Canadian anti-money laundering agency releases guide on suspicious real-estate transactions

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      Canada’s financial intelligence agency has released a guide designed to help spot money laundering in real estate.

      According to the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, the country’s real estate sector is a “large and susceptible market”.

      “Reporting entities dealing with real estate related transactions are vulnerable to exploitation for money laundering purposes, either wittingly or unwittingly,” the guide reads.

      In "Operational brief: Indicators of money laundering in financial transactions related to real estate", FINTRAC lists 39 indicators of dubious activity.

      Released last Monday (November 14), it was designed to help realtors and other professionals involved in real-estate transactions fulfill their legal obligation to report suspicious deals to FINTRAC.

      “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,” the instruction material notes.

      FINTRAC explains that money laundering “affects society in many ways”.

      “As an example, in the real estate sector, the injection of illicit funds into the housing market can artificially inflate selling prices thus making homes unaffordable, and increase the risk of investment losses when criminals move their operations to other markets,” the federal agency points out.

      According to the guide, common methods include “under-valuing or over-valuing of property value, rapid successive buying and selling, use of third parties or companies that distance the transaction from the criminal source of funds, witting participation by some lawyers, accountants, real estate agents and financial advisors, cash from criminal sources, and private sales”.

      “Criminal organizations often combine methods in novel ways in order to avoid the detection of money laundering,” the manual states.

      “As a result of the appearance of legitimacy provided by money laundering methods,” it continues, “reaching reasonable grounds to suspect that a transaction or attempted transaction is related to the commission or attempted commission of a money laundering offence, and submitting a suspicious transaction report to FINTRAC, requires more than a ‘gut feel’ or ‘hunch’, but does not require evidence that money laundering is actually occurring.”

      One indicator of possible money laundering is when a transaction is completed “anonymously, in collusion or innocently, through lawyer or notary”. In this case, money is deposited into a trust account of a lawyer or a notary.

      Another is the speed of the transaction: “Clients show considerable interest in transactions relating to buildings in particular areas without caring about the price they have to pay.”

      The guide made two references to foreign buyers.

      In one, the foreign buyer, who may be an individual or company, is “from a jurisdiction with strict bank secrecy laws, weak anti-money laundering regimes, or with a high level of political corruption”.

      In the second, the foreign buyer has no connection to Canada except for the real estate transaction.