ABCsolutions Inc. CREA - Introduction

Transcription

1 CREA - Introduction

2 The AMLTF course is designed to assist CREA members to comply in part with the training component under Canada s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and supporting Regulations. The following pages detail information regarding the AML/CTF course, such as: A Learning Objectives Course Modules B C How To Complete the AML/CTF Course Background Information The Five Required Elements of a Compliance Regime Penalties for Non-Compliance 2

3 Define money laundering and terrorist financing and recognize how each are typically carried out. Identify the criminal elements commonly involved in money laundering and terrorist financing as well as government bodies involved in fighting these elements. Identify the main reports and associated reporting procedures set out in the PCMLTF Regulations and the instances that require them to be completed. Identify the record keeping and client identification requirements. 3

4 Identify suspicious (completed or attempted) transactions and behaviours, and recognize the importance of Know Your Client (KYC) rules. State the various penalties for non-compliance. State the range of Administrative Monetary Penalties in respect of a violation. Identify the main components of a Compliance Regime and the main areas of a risk assessment approach. 4

5 The AML/CTF course consists of this Introduction module, and an additional five mandatory modules: Module Module One: Module Two: Module Three: Module Four: Module Five: Content About Money Laundering & Terrorist Financing The Players Reporting Requirements Record Keeping & Client Identification Requirements About Suspicious Transaction Indicators Progress through the course by completing all the modules in sequence. 5

6 Background: Real estate brokers and sales representatives must report to FINTRAC (Financial Transaction and Reports Analysis Centre of Canada) when they have reasonable grounds to suspect a transaction is related to a money Laundering offence or a terrorist activity financing offence. What is a Money Laundering Offence? Under Canadian law, a money laundering offence involves various acts committed with the intention to conceal or convert property or the proceeds of property (such as money) knowing or believing that these were derived from the commission of a designated offence. In this context, a designated offence means most serious offences under the Criminal Code or any other federal Act. It includes, but is not limited to those relating to illegal drug trafficking, bribery, fraud, forgery, murder, robbery, counterfeit money, stock manipulation, tax evasion and copyright infringement. A money laundering offence may also extend to property or proceeds derived from illegal activities that took place outside Canada. 6

7 What is a Terrorist Activity Financing Offence? Under Canadian law, terrorist activity financing offences make it a crime to knowingly collect or provide property, such as funds, either directly or indirectly, to carry out terrorist crimes. This includes inviting someone else to provide property for this purpose. It also includes the use or possession of property to facilitate or carry out terrorist activities. Only suspicion that a transaction is related to a terrorist activity financing offence triggers a requirement to report the suspicious transaction to FINTRAC as related to terrorist activity financing. 7

8 Real estate brokers and sales representatives must comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA) and its supporting Regulations must ensure that an internal Compliance Regime is in place. The Compliance Regime, requires and provides reporting entities with implementation requirements comprising five main components: 1. Policies and Procedures Required Components of A Compliance Regime: 2. Compliance Officer (CO) Your must create internal, written policies and procedures regarding anti-money laundering and counter terrorist financing initiatives. They must be kept up to date. You must have a CO who is accountable to oversee the Compliance Regime. 8

9 Required Components of A Compliance Regime: 3. Training Program Must be written and ensure your employees are continuously trained on the requirements set out in the PC(ML)TFA and your organization s Compliance Regime. 4. Review Process Has to cover your policies and procedures, your assessment of risks related to money laundering and terrorist financing and your training program. The review also has to be done every two years. 5. Risk Based Assessment & Documentation A risk assessment is an analysis of potential threats and vulnerabilities to money laundering and terrorist financing to which your business maybe exposed. The following factors must be documented: products and services and the way in which they are offered; the geographic locations where these activities are conducted; and the geographic locations of your clients. This is in addition to your client identification, record keeping and reporting requirements. 9

10 Every real estate brokerage compliance officer shall report on their Compliance Regime in writing to a senior brokerage official within 30 days after assessment of their Regime. That report includes: the findings of the review; any updates made to the policies and procedures within the reporting period, including: (a) reasonable measures to keep client identification information up-todate (b) detecting transactions for reporting to FINTRAC (c) mitigating risks the status of the implementation of the updates to those policies and procedures. 10

11 The Compliance Regime establishes two distinct mandates for reporting entities: 1. That an operational framework is in place. 2. That employees are able to demonstrate an understanding of money laundering and terrorist financing and their organization's policies and procedures. By ensuring these measures are carried out effectively, reporting entities are able to mitigate the following risks: Type of Risk Legal Reputational Operational Consequences Financial loss due to adverse financial contracts that turn out to be unenforceable and/or incurring criminal penalties for non-compliance. Financial loss resulting from a lack of consumer trust due to negative publicity regarding an organization s business. Direct or indirect financial loss due to inefficient internal procedures, people or systems. 11

12 Non-compliance with Part 1 of the Proceeds of Crime (Money Laundering) Terrorist Financing Act may result in criminal or administrative penalties. Criminal Penalties: Failure to report suspicious transactions: up to $2 million and/or 5 years imprisonment. Failure to report a large cash transaction or an electronic funds transfer: up to $500,000 for the first offence, $1 million for subsequent offences. Failure to meet record keeping requirements: up to $500,000 and/or 5 years imprisonment. Failure to provide assistance or provide information during compliance examination: up to $500,000 and/or 5 years imprisonment. Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report ( tipping off ), with the intent to prejudice a criminal investigation: up to 2 years imprisonment. Failure to comply with the PCMLTFA and its Regulations can lead to criminal charges against you if you are a person or entity. 12

13 Civil Penalties: Since December 30, 2008, FINTRAC has legislative authority to issue an Administrative Monetary penalty (AMP) to reporting entities that are in non-compliance with Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Each violation is classified as a minor, serious or very serious violation. The history of compliance by the realtor or brokerage with the PC(ML)TF Act will be taken into account in determining the amount of a penalty. Range: Subject to the Act, the range of penalties in respect of a violation is: (a) $1 to $1,000 in the case of a minor violation; (b) $1 to $100,000 in the case of a serious violation; and (c) $1 to $500,000 in the case of a very serious violation. Can AMPs be issued against a specific person within a reporting entity or are AMPs only applied against the entity itself? FINTRAC can only issue AMPs against the person or entity who is the subject of the obligations under Part 1 of the Act. In the case of a corporation or partnership it is the entity that is subject to the obligations under Part 1 of the Act. In the case of a sole proprietorship, it is the owner/operator of the business who is subject to those obligations. 13

14 Recommendation 5 of the Financial Action Task Force (FATF) proposes that reporting entities: Implement (a) Corporate and (b) Customer Due Diligence [CDD] measures that assess the degree of risk for money laundering and/or terrorist financing based on the type of customer, ongoing business relationship, and/or financial transaction. Products & Services Geographic Locations Client & Business Relationships There is no definitive, single model for a risk-based approach the following slides will help to provide a framework. 14

15 In the context of money laundering and terrorist financing, a risk-based approach (RBA) is a process that encompasses the following: the risk assessment of your business activities using certain factors; the risk-mitigation to implement controls to handle identified risks; keeping client identification up to date; and the ongoing monitoring of financial transactions that pose higher risks. 15

16 You may want to perform the risk assessment for your business in two stages: Stage 1: Business-based risk assessment of your products and services, and the geographic location in which your business operates. Stage 2: Relationships-based risk assessment of products and services your clients utilize as well as the geographic locations in which they operate or do business. Risk assessments are usually done by the compliance department. You should be aware who in your organization has this responsibility. It all starts with a risk assessment of the business itself. Your Clients Your Business 16

17 To be considered: your products and services and the delivery channels through which they are offered; the geographic locations where you conduct your activities and the geographic locations of your clients; other relevant factors related to your business; and your clients and the business relationships you have with them. 17

18 Risk Assessment Risk Mitigation When your risk assessment determines that risk is high, you have to develop written risk-mitigation strategies (policies and procedures to mitigate high risks) and apply them for high risk situations. 18

19 I m done this Introductory Module, what do I do now? Congratulations! You are now ready to proceed to Module 1: About Money Laundering and Terrorist Financing. Good Luck! 19

20 CREA Module One: About Money Laundering & Terrorist Financing

21 Define money laundering and terrorist financing. Explain the three stages associated with money laundering. State the three common sources of terrorist financing. Differentiate between the methods used by criminals and terrorists when laundering funds. 2

22 3

23 Definition: Money laundering (proceeds of crime) is the method by which dirty money received from criminal activities is processed through legitimate businesses, such as real estate companies, and converted into clean money. Once cleaned, the money cannot be easily traced to the person originating the transaction or to the criminal origin of the funds. Hence, the criminal can now do what they want with their money! 4

24 1. Placement Entry of illegal funds into the financial system 2. Layering 3. Integration Hiding the origin of the funds through multiple and/or complicated transactions Exit of clean funds from the financial system without attracting suspicion 5

25 1 Purpose of the stage: Placement is the initial entry of the proceeds of crime into the financial system. This stage serves two purposes: 1. Relieves the criminal of holding and guarding their dirty money; AND 2. Places the money in the legal financial system The initial deposit of cash into the banking system (placement) is the riskiest part of the process because the money is in cash form and still close to its illegal origins. 6

26 1 Many money launderers use individuals, or smurfs, to help place their proceeds of crime into the legitimate financial system. Criminals may use one or more smurfs to assist with their laundering activities, depending on the size of their illegal operation. They usually place small, inconspicuous sums of cash (below the reporting threshold - structuring) into a bank account or several bank accounts, or purchase a monetary instrument, such as a bank draft or traveler's cheque. This activity can be done over a period of one day or several days, usually involving many smurfs and multiple transactions. These monetary instruments are then given to the criminal and the monies in the bank account(s) are transferred into the criminal s own account using an electronic funds transfer. 7

