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Are On Demand Products Right For You?

For certain industries, including dealers in precious metals and stones (DPMSs) and real estate, Outlier’s on-demand products are anti-money laundering (AML) and counter terrorist financing (CTF) programs that you can buy, customize online using our set up wizard, and download in fully customizable formats.

These can be purchased as single elements (Policies & Procedures, Risk Assessments, Training, Compliance Effectiveness Reviews) or bundled to save you money.

Why On Demand Products

Outlier’s Founder, Amber D. Scott, noticed two things that made her believe that on-demand products could help Canadian reporting entities. First, for many small and medium sized businesses, there are very similar business models and risk profiles. Second, many businesses don’t have the means to pay for consulting services but have the same obligations as larger reporting entities. She had a vision of creating a model that could level the playing field by making it easier for these businesses to create plain language documents in an affordable way.

Are On Demand Products Right For You?

While we’ve worked to keep the on demand products as plain language as possible, they will still require you to be able to read and understand the content and adjust them for your business model and compliance processes. You’ll also need to review and update them regularly (once a year – no matter what, and more often if Canadian laws and/or your business models change).

These program elements can save you money by providing a customizable framework for you to work with, but you’ll need to put in the time and effort to customize them and keep them up to date.

What If You Download A Product And Need Help?

If you’ve downloaded on demand products and you’re stuck, we can help. Please contact us and let us know what you need. In your request, include the product that you’ve purchased and describe the problem that you’re trying to solve. We’ll get back you within two business days. If you need help sooner, please mark your request as urgent, and we’ll do our best to get back to you sooner.

Is Outlier The Only Company That Can Help?

There are a number of professionals in Canada that can help you customize your program, including consultants, lawyers and Compliance Officers working in your field. Using Outlier’s on demand product doesn’t mean that we’re the only people that can work with you, in fact, we believe that competition makes us all better at what we do.

How Do I Buy On Demand Products?

You can buy our on demand products through this website using a credit card. Start by selecting the type of reporting entity that you are to view the products that are currently available.

If you’re looking for something that doesn’t seem to be on the list, please contact us.

Real Estate Sector – Identifying Individuals

We often hear friends and clients in the real estate sector say they are frustrated that there are not many ways to identify a customer other than meeting them face-to-face. Real estate developers, brokers and sales representatives have an obligation to ascertain a customer’s identity which requires them to refer to specific information and/or documentation to verify a customer’s identity.  However, this does not mean that identification must take place face-to-face. Below is a summary of all the different methods outlined in FINTRAC Guidance that are currently available to identify customers that are individuals and what’s coming.[1]

This article should not be considered advice (legal or otherwise). Throughout this article we refer to a purchaser of real estate as a customer, but you may refer to them as clients depending on your internal procedures. Also, your internal procedures may dictate what methods are acceptable in identifying a customer. If you are unsure, consult with your Compliance Officer where there is any doubt on what is acceptable within your organization.

Face-to-Face Identification for Individuals

When meeting customers face-to-face you may ask for a piece of identification that is:

  • Issued by a provincial, territorial or federal government in Canada or an equivalent foreign government (a foreign Passport would be acceptable for example);
  • Valid, not expired (if there is not expiry date this must be stated in the customer identification record);
  • Bears a unique identifier number (such as a driver’s license number);
  • Bears the name of the individual being identified;
  • Is an original (not a copy, photo, scan, video call, etc.); and
  • Bears a photo of the individual being identified.

Information that must also be collected and recorded includes things such as the customer’s full name (no initials, short forms or abbreviations), their occupation, date of birth, etc. The needed information is included in various fields on industry customer identification forms that are used so it is crucial they are complete and accurate.

Single Process Method

Under the single process method, a customer’s identify can be confirmed by completing  a credit header match on their Canadian credit file, provided it has been in existence for at least three years and has at least two trade lines.  This means there is not a ‘hard hit’, impacting the customer’s credit score. This must be completed at the time of confirming a customer’s identity and cannot take place earlier or later.  To be acceptable, the credit file details must match the exact name, date of birth and address provided by the customer. When using this method to confirm a customer’s identity a record of the following information must be retained:

  • The customer’s name;
  • The name of the Canadian credit bureau holding the credit file;
  • The reference number of the credit file; and
  • The date the credit file was consulted.

