Is your real estate business ready for an AML examination from FINTRAC?

Source: FINTRAC 2022-23 Annual Report

FINTRAC conducted a total of 220 examinations of real estate businesses between 2020 and 2023. Between 2021 and 2023 real estate businesses received 14 administrative monetary penalties for non-compliance with AML regulations, totalling almost $2 million. The lowest fine was $22,770 and the highest fine totalled $282,397.50 — illustrating the high cost of non-compliance.

Sixty-four percent of these businesses were in B.C. However, five of the businesses that received penalties between 2021 and 2023 were in Ontario and Quebec, and the most recent business to receive a fine for non-compliance was located in Ontario.

This signals the potential for increased scrutiny from FINTRAC and stricter AML implementations in other provinces, including Ontario — which has the largest real estate market in Canada. No matter where your business is located, you need to take the right steps to assess your AML program and ensure you are ready to comply with FINTRAC’s regulations to avoid significant penalties.

What are the most common AML program shortfalls?

An AML program is crucial to reduce money laundering risks in your business. However, developing an AML program is complex — and you may be wondering if you took the right steps to fully comply with FINTRAC’s requirements. Understanding common shortfalls can help you identify and address gaps within your own AML program.

Out of the real estate businesses that received administrative monetary penalties from FINTRAC between 2021 and 2023:

• 86 percent failed to develop written compliance policies and procedures and keep them up to date. 

• 86 percent failed to develop written compliance policies and procedures and keep them up to date. 

• 86 percent failed to adequately assess and document money laundering risks within their business. 

• 64 percent failed to develop and maintain a written ongoing AML compliance training program required by FINTRAC. 

• 64 percent failed to keep prescribed records. 

• 57 percent failed to appoint a person responsible for the implementation of a compliance program. 

• 57 percent failed to institute and document the reviews prescribed by FINTRAC.

Maintaining an awareness of these common shortfalls can help you evaluate and strengthen your own AML compliance program. Additionally, an AML advisor can help you develop and implement an AML program and keep it up to date. This will ensure you are ready for an examination from FINTRAC as the real estate industry continues to face high scrutiny.

How can you implement an effective AML program?

You are required to implement an AML compliance program if you are considered a reporting entity by FINTRAC. It is crucial to review FINTRAC’s requirements to determine whether you are considered a real estate developer — and therefore a reporting entity.

If you are not sure of your status, it is best to assume the regulations will apply to you and speak with a qualified money laundering advisor to confirm whether you are a reporting entity. 

An effective AML compliance program includes these five pillars:

1. Appoint a compliance officer: A compliance officer is responsible for your compliance program and acts as the first point of contact for FINTRAC.
   
   
2. Implement policies and procedures: These policies and procedures should outline what requirements you need to meet and how your AML program will meet them. This is one of the most frequent shortfall areas.
   
   
3. Risk assessment: This pillar involves determining the AML risks specific to your real estate business — as well as the measures you will take to mitigate those risks. This is another common area where businesses often fall short.
   
   
4. Training: This involves developing a training program for all staff and agents and includes those who are involved in real estate deals. This program should outline the role they play in helping you stay AML compliant. 
   
   
5. Effectiveness Review: The final pillar is to implement a testing program to review your AML program and ensure it is effective and up to date. This may be performed by either internal or external auditors on a biennial basis at minimum.

While these steps may seem complex, an effective AML program essentially involves strong record keeping, maintaining a healthy level of scrutiny, and reporting suspicious transactions. 

You don’t need to take on AML compliance alone

Taking the right steps to implement the five pillars of an effective AML program can help your real estate business prepare for a potential examination from FINTRAC as scrutiny of the sector increases across Canada. 

For more information, contact a member of MNP’s Anti-Money Laundering Services team. We have a deep understanding of your compliance requirements and can tailor solutions to fit your unique business model and strategy.