27 1 Structuring involves splitting transactions into separate amounts under the $10,000 threshold to avoid the transaction reporting requirements of the PC(ML)TF Act. Many money launderers rely on this placement technique because numerous deposits can be made without triggering the cash reporting requirements. Structuring is a criminal offence itself, as well as an indicator of other potentially illegal activity. Be on your guard for situations involving frequent deposits of small amounts of money by one or several clients or businesses where such activity is unexpected or unusual. This could indicate structuring. 8

28 & Structuring 9

29 1 Methods Buying a House Currency Smuggling Currency Exchanges Blending Funds Direct Deposit Examples Purchaser is a drug dealer and makes a deposit using cash generated from illegal drug sales The physical movement of illegal currency or monetary instruments over the border Purchasing foreign money with illegal funds through foreign currency exchanges Using a legitimate cash focused business to comingle dirty funds with the day s legitimate sales receipts Deposit illegal funds directly into a beneficiary s bank account under the name of a fictitious or thirdparty account holder 10

30 2 Purpose of the stage: The purpose of the layering stage is to further separate the dirty money from its source by using different types of financial transactions to hide the money trail and disguise any link with the original crime that generated the dirty money; and if necessary the owner of the illegal funds. Example: International Wire Transfers Money is deposited into an account (placement) and is then wired across the border to another account (layering). 11

31 2 Typically, layers are created by moving money through electronic funds transfers into and out of domestic and offshore bank accounts of fictitious individuals and shell companies. Given the large number of electronic funds transfers daily and the sometimes limited information disclosed about each transfer, it is often difficult for authorities to distinguish between clean and dirty money. 12

32 2 Some offshore centres combine loose anti-money laundering procedures with strict bank secrecy rules. Criminals can easily maintain and transfer funds from banks in these centres because details of client activities are generally denied to third parties, including most law enforcement agencies. 13

33 2 A shell corporation is a company that is formally established under applicable corporate laws but does not actually conduct a business. Instead, it is used to engage in fictitious transactions or hold accounts and assets to disguise the actual ownership of these accounts and assets. Sophisticated money launderers use a complex maze of shell corporations in different countries. Most money transfers take place through these shell corporations. At times, money is transferred through numbered accounts rather than through named accounts. For example: 1. Money Launderer sets up Apricot Trading Co. under the laws of the United Apple. 2. Apricot Trading Co. opens bank accounts with various banks. 3. Smurfs working for Money Launderer transfer illegal funds to the Apricot Trading Co. accounts. 4. Apricot Trading Co. transfers these funds to other accounts or invests them in securities. 14

34 2 Methods Purchase of monetary instruments Assets bought, then sold International wire transfers Examples Once the illegal proceeds of crime are successfully placed within the financial system, they can be changed into an easily transportable bank draft or traveler's cheque Assets bought with illegal funds and then resold either locally or internationally (e.g., stocks, commodities or real estate) Money is deposited into an account (placement) and is then wired across the border to another account 15

35 3 Purpose of the stage: The purpose of the integration stage is to return the illegal funds to the criminal in what appears to be a legitimate format. For example: Money that is remitted or wired from Canada to Country X where it is delivered to a criminal. Now it can be used for any purpose (e.g., build a house, buy land, etc.). 16

36 3 Real estate sales and purchases are a favoured method of integrating illegal money. A drug trafficker used the money he made from the drug trade to buy a house. The majority of the property was paid for in cash, with the remainder in a mortgage. After the sale of the property was finalized, the drug dealer immediately sold the property to an offshore company, which was later discovered to be controlled by the drug dealer through a nominee (family or friend) relationship. Following this sale, the property was placed back on the market and was purchased by an innocent third party. 17

37 3 The use of consultants in money laundering schemes is quite common. The consultant might not even exist. For example, the criminal could actually be the consultant. In this case, the criminal is channelling money back to him/herself. This money is declared as income from services performed and can be used as legitimate funds. In many cases, the criminal will employ an actual consultant (e.g. accountant, lawyer or investment manager) to do some legitimate work. This could involve purchasing assets. Often, the criminal transfers funds to the consultant's client account from where the consultant makes payments on behalf of the criminal. 18

38 3 Methods Property sales Front companies and false loans Mortgages Examples The sale of property that was originally bought by a shell company to integrate laundered money back into the economy. Criminals incorporate a front company in a country with secrecy laws (true ownership of the front company is then protected). They then give the front company illegal funds, in the guise of a loan, making the funds appear legitimate. Criminal uses proceeds for down payment on a house. The mortgage for the balance is provided by a financial institution and then the mortgage is paid off quickly (within 12 months) by wire transfers. 19

39 3 Methods Consultants Corporate Financing Examples Money launderer sets up a shell corporation and a related bank account in an offshore jurisdiction. The shell corporation hires a consultant. The consultant performs services and makes payments for the shell corporation. The consultant is paid by the shell corporation. Money launderer sets up a shell corporation and a related bank account in an offshore jurisdiction. He also sets up a legitimate business in his country of residence. Using illegal money in the offshore account, the shell corporation makes a business loan to, or equity investment in, the legitimate business. is typically combined with a number of other techniques, including the use of offshore banks, consultants, complex financial arrangements, electronic funds transfers, shell corporations and actual businesses. This allows money launderers to integrate very large amounts of money into the legitimate financial system. 20

40 Mortgage frauds commonly involve the cooperation of mortgage industry insiders, such as vendors, real estate agents, mortgage brokers, lawyers, credit agency employees, lenders and title insurers. These insiders may, for example, knowingly or unknowingly accept the use of false personal or financial information, use inaccurate appraisals, or transfer mortgage funds to an individual knowing they will be misused. Some criminal groups recruit (or coerce) new Canadians to act as nominees on fraudulent mortgage applications, some of whom are left financially responsible for the mortgage. Massive Fraud in Calgary A recent alleged mortgage scheme in Alberta illustrates the scope, sophistication and profitability of fraud. Court documents filed by a financial institution allege that about 100 individuals generated at least $140 million, about $70 million of which was for phony mortgages, with expected losses after foreclosures of $30 million. The financial institution named 14 groups in its civil lawsuit and the individuals named in the lawsuit are bank employees, lawyers, mortgage specialists, real estate agents, and a federal politician. Funds were allegedly channeled to Lebanon, India, Saudi Arabia and the United Arab Emirates. TheRCMPandCalgarypoliceannounced that a joint criminal investigation will be conducted and that it will take a considerable period of time to undertake hundreds of interviews and examine thousands of documents collected by the financial institution. CISC (2010) Report on Organized Crime 21

41 22

42 Proceeds of crime enters the real estate market in a number of forms, including cash, various types of monetary instruments, wire transfers, account transfers, and mortgages. When attempting to detect a suspicious transaction, a real estate professional should generally focus on how the property is financed. For example, look for: Large amounts of cash (often in small denominations); Unusually large cash and non-cash personal equity financing by the purchaser; Suspicious or unknown sources of personal equity or mortgage financing; The use of a number of monetary instruments (in small denominations) to personally finance the purchase of real property; and Funding drawn from a bank account in a tax haven country. 23

43 A Real Case: Example One Real estate represents one of the most common destinations of the proceeds of crime. The proceeds of crime generally enter the real estate market in the form of a mortgage, loan, cash, a monetary instrument such as cheques and bank drafts, or wire transfers. A condominium located in the prairies was purchased for $100, in the name of the spouse of a farmer (the accused) who was involved in smuggling large quantities of liquor and cigarettes from the United States into Canada. Of the total purchase price amount, $48,985 was paid through mortgage financing, while the remaining amount was being financed by the purchaser ($51,673.00). This personal financing included $24,434 in cash. A law firm representing the spouse in the purchase of the condominium accepted various forms of payments of cash and monetary instruments to finance the purchase of the home. 24

44 continued Records seized from the law office showed deposits of cash, cheques, and postal money orders into the law firm s trust account. In addition $7,200 in cash was given to the law firm, plus monetary instruments provided by the spouse to the law firm included cheques drawn on the couple s bank account, third party cheques, cheques payable to the couple drawn on one of their own accounts, and 6 postal money orders payable to the couple totalling $4,174. Each money order was for $750. All of the postal money orders, with exception of two, showed the sender as the spouse. The sender of the other two postal money orders was shown as the brother of the spouse. In a six month-period, 29 deposits totalling $90, were made into the law firm s trust account on behalf of the spouse of the accused. 25

45 A Real Case: Example Two Police identified at least 11 homes in the Greater Toronto Area that were associated with members of a criminal organization, which specialized in large scale drug smuggling and money laundering. Of the 11 homes, two were registered in the names of active members of the criminal organization, two were registered in the names of numbered companies belonging to members, and seven were registered in the names of wives or daughters of members or associates of the criminal group. Of these latter seven properties, three had private mortgage financing by members or associates of this crime group. These three mortgages were provided on top of existing mortgages, registered by reputable schedule 1 banks at the time the property was purchased. The three properties were purchased for a total of $1,150, The total value of the mortgage financing provided by banking institutions at the original time of purchase was $750,

46 continued The total value of the additional private mortgages provided by the crime group members or associates was $359,000. In all three of these real property transfers, the same lawyer represented the purchaser in the title transfer and/or in preparation of mortgages. In addition, the lawyer also represented the purchasers in two of the original bank mortgage financing for one property and the mortgage for a third property. 27

47 28

48 Definition: Terrorist financing (proceeds for crime) is the process by which funds are provided for terrorist activity. A terrorist, or terrorist group, is one that has a purpose or activity to facilitate or carry out any terrorist action, and can involve: Individuals; Groups; Trusts; Partnerships; Organizations. Suspected or known terrorists, terrorist groups or listed persons: In Canada, these groups are monitored by the Office of the Superintendent of Financial Institutions (OSFI). Lists of these offenders or groups are posted on both the OSFI and the United Nations web sites and should be consulted regularly. 29

