New FINTRAC requirements: Some storm clouds have a silver lining

Kudos to you if you joined BCREA’s webinar on “Understanding the June FINTRAC Changes” on June 2.” You were among the over 4,400 Realtors who also attended. The Managing Brokers’ Community of Practice session on the same topic on May 19 was also popular with 302 attendees.

For most Realtors anti-money laundering and terrorist financing issues will not be among the key issues you deal with on a day-to-day basis, but that doesn’t make them any less important. As a profession, we understand the need to pay attention to this subject and ensure that we integrate any new obligations in our daily business, especially if we aspire to be an informed, experienced, and successful body of professionals.

So, what actually changed on June 1? Where are the changes coming from? And why might this be good news for real estate?

What changed on June 1?

The following BCREA infographic, summarizes the key changes to your anti-money laundering and terrorist financing reporting requirements:

Source: BCREA

For detailed explanations of the changes, visit BCREA’s extensive resources here. FINTRAC also released a summary of the new regulatory requirements for the real estate sector.

What were the most significant changes?

According to Simon Parham (Legal Counsel & Chief Privacy Officer, CREA), the most significant changes for Realtors are the new requirements to:

  • identify if an individual is a Politically Exposed Person (PEP), which includes a Head of an International Organization (HIO);
  • report on and verify beneficial ownership; and
  • report on large Virtual Currency transactions.

Politically Exposed Persons, Heads of International Organizations, and their associates:

As of June 1, you are required to determine if an individual is a PEP and if so, specific reporting requirements apply. These people hold a senior position in a government, military, judiciary, or international organization (e. g. United Nations, World Health Organization, UNICEF, etc.). The theory is the senior nature of a PEP’s position provides them with the potential to influence policy direction and/or the allocation of resources.

PEPs can be categorized as foreign or domestic, or an HIO. This would include the mayor of a Canadian city, town, village, or rural or metropolitan municipality, regardless of the size of the population. Your new reporting requirements also apply to working with close family members or associates of a foreign or domestic PEP or HIO. These people are considered to hold the same status as the individuals to whom they are associated. FINTRAC has a complete list of who qualifies as PEP or HIO here.

CREA says Realtors now have a legal obligation to ask if an individual they are dealing with is a PEP or HIO, especially if you work with foreign clients and/or high-ranking officials who are considered higher risk.

The silver lining in this new requirement is that other reporting entities to FINTRAC, such as financial institutions, have already been reporting on PEPs and HIOs and people who fit these descriptions are likely already aware of their status.

BCREA has a practice tip on when and how to determine if an individual is a PEP and another practice tip on what you need to do if you are dealing with a PEP.

Beneficial ownership:

A beneficial owner is defined by the Canadian federal anti-money laundering regulations as an individual who owns or controls 25 per cent or more of an entity. This could be through direct ownership or ownership of another entity. Sometimes, money launderers use corporate and other types of entity structures to conduct transactions or make purchases using proceeds of crime because structures provide an opportunity to remain anonymous and help to put extra layers between them and their money. That’s why it is important to know who is directing and benefitting from real estate transactions that are conducted by an entity.

As of June 1, real estate brokerages and indirectly their representatives, are required to obtain and verify beneficial ownership information for their entity clients. CREA says Commercial Realtors in particular need to pay attention to these types of transactions. The key to meeting this requirement is knowing your client so you can report suspicious activity. Money service businesses, banks, credit unions, securities dealers, and life insurance companies have long been required to determine the identity of individuals who ultimately own entities. BCREA has written a detailed explanation about the new requirement for Realtors here, including limitations of searches conducted in BC’s new Land Owner Transparency Registry.

Virtual currencies:

In response to the increasing popularity of virtual currencies such as bitcoin, real estate brokerages are now required to verify an individual’s identity, make a third-party determination, keep a record, and submit a report to FINTRAC when conducting a large virtual currency transaction.

CREA says virtual currency is not a wire transfer, money order, bank draft, cheque, eTransfer, or electronic funds transfer, or cash.

A large virtual currency transaction is defined as when a brokerage receives virtual currency valued at $10,000 or more, in a single transaction or multiple transactions from or on behalf of the same person or entity in a 24-hour period. Read more on this new FINTRAC requirement here.

Note: FINTRAC plans to facilitate electronic reports for large virtual currency transactions by May 2022. In the interim, CREA recommends that if you accept virtual currency, you should keep a record of it and report on it later when a reporting process is available.

Additional changes of interest to brokerages:

CREA recommends that Managing Brokers pay attention to the following changes of particular interest to their brokerage:

  • A business relationship is now established if a Realtor has conducted one activity to identify someone. (Previously, two activities to identify someone triggered a business relationship.)
  • 24-hour rule changes: Brokers now need to document within 24 hours, large cash transaction reports of $10,000 or more and include in their office policy manual what a 24-hour period includes (e. g. what hours) and ensure this policy is followed.
  • CREA’s Risk Assessment Form has been expanded to help brokerages explain how they assess their risk level and meet their requirements.

The areas highlighted above are the most significant FINTRAC requirement changes according to CREA. Please review all the support materials available from BCREA and CREA for more information on the overall changes as of June 1, 2021.

Where did the changes come from?

Canada is part of a global effort to fight money laundering and terrorist financing.

After the 9/11 terrorist attacks in the United States, countries around the world realized their economies were vulnerable to similar terrorist attacks and joined an international Financial Action Task Force (FATF). The group is a global money laundering and terrorist financial watchdog which sets international standards that aim to prevent illegal activities that cause harm to society. FATF members such as Canada, the US, the United Kingdom, Australia, Germany, France, China, India, and many others agreed to work together to implement the FATF’s recommendations in their own countries.

Since financial intelligence experts, governments, the media, and others in Canada feel our country’s real estate market is susceptible to money laundering and terrorist financing activities, you’re constantly seeing changes and increased burdens included in your obligations, as FINTRAC takes the intelligence you provide to them and builds cases for law enforcement groups.

So… what’s the good news?

With all these new obligations and changes to help combat money laundering and terrorist financing, Realtors have a number of resources to turn to for support, starting with lobbying and advocacy by CREA.

Given that the impact of 9/11 continues to influence government decision making around the world, your FINTRAC obligations likely will not go away. However, CREA is continually advocating to make these requirements as seamless and non-burdensome as possible. CREA staff are constantly lobbying government officials to try to ensure the obligations placed on you are realistic, clear, and efficient – especially in light of compliance costs.

One of CREA’s biggest political wins is obtaining an agreement from FINTRAC on a grace period for when the new requirements are enforced. FINTRAC agreed to delay enforcement of the requirements until March 31, 2022. That means, although the new requirements came into effect on June 1, you have some time to learn and adapt to them before fines will likely be applied.

And, there’s a plethora of resources available to you to help you learn and navigate the changes. For example:

Sources: BCREA, CREA & FVREB Communications