2019 AML Updates For Real Estate

Background

On July 10, 2019 the highly anticipated final amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), and its enacted regulations, were published. This article is intended to give a high-level summary of changes as they relate to the real estate industry. If you’re the type that likes to read original legislative text, you can find it here. We also created a red-lined version of the regulations, with new content showing as tracked changes, which can be found here.

It is expected that all regulated entities will have to significantly revamp their AML compliance program due to the amount of changes. There are three different “coming into force” dates that should be noted.

June 25, 2019: a wording change from “original” to “authentic” related to identification. This is welcomed news for digital identification.
June 1, 2020: changes related to dealers in virtual currency (which do not apply to the Real Estate sector).
June 1, 2021: all other regulatory amendments.

While this does give regulated entities some time to get their AML compliance programs updated, we recommend that you start budgeting and planning from now.

Updated guidance from FINTRAC is expected to be seen ahead of coming into force dates. Given the legislative changes, there will be changes to FINTRAC policy interpretations as well, so be sure to monitor closely and save any interpretations that you may have used for due diligence purposes.

Hefty Disclaimer

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What Does This Mean For My Business?

As stated above, there are quite a number of changes, but only some have an impact on real estate developers, brokers, and sales representatives. We’ve summarized the changes that will impact the real estate sector below.

Identification

The final regulations replace the word “original” with “authentic”, and state that a document used for verification of identity must be “authentic, valid and current”. This means you can confirm identification, using acceptable documents presented by way of electronic means, so long as it can be authenticated. This will be helpful to real estate developers, brokers, and sales representatives that identify clients in a non-face-to-face manner. This change came into force on June 25, 2019.

Other changes to the identity verification requirements are as follows:

For credit file verification (single source), the credit file information must now be derived from more than one source.
For the dual source method, when relying on a credit report as part of a dual source, the credit file must have been in existence for at least six months. Additionally, the person or entity that is verifying the information cannot be a source.

FINTRAC Reporting

Virtual Currency

For real estate brokers, sales representatives and developers that conduct transactions that involve virtual currency, the final regulations introduce new reporting requirements for the receipt of CAD 10,000 or more of virtual currency. These basically are the same as large cash reporting obligations, including making a determination if the person from whom the virtual currency is received is acting on behalf of a third party, and will require reporting entities to maintain a large virtual currency transaction record.

The requirements for reporting and recordkeeping for virtual currency are very similar to cash reporting requirements.

24-hour rule

The final regulations clarify that multiple transactions performed by, or on behalf of, the same customer or entity within a 24-hour period are to be considered as a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For real estate developers, brokers, and sales representatives, this would apply to recipients of CAD 10,000 or more in cash or virtual currency.

Suspicious Transaction Reporting

Currently, if a reporting entity has reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations amended this to “as soon as reasonably practicable” after measures have been completed to establish that there are reasonable grounds to suspect that a transaction, or attempted transaction, is related to money laundering or terrorist financing.

This would require reports to be submitted to FINTRAC fairly soon after a reporting entity conducts an analysis that established reasonable grounds for suspicion. It will be important to have detailed processes for unusual transaction investigations. It will be interesting to see how FINTRAC looks at this obligation during examinations.

Terrorist Property Reporting

A very small change (or clarification), related to Terrorist Property Reports, has been made in the final regulations. The timing requirement for filing has changed from “without delay” to “immediately”. This means regulated entities need to report that they are in possession of terrorist property as soon as they become aware.

Schedules

The final regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. As it relates to real estate developers, brokers, and sales representatives, these changes will impact attempted suspicious and suspicious transaction reporting, terrorist property reporting, large cash reporting, and large virtual currency reporting. Examples of the new data fields are as follows:

every reference number that is connected to the transaction (including the sending and receiving addresses for virtual currency transactions);
type of device used by person who makes request online;
number that identifies device;
internet protocol address (IP address) used by device;
person’s user name; and
date and time of person’s online session in which request is made.

Such changes may mean working with your IT folks to ensure you are retaining the needed data in a format that will be easy to extract.

For more details on what has changed for reporting fields, a comparison of current and proposed FINTRAC report fields can be found here.

Compliance Program

Risk Assessment

One of the deficiencies identified in the Financial Action Task Force (FATF) review of Canada was not having a requirement to assess new technologies before their launch. The final amendments require all reporting entities to assess the risk related to products and their delivery channels, as well as the risk associated with the use of new technologies, prior to release.

This has been a best practice since the requirement to conduct a risk assessment came into force, but this change makes this a formal requirement. This will require strong communication and closer cooperation between compliance officers and teams involved in the development of new services or technology changes.

Training

Under current regulation, if real estate developers, brokers, and sales representatives use agents, mandataries or other persons to act on their behalf, they must develop and maintain a written, ongoing compliance training program for those agents, mandataries or other persons. The final regulations introduce an additional requirement, in which there must be a documented plan for the ongoing compliance training program and delivery of the training.

Records

There are some changes to the details that must be recorded in records that real estate brokers or sales representatives must maintain. In addition to new information that is required for reporting purposes (see the schedules section below), the final regulations add the requirement that information records must contain details of every person or entity for which they act as an agent or mandatary in respect of the purchase or sale of real property or immovables. Under the previous regulations, only information related to the person or entity purchasing real estate was required.

In cases where real estate brokers, sales representatives and developers were required to keep records related to reasonable measures to obtain certain information, the requirement has been removed with this round of changes. It is important to note that you must still take reasonable measures where necessary, and it is only the requirement to keep a record of the measures used that has been repealed.

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2019 AML Changes For The Real Estate Sector