September 9th - 2013

FINTRAC compliance: Know your responsibilities

Enduring a FINTRAC audit takes time and effort, but failure to comply can have serious consequences for you and your brokerage.

White collar crime

White collar crimeEnduring a FINTRAC audit takes time and effort, but failure to comply can have serious consequences for you and your brokerage.

Knowing your responsibilities under this legislation is vital. FINTRAC, which stands for the Financial Transactions and Reports Analysis Centre of Canada, was established to enforce the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The Canadian government introduced the act after the attacks of Sept. 11, 2001 in the U.S. The legislation was accompanied by new regulations requiring certain targeted “high-risk” industries, including real estate, to implement client identification and record keeping requirements.

The main requirements of the original legislation were to have a compliance program in place and to report suspicious and large cash transactions of $10,000 or more. The act came into force in 2000 and was expanded in 2001. Amendments to the act in 2008 created more obligations for various professions and industries, including real estate brokerages, brokers and salespersons.

As one REALTOR® learned recently, the process of responding to a FINTRAC audit involves specific and detailed expectations that can be time-consuming, particularly for a small brokerage.

Larry Maisonville heads a small brokerage in Queensville, Ontario. Since entering the real estate business 22 years ago, he has always been careful to dot his ‘i’s and cross his ‘t’s. He is a stickler for detail, and he feels that quality came in handy after he was selected for a FINTRAC audit – although he admits he was still nervous.

“It’s not enough to fill in some forms and forget about it,” says Maisonville.  “If you’re a broker of record, don’t avoid thinking about FINTRAC. Don’t think it can’t happen to you, because that’s what I thought. You must examine what you’re doing and have a written program so that you’re prepared for an audit. Otherwise, it will keep you awake at night.” 

A total of 1,126 businesses across the country were audited by FINTRAC in the past year, including real estate brokerages, banks, insurance companies and other sectors covered by the legislation. FINTRAC routinely selects brokerages from across the country for random audits to ensure that they are complying with the act. Written compliance and training programs are now required, along with risk assessments and a complete review of compliance measures every two years.

Although Maisonville was confident that he had complied with all of his FINTRAC obligations, he found the process of preparing the documents (namely the training, business assessment and reviews) difficult. He enlisted the help of a FINTRAC consultant to help with his compliance program, which he said was beneficial in identifying some gaps in his original program.

“The audit involves a significant amount of paperwork and the timelines are not necessarily flexible,” he says. “Everyone in your brokerage must understand the program to enable you to prepare for risks. How can you be sure that you know who your clients are?” As part of his audit requirements, Maisonville ended up compiling more than 100 pages of documentation.

A large brokerage has more staff to quickly pull together the necessary documents, but smaller shops may find the prospect of an audit overwhelming, he says. In a small brokerage where staffing is limited or non-existent, an audit can be an onerous task for even the most conscientious broker, he notes.

Maisonville felt intimidated when he first received notice about an audit. Consider the opening statement in the correspondence from FINTRAC: “This letter confirms that your organization has been selected from a compliance examination to verify its compliance with the requirements of Part 1 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations.”

“Terrorist financing?! I was scared for a while,” Maisonville admits. “If my paperwork hadn’t been in order, I could have been facing some pretty stiff fines.” He advises other brokers to be acutely aware of their FINTRAC responsibilities and have written programs in place -- before the auditor comes calling.

Peter Lamey, the government spokesman for FINTRAC, says brokers must indeed take their financial responsibilities seriously. “We conduct exams to ensure that brokerages are complying with the act,” he says. “There have been monetary penalties in the past. When fines are issued, they tend to be proportional to the degree of non-compliance and the risk imposed on the system.”

Criminal penalties are another potential consequence for those who fail to comply, Lamey says. However, he notes that the FINTRAC requirements for accurate and thorough record-keeping serve a useful purpose under law. He points to a case in B.C., where FINTRAC documents led the police to arrest a man and issue a court order freezing $6 million of his real estate assets. In another case closer to home, a Hamilton brokerage was fined $27,000 for several violations, including: failure to appoint a person to be responsible for the implementation of a compliance program; failure to develop and apply written compliance policies and procedures that are kept up to date; and failure to assess and document risk.

“Record keeping obligations are now more extensive than they were before 2008,” Lamey says, although real estate professionals have been expected to comply since the act’s inception. The 2008 amendments ensure that FINTRAC is now in a better position to monitor requirements and assess whether brokerages are taking the necessary steps to meet their obligations, he says.

There are various reporting requirements for brokers under FINTRAC. Among them are responsibilities to:

  • Report where there are reasonable grounds to suspect that a transaction or an attempted transaction is related to the commission or attempted commission of a money-laundering offence or a terrorist activity financing offence;
  • Report where you know that there is property in your possession or control that is owned or controlled by or on behalf of a terrorist or a terrorist group;
  • Report large cash transactions involving amounts of $10,000 or more received in cash.

Brokers must also keep the following records:Office chair wrapped in police tape

  • Large cash transaction records
  • Receipt of funds records
  • Individual identification information records
  • Corporate/entity identification information records
  • Copies of suspicious transaction reports

Maisonville says most brokers know the basics of FINTRAC and its requirements, but the process of preparing all documents can be cumbersome on a tight deadline. A FINTRAC consultant helped him organize documents and develop an office manual. Other small brokerages may want to consider using a consultant as a way to save time and ensure the accuracy of the paperwork, he suggests.

“When you’re in business on your own, it’s a challenge,” he says. “You may be knowledgeable enough, but many of us in this line of work are too busy earning a living to have time for the level of administrative work involved.”

For more details about FINTRAC obligations, see FINTRAC Compliance in the OREApedia section of www.orea.com. See also the federal government’s FINTRAC website.

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