Compliance Regime

If you meet the definition of a ‘real estate developer’, there are a number of things you must have in place by February 20, 2009. These include: 

• Risk analysis report (assessing the risks that your company’s operations could be used for money laundering or terrorist financing, and how to deal with them)    More
• Person responsible for compliance (appointed to make sure your company meets FINTRAC requirements)    More
• Compliance policies and procedures (written, prepared and applied)    More  
• Staff training (for employees and people who act for you, such as non-licensed sales agents)  More

Every two years, you will also need to:

• Review (all of the above, for effectiveness and any updating)

Risk Assessment

Risk Analysis

Builders who qualify as ‘real estate developers’ under the legislation, must analyse how their company might be at risk of being used for money laundering or terrorist financing, and how they can address any high risk areas.

Small businesses do not have to prepare a long and complex report. But they do have to list:

• the products and services they offer and the level of risks they present (e.g., real estate has been identified as an element in more than half of the money laundering cases pursued by the RCMP, although the actual number of cases represented a minute percentage of the total volume of real estate transactions)
• the ways they interact with clients (e.g., taking customer information, preparing Offers to Purchase, accepting deposits) 
• where the risks are (e.g., sales staff may be asked to accept large cash payments)
• key indicators of suspicious transactions
• any special concerns (e.g., selling in a high crime area, selling to overseas buyers)
• past experience of problems, if any (e.g., have any units sold by your company in the past five years been used as grow-ops?)
• potential internal issues, if any (e.g., high turnover of sales staff, experience of theft or fraud)  
• recommended ways to deal with high risk operations or transaction types

This report can become a good starting point for your staff training. Its recommendations to handle high risk areas can also become a key part of the company’s written policies and procedures.

Your risk analysis is just a tool for assessing your company’s general level of risk for being used for money laundering or terrorist financing. You still need to stay alert to the risks of each individual case. Apply the ‘sniff test’ to every sales transaction, and make all required reports to FINTRAC.

Sample risk analysis

Click here for a sample risk analysis report for a small home building company.

Person responsible for compliance

Every ‘real estate developer’ must give someone the responsibility and resources to oversee compliance with the legislation (a ‘compliance officer’).

In a small business, that person will probably be the owner, or a senior manager who reports to the owner/board of directors. A sole proprietor can be his or her own compliance officer - or appoint another person. Large companies may want to have an individual at each site who will report to the company’s overall compliance officer.

Responsibilities would typically include:

• preparing and updating the company’s written compliance policies and procedures
• staff training
• monitoring record-keeping and reporting, to ensure compliance and identify risk areas
• overseeing or personally handling higher risk transactions, including:
  • the continued use of licensed outside real estate agents, if applicable
  • identification of corporations, partnerships and other ‘entities’
  • cash transactions
  • staff reports on potentially suspicious activity
• reporting to FINTRAC on large cash transactions and suspicious transactions
• reviewing effectiveness every two years

Often, it will make sense to have the same individual responsible for FINTRAC compliance as for privacy legislation.

Compliance policies and procedures

Every 'real estate developer' must have written policies and procedures setting out how they will comply with the legislation. Some examples of policy statements and related procedures are listed below.

1. It is the policy of this company to conduct all sales through an independent, outside, licensed real estate agent or broker.

Procedures:

• Valid contracts with licensed outside agents or brokers will be maintained at all times. These contracts shall clearly state:
  • the licensed real estate agent/broker’s responsibility for FINTRAC compliance for any sales it makes of our homes
  • that the agent/broker will hold our firm harmless in any actions taken by FINTRAC as a result of sales it makes of our homes
  • that if the relationship ends, the agents/brokers must provide our company with a copy of all FINTRAC records and reports they have made in the preceeding five years relating to sales of our company’s homes.
• If a contract is to be terminated or allowed to lapse, that shall be reported immediately to our compliance officer and the owner.
• If sales move in-house, the compliance officer and the owner will immediately bring in policies and procedures to ensure that our company complies with FINTRAC requirements.

OR

1.  It is the policy of this company that sales will be handled by the owner or in-house sales staff (employees) under the policies and procedures outlined below.

2. Senior management and all staff who deal with buyers will have a basic understanding of how our operations might be at risk for money laundering and terrorist financing, and our responsiblities under FINTRAC.

Procedures:

• All current managers and staff will receive training with appropriate updates every two years. FINTRAC requirements will be part of the orientation for new people.

3.  Our company will take action to make sure other people who act on our behalf also understand how our operations might be at risk for money laundering and terrorist financing, and what we require of them.

Procedures:

•  Any contract with people acting on behalf of our firm (e.g. a new home sales agency not using licensed real estate agents) will clearly state:
  • that the sales agency or similar is responsible for ensuring our firm fully complies with FINTRAC requirements for any sales it makes of our company’s homes
  • the measures the employees of the sales agency must carry out in relation to FINTRAC requirements when representing our firm
  • that all sales staff assigned to service our company will receive proper training in FINTRAC procedures, and how.

4.  Client identification will be recorded for all sales of residential units and investment properties.

Procedures:

• All Offers to Purchase will include lines for name, address, date of birth and occupation for each individual: 
  • buying on their own behalf (includes all individuals whose names will be listed as legal owners) 
  • representing a corporation, partnership, cooperative or other business-like legal entity
  • buying on behalf of a third party, and
  • third parties themselves (wherever possible) 
• The individuals will be asked to fill in the personal information as above 
• Our sales staff will record and verify that the individuals are who they say they are by seeing and recording the number, type and date of issue/expiry of appropriate government-issued identification documents such as a drivers license or passport. A photocopy of this ID will be attached to the file.
• All Offers to Purchase will include a declaration to be filled out by each buyer stating whether or not they are acting on behalf of a third party, and if so the name, address and contact information for that individual or company
• the Offer to Purchase must be referred to our compliance officer and the owner for additional client identification if:
  •  the purchaser is a corporation, partnership, cooperative or similar business entity
  • the buyers are not in Canada 

5. Receipt of Funds information will be recorded for every amount received towards each purchase.

Procedures: