FINTRAC UPDATE (July 2018)

Does FINTRAC matter?

If lenders are suspicious, deals do not close.

Lenders can review a transaction right up to the time of closing.

If you are associated with a fraud artist, this will negatively affect your brand image.


Main Principles to Remember:

1. Know Your Client

     When you know your client, not only will you not have a FINTRAC issue, it will lead to successful closings and     

     referrals.

Always Ask: "How did you find me?"


In addition, send an email in advance asking the following information:

  • Have you signed an agreement with another realtor
  • Business Contact information (What is connection to Canada)
  • What type of property are you looking for?
  • What area?
  • Price range?
  • Do you own any other property?

2. Continue to build relationships with your database

     Contact everyone on your database at least once a year. Have system for contact (telephone, email, personal visit, 

     etc.)


     Follow up on their contact information and what their plans are for the coming year. Have they changed jobs,  

     been promoted? Are they planning to re-finance to buy another property or are they going to trade up?


     Not only are you building relationships, you are also satisfying FINTRAC requirements of monitoring your clients, 

     especially if you are doing more than 2 deals for them every 5 years.


What are FINTRAC Goals?

  • Detect Money Laundering and Terrorist Financing
  • Criminals who try to convert "dirt)/' money into "clean" money through the financial system, using real estate How do we stop this?
  • Properly identify clients
  • Keep a record of large cash transactions or multiple deposits
  • Report any suspicious transactions — flips, multiple deposits from different institutions, offshore accounts, deal is too complicated, acting for undisclosed third party

What is a Business Relationship?

  • It means that the client has done 2 transactions with you in the past 5 years
  • If it is a Business Relationship, then section D must also be completed
  • May require ongoing monitoring, if the client is high risk
  • Consider treating everyone as a Business Relationship
  • Always complete sections C & D

In June 2016 CREA announced that after several months of lobbying, FINTRAC has amended its interpretation on the definition of a business relationship and associated ongoing monitoring requirements. Several years ago, FINTRAC stated that a business relationship is formed when two transactions occur within five years with the same brokerage. Given this decision was and is contrary to the fundamental nature of REALTORS®’ business, CREA has lobbied extensively to change this interpretation.


As a result of CREA efforts, FINTRAC has changed its position to state that ongoing monitoring and record keeping requirements now start at the THIRD transaction. A business relationship is still formed at the end of the second transaction, however, the ongoing monitoring is only required if a third transaction occurs. This change will significantly reduce both time and effort required to comply with FINTRAC and demonstrates CREA’s commitment to reducing the burden on our sector.


Questions for monitoring

  • What is client source of funds?
  • Is there someone else who is the beneficial owner?
  • What are reasons for the transactions? Investment? Long term or quick flip
  • More information on what the client does for a living
  • Does the client occupation add up to the number of transactions being done?

Make sure that you always get updated client identification for section A


If High Risk or any concerns, contact Compliance Officer


How to fill out your forms, including new sections

o Examples of common problems:

  • Occupation must be completed properly
  • Cannot use Skype to identify a client who is not in front of you
  • Need to use a proper Mandatory

o Client Identification

  • Identify person yourself
  • Update contact information

            The process of identifying individuals has been improved to add more flexibility. There are now three methods                of identification:

      Single Process method:

       Using a single piece of federal/provincial government-issued photo identification.

    Dual Process method:

      Using two original, valid and current documents or information from independent and reliable sources (such as  

      utility bills, bank statements, CRA notice of assessment, Birth certificate, void cheque and credit card with a  

      financial institution).


   • Credit File method:

      Verifying that the client’s name, date of birth and address match information obtained from a Canadian credit 

      bureau that has been in existence for at least three years.


The Credit File and the Dual Process methods may be used for non-face-to-face identification.


O Occupation

  • It must be clear, "sales" or "self-employed" is not good enough
  • Same with "retired". Instead of retired, you can insert what they did for a living before they retired or for most of their career
  • Should put in industry, name of employer and address, position
  • Record jurisdiction, identification number, expiry date as well and date you recorded the information

Use client lawyer to assist if client refuses for any reasons, including privacy.


Receipt of funds record

  • Need to insert client bank account number if they use a bank draft
  • Also insert name of listing brokerage where funds are made payable to
  • Not the same for a certified cheque as account number is on the cheque
  • Make a copy or take a picture of the certified cheque
  • Corporation - proof of authorized signatory is required
  • Obtain Articles of Incorporation
  • Names and addresses for all Directors
  • Need to personally identify person signing for the corporation and anyone who owns 25% or more of the shares of the company

Mandatary – when you cannot identify in person

  • Can use lawyer, notary public, doctor, dentist, Professional Engineer
  • Need completed Brokerage/ Mandatary agreement
  • Must use identification from list noted above

o Powers of Attorney

  • You must make sure that the client has an original power of attorney
  • See if it has two witnesses
  • Ask if it was prepared by a lawyer
  • Call lawyer to see if it is still in force, if that is possible
  • Mortgage documents cannot be signed via power of attorney in most cases

Estates

  • Ask if there is an original will
  • Has the will been probated?
  • Should you wait until obtaining probate to list and sign agreement of purchase and sale or should you use an extension clause? Better to first contact estate lawyer to get a sense of how long the probate process is expected to take, and then have client make the decision

OUnrepresented Parties

For Sale By Owner (FSBO)

  • if they have not already been identified by another brokerage. If they refuse to provide ID, make a note of this on the identification form and hand it in.

Are there criteria to recognize suspicious transactions?

The following are examples that may lead to suspicious transactions:

  • Cash deposits
  • Client not identified in person
  • Client does not care about the condition of the property
  • Client changing name of buyer at the last minute, with no adequate explanation
  • Multiple deposits from different sources
  • Multiple transfer of same property in short time frame
  • Assignment agreements
  • Acting for a third party who is overseas
  • Intercompany transfers
  • Complex ownership structure
  • Client wants to close deal very quickly, even though seller not requiring it
  • Client finances and employment do not add up to what they are buying
  • Clients who put down deposit, cancel deal for no apparent reason, to obtain return of deposit
  • Client agrees to pay well over what they actually need to buy a property
  • Client wants to provide ID by fax or email and not in person
  • Client cancels deal after you insist on identifying them in person
  • No identity documents in their possession
  • How were they referred to you?
  • Border town properties being purchased
  • Main principle for your FINTRAC policies is to reduce risk by not acting whenever the transaction is suspicious


Brokerage FINTRAC policies

a) No cash deposit is to be accepted on any real estate transaction, without the approval of the Compliance Officer.

b) Must look at original photo ID and make a copy, if available. Otherwise copy information and date it.

c) All new clients are asked if they have done a transaction with our brokerage in the past 5 years.

d) No commission will be paid to any salesperson or broker unless all FINTRAC documentation, including client identification and receipt of funds record, if applicable, have been fully completed and submitted to the office.

e) If a client is in a Business Relationship, meaning that they have completed at least 2 transactions with our brokerage within the past 5 years, and the client is identified as low risk, then sections C and D of the identification record must be completed and submitted to the office.

f) If a client or Business Relationship is identified as being high risk, then this must be immediately reported to the Compliance Officer to determine whether additional ongoing monitoring measures must be undertaken.

g) If anyone is aware of any suspicious transaction or attempted suspicious transaction, at any time during the course of a real estate transaction, it is to be reported immediately to the Compliance Officer.


References:

Canadian Real Estate Association

Financial Transactions and Report Analysis Centre of Canada

Mark Weisleder, Partner at Real Estate Lawyers.ca LLP 

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