49 To Recruit and Sustain Acquire Influence Build the Support Base Carry out Examples money is needed to recruit, support, train, transport, house, compensate and equip terrorist agents money is needed to sustain media campaigns and win political support money is needed for educational and social programs to win members and create a support base terrorist activity 30

50 Terrorist Financing: Sources: There are three common sources of terrorist financing: State Sponsored Terrorism Criminal Revenue Generated Support Legal Sources The following pages will review each source. 31

51 1. State Sponsored Terrorism This occurs when a terrorist or terrorist group in another country that is experiencing political and/or cultural unrest is sponsored by: another country a legally wealthy dissident individual 32

52 2. Criminal Revenue Generated Support It is not uncommon for organized crime groups to sponsor terrorists or terrorist groups in their homeland or neighbouring jurisdictions. In these cases, a portion of the money generated from the organized crime group s traditional illegal activities are laundered into the accounts of the terrorists. Traditional criminal activities include: selling illegal drugs; smuggling; prostitution; gambling; or kidnapping. 33

53 3. Legal Sources Many terrorist groups are culturally based. As such, they are able to develop strong foundations of financial support across communities, countries, and in some cases the world. On the community level, immigrants generally set up and give donations or pay membership fees to local associations and religious groups, which replicate those of their homeland and assist in protecting their heritage. Through the legal acquisition of the funds, and the legal financial transactions of the association or religious group (such as sending wire transfers home and setting up accounts at home), the capacity to place terrorist-destined funds into another country s economy often comes with relative ease. 34

54 Terrorist Financing vs. Money Laundering Because a large amount of funding for terrorism activities comes from legitimate sources, terrorism financing is sometimes depicted as the reverse of traditional money laundering. Instead of illegal money being 'washed' to make it legal, terrorist financing often involves the task of filtering legitimate funds into terrorist hands. 35

55 Indicators to Watch For: Although both criminals and terrorists launder money to obscure its origin, there are differences in methodology. Specifically: Terrorists Access to funds: not usually constrained by time Deposits: small amounts (e.g. under $300.00) and/or under reporting threshold Transactions: frequently, 10 or 12 times every two months. Smurfs: used to make deposits into financial institutions Criminals Access to funds: want funds as soon as possible Deposits: take greater risks, deposit larger amounts but generally still under reporting threshold Transactions: vary in frequency Smurfs or nominees (e.g., relatives, family members): used to make deposits into financial institutions 36

56 I m done Module 1, what do I do now? Congratulations! You can proceed to Module 2: The Players. Good Luck! 37

57 CREA Module Two: The Players

58 Identify the main categories of money launderers in Canada. Identify the Canadian organizations involved in our national fight on money laundering and terrorist financing. Explain some of the responsibilities of the Canadian organizations regarding money laundering and terrorist financing control. 2

59 Part 1: The Criminal Element 3

60 Money Laundering Risk: Crime and Crime Statistics Estimated that narcotics-related offences account for 75% of all money laundered in Canada. Customs and Excise 15% Theft and Fraud - 7.5% 4

61 Main Categories of Money Launderers: Any crime that generates profits may require money laundering. Those who stay in crime for longer periods of time and derive their primary income from criminal activity are more likely to launder their profits. The main categories of money launderers include: 1. Organized Crime Groups 2. White Collar Professionals 5

62 1. Organized Crime Groups In Canada, there are six broad organized crime groups: I. Outlaw Motorcycle Gangs (OMG) II. Eastern European Organized Crime (EEOC) III. Asian Organized Crime (AOC) IV. Traditional Organized Crime (TOC) V. Aboriginal-based Crime Gangs VI. Indo-Canadian Criminal Groups 6

63 2. White Collar Professionals During the 80s and 90s, it became recognized that large amounts of money generated from non-drug related crimes were a significant portion of the illicit funds laundered each year. Further investigation led to the discovery of two trends: A. Contracted Professionals Criminal organizations contracted professionals to find more complex methods to launder their proceeds of crime. These professionals were able to provide criminals investment advice to clean their money. B. Globalization The globalization and integration of financial markets have allowed professionals to manipulate international markets and banking systems to their advantage to route transactions through other countries that have lax money laundering laws. 7

64 Part 2: Canadian Money Laundering and Terrorist Financing Control Organizations 8

65 Fighting Money Laundering and Terrorist Financing in Canada: With a stable financial system, close proximity to the United States, and a moderate judiciary when it comes to sentencing (compared to other countries), Canada has become a hub for laundering money from Canadian criminals and transnational organized crime groups alike. However, Canada s compliance with the FATF s Forty Recommendations, through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, is making great strides detecting and deterring money laundering and terrorist financing in Canada. There are several Canadian government organizations involved in this fight, including the: 1. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) 2. Canadian Security Intelligence Service (CSIS) 3. Office of the Superintendent of Financial Institutions (OSFI) 4. Law Enforcement - Federal, Provincial, and Municipal Police forces 5. Canada Border Services Agency (CBSA) 9

66 1. FINTRAC FINTRAC is Canada's financial intelligence unit (FIU), a specialized agency created to collect, analyze, and disclose financial information and intelligence on suspected money laundering and terrorist financing activities. Created in July 2000, the Centre is an integral part of our country's National Initiative to Combat Money Laundering. Mission: To provide law enforcement and intelligence agencies with financial intelligence on money laundering, terrorist activity financing, and threats to the security of Canada, while ensuring the protection of the information it holds. 10

67 FINTRAC continued: Mandate: Some of the specific mandates of FINTRAC are to: Receive and collect reports on suspicious and prescribed financial transactions relevant to money laundering and terrorist financing activity; Receive reports on the cross-border movement of large amounts of currency or monetary instruments; Analyze and assess the information it receives; Provide law enforcement and CSIS with intelligence relevant to the investigation or prosecution of money laundering offences and terrorist financing activity offences; and Ensure compliance by financial intermediaries and other reporting entities with their obligations under the Act and its supporting Regulations. 11

68 2. Canadian Security Intelligence Services (CSIS) Created in 1984, CSIS s mandate is to collect information in Canada and abroad, and to advise government about activities that may constitute a threat to the security of Canada. This includes anyone who advocates the use of violence to further political, religious, or ideological objectives. Counter-terrorism Program: The purpose of this program is to help: ensure that Canada is not a place where people are killed or injured by terrorists; safeguard against acts of terrorism being planned in Canada; to help prevent Canada from being a source of funds or material for terrorist activity; ensure that Canada does not provide a base for terrorists; protect Canadian institutions; and protect Canadians travelling or working abroad. 12

69 3. Office of the Superintendent of Financial Institutions (OSFI) OSFI is the primary regulator of federally chartered financial institutions and administered pension plans. OSFI s mandate is to safeguard policy holders, depositors, and pension plan members from undue loss by ensuring public confidence in the financial services industry. As part of it s supervisory mandate, OSFI performs regulatory audits on financial institutions, including audits on compliance with the Proceeds of Crime (Money Laundering) Terrorist Financing Act. Information sharing: OSFI and FINTRAC (2004) are permitted to disclose information with one another on the policies and practices used by financial institutions to ensure compliance with the financial transaction record-keeping and reporting obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. 13

70 4. Law Enforcement The RCMP are responsible to enforce all federal Acts of Parliament, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Although all Canadian police forces can investigate money laundering and terrorist financing offenses, the Royal Canadian Mounted Police (RCMP), in particular its Integrated Proceeds of Crime Initiative (IPOC) Units, and the provincial law enforcement authorities in Ontario (the Ontario Provincial Police) and Québec (Sûreté du Québec) undertake virtually all money laundering and terrorist financing investigations. Integrated Proceeds of Crime Program (IPOC) To coordinate the RCMP s overall efforts to combat money laundering and terrorist financing, the Integrated Proceeds of Crime Program was created. 14

71 5. Canada Border Services Agency (CBSA) Keeping Canada s border open to travel and trade but closed to crime requires the CBSA to manage border operations effectively. The CBSA delivers a variety of programs and services for people (travellers, settlers, etc.) and for goods (commercial trade). Some programs and services are designed to help travellers and trade enter Canada smoothly, while others are focused on enforcing laws and keeping threats to our safety and health out of Canada. In January 2004, the Government of Canada established the National Risk Assessment Centre (NRAC) to protect Canadians against current and emerging threats. With almost $2 billion daily in cross-border trade with the United States, keeping the trade system open is critical to ensuring Canada s economic prosperity. It is equally critical to protect the border against potential threats to our health, security, and economy. 15

72 I m done Module 2, what do I do now? Congratulations! You re now ready to move on to Module 3: Reporting Requirements Good Luck! 16

73 CREA Module Three: Reporting Requirements

74 State the importance of know your client rules as they relate to anti-money laundering and terrorist financing initiatives. Identify the reports the real estate industry are required to complete under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA). Identify when a report must be completed, report completion timeframes, and where reports must be sent. State some of the relevant penalties for non-compliance to the PC(ML)TFA. 2

75 Fact 1: Money laundering and terrorist financing is done to obscure the true identity of the individual(s) generating the illicit funds. Fact 2: As with any money laundering scheme, it can range from extremely simplistic (the purchasing of property with no attempt to conceal their identity or source of funds) to extremely complicated operations involving offshore transactions, nominees, and lawyers. 3

76 Introduction: Within the Compliance Regime procedures set out by the PC(ML)TFA Regulations, there are clear reporting requirements for all Canadian real estate brokers or sales representatives when they act as an agent in respect of the purchase or sale of real estate. Where a real estate broker or sales representative is an employee of a reporting entity, these requirements are the responsibility of the employer except with respect to reporting suspicious or attempted transactions and terrorist property, which is applicable to both. Where a real estate agent is acting on behalf of a broker, these requirements are the responsibility of the broker except with respect to reporting suspicious transactions and terrorist property, which is applicable to both. These requirements are in place to give FINTRAC the capability to analyze the reports in order to detect and deter money laundering and terrorist financing activities within the real estate industry. 4

