AMP whenever it receives evidence that a reporting entity has committed a violation.
(3) FINTRAC is required to disclose all cases of non-compliance to law enforcement agencies for the assessment of potential criminal charges.
(4) FINTRAC can impose a penalty of up to $2 million through an AMP.

Answers: Q.1 (1), Q.2(2), Q.3(2), Q.4(4), Q.5(1)

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