Dual Process Method

Where the single process method provides information that does not match what the customer has provided and/or the credit file does not meet the requisite requirements, the dual process method can be used to identify that customer.  This involves referring to information from reliable and independent sources and must be original, valid and the most recent.  In order to qualify as reliable, the sources should be well-known and reputable. Reliable and independent sources can be the federal, provincial, territorial and municipal levels of government, crown corporations, financial entities or utility providers. It is important to note that independent means neither of the sources can be the same, nor can they be you or your business.

Documentation being used must be in its original form.  This makes electronic documents the preference because the customer can send the originals via email, while retaining a copy for themselves. You cannot accept documents that have been photocopied, scanned or faxed.

Under the dual process method, you can refer to any two of the following options:

  • Documents or information from a reliable source that contain the customer’s name and date of birth;
  • Documents or information from a reliable source that contain the customer’s name and address; or
  • Documents or information that contain the customer’s name and confirms that they have a deposit, credit card or other loan account with a financial entity.

The table below provides some examples of the sources and documents that can be referred to when confirming a customer’s identification.  In order to meet the standards of the dual process method, two documents must be obtained but each document cannot be in the same column.

 

Documents or information to verify name and address

 

 

Column A

Documents or information to verify name and date of birth

 

 

Column B

Documents or information to verify name and confirm a financial account

 

Column C

 

Issued by a Canadian government body:

Any card or statement issued by a Canadian government body (federal, provincial, territorial or municipal):

·      Canada Pension Plan (CPP) statement;

·      Property tax assessment issued by a municipality; or

·      Provincially-issued vehicle registration.

·      Federal, provincial, territorial, and municipal levels.

CRA documents:

·      Notice of assessment;

·      Requirement to pay notice;

·      Installment reminder / receipt;

·      GST refund letter; or

·      Benefits statement.

Issued by a Canadian government body:

Any card or statement issued by a Canadian government body (federal, provincial, territorial or municipal):

·      Canada Pension Plan (CPP) statement of contributions;

 

 

Issued by other Canadian sources:

·      Referring to a customer/customer’s Canadian credit file that has been in existence for at least 6 months; or

Insurance documents (home, auto, life);

Confirm that your customer/customer has a deposit account, credit card or loan account by means of:

·      Credit card statement;

·      Bank statement;

·      Loan account statement (for example: mortgage);

·      Cheque that has been processed by a financial institution;

·      Telephone call, email or letter from the financial entity holding the deposit account, credit card or loan account; or

·      Identification product from a Canadian credit bureau (containing two trade lines in existence for at least 6 months);

Issued by other Canadian sources:

·      Referring to the customer/customer ‘s Canadian credit file that has been in existence for at least 6 months;

·      Utility bill (for example, electricity, water, telecommunications);

·      T4 statement;

·      Record of Employment;

·      Investment account statements (for example, RRSP, GIC); or

·      Identification product from a Canadian credit bureau (containing two trade lines in existence for at least 6 months).

 

Where the dual process method is used to confirm the identity of a customer, a record of certain information must be maintained. Specifically:

  • The customer’s name;
  • The name of the two different sources that were used to identify the customer;
  • The type of information (for example, utility statement, bank statement, etc.) that was referred to;
  • The account number associated with the information for each source (if there is account number, you must record a reference number); and
  • The date the information was verified.

Third Parties (Agent or Mandatary)

If you are unable to use any of the methods above (say in the case of a foreign buyer that you cannot meet with face-to-face), you can ask someone in their area to identify them on your behalf.  There must be a written agreement or arrangement in place before using this method and procedures must be in place on how the third party will identify a buyer.

 

What’s To Come?

On June 9th, 2018, draft amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations (there are five separate regulations that we’re going to collectively call regulations here for simplicity’s sake) were published. The draft amendments include some positive changes in respect to requirements related to identity verification.