77 In this module, we ll discuss the reporting requirements. But first, we ll look at the cornerstone to ensuring these reports and records are as accurate and effective as possible; as well as, how a real estate broker or sales representative can take proactive measures towards preventing money laundering or terrorist financing from occurring. This cornerstone is referred to as Know Your Client or KYC. 5

78 Know Your Client: KYC Policy: KYC policy refers to documentation which sets out your company s approach to ensuring that it can effectively identify, verify and monitor its clients and the financial transactions in which they engage, relative to the risks of money laundering and terrorism financing. KYC is important for a number of other reasons. For example, if you know your clients well, you may be able to prevent damage to your company s reputation and avoid fraud, money laundering or excessive risk in financial transactions involving clients. 6

79 The Principal Objectives of a KYC Policy include: ensuring that only legitimate and bona fide clients are accepted; ensuring that clients are properly identified and that they understand the risks they may pose; verifying the identity of clients using reliable and independent documentation; monitoring client accounts and transactions to prevent or detect illegal activities; and implementing processes to effectively manage the risks posed by clients trying to misuse your services. Knowing Your Client is not just Good Business, it is a Regulatory Requirement. 7

80 KYC Major Policy Elements: 1. Client acceptance: The point at which a new client is accepted or rejected is the easiest point at which the risk of dealing with illegal money can be avoided. By following good client acceptance policies, dealing with entities and individuals who might engage in illegal transactions can be avoided. 2. Client identification: Establishing the identity of clients is central to the KYC policy both for the client acceptance or rejection decision and for the ongoing monitoring of client accounts and transactions. By identifying clients effectively, the business is able to deal with them in the appropriate manner. 3. Client verification: Verifying that clients are who they say they are is vital to any client identification procedure. Merely collecting client information is not enough for an effective KYC policy. Reliable and independent documentation should be used to support and confirm the identification details a client provides. For example, citing an original primary photographic identification document such as a passport or driver s licence. 8

81 KYC Major Policy Elements continued: 4. Accounts and transactions monitoring: In an effective KYC policy, client accounts and transactions are properly classified in terms of risk and are regularly monitored. Through checks and thresholds, unusual activities, activities by high-risk clients, or suspicious behaviour can be detected and reviewed. 5. Risk management: To ensure that the risks posed by money laundering and other criminal activities are identified, mitigated and managed good risk management practices are essential. Another objective of the KYC policy is to look past the appearance of the client and obtain visibility into the sources of the client's money. The basic objective is to obtain an understanding of the risk the client poses to business. 9

82 Client Identification: Taking prudent steps to assess whether the individual you re dealing with is in fact who they say they are can help protect your industry from unknowingly doing business with a criminal or terrorist. Some of these prudent steps could include: Reviewing audited financial statements or annual reports of commercial clients Asking for picture identification Internet searches Visiting the client s office(s) Obtaining references 10

83 Reporting Obligations: Large Cash Transactions Terrorist Property Suspicious Transactions 11

84 The Reports 1. Large Cash Transactions Cash means Canadian currency or foreign currency and includes money in circulation in any country (bank notes or coins) but excludes cheques, money orders or other similar negotiable instruments. 12

85 The Reports: 1. Large Cash Transactions When to Report: A Large Cash Transaction Report must be completed when you: Receive an amount of $10,000 CND or more in cash in a single transaction, unless the cash is received from a financial entity or a public body; or Undertake two or more cash transactions of less than $10,000 CDN each that together total $10,000 CDN or more within 24 consecutive hours of each other, and are made by or on behalf of the same person or entity. Foreign Currency: If the transaction is in foreign currency, the funds must be converted into Canadian dollars using the Bank of Canada noon rates available at the time of the transaction. This rate is not based on the exchange rate but only to check whether the funds exceed the $10,000 CDN threshold. 13

86 The Reports: 1. Large Cash Transactions What Does By or on Behalf of the Same Person Mean? 1. BY: If an individual, who makes 2 or more transactions, is the same person and the total amount of the transaction is $10,000 or more within 24 consecutive hours, then an LCT Report must be made. 2. ON BEHALF OF: If 2 or more transactions are being made for the same person (on behalf of), but the individual is different in each of those transactions, and the amount of the transaction is $10,000 or more an LCT Report must also be made. 14

87 The Reports: 1. Large Cash Transactions Who to Report to and How: The report must be sent electronically to FINTRAC if your company has the capacity to report in that manner. Please refer to your internal policies and procedures to determine your company s approach for reporting. Reporting Timeframes: Large Cash Transaction Reports must be sent to FINTRAC within 15 calendar days after the large cash transaction has taken place. 15

88 The Reports: 1. Large Cash Transactions When NOT to Report: You do not have to make a large cash transaction report to FINTRAC: If the cash is received from a financial entity. In this context, a financial entity means a bank, credit union, caisse populaire, a trust and loan company or an agent of the Crown that accepts deposit liabilities. If the cash is received from a public body. In this context, a public body means any of the following or their agent: a provincial or federal department or Crown agency; an incorporated municipal body (including an incorporated city, town, village, metropolitan authority, district, county, etc.); a hospital authority. A hospital authority means an organization that operates a public hospital. 16

89 The Reports: 1. Large Cash Transactions Penalties for Non-Compliance: Failure to report a large cash transactions could lead to criminal charges against those individuals and/or the company which is subject to the PC(ML)TFA, which upon conviction could result in a fine of up to: $500,000 for the first offence; and $1,000,000 for all subsequent offences. Administrative monetary penalties (AMPs) are an additional tool to criminal sanctions with the objective of supporting and enhancing efforts to ensure compliance on the part of reporting entities. AMPs allow for a measured and proportionate response to particular instances of non-compliance. 17

90 The Reports 2. Terrorist Property 18

91 When to Report: Immediately The Reports: 2. Terrorist Property A Terrorist Property Report must be completed if you have property in your possession or control that you know is owned or controlled by or on behalf of a terrorist or terrorist group or a listed person. This includes information about any transaction or proposed transaction relating to that property. Property means any type of real or personal property in your possession or control. This includes any deed or instrument giving title or right to property, or giving right to money or goods. A terrorist or a terrorist group includes anyone that has as one of their purposes or activities facilitating or carrying out any terrorist activity. A terrorist group includes anyone on a list published in Regulations Establishing a List of Entities issued under the Criminal Code. A listed person includes anyone on a list published in the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism issued under the United Nations Act. 19

92 The Reports: 2. Terrorist Property Property in these cases can include: Cash Money orders Real estate Funds in a realtors trust account In cases where you only suspect that the designated property is owned or controlled by a terrorist or terrorist group, a Suspicious Transaction Report (completed or attempted) should be submitted to FINTRAC. When it can be shown that the property belongs to a terrorist and/or terrorist group named on the terrorist lists published by OSFI, then a Terrorist Property Report must be filed with FINTRAC In cases, where the terrorist name is similar too, but not an exact match, to a name of a group or individual on the respective OSFI lists then you would file either a Suspicious Transaction (completed or attempted) Report to FINTRAC. 20

93 Who to Report to and How: The Reports: 2. Terrorist Property The report must be sent to FINTRAC in paper format (not electronically) either by registered mail or by fax. Information in a Terrorist Property Report: The Terrorist Property Report will require information regarding: the property the suspected terrorist or terrorist group Lists are available on the OSFI website at: anyone who owns or controls the property on their behalf any transactions or proposed transactions related to the property 21

94 Who Else to Report to and How: The Reports: 2. Terrorist Property In addition to making a Terrorist Property Report to FINTRAC, there is also a requirement under the Criminal Code to report. It is an offence under the Criminal Code to deal with any property if you know that it is owned or controlled by or on behalf of a terrorist or a terrorist group. It is also an offence to be involved in any transactions in respect of such property. You must disclose to the RCMP and CSIS, the existence of property in your possession or control that you know is owned or controlled by or on behalf of a terrorist or a terrorist group. This includes information about any transaction or proposed transaction relating to that property. Information is to be provided to them, without delay, as follows: RCMP, Anti-Terrorist Financing Team, unclassified fax: (613) CSIS Financing Unit, unclassified fax: (613)

95 A Systemic Approach to Identifying Suspicious Transactions An effective systemic approach to identify suspicious financial activity may safeguard you and your company from the risk of being involved with terrorist financing and money laundering offences. Consider the SAFE approach, which may assist you in meeting the FINTRAC compliance requirements. The four steps of the systemic approach to suspicious activity identification include: Screen Ask Find Evaluate 23

96 Suspicious Activity Identification System SCREEN Step One Screen the client s account for suspicious indicators. The recognition of an indicator, or several indicators, of suspicious activity is the first step in the suspicious activity identification system. ASK Step Two Ask the client appropriate questions If an employee carries out a transaction or transactions for a client bearing one or more suspicious activity indicators then they should question the client on the reason for conducting the transaction and the identity of the source and ultimate beneficiary of the money being transacted. 24

97 Suspicious Activity Identification System FIND Step Three Find out from the client's records: Review of information already known when deciding if the apparently suspicious activity is to be expected. In other words - Know Your Client! EVALUATE Step Four Evaluate all the previous information: Is The Transaction Suspicious? The final step in the suspicious activity identification system is the decision whether or not to complete and submit a Suspicious Transaction Report. Such a decision will be of the highest quality when all the relevant circumstances are known to, and considered by, the decision maker, i.e. when all three of the preceding steps in the suspicious transaction identification system have been completed and are considered. 25

