Realtors Combat Money Laundering

There are some serious changes happening in the world of real estate; changes that have been discussed and scrutinized behind the scenes for years, and will now come into effect.

The general public will soon become aware of these changes that are intended to combat money laundering.

They sure won’t make the lives of Realtors any easier…

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Imagine this scenario: a first-time buyer meets with a Realtor for the first time, and they discuss the buyers’ needs.  After discussing the ideal residential property and perhaps introducing the buyer to the fundamentals of mortgage financing, the Realtor asks the buyer for a copy of his birth certificate.

If you were the buyer, would you comply?

Changes are happening, like it or not.

And it’s not the Realtors themselves that are attempting to bring about these changes, however, the Realtors are being counted on to enforce them.

Some time after 9/11, while security was being tightened across the world, the real estate industry became scrutinized and ways in which people could launder money, falsify identities, or obtain illegal title to properties were identified.

It was determined not too long ago that perhaps the relationship between buyer/seller and Realtor needed to be taken to the next level in terms of the information shared between the two parties.  Simply put, the Realtors needed to better verify the identity of the buyers and sellers.

We all read the papers, and we all watch the news.  We hear about various real estate scams now and again, and real estate is not unlike any other industry where once and a while, things go sour. 

We’ve heard about incidents where a person has faked his/her identity, and falsified the title to a property, and successfully sold a property that didn’t belong to him/her and reaped the financial rewards!

We’ve heard about small scams off Craigslist or View-It where fraudsters have advertised properties for lease, collected first and last months rent from unsuspecting lessee’s, and absconded with the funds (don’t EVER enter in a real estate transaction off these websites, but that is a topic for another day).

The Financial Transactions and Reports Analysis Centre of Canada, or “FINTRAC,” collects analyzes and discloses financial information and intelligence on suspected money laundering and terrorist financing activities.  FINTRAC was created as part of a Canadian government initiative to fight money laundering and terrorist financing.  Businesses and industries who must report to FINTRAC are required to “know their clients,” and one of those industries is real estate.

Starting today, June 24th, 2008, Realtors have been given two new forms for use with their clients.

1) Individual Identification Information Record
2) Receipt of Funds Record

The Individual Identification Information Record is used to identify the buyers and sellers in the transactions:
1) full legal name of individual
2) address
3) date of birth
4) nature of principal business or occupation
5) type of identification document (drivers licence, passport, birth certificate)
6) document identifier number
7) issuing jurisdiction
8 ) document expiry date

Do YOU feel comfortable providing your Realtor with this information?

As of June 24th, 2008, you have no choice.

In fact, if a buyer or seller declines to provide any of the above eight pieces of information, Realtors are urged, but not required, to fill out a “suspicious persons report” and file it with FINTRAC.

As a Realtor, if a party to the transaction refuses to provide this information, you must ask yourself: “Do I really want to go ahead with this transaction?  What does this person have to hide?”

If you do go ahead with the transaction, you have to file the suspicious persons report to protect yourself.

If it’s determined that there was criminal activity involved in the transaction, and you neglected to file this report, you could face up to five years in prison and $2,000,000 in fines.

Yeah, really.

This begs the question: why don’t Realtors just file a suspicious persons report for EVERY transaction they do?  Then they can always be protected!  This isn’t really a solution.

What if the Realtor is afraid to file this report, because he/she is afraid of the client?  What if the Realtor suspects his/her client is associated with organized crime, a biker gang, or a white-collar criminal enterprise?

Things are getting very complicated.

Third parties are not excluded form these new forms.  Take the scenario where a young couple buys their first house and Mom or Dad provides the deposit cheque.  As a Realtor, we must have Mom or Dad fill out the form as well.  If they refuse, we are back to square one with the suspicious person’s report.

The second form, the Receipt of Funds Record, is used to track the monies used in a real estate transaction, and is designed to eliminate the act of money laundering:
1) amount and currency of funds received: a) if cash, indicate method of receipt, b) if cheque, indicate: account number, financial institution, name of account holder
2) date of receipt of funds
3) account where funds were deposited (same info as 1b)
4) purpose of funds
5) other details concerning receipt of funds

Just as with the first form, this second form requires the filing of a “suspicious persons report” if all the points are not complied with.

All these records must be kept for a period of five years by the Realtors.

So how do you feel about all this?

Well, I personally feel “it’s about time,” since this information is no different to what you would provide your bank or mortgage broker, who are related to the transaction involving real estate.

But keep in mind that the government, who is forcing Realtors to comply with the new rules, is NOT going to educate the general public.  No, that onus falls on Realtors, who will undoubtedly take the brunt of the complaints backlash.  The government feels that educating the general public would essentially equate to a lesson on how to get around the new rules.

Who doesn’t love socialism?

As a Realtor, and a person who is proactive and seeks preventative measures, I’m going to give a pamphlet on the new FINTRAC regulations to every single person that comes through the door at my open houses, and to every potential buyer or seller I encounter as soon as I give them my business card.

These rules are in place to protect people.

But if people won’t accept and abide by the rules, perhaps we need to protect these people from themselves…

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  1. curly sue says:

    Hi David, this was on the 6pm TV news, and will probably get a little more publicity, but then the realtors will be on their own, as you said.

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