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Toronto Real Estate Facing Increased Scrutiny Amid Money Laundering Suspicions

Toronto Real Estate Facing Increased Scrutiny Amid Money Laundering Suspicions
4 min. read

Toronto Real Estate

Without regulation, real estate industries around the world are vulnerable to money laundering. This is why Canadian federal law requires real estate agents to file reports on any transactions they find suspicious. Some say these laws either don’t go far enough or are not being enforced. As a result, FINTRAC, Canada’s national anti-money laundering agency, will step up the number and the extent of the audits it does. The Toronto real estate market is especially targeted.

A Closer Look at the Law

According to federal law, any individual or entity that is licensed or registered to buy or sell real estate in a province is required to file suspicious transaction reports. According to one report from CREA (Canadian Real Estate Association), there were more than two-and-a-half million real estate transactions between 2013 and 2017 but fewer than 200 suspicious transactions reports. This despite the fact that, according to a study from the C.D. Howe Institute, as much as $100 billion may be laundered each year through Canadian real estate.

In its latest annual report, FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), stresses the importance of disclosing these suspicious transactions:

“These reports are critical to the centre’s analytical process and the financial intelligence it generates for police, law enforcement and national security agencies. Because suspicious transaction reports have a narrative component, these reports have the potential to provide tremendous intelligence value to the centre.”

The Issue Could Be One of Self-Reporting

As efforts to monitor real estate transactions are increased, some wonder if the small number of reports is the result of those in the real estate field focusing on their clients rather than self-reporting any potentially suspicious activities. The agents may or may not know what’s going on, but the primary job of a real estate professional is to serve their client. Some question the wisdom of asking those same agents to effectively police the financial activities of the very clients they are trying to please.

The Upswing in FINTRAC Enforcement

Between 2016 and 2017, FINTRAC increased enforcement efforts by carrying out more than 150 compliance evaluations on professionals within the real estate sector. They also note that while the number of suspicious transaction reports is still low, they are more than triple what they were just three years ago when a total of 32 reports were filed.

Moving forward, Dino Roberge, a spokesperson for FINTRAC, noted:

“For 2018-2019, FINTRAC has planned a significant number of compliance examinations in the real estate sector. Subsequent to these examinations, should it be warranted, FINTRAC will pursue additional actions to change non-compliant behaviour, including follow-up examinations, action plans, administrative monetary penalties, or disclosure of non-compliance to law enforcement,” as cited in The Star.

Moving the Focus from Vancouver to Toronto

Many of the FINTRAC audits have understandably focused on Vancouver, where organized crime groups have been laundering money through real estate transactions for years. As British Columbia has put its own two-point plan into place, Toronto real estate has increasingly been seen as open to abuse. Until now, that is.

Concerns Have Been Raised for Years

More than two years ago, the Financial Action Task Force (FATF), an international organization that works to evaluate risk for corruption and crime, sounded the alarm bells that Canada was at a high risk for money laundering by terrorists and those in the drug trade. They pointed specifically to vulnerabilities in the real estate sector. The report stated:

“It is suspected that criminally inclined real estate professionals, notably real estate lawyers, are used to facilitate money laundering. Organized crime groups involved in mortgage fraud appear to launder funds through banks, money services businesses, legitimate businesses and trust accounts.”

The FAFT was not the only organization that was concerned about the Canadian real estate sector—the Canada Revenue Agency has also been looking at the real estate sector for its part in tax evasion schemes. Through audits, they have found more than half-a-billion dollars in unpaid taxes related to real estate transactions.

The Red Real Estate Flags

In the FINTRAC brief, several red flags were listed as issues that real estate professionals should be on the lookout for:

  • under- and over-valuation of a property
  • fast flipping
  • anonymous ownership or complicated ownership structures
  • large cash transactions
  • inflated mortgages
  • private sales
  • the use of P.O. boxes instead of real addresses
  • funds from nations with political corruption, weak anti-money laundering laws or banking secrecy

Regulatory bodies hope that real estate professionals will be more alert and will file reports of suspicious behaviour when one or more of these red flags are present.

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