98 A reasonable ground to suspect depends on the various suspicious transaction criteria identified for the real estate industry. It may include: Examples: Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank. Client purchases personal use property under corporate veil when this type of transaction is inconsistent with the ordinary business practice of the client. Client purchases property without inspecting it. Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition, and anticipated repair costs, etc. of each property. Client negotiates a purchase for market value or above asking price, but records a lower value on documents, paying the difference under the table. Client pays rent or the amount of a lease in advance using a large amount of cash. 26

99 Examples: Client arrives at a real estate closing with a significant amount of cash. Client is known to have paid large remodeling or home improvement invoices with cash, on a property for which property management services are provided. Client purchases property in the name of a nominee such as an associate or a relative (other than a spouse). Client does not want to put his or her name on any document that would connect him or her with the property or uses different names on Offers to Purchase, closing documents and deposit receipts. Client inadequately explains the last minute substitution of the purchasing party s name. Client pays initial deposit with a cheque from a third party, other than a spouse or a parent. Client sells property below market value with an additional under the table payment. For additional information about suspicious transactions go to Module 5 27

100 Important Note: Remember that when reporting a suspicious transaction: the better you know your client, the better position you ll be in to decide whether the transaction is suspicious. transactions or attempted transactions are suspicious, not people. rarely will one factor alone make a transaction suspicious. Usually, it s a combination of two or more factors that will make a completed transaction or attempted transaction suspicious. 28

101 The Reports 3. Suspicious Transactions 29

102 The Reports: 3. Suspicious Transactions (Completed or Attempted) When to Report: Money Laundering You must complete a Suspicious Transaction Report, once you have reasonable grounds to suspect a transaction or attempted transaction is related to a money laundering or a terrorist financing offence. A reasonable ground to suspect depends on the various suspicious transaction criteria identified for your industry. Transaction Completion The Report must be completed regardless if the client completes the financial transaction or attempts a transaction. 30

103 The Reports: 3. Suspicious Transactions (Completed or Attempted) When to Report: Transaction Suspect Transaction Known Terrorist Financing The Suspicious Transaction Report (completed or attempted) must be completed if you only suspect that property is owned or controlled by a terrorist or terrorist group. If you know, rather than suspect, that a transaction or attempted transaction is related to property owned or controlled by or on behalf of a terrorist or a terrorist group, you should not complete the transaction and fill in a Terrorist Property Report immediately. This is because terrorist property must be frozen under the United Nations Suppression of Terrorism Regulations as well as the Canadian Criminal Code. 31

104 The Reports: 3. Suspicious Transactions (Completed or Attempted) Who to Report To and How: Suspicious Transaction Reports have been developed by FINTRAC and are accessible through their web site. You must keep a copy of the report for completed or attempted transactions. Reporting Timeframes: A Suspicious Transaction Report must be sent to FINTRAC within 30 calendar days of when you first detected a fact that leads you to have reasonable grounds to suspect the transaction or attempted transaction is related to a money laundering or terrorist financing offence. In other words, if it was not until six months later that further client activity made you suspect that possible money laundering or a terrorist financing offence had taken place earlier --- it is from that point six months later that the 30 calendar day reporting time frame begins. 32

105 The Reports: Suspicious Transactions (Completed or Attempted) Tipping Off: Neither the individual reporting nor the reporting entity may tip off anyone by letting them know they made a Suspicious Transaction Report. Therefore, it s important not to ask the client questions that may directly increase their suspicion that the transaction is being considered as abnormal and may be reported to FINTRAC. Controlling the type of questions asked will assist in protecting the safety of both the individual and the company reporting, as well as any potential criminal investigation. Your Protection You are protected from any civil or criminal liability for making a Suspicious Transaction Report in good faith. 33

106 The Reports: 3. Suspicious Transactions (Completed or Attempted) Penalties for Non-Compliance: Failure to report a suspicious transaction could lead to criminal charges against the person and/or entity subject to the PC(ML)TFA, which upon conviction could result in a maximum penalty of: Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation: Up to five years imprisonment, and/or a Fine of up to $2,000,000. up to 2 years imprisonment. Administrative monetary penalties (AMPs) are an additional tool to criminal sanctions with the objective of supporting and enhancing efforts to ensure compliance on the part of reporting entities. AMPs allow for a measured and proportionate response to particular instances of non-compliance. 34

107 I m done Module 3, what do I do now? Congratulations! You are now ready to move on to Module 4: Record Keeping and Client Identification. Good Luck! 35

108 CREA Module Four: Record Keeping and Client Identification Requirements

109 Learning Objectives: Upon completion of this module, you will be able to: Identify the records your industry is required to complete under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PC(ML)TFA). Identify when a record must be completed and the timeframes for completion and keeping of records. Identify client identification and third-party determination requirements. State the relevant penalties for non-compliance under the PCMLTFA. 2

110 Introduction: Under the PC(ML)TFA Regulations, as a real estate broker or real estate sales representative, you are subject to keep certain records when you act as an agent in respect of the purchase or sale of real estate. Furthermore, you are required to provide FINTRAC with any requested records within 30 calendar days of the request being made. These records can be kept in a machine-readable or electronic form, as long as a paper copy can be produced upon request. These records can be kept in a machine-readable or electronic form, as long as a paper copy can be produced upon request. 3

111 Record Keeping Obligations: When engaging in any of the following activities you are required to keep the following records: Large Cash Transaction Records Receipt of Funds Records Client Information Records Suspicious Transaction Records If you keep information in a record that is already available in any other record that you have kept, you do not have to keep that information again. 4

112 General Exceptions to Record Keeping: You do not have to keep records if you conduct a transaction for a public body or a very large corporation. A public body means any of the following or their agent: a Canadian provincial or federal department or Crown agency; an incorporated Canadian municipal body (including an incorporated city, town, village, metropolitan authority, district, county, etc.); or a hospital authority. A hospital authority means an organization that operates a public hospital and that is designated to be a hospital authority for GST/HST purposes. A very large corporation is: one that has minimum net assets of $75 million on its last audited balance sheet. The corporation's shares have to be traded on a Canadian stock exchange or on a stock exchange outside Canada that is designated by the Minister of Finance. The corporation also has to operate in a country that is a member of the Financial Action Task Force (FATF). 5

113 Employees or contractors who keep records for you: Your employees who keep records for you are not required to keep those records after the end of their employment with you. The same is true for individuals in a contractual relationship with you, after the end of that contractual relationship. This means that you have to get and keep the records that were kept for you by any employee or contractor before the end of that individuals employment or contract with you. 6

114 Penalties for Non-compliance: Failure to record certain transaction records could result in criminal charges for you and your firm, which upon conviction could result in penalties of : Up to five years in prison; and/or A fine of up to $500,000. Failure to keep records or identify clients can lead to an administrative monetary penalty. 7

115 What happens to the retention of records when real estate brokers or sales representatives, usually an independent contractor, changes brokerages? This obligation does not apply to an individual who is an employee of a reporting entity, in which case the reporting entity has the obligations or to a real estate agent acting on behalf of a broker, in which case the broker has sole responsibility for everything except suspicious transaction reporting, which is the responsibility of both. It is the responsibility of the broker to obtain and keep the records that were retained for the broker by any employee or contractor who acted on their behalf. In other words, a sales agent who acted on behalf of a broker as an independent contractor has to leave all records kept in accordance with the PCMLTFA with the broker he is leaving. The agent is not be required to keep those records after the end of his relationship with the broker. 8

116 The Records 1. Large Cash Transactions Obligations are: Keep a large cash transaction record Identify the individual who gives you the cash, at the time of the transaction Make a third party determination and keep related records 9

117 The Records: 1. Large Cash Transactions For every cash transaction(s) of $10,000 CDN or more, a Large Cash Transaction Report must be made and a Large Cash Transaction Record kept. For example, if your client brings you $10,000 in cash for a deposit on the purchase of a house, you have to keep a large cash transaction record. In addition to this record, a large cash transaction will also require a report to FINTRAC If you know that two or more cash transactions of less than $10,000 each were made within a 24-hour period (i.e., 24 consecutive hours), by or on behalf of the same client, these are considered to be a single large cash transaction if they add up to $10,000 or more. Note: You do not have to keep a large cash transaction record if the cash is received from a financial entity. 10

118 The Records: 1. Large Cash Transactions Subject Cash Details Recorded Amount Currency of the cash received How it was received (in person, mail, armoured car, etc.) Transaction Date Purpose Details (were any other individuals or entities involved) Type (the cash was for a deposit on the purchase of a house) If any of the information is readily available in other records that you have to keep, it does not have to be kept again as part of a large cash transaction record. 11

119 The Records: 1. Large Cash Transactions Subject Account this would also include the account into which you deposited the cash, such as the broker, lawyer or notary's intrust account Individual Details Recorded If the account was affected by the transaction, include: Number, Type Full name of the client that holds the account Currency in which the account s transactions are conducted (e.g., USD) If the information is not readily obtainable from other records that you keep and retain you must obtain: Full name of individual from whom you received the cash, at the time of the transaction Address, Date of birth Nature of their principal business or occupation of individual whom you received the cash (e.g., retired realtor, bank manager) Type of document used to confirm the individual s identity, the reference number, and its place of issue Be as descriptive as possible regarding the business or occupation. Record information that clearly describes it, DO NOT use a general term such as retired, consultant, etc. 12

120 Third Party Determination: The Records: 1. Large Cash Transactions You have to make a third party determination when you have to keep a large cash transaction record. When determining whether a third party is involved, it is not about who owns the money, but rather about who gives instructions to deal with the money. To determine who the third party is, the point to remember is whether the individual in front of you is acting on someone else s instructions. If so, that someone is the third party. A person acting on behalf of their employer is considered to be acting on behalf of a third party except when the person is depositing cash into the employer s business account. 13

