Real estate developers, brokers and sales representatives
Real estate developers, brokers and sales representatives must fulfill specific obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated Regulations to help combat money laundering and terrorist financing in Canada.
Real estate brokers and sales representatives
Under the PCMLTFA, you are considered to be a real estate broker or sales representative when you act as an agent for the purchase or sale of real estate and are registered and licensed to do so by the province. This includes the buying or selling of land, houses, commercial buildings, etc. As a broker or sales representative, you must fulfill specific obligations, even if you do not receive commission for the real estate transaction and regardless of whether you have related fiduciary duties with respect to the transaction.
As a real estate broker or sales representative, you do not have obligations as per the PCMLTFA for activities that relate to property management. This means that if you only deal in property management transactions, such as leases or rental management (not purchases or sales), the obligations explained further below do not apply to you.
If you are a real estate agent acting on behalf of a broker, the requirements explained further below are the responsibility of the broker, except with respect to reporting suspicious transactions and terrorist property, which is applicable to both you and the broker.
Real estate developers
A real estate developer means an individual or an entity other than a real estate broker or sales representative who, in any calendar year after 2007, has sold the following to the public:
- five or more new houses or condominium units;
- one or more new commercial or industrial buildings;
- one or more new multi-unit residential buildings each of which contains five or more residential units; or
- two or more new multi-unit residential buildings that together contain five or more residential units.
Sales to the public include those to an individual, a corporation or any other type of entity. Sales to the public exclude real estate transactions between affiliates and those between a subsidiary and its owner.
A new house or other building is one that was constructed within the past two years and was not occupied for its intended purpose before being sold. For example, a home occupied by a developer as a sales office would still qualify as a new home, as long as it is sold within two years of being built.
From the day you first meet any of these conditions regarding your sales, you will be considered a real estate developer for the rest of that year. You will also be considered a real estate developer in following years, regardless of whether you meet any of the conditions in those following years. In other words, once you are considered a real estate developer, you will remain as such from that day forward, until there is a substantial and permanent change to your operations. As a developer you must meet your PCMLTFA obligations when you act in the sale of property as listed above.
If you are a real estate developer that is a corporation, you are subject to these obligations whether you sell buildings on your own behalf or on behalf of a subsidiary or affiliate. In this context, an entity is affiliated with another entity if one of them is wholly-owned by the other, both are wholly-owned by the same entity or their financial statements are consolidated.
If, as a real estate developer, you engage a real estate broker or sales representative to act as your agent for sales to the public, the broker or sales representative will be responsible for the legislative obligations.
If you are an employee of a reporting entity, these requirements are the responsibility of your employer, except with respect to reporting suspicious transactions and terrorist property, which is applicable to both you and your employer.
Real estate brokers, developers and sales representatives as described above are responsible for providing FINTRAC with certain transaction reports, for implementing a compliance program and for keeping records that may be required for law enforcement investigations. Their obligations under the PCMLTFA and associated Regulations are described below.
A comprehensive and effective compliance program is the basis of meeting all of your obligations under the PCMLTFA and associated Regulations. During a FINTRAC examination, it is important to demonstrate that the required documentation is in place and that employees, agents, and all others authorized to act on your behalf are well trained and can effectively implement all the elements of your compliance program. A senior officer must approve the compliance program and the compliance officer must have the necessary authority to carry out the requirements of the program. You must:
- Appoint a compliance officer responsible for the implementation and oversight of the compliance program;
- Develop and apply written compliance policies and procedures that are kept up to date and approved by a senior officer;
- Apply and document a risk assessment, including mitigation measures and strategies;
- Develop and maintain a written training program for employees, agents, and others authorized to act on your behalf; and
- Review your compliance program (policies and procedures, risk assessment and training program) every two years for the purpose of testing its effectiveness.
See Guideline 4: Implementation of a compliance regime, the Risk-based approach guide and the Risk-based approach workbook for the real estate sector for more information on these obligations.
Know your client
As a real estate broker or sales representative, or as a real estate developer you must verify the identity of clients for certain activities and transactions according to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). Part of knowing your client includes following the methods to identify clients, as well as conducting certain additional activities as listed below:
- When to identify individuals and confirm the existence of entities – Real estate;
- Methods to identify individuals and confirm the existence of entities;
- Business relationship requirements;
- Ongoing monitoring requirements; and
- Third party determination requirements.
Real estate developers, brokers and sales representatives are required to complete reports about certain transactions and property and submit them to FINTRAC. Financial transaction reports are critical to FINTRAC’s ability to analyze transactions in order to develop financial intelligence that is disclosed to law enforcement and partner agencies. Therefore, the quality of your reporting will be reviewed by FINTRAC in examinations.
Suspicious transactions: Within 30 days of determining that 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 or terrorist activity financing offence, you must submit a report. See Guideline 2: Suspicious transactions, Guideline 3A: Submitting Suspicious Transaction Reports to FINTRAC electronically and Guideline 3B: Submitting Suspicious Transaction Reports to FINTRAC by paper.
Terrorist property: When you know that property in your possession or under your control is owned, controlled by or on behalf of a terrorist or a terrorist group, you must submit a report. You must also submit a report to the Royal Canadian Mounted Police (RCMP) and the Canadian Security Intelligence Service (CSIS). See Guideline 5: Submitting Terrorist Property Reports.
Large cash transactions: When you receive $10,000 CAD or more in cash either in a single transaction or in multiple transactions within a 24-hour period, you must submit a report within 15 calendar days. See Guideline 7A: Submitting Large Cash Transaction Reports to FINTRAC electronically and Guideline 7B: Submitting Large Cash Transaction Reports to FINTRAC by paper.
If you have a computer and an internet connection, you must submit all reports to FINTRAC electronically, except Terrorist Property reports, which can only be submitted on paper.
You are responsible for keeping certain transaction and client identification records. These records are to be kept in such a way that they can be provided to FINTRAC within 30 days if required to do so. See Record keeping for real estate for details.
Penalties for non-compliance
Non-compliance with Part 1 of the PCMLTFA may result in criminal or administrative penalties.
FINTRAC has created a Guidance glossary that defines certain terms used throughout its guidance documents.
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