Organized crime in Canadian real estate? Report raises money-laundering concerns
Some Toronto home sellers are finding their buyers are trying to renegotiate their deals at the last minute amid a cooling market. (File/THE CANADIAN PRESS)
Jordan Press, The Canadian Press
Published Thursday, September 15, 2016 5:17PM EDT
Last Updated Thursday, September 15, 2016 8:52PM EDT
OTTAWA -- An in-depth review of Canada's anti-money-laundering efforts has uncovered serious concerns that organized crime is using the country's hot real estate sector to illegally funnel cash.
The report from the Paris-based Financial Action Task Force makes special note of real estate as an area of the economy with a high risk of illicit activity, one of a few weak spots in what the report calls a comprehensive federal regime to combat money laundering and terrorist financing.
The charitable and life insurance industries are also identified in the report as sectors at risk of providing financial help to terrorists and criminals.
Of particular concern are real estate schemes in which a foreign or domestic criminal provides cash to a local buyer, or more sophisticated schemes where loans and mortgages are combined with lawyers' trust accounts to move money around quietly.
The Canada Revenue Agency is investigating questionable transactions in the Vancouver real estate market, part of a wider study the federal government is doing into ever-rising housing prices there and in Toronto.
The report released Thursday suggests the risk of criminals using real estate to launder money and proceeds of crime is a cross-country issue and not solely focused on Toronto and Vancouver, It says Quebec is another region where there is a risk of abuse.
Agents told reviewers they saw the risk of money laundering as low, pointing out that they don't handle cash-only deals -- the money usually flows through lawyers, banks or mortgage companies.
The report, however, says financial agencies and agents involved in those transactions sometimes do only a cursory review of information to see if the buyer on paper is linked to a criminal or terrorist group.
Brokerage agents relied on their gut feelings to determine if something seemed suspicious, the report says.
It also says relying on lawyers is problematic because their actions on behalf of a client can't be probed by law enforcement agencies, as the Supreme Court of Canada has held that those transactions are protected by solicitor-client privilege.
"In light of these professionals' key gatekeeper role, in particular in high-risk sectors and activities such as real-estate transactions and the formation of corporations and trusts, this constitutes a serious impediment to Canada's efforts to fight (money laundering)," the report says.
The government supports the report's comments about lawyers and is reviewing last year's Supreme Court ruling to see what could be done within the law to address concerns.
A spokesman for the Department of Finance said recent and soon-to-be-released regulatory amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will address many of concerns the report raises.
"The government takes the issue of money laundering and terrorist financing very seriously," Paul Duchesne said in an email.
"We will review FATF's recommendations closely to ensure that Canada continues to combat money laundering and terrorist financing effectively while respecting the constitutional division of powers, the Charter of Rights and Freedoms, and the privacy rights of Canadians."
A spokesman for the Canadian Real Estate Association, which represents more than 150,000 agents across the country, said its officials are still reviewing the report.
Pierre Leduc said the association provides training for members with regards to requirements to report suspicious transactions, including in-person and online presentations, forms, checklists and other online learning tools.
The report finds that organized crime poses the biggest money laundering threat in Canada, with terrorist financing posing a smaller risk.
Most of the money flows through legally incorporated companies that conduct little or no business, the report says.
Fintrac, the federal agency tasked with combating money laundering and terrorist financing, says that more than 70 per cent of the money laundering cases and just over half of the terrorist financing cases it has dealt with involved legally incorporated companies.
Between 2008 and 2014, the Canada Revenue Agency did about 5,000 audits on charities, identifying 16 that posed national security concerns, eight of which ended with the agency revoking the group's charitable status.