121 The Records: 1. Large Cash Transactions What to Record in a Third-Party Situation: If you discover that the individual is making the transaction for a third party, you must record the following information about the third party as part of the Large Cash Transaction Record form: Name, address, date of birth and principal business or occupation of the third party Incorporation number and place of incorporation (if the third party is a corporation) If Federal: If Provincial: check various provincial government web sites Nature of the relationship between the third party and the individual giving you the cash If you re not able to determine whether the individual is a third party but you have reasonable grounds to suspect, you should record this, detailing your reasons for suspecting the person is acting on behalf of a third party. 14

122 The Records 2. Receipt of Funds Obligations are: Keep a receipt of funds record When you have to keep a receipt of funds record, identify the individual who provides the funds and confirm the existence of the client (if it is an entity) 15

123 The Records: 2. Receipt of Funds Have a receipt of funds record of every amount (whether or not it is cash) you receive in the course of a single transaction, unless the amount is received from a financial entity or public body. Record Contents Description/details Amount Currency of funds received If the funds were received in cash, how was it received (in person, mail, armoured car, courier, etc.) Date of the transaction Purpose ( for a deposit on the purchase of a house) Details (were any other individuals or entities involved) Type of transaction (deposit on an offer) If you have to keep a large cash transaction record, you DO NOT have to keep a receipt of funds record for the same transaction. 16

124 The Records: 2. Receipt of Funds Record Contents Account Description/details If an account was affected by the transaction, include: Number and type of any such account Full name of the client that holds the account Currency in which the transaction are conducted (e.g., USD) Account includes: e.g., a broker s in-trust account; or, if funds from a client were in the form of a cheque, this includes the account on which the cheque was drawn. 17

125 The Records: 2. Receipt of Funds Record Is about an individual At the time of the transaction Is about an entity... Description/details Name and address of the individual you received the funds from Date of birth Principal business or occupation Name Address Nature of their principal business Confirm existence within 30 days Is about a corporation Keep a copy of the official corporate records that contains any provision relating to the power to bind the corporation with the real estate broker or sales representative. Confirm name, address and names of directors 18

126 When a real estate broker or sales representative sells a home, and both parties are represented by a real estate broker or sales representatives, but the deposit goes directly to the seller (i.e. the buyer s agent does not see the cheque or the funds), who is required to keep the receipt of funds record? The receipt of funds record legislative requirement applies only when the real estate broker or sales representative receives funds. Therefore, if the real estate broker or sale representative does not receive any funds (cash or cheque), he does not have to keep a receipt of funds record. In the scenario provided, the real estate broker or sales representative does not handle the cheque/funds, and the funds go directly to the seller, then there is no requirement for the real estate broker or sales representative to keep a receipt of funds record. 19

127 The Records 3. Client Information Records for every sale or purchase of real estate Obligations are: Keep a client information record Identify the client (including any unrepresented parties) Determine if there is any third party involved in the transaction and keep a record about that determination 20

128 The Records: 3. Client Information Records Have a client information record of every purchase or sale of real estate and determine whether the client is acting for themselves or a third-party. Record Is about an individual At the time of the transaction Is about an entity... The above plus Is about a corporation Also Description/details Client s name and address, Date of birth Nature of their principal business or occupation If there is more than one individual purchasing or selling, you have to keep a client information record about each individual. Name, address, nature of their principal business or occupation Confirm existence within 30 days Confirm existence and determine corporation name, address and names and addresses of directors within 30 days Keep a copy of the official corporate records that contains any provision relating to the power to bind the corporation (this does not apply if you have to keep a large cash transaction record about the purchase or sale of real estate) 21

129 When a real estate broker or sales representative sells a home or represents the buyer, who should the real estate broker or sales representative identify? For every transaction, you must identify the person conducting the transaction; and if that person is acting on behalf of an entity or a corporation, you must also confirm the existence of the entity or the corporation. In the case of a corporation, you must obtain documentation that the person has the power to bind the corporation and you must also list the directors of the corporation and their addresses. However, you do not need to identify the directors. 22

130 The Records 4. Suspicious Transaction Report Obligations are: When you report a suspicious transaction to FINTRAC, you have to keep a copy of the report. You have to take reasonable measures to identify an individual. This includes: using either of the options available to identify individuals who are not physically present; or asking the individual for an identification document and include name, type of document used, reference number and place of issue. Reasonable measures exclude any method that you believe would inform the individual that you are submitting a suspicious transaction report. 23

131 Case Study Example Money Laundering Offence Customer Industry Channel Jurisdiction Designated Service Suspicious Indicators Money laundering Fraud Individual Real Estate Banking Face- to- Face Domestic Account and deposit-taking services - Client purchases and sells real estate above or below the market value while apparently unconcerned about the economic disadvantage of the transaction - Large cash deposit Ref.: AUSTRAC Typologies and Case Studies Report

132 Case Study continued Money Laundering A vendor and purchaser colluded to transfer a property at an agreed price but then record the formal transaction price as significantly lower than the agreed price. The purchaser paid the difference between the two prices to the vendor in cash, which was not recorded on any of the formal conveyancing documents. The vendor deposited the cash into his bank account on a date close to the date on which the contracts for the sale of the property were exchanged, indicating to law enforcement officers that the cash actually formed part of the total sale price. Understating the official sale price of the property was an act of fraud allowing the offenders to avoid paying the required amount of duty on the property. It is also suspected that the cash involved in the transaction was the proceeds of other criminal activities, and that the transaction was an attempt to launder the illicit cash through the real estate sector. 25

133 Timeframe for Keeping Records In the case of client information records and records to confirm the existence of an entity (including a corporation), these records have to be kept for five years from the day the last business transaction was conducted. In the case of a copy of a suspicious transaction report, the record has to be kept for a period of at least five years following the date the report was made. All other records must be kept for a period of at least five years following the date they were created. 26

134 Client Identification Once you have confirmed the identity of an individual, you do not have to confirm their identity again if you recognize the individual (visually or by voice) at the time of a future event that would otherwise trigger the identification requirement. However, if you have any doubts about the identification information previously collected, you will have to identify that individual again. 27

135 How to Identify Your Client A client may be identified by using any one of the following documents. The document must be current (not expired), valid (For a document to be acceptable for identification purposes, it must have a unique identifier number. Also, the document must have been issued by a provincial, territorial or federal government) and original (not a copy) : Birth certificate Driver s license Passport Record of landing Permanent resident card Similar record issued by a provincial or the federal government that includes the individual s signature and photograph A social insurance number (SIN) card can be used to verify the identity of a client, but the SIN (i.e. the number itself) is not to be provided to FINTRAC on any type of report. Provincial health card, except for those issued by Ontario, Manitoba, or Prince Edward Island Valid foreign identification, if equivalent to an acceptable type of Canadian identification document, would also be acceptable. 28

136 Client Identification Your company compliance program will have to include an assessment, in the course of your activities, of the risk of money laundering or terrorist financing. According to this assessment, in higher risk situations, you will have to take reasonable measures to keep client identification information up to date. For individuals: Reasonable measures include asking the client to confirm or update identification information or could confirming or updating the information through the options available to identify individuals who are not physically present. For entities: Reasonable measures include consulting a paper or electronic record (e.g., partnership agreement). The frequency with which client identification information is to be kept up to date will vary in accordance with the context in which transactions occur. For high risk situations, frequency should be at least every two years. 29

137 Client Identification When you identify an individual in connection to a record you create or a transaction the individual carries out, you have to include information about how the individual was identified in the record you are required to keep. This means: in person, not physically present, or use of an agent or mandatary; then identify what type of document was used to prove identity (e.g., current driver s license, passport, etc. and include the reference number, and its place of issue. 30

138 Client Identification For real estate transactions. IF The parties in a real estate transaction are each represented by a different real estate broker or sales representative, you will have to identify the individual or confirm the existence of the entity that you represent in the transaction. If you are not able to do so after taking reasonable measures, you will have to keep a record of the measures you took and why you were unable to identify them or confirm their existence. Where an unrepresented individual refuses to provide identification, a REALTOR must keep a record of that fact and consider sending a Suspicious Transaction Report to FINTRAC if there are reasonable grounds to suspect that the transaction involves property from the proceeds of crime, or terrorist activity. 31

139 Client Identification Corporations: Confirm the existence of the corporation within 30 days of the transaction associated to the specific record. Confirming existence can be done by referring to: The corporation s Certificate of Corporate Status Any record that has to be manually filed under provincial securities legislation Any record that confirms the corporation s existence Confirm the names of the directors Once you have confirmed the existence of a corporation you do not have to do it again for future transactions. 32

140 Client Identification Entities other than corporations: Confirm the existence of the entity within 30 days of the transaction associated to the specific record. Confirming existence can be done by referring to: a partnership agreement, articles of association, or any other similar record that confirms the entity s existence (original copy), Once you have confirmed the existence of an entity, you do not have to do it again for future transactions. 33

141 Client Identification If you use of an alternative individual (agent or mandatary) to identify any of your clients: You will have to enter into a written agreement or arrangement with them to do so. You will have to obtain from this individual, the client information that was obtained according to the agreement or arrangement. This will only be acceptable when this alternative individual (agent or mandatary) identifies an individual using an original identification document. For example: Realtor Jones who works in Saskatoon is contacted by client Smith who lives in Halifax and wants to buy a home s/he saw as listed by Jones. To capture Smiths identification information, Jones can enter into a written agreement with another Realtor in Halifax to serve as the agent/mandatary and capture the identification information. 34

142 Can a real estate broker or a sales representative be an agent or mandatary for the purpose of client identification? Can anyone be an agent or a mandatary (as long as an agreement is in place with the sales representative or real estate broker)? A real estate broker, a sales representative or any person can be an agent or a mandatary to identify a client in a domestic or international real estate transaction, as long as there is a written agreement in place to that effect with the sales representative or real estate broker, outlining what the real estate broker or sales representative expects the agent or mandatary to do for him. The written agreement with the agent or mandatary needs to be in place prior to identifying the client. The sales representative or real estate broker must also obtain from that agent or mandatary the customer identification information for his records: type of identification, identifier number of the identification document, and issuing jurisdiction. 35