With regards to the identification document used to identify a customer, the draft amendments replace the word “original” with “authentic” and state that a document used for verification of identity must be “authentic, valid and current.” This may[2] allow for scanned copies of documentation and/or for software that can authenticate identification documents to be used for the dual process method.

Under the draft amendments, regarding the single process method, information in a credit report must be derived from more than one source (this means there must be more than one trade line).

Under the draft amendments, real estate developers, brokers and sales representatives would be allowed to rely on identity verification undertaken by other regulated entities. This method requires a written agreement and a requirement to deliver the identity documentation within three days.

 

We’re Here To Help

If you have questions regarding the identification requirements in place currently or the requirements that are in draft form please contact us.

 

[1] Note that methods used to identify customers that are organizations are different from the ones discussed in this article.

[2] There is no certainty in this regard until a final version is published and FINTRAC has provided their guidance on the matter.

AML Changes For The Real Estate Sector

Here We Go Again! Canada’s Proposed AML Changes for Real Estate Developers, Brokers and Sales Representatives

 

On June 9th, 2018, draft amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its enacted regulations (there are five separate regulations that we’re going to collectively call regulations here for simplicity’s sake). This article is intended to give a high-level summary of the proposed amendments as they relate to the real estate industry.

This article should not be considered advice (legal, tax or otherwise). That said, any of the content shared here may be used and shared freely – you don’t need our permission. While we’d love for content that we’ve written to be attributed to us, we believe that it’s more important to get reliable information into the hands of community members (meaning that if you punk content that we wrote, we may think you’re a jerk but we’re not sending an army of lawyers).

Finally, we want to encourage the community to discuss the proposed changes and submit meaningful feedback for policy makers. The comment period for this draft is 90 days. After this, the Department of Finance takes the feedback to the bat cave and drafts a final version of the amendments. From the time that the final version is published, the draft indicates that there will be 12 months of transition to comply with the new requirements.

What does this mean for my business?

While there are quite a number of proposed changes (the draft is about 200 pages in length), some are likely to have more of an impact on for real estate developers, brokers and sales representatives than others. We’ve summarized the changes that we expect to have the most impact below. Remember these are just proposed changes so there is no need to update your compliance material just yet.

What’s New?

Virtual Currency:

While there are not many proposed amendments that will introduce new requirements for real estate developers, brokers and sales representatives the draft regulations introduce reporting requirements for the receipt of CAD 10,000 or more of virtual currency. These basically are the same as large cash reporting obligations and will require reporting entities to maintain a large virtual currency transaction record.

The requirements for reporting and recordkeeping for virtual currency will be very similar to cash reporting requirements.

What existing requirements are changing?

24-hour rule:

The draft regulations clarify that multiple transactions performed by or on behalf of the same customer or entity within a 24-hour period are considered a single transaction for reporting purposes when they total CAD 10,000 or more. Only one report would need to be submitted to capture all transactions that aggregate to CAD 10,000 or more. For real estate developers, brokers and sales representatives this would apply to recipient of cash deposits. Specifically, this will apply to large cash transactions or CAD 10,000 or more. 

Identification:

The draft regulations replace the word “original” with “authentic” and states that a document used for verification of identity must be “authentic, valid and current. This would allow for scanned copies of documentation and/or for software that can authenticate identification documents to be used for the dual process method for real estate developers, brokers and sales representatives that identify clients in a non-face-to-face manner. Another change, related to measures for verifying identity, is that the word “verify” has been replaced with “confirm” and “ascertain” has been replaced with confirm. What this will mean exactly is still unclear (FINTRAC will need to provide more guidance once the final amendments are released). We are hopeful that it will allow for easier customer identification – especially for customers outside of Canada.

Records:

There have been some changes to the details that must be recorded in records that real estate broker or sales representative must maintain. In particular, the draft regulations add the requirement that information records must contain details of every person or entity for which they act as an agent or mandatary in respect of the purchase or sale of real property. Under the existing regulations information related to the person or entity purchasing real estate only.

