Catching money launderers

Money laundering. The process of concealing the source of illegally-obtained funds, and then using the funds in legitimate financial transactions—thus “cleaning” the money.

The financial scale of real estate transactions in Canada makes them a tempting cover for money laundering. A single real estate transaction could launder hundreds of thousands or even millions of dollars, but real estate professionals rarely report any suspicions they may have. From 2003-2013 the Canadian Mortgage and Housing Corporation (CMHC) reported more than $9 trillion in mortgage loans and about five million real estate transactions across Canada, yet over the same period, FINTRAC received only 279 suspicious transaction reports. That’s a rate of 0.006%.

Real estate and mortgage professionals are in an excellent position to spot money laundering, as they are intimately acquainted with real estate transaction details. And, since 2008, real estate professionals have been required to gather identification information for FINTRAC from their buyers and sellers in an effort to stop money laundering and terrorist financing operations.

So how do you spot it? FINTRAC recently released an Operational Brief for Indicators of Money Laundering in Financial Transactions Related to Real Estate. It outlines the leading indicators money laundering in real estate.

Indicators:

Value: Is the mortgage that the buyer requesting greater than the value of the property? Did your buyer ask you to put a purchase price on an offer different than what they are actually going to offer?

Anonymity: Is your client purchasing on behalf of someone else or on behalf of a company? Is a different name on the deposit cheques? Have you never actually met your client and is the transaction being done through a lawyer? Is a purchasing company’s ownership structure unnecessarily complicated? Does your client refuse to put their own name on documents?

Flipping: Is your client re-purchasing a property they recently sold? Does your listing show a number of recent sales in a short time period?

Transaction speed: Is your client pestering you to complete a transaction quickly without interest in negotiations, risks, commissions, or other important details?

Loan: Does the mortgage agreement have unusual conditions, is it unnecessarily complex, or is an outside company loaning money?

Renovations: Were large renovations paid with cash by the seller? Was there payment but no apparent work done?

Income-generating properties: Is the property supposed to generate income, but your client seems uninterested in filling vacancies, cash flow, or profit?

Structuring: Are there multiple cash payments or bank drafts that don’t indicate the true payer?

Geography: If your client is a foreign buyer, are the funds coming from a country with strict banking secrecy laws, political corruption, or weak anti-money laundering schemes? Is this real estate transaction your client’s only connection to Canada?

Inconsistency: Is your client purchasing property through their company, yet it appears they intend it for personal use? Does the property make sense for your client’s company considering their business? Does your client talk about assets, business value, or cash flow that isn’t reflected in their documents?

Defaulting: Is your client missing mortgage payments from the get-go? Did your buyer client end a deal after providing a deposit cheque and then seeking a cheque from a lawyer’s office in return?

Direct: Is the deal going through without a real estate professional taking part? Is your client showing loan funds but lacks a mortgage agreement with a lender? Is your client assuming a mortgage without involving a financial institution? Are multiple, unknown investors purchasing the property?

If you encounter any of these indicators, it may not mean any money laundering is taking place, but you should do some due diligence. Begin by asking your client direct questions about what you’ve observed and about any discrepancies in their documents or statements. If answers to your questions create more red flags, talk to your broker and contact FINTRAC.