143 Client Identification: Individuals not physically present Combination of Methods To identify an individual, you have to use a combination of two of the following methods. In each of the two methods you use, the individual's information has to be consistent with what you have in your records. The information also has to be consistent from one method to the other. For example, if each of the methods you use has the name, address and date of birth information about the individual, all of it has to agree with what you have in your records. Methods: Identification product or credit file method Attestation method Cleared cheque or deposit account method 36

144 Client Identification: Individuals not physically present 1. Identification product or credit file method - You can use either of these methods but you cannot combine them: Refer to an independent and reliable identification product. It must be based on personal information as well as Canadian credit history about the individual of at least six months duration. This type of product can use a series of specific questions, based on an individual's credit file, to enable verification of client identity. With the individual's permission, refer to a credit file. The credit file must have been in existence for at least six months. Products for either of these methods are available commercially, such as those used for credit ratings. 37

145 Client Identification: Individuals not physically present 2. Attestation Method: Obtain an attestation that an original identification document for the individual has been seen by a commissioner of oaths or a guarantor. This attestation must be on a legible photocopy of the document and include the following information: the name, profession and address of the commissioner of oaths or the guarantor; the signature of the commissioner of oaths or the guarantor; and the type and number of the identifying document provided by the individual being identified. A guarantor has to be an individual engaged in one of the following professions in Canada: a dentist, a medical doctor or a chiropractor; a judge, a magistrate or a lawyer; a notary (in Quebec) or a notary public; an optometrist or a pharmacist; an accountant; a professional engineer; or a veterinarian. 38

146 Client Identification: Individuals not physically present 3. Cleared cheque or deposit account method: You can use either of the following methods, but you cannot combine them. Confirm that a cheque drawn on a deposit account that the individual has with a financial entity has cleared. This means a cheque that was written by the individual, cashed by the payee and cleared through the individual's account. It does not include pre-authorized payments as these are not cheques written by the individual. Confirm that the individual has a deposit account with a financial entity. You could do this by viewing an original bank statement. For either method, the account has to be with a financial entity. The account cannot be one that is exempt from identification requirements for the financial entity, such as a registered retirement savings plan or a reverse mortgage. 39

147 According to the methods used to identify the client you must include: A cleared cheque: the record has to include the name of the financial entity and the account number of the deposit account on which the cheque was drawn. A deposit account with a financial entity: the record has to include the date on which you made the confirmation as well as the name of the financial entity where the account is held and the number of the account. An identification product: the record has to include the name of the identification product, the name of the entity offering it, the search reference number and the date you used the product to identify the individual. Consult a credit file: the record has to include the name of the entity keeping the credit file and the date you consulted it. Use an attestation signed by a commissioner of oaths in Canada or a guarantor in Canada, you have to keep the attestation. 40

148 I m done Module 4, what do I do now? Congratulations! You can now go to Module 5: Suspicious Transaction Indicators. 41

149 CREA Module Five: Suspicious Transaction Indicators

150 Recognize some common indicators of money laundering and terrorist financing that will assist in identifying possible suspicious transactions (completed or attempted); Use questioning techniques to probe into a client s transaction to determine whether a transaction (completed or attempted) is suspicious; and Identify possible suspicious transaction indicators. You may want to review Module 3 for the SAFE Approach to identifying suspicious transactions, as well as your industry specific suspicious indicators. 2

151 Introduction: What are Suspicious Transactions? Suspicious transactions are financial transactions that you have reasonable grounds to suspect are related to the commission of a money laundering offence. This includes transactions that you have reasonable grounds to suspect are related to the attempted commission of a money laundering offence. Suspicious transactions also include financial transactions that you have reasonable grounds to suspect are related to the commission of a terrorist activity financing offence. This includes transactions that you have reasonable grounds to suspect are related to the attempted commission of a terrorist activity financing offence. Reasonable grounds to suspect is determined by what is reasonable in your circumstances, including normal business practices and systems within your industry. A suspicious transaction is one that no matter the monetary amount gives you a feeling of discomfort, apprehension, or mistrust. 3

152 What are Completed or Attempted Transactions? A Completed Transaction: is one that has occurred. For example, if you process a deposit from a client towards the purchase of an asset such as a house, a financial transaction has occurred. This is true even if the final sale associated to the deposit does not go through. In this example, the refund of the deposit would also be a financial transaction. An Attempted Transaction: is one that a client intended to conduct and took some form of action to do so. An attempted transaction is different from a simple request for information, such as an enquiry as to the fee applicable to a certain transaction. An attempted transaction includes entering into negotiations or discussions to conduct the transaction and involves concrete measures to be taken by either you or the client. 4

153 Part 1: General Suspicious Transaction Indicators The following slides indicate general suspicious transaction (completed or attempted) indicators. These indicators have been created to provide you with guidelines to assist in being better able to identify suspicious financial transactions. For additional indicators go to the FINTRAC web site at: 5

154 Section Overview: General suspicious transactions (completed or attempted) fall into eight main categories: 1. General criteria 2. Knowledge of money laundering issues 3. Identity documents 4. Cash transactions 5. Economic purpose 6. Transactions involving areas outside of Canada 7. General indicators related to offshore business activities This section will review each category and some of the indicators within each. 6

155 1. General Criteria Behavioural Financial/ Transaction Details The client: Is nervous, not in keeping with the transaction Is defensive when questioned [and leaves office] Is secretive and reluctant to meet in person Presents confusing details about themselves and/or the transaction Over justifies or explains the transaction Makes statements about involvement in criminal activities The client: Does not want correspondence sent to their home address Appears to have accounts with several financial institutions in the area [and withdraws request of service when questioned] Seems to be watched or is accompanied during the transaction Seems to be willfully blind to being involved in possible money laundering activities Leaves office and does not complete transaction when asked for ID 7

156 2. Knowledge of Money Laundering Issues Financial/ Transaction Details The client: Attempts to convince you not to complete necessary forms [and does not complete transaction when unsuccessful]. Makes inquiries that would indicate a desire to avoid reporting. Has unusual or above the average person s knowledge of the law in relation to suspicious transaction reporting in keeping with the transaction being conducted. Shows uncommon curiosity about internal systems, controls and policies. 8

157 3. Identity Documents Financial/ Transaction Details The client: Provides doubtful or vague identity information. Refuses to produce personal identification documents. Wants to establish identity through means other than personal identification documents. Has supporting documentation that lacks important details, such as a phone number or street address. Submits only copies of personal identification documents. Has their home phone disconnected and provides various cell numbers. Inordinately delays presenting personal or corporate documents. All identification presented is foreign or cannot be checked for some reason. 9

158 4. Cash Transactions Condition of Cash The cash is: Musty or extremely dirty. Is in denominations larger than usual for the client. Packed or wrapped in a way that is uncommon for the client. Large amounts of smaller denominations, crumbled and the total amount unknown to the client. Financial/ Transaction Details The client: Conducts a transaction that is unusual compare to amounts of his or her past transactions. Makes large cash transactions that are consistently rounded off amounts or slightly less than FINTRAC s reporting thresholds ($10,000). 10

159 5. Economic Purpose Financial/ Transaction Details The transaction: Transaction involves non-profit or charitable organization for which there appears to be no logical economic purpose or where there appears to be no link between the stated activity of the organization and the other parties in the transaction. Does not appear to be driven by normal commercial practices or demands. Fund transfers to overseas destinations with no, or very little in the way of a supporting business explanation. Switching funds between several accounts in different institutions or jurisdictions in an attempt to confuse the audit trail. The amount of the transaction does not reflect the customer s known level of personal wealth. 11

160 6. Transactions Involving Areas Outside Canada Financial/ Transaction Details Where illicit drug production or exporting may be prevalent, or where there is no effective anti-money laundering system. Known for highly secretive banking and corporate law. Known or suspected to facilitate money laundering activities. Transaction involves a country known or suspected to facilitate money laundering activities. Transactions with customers with Canadian addresses who originate payments from foreign bank accounts. Transactions involving any countries deemed by the Financial Action Task Force as requiring enhanced surveillance. Transaction involves a country known for highly secretive banking and corporate law. 12

161 7. Offshore Business Activity Financial/ Transactional Details Accumulation of large balances, inconsistent with the known turnover of the client s business, and then subsequent transfers to overseas account(s). Loans secured by obligations from offshore banks. Loans to or from offshore companies. Offers of multi-million dollar deposits from a confidential source to be sent from an offshore bank or somehow guaranteed by an offshore bank. Shell banks that have names very similar to the name of a legitimate institution. Unexplained electronic funds transfers by clients on a regular in-and-out basis. Credit cards issued by an off-shore bank. 13

162 Additional Indicators Used In Terrorist Financing Activities But They May Also Be Used In Money Laundering Financial/ Transactional Details Some common activities reflective of terrorist financing/money laundering: The use of legal businesses to co-mingle funds destined to assist terrorist groups. The use of shell companies to conceal the beneficial ownership of business accounts. The use of informal money transfer systems where money is transferred from Canada to a foreign country without using a formal EFT system through a financial institution. These are called hawala, hundi, or fei chien. The use of family or friends who are trusted within the community, and who will not attract attention, to conduct transactions on behalf of the terrorist group. The use of smurfs to deposit cash or purchase bank drafts in smaller amounts that do not attract attention. 14

163 Part 2: Identifying Suspicious Transaction Indicators In this section, we ll look at a variety of scenarios involving possible suspicious transaction activities. Try to identify as many suspicious indicators you can. 15