Risk Assessment:

Under current regulations, reporting entities are required to assess the risks associated with its business and develop a risk assessment specific to your situation. For real estate developers, brokers and sales representatives a risk assessment must address the following four areas:

  • Products, services, and delivery channels (to better reflect the reality of the real estate sector, this workbook will now only refer to services and delivery channels);
  • Geography;
  • Clients and business relationships; and
  • Other relevant factors

A proposed amendment would require all reporting entities to assess the risk related the use of new technologies, before they are implemented.  This has been a best practice since the requirement to conduct a risk assessment came into force, but this change would make this a formal requirement.

Suspicious Transaction Reporting:

Under current regulations if a reporting entity has reasonable grounds to suspect that a transaction or attempted transaction is related to money laundering or terrorist financing, a report must be submitted to FINTRAC within 30 days of the date that a fact was discovered that caused the suspicion. The revised regulations add to this requirement by stating:

The person or entity shall send the report to the Centre within three days after the day on which measures taken by them enable them to establish that there are reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering offence or a terrorist activity financing offence.

This would require reports to be submitted to FINTRAC within three days after the reporting entity conducts an analysis that established reasonable grounds for suspicion.

Schedules:

The draft regulations introduce changes to reporting schedules, requiring more detailed information to be filed with FINTRAC then previously was required. This is in addition to including information that is marked as optional, if a reporting entity has the information. As it relates real estate developers, brokers and sales representatives these changes will impact attempted suspicious and suspicious transaction reporting, terrorist property reporting and large cash reporting. Some of the additional proposed data fields are:

  • every reference number that is connected to the transaction,
  • every other known detail that identifies the receipt (of cash for large cash transactions),
  • type of device used by person who makes request online,
  • number that identifies device,
  • internet protocol address (IP address) used by device,
  • person’s user name, and
  • date and time of person’s online session in which request is made.

Such changes may be onerous for reporting entities, especially for transactions that are conducted online.

Training:

Under current regulation, if real estate developers, brokers and sales representatives use agents, mandataries or other persons to act on their behalf, they must develop and maintain a written, ongoing compliance training program for those agents, mandataries or other persons. The draft regulations introduces an additional requirement in which there must be a documented plan for the ongoing compliance training program and delivering of that the training.

What’s Next?

If you’ve read this far, congratulations and thank you!

We hope that you will contribute your thoughts and comments. You can do this by contacting the Department of Finance directly. Their representative on this file is:

Lynn Hemmings
Acting Director General
Financial Systems Division
Financial Sector Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Email: fin.fc-cf.fin@canada.ca

If you would like assistance drafting a submission, or have questions that you would like Outlier to answer, please get in touch!

Canada’s 2017 Budget & PCMLTFA Updates

Greetings fellow compliance geeks!

As you may know, Canada’s latest budget bill contains a number of amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). We’ve created a marked up version of the PCMLTFA to help you work through and understand the changes, and you can access it using the link below with this caveat: you are welcome to use and share this markup, but you may not charge money for access to it. Information should be free.

Yes, I get it, give me access!

If you prefer a copy of the markups in Microsoft Word, please contact us.

Analysis Notes

The biggest takeaway from these amendments is related to section 5 (e.1), which adds “trust companies incorporated or formed by or under a provincial Act that are not regulated by a provincial Act” as being federally regulated entities. This has been a loophole in Canadian legislation for a long time, and was called out in Canada’s most recent mutual evaluation by the Financial Action Task Force (FATF). If you’re company falls into this category, it’s time to start thinking about anti money laundering (AML) compliance. If you have business arrangements (clients, suppliers, etc.) that are unregulated provincial trusts, there are a few early steps that you might want to consider:

  • Re-assess the AML risk that these provincial trust companies pose;
  • Reach out to ask if they have a Compliance Officer and an AML program (in some cases, you will be pleasantly surprised); and
  • Consider whether or not additional controls are required to mitigate the risk posed.

The additional information that’s changing includes a lot of items that most us would consider housekeeping, like changing foreign country to foreign state in a number of places, and adding bullet points to what is considered “prescribed information:”

  • the name, address, electronic mail address and telephone number of every trustee and every known beneficiary and settlor of a trust referred to in paragraph (a);
  • the name, address, electronic mail address and telephone number of each person who owns or controls, directly or indirectly, 25 % or more of an entity referred to in paragraph (a), other than a trust; and
  • information respecting the ownership, control and structure of an entity referred to in paragraph (a).

The only piece there that will be new (at least in terms of requirements) is the “electronic mail address” (email) for beneficial owners. If you’re not already collecting this information, it’s time to think about how to get started. If you’re collecting the email address, but its optional, consider making it a required field.

The modifications also give the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) the ability to share information with the Department of National Defence and the Canadian Forces where there are reasonable grounds to believe that there is a threat. Presumably, this would include contexts like a terrorist attack on Canada. It’s somewhat surprising that this was not already in place.

There have also been changes to the things about which “the Governor in Council may, on the recommendation of the Minister, make any regulations that the Governor in Council considers necessary for carrying out the purposes and provisions of this Act, including regulations…” These are interesting in thinking about what may be next in line for additional regulation:

  • respecting dealing in virtual currencies;
  • respecting the keeping of records referred to in section 6;
  • respecting the verification of the identity of persons and entities referred to in section 6.1; (d) respecting the reports to the Centre referred to in section 7 and subsections 7.1(1) and 9(1);
  • respecting the determination of whether a person is a person described in any of paragraphs 9.3(1)(a) to (c);
  • respecting the measures referred to in subsections 9.3(2) and (2.1);
  • respecting the measures referred to in subsection 9.4(1);
  • respecting the program referred to in subsection 9.6(1);
  • respecting the special measures referred to in subsection 9.6(3);
  • respecting the registration referred to in sections 11.1 to 11.2;
  • respecting the reports referred to in subsection 12(1); and
  • prescribing anything that by this Act is to be prescribed.

The only truly interesting point here is dealing in virtual currency, which also came up in Bill C-31 which passed in 2014. This bill, also called the Economic Action Plan 2014 Act, No. 1, has not been fully implemented. Some of its provisions (including those specifically related to including dealing in virtual currency under the definition of money services businesses) are also being amended. In the markups, these changes are highlighted in blue rather than in yellow to distinguish between the two.

Finally, there is a change to the definition of a head of an international organization. This one seems a bit nitpicky to me, but if you’re in the process of updating your documentation for the changes that are coming into force in June of this year, you might want to consider this as well. Head of an international organization (HIO) means a person who, at a given time, holds — or has held within a prescribed period before that time — the office or position of head of an international organization that is established by the governments of states or the head of an institution of any such organization.

We’re Here To Help

If you have questions about these changes, the changes coming into force in June of this year, or AML compliance in general, please contact us.

FINTRAC’s 2016 Real Estate Brief

Quick Overview

A little over a month ago, FINTRAC published an operational brief for the Canadian real estate industry.  The brief was intended to assist reporting entities in meeting the obligations to report suspicious transactions or attempted suspicious transactions that related to potential money laundering or terrorist financing.  The publication provided some common indicators that may be present in a transaction that suggest money laundering or terrorist financing could be involved.

What Does it Mean?

The suspicious indicators provided by FINTRAC list circumstances or activities that might signal potentially illicit activity.  This does not mean that if one or more of the indicators are present that the transaction is definitely suspicious and must be reported to FINTRAC, it is meant to ensure that you are aware of the potential that suspicious activity may be taking place.  In that context, if you are involved in real estate transactions, you must be aware of the indicators in the brief.  If you do encounter a transaction that may be considered suspicious, you will need to collect additional information that will aid in your decision to report it or document why it was not considered suspicious.

What Now?

In order to ensure familiarity for anyone who interacts with customers and their transactions, the list of FINTRAC’s indicators should be included in your ongoing AML compliance training program.  Furthermore, the indicators should also be included in your procedure manuals, allowing easy access to the information.  Finally, the indicators should be incorporated into your Risk Assessment documentation.  Specifically, when determining customer risk and the controls used to effectively mitigate potential risks.