164 Scenario 1: Account Opening - Real Estate John Tanya is a Member Service Representative (MSR) at a rural credit union. A man, by the name of John, is looking to immigrate to Canada with his family. He wants to open an account with the proceeds of the sale of a pub back in Dublin. He presents the identification needed to meet the criteria to open an account. In conversation, the MSR learns that John will be moving to Canada with his wife and her mother within the next few months. A document from a well-known realtor confirms a land purchase has been made locally with the intention that John and his family will be farming when they settle in Canada. John deposits a Bank Draft for $650,000 which is verified with the issuing bank. Are there any suspicious transaction indicators here? 16

165 Scenario 1: John Several months go by and John contacts Tanya the MSR to say that they are experiencing some problems with the necessary paperwork in order to complete the move to Canada and that, unfortunately, it may not happen as planned. Shortly thereafter, John calls Tanya again to state that the paperwork cannot be completed due to his mother-in-law having suffered health issues and they will not be moving to Canada. However, John is looking to purchase a farm elsewhere and asks about the process of having bank drafts issued and forwarded to the appropriate recipients. Are there any suspicious transaction indicators here? 17

166 Scenario 1: John Over the next 6 months, Tanya receives signed faxes from John asking her to forward bank drafts on his behalf to various beneficiaries throughout the world, including his sons, his sister, a tractor company, a solicitor and others. The account is virtually emptied and eventually closed. Are there any suspicious transaction indicators here? If you were Tanya, would you file a Suspicious Transaction Report? 18

167 Scenario 1: John - Solution The indicators in this scenario, that when put together led Tanya to complete a Suspicious Transaction Report, are: The deposit of this amount of money when confirmation of John s immigration was not confirmed His request to have funds dispersed to multiple individuals John s insistence to have the credit union forward the drafts, rather than the funds coming from John himself If he sold his pub and is looking to purchase a farm, why does John disperse the majority of the funds in small increments to a variety of individuals? Tanya s decision to complete a Suspicious Transaction Report was the right one!! One year later law enforcement contacts the credit union investigating a known international money launderer who has funneled cash around the globe. His name is John and he resides in Ireland!! 19

168 Scenario 2: Mortgage Joanne Smith A schedule bank in Canada has many methods of developing its mortgage business and one of them is from mortgage brokers. Sandra is an underwriter for them and is eager to build this area of business within the organization. Joanne Smith lives in New York but is being transferred to Victoria, B.C. for business reasons. She approaches a mortgage broker to assist her with financing so that she can move her family into their new home. The mortgage broker submits the application to Sandra with the following information: Joanne Smith is an Operations Consultant for a Hotelier in New York; she earns $300,000 U.S. annually and has been employed with the organization for 5 years. She is 38 years of age, married with one child but her husband will not be on the mortgage. Joanne indicated that she has $750,000 in investments but does not want to cash in at this time. The mortgage application is for $800,000 plus the insurance premium which is an 85% advance; the estimated mortgage payment is $3500 monthly. Joanne has minimal debt and all credit cards are managed on a monthly basis. Are there any suspicious transaction indicators here? 20

169 Scenario 2: Mortgage Joanne Smith Along with the application, Sandra receives a letter of employment supporting the $300,000 U.S. annually and a copy of an investment statement supporting investments of $750,000. The mortgage file was approved by management and Sandra forwarded the 5 year term commitment letter to the mortgage broker for the customer's signature. Joanne agreed to the terms and signed off the commitment letter providing approval for automatic withdrawal of the monthly mortgage payments. At the lawyer's office, Joanne provides her active Ontario driver's license and her work visa as identification to meet the requirements of the bank. The mortgage is advanced and the customer takes possession of their new residence. Are there any suspicious transaction indicators here? 21

170 Scenario 2: Mortgage Joanne Smith A month later, Joanne's first mortgage payment is returned "insufficient funds". Debbie is the collector and through discussion with Joanne determines that Joanne's payroll deposits are not going through to her account in Canada properly and she is having difficulties setting this up. Joanne agrees to send the payment by Western Union. This continues to happen for the next 5 months. Debbie phones Joanne at her office, leaves a message on an answering machine and within 24 hours Joanne will return her phone call with a commitment to send the payment by Western Union. Then for the next three months, payments are not made and phone calls are not returned. Foreclosure action is threatened in a demand letter sent to Joanne at their residence. Debbie receives by FedEx a bank draft for $15000 payable to the bank for the arrears plus a small pre-payment. Debbie begins to think this is unusual and refers the file to the compliance officer for review. Are there any suspicious transaction indicators here? 22

171 Scenario 2: Mortgage Joanne Smith The indicators in this scenario, that when put together led to the completion of a Suspicious Transaction Report by the compliance officer, include: the letter of employment while signed by the Vice-President Human Resources did not indicate a website address (this seemed unusual for an international company). when the compliance officer called the company number and asked the receptionist for the website address, she didn't know it but indicated she would call back with the information but hung up before getting call back information. a security officer returned the phone call to the compliance officer indicating there was no website. upon closer review of the investment statement there seemed to be manual changes made that were not previously detected by the underwriter. Joanne was from New York but she had an active Ontario driver's license and she was being paid $300,000 U.S. but her mortgage payment was not being made in a timely fashion. Western Union payments are expensive and seemed unusual that someone with this profile would utilize this service more than absolutely necessary. The mortgage was in arrears, phone calls not returned and then suddenly a bank draft to pay arrears and pre-pay marginally (source of the funds was unknown). The decision to complete a Suspicious Transaction Report was the right one. 23

172 Part 3: Probing Questions Identifying suspicious transactions will normally involve putting together two or more factors and you should be comfortable in asking the client probing questions to clarify your suspicions. In this section, we ll look at a few circumstances in which you could ask the client further questions. Questions should be general and inconspicuous so as not to tip the client off that you may be suspicious and considering reporting the transaction. 24

173 KYC Factor #1: Normal Business Activities Scenario: A local Realtor opened up a working agreement with a walk-in client named Ivan Morris, to assist him in funding and purchasing some commercial properties. Two days after the agreement was signed, Mr. Morris has the Realtor put in an offer on a small apartment complex listed for $500,000. As a deposit on the offer, Mr. Morris gave the Realtor five separate bank drafts drawn on five different banks totaling $75, What questions could you ask in this scenario to find out more about this unusual financial transaction? 25

174 KYC Factor #1: Normal Business Activities Example of a probing question you could ask: Mr. Morris I notice these five bank drafts are from different institutions, would it not be easier to consolidate your deposit into one draft? Explanation The use of five bank drafts from five different banks is not a common practice for real estate salespersons who have opened up working agreements with new, walk-in clients. Money launderers will usually have many accounts with many institutions and often use funds from several of them at the same time to make an audit trail difficult to follow. This example is a good indicator of possible money laundering. 26

175 KYC Factor #2: Financial History Scenario: Your client has used your services to assist her in buying and selling residential property for the past 20 years. During that time she has bought and sold a total of five properties. Each purchase of the five properties involved a deposit on the offer of 5% of the proposed purchase price paid by way of a personal cheque drawn on her Canadian bank. She has now found a new property and asks the Realtor to represent her again and together they put an offer to purchase together. This time however, the client provides the Realtor a deposit involving $7,000 in cash and a wire transfer into the Realtor s account from a U.S. bank for $40,000. Based on what you know about your client s previous deposit practices, what probing questions could you ask in this scenario to find out more about her method of making a deposit? 27

176 KYC Factor #2: Financial History Example of a probing question you could ask: Joan this is a sizeable deposit, but you have never used cash plus a wire transfer before. Are you diversifying your sources of income these days? Explanation In this situation, Joan s increase in available funds for the purchase could very well be legitimate. However, if what you know about Joan herself and her past approach to making a deposit on the offer, this new combination of payments does raise a suspicious red flag as to the source of the these funds. Further due diligence is warranted. 28

177 KYC Factor #3: General Background Scenario: A Realtor is contacted by a local law firm on behalf of a client who currently resides in Bermuda. The client is a former resident of Canada who has since moved to Bermuda but maintains a home in Canada. The realtor is asked by the law firm to represent their client (in Bermuda) in the sale of his residence in a nearby neighbourhood to the real estate office. The Realtor agrees and meets with the client s lawyer to gather particulars about the residence. At this meeting, the lawyer provides the Realtor all of the required information about the residence, which is registered to a numbered company, but no specifics about the client. The lawyer did confirm however that she possessed the power to manage all issues regarding the sale. What probing questions might you ask in this scenario about the invisible client? 29

178 KYC Factor #3: General Background Example of a probing comment you could ask: I realize it is not uncommon for third parties to act on behalf of someone else in a sale of property, however, it seems somewhat strange that you have not told me the name of your client? Explanation Money launderers like to use nominees to undertake business deals through to their completion and therefore avoid attention drawn to them personally. Criminals use the costs associated with such third-parties as simply the price of ensuring their anonymity. 30

179 KYC Factor #4: Behaviour Scenario: A small town Broker in a popular holiday resort community has developed a very profitable property management side of his business, handling a significant number of cottage properties for non-resident owners. Recently, the Broker added five cottages to his portfolio which were owned by an individual living in the southern USA as an investment. All five cottages had been expensively remodeled over the past winter season for which it was well known in the community that the contractors were paid for these materials with US currency. What questions could the broker ask his new client based on the suspicious nature of such large renovation bills all being paid for in cash? 31

180 KYC Factor #4: Behaviour Example of some probing questions you could ask: Paying in cash doesn t provide you with the invoices needed on your investments, aren t these renovations subject to tax write-off in the US? Don t you have tax liabilities in Canada? All this cash might cause you problems. Explanation Hiding an audit trail is critical to a money launderer; consequently, not having receipts for materials or labour is important and more valuable than possible tax write-offs. 32

181 I m done Module 5, what do I do now? Congratulations! You have now completed all the modules in this AML/CTF training course! Feel free to go back and review any of the modules if you feel you need to refresh some of the information. Note that the material contained in each module of this course is reviewed and updated on a regular basis. 33