We’ve made it easier for you to integrate this content into your program by putting the indicators in a Word document for you.

Need a Hand?

Outlier has taken the list of indicators provided by FINTRAC and formatted them into an easy to use Microsoft Word document, which can be downloaded here: FINTRAC Indicators Specific to Real Estate Transactions.  This should allow companies within the real estate sector to easily update their documentation and ensure they are sufficiently monitoring for potentially suspicious activity.  If you aren’t sure what to do with this information and would like some assistance, please feel free to contact us.

Would You Recognize Real Estate Red Flags?

Rodney_FINTRACOn November 14th, 2016 FINTRAC released a brief for all reporting entities who may be involved in real estate transactions.  The briefing is intended as guidance to provide some examples of indicators that may be present in transactions that may suggest they are linked to money laundering or terrorist financing.  The indicators described have been taken from transactions suspected of being related to money laundering or terrorist financing reported internationally.  The briefing focuses on the potential risks and vulnerabilities within the real estate industry and provides suggestions on how to ensure reporting entities are sufficiently meeting suspicious transaction reporting obligations.

The briefing is meant to provide operational guidance given the small overall number of suspicious transactions that have been reported to FINTRAC by the Real Estate industry.  The briefing states that these indicators will be used by FINTRAC to assess compliance with your reporting obligations.  If you are a reporting entity that interacts with the real estate industry in one form or another, the indicators and scenarios outlined in this brief should be considered when updating your Risk Assessment and training materials.

To put things into perspective, though the actual size of the real estate market is difficult to determine precisely, CMHC has produced some statistics.  CMHC suggests that between 2003 and 2013 over $9 trillion of mortgage credits were negotiated and roughly 5 million sales took place through Multiple Listing Services (MLS).  In contrast, FINTRAC received only 127 Suspicious Transactions Reports (STRs) from real estate brokers, agents and developers and 152 by other types of reporting entities, such as banks and trust/loan companies.  To go a step further, in FINTRAC’s 2015 Annual Report, between April 1, 2014 and March 31, 2015, a total of 92,531 STRs were filed across all reporting entities.

 

re-strs-filed-vs-sales

This evidence supports FINTRAC’s assertion that operational guidance for the real estate industry is needed.

The indicators and examples covered in the brief outline numerous scenarios that may suggest that a transaction is related to a money laundering or terrorist financing offense.  It also speaks to how the appearance of legitimacy obfuscates the clarity of suspicious transactions and requires more than a just “gut feel”.  What is required is the consideration of the facts related to the transaction and their context.  Does the transaction with all the known factors, positive or negative, make sense?

 

What This Means to Your Business? 

First off, FINTRAC will be using the indicators provided to assess your compliance with reporting obligations.  This has a couple different applications.  The first being, does your AML compliance program documentation make reference to the suspicious indicators that are provided.  Basically, are staff aware of the elements that may be present in a transaction that would suggest money laundering or terrorist financing may be occurring?

Secondly, is there an oversight process to ensure if there are transactions that contain one or more of these indicators where an STR was not submitted, is reviewed?  If so, does the process ensure supporting evidence that the Compliance Officer reviewed the transaction and determined there were not reasonable grounds to suspect its relation to money laundering or terrorist financing?  When you encounter a transaction involving any of the indicators provided, it is very important that you collect as much information as possible to assist the Compliance Officer with their determination of whether there are reasonable grounds to suspect that a transaction, or attempted transaction, may be related to money laundering or terrorist financing.  Alternatively, even if none of the indicators provided by FINTRAC are present but we still feel there is “something off” about our customer’s transaction, speak with your Compliance Officer.  They will be able to provide some insight on additional information that may assist our decision.  Once you have collected any additional information you may still not feel comfortable, but this does not mean you cannot complete the transaction, but that you must be sure your Compliance Officer is provided with all the information, which includes our reason for the escalation, so that they can decide whether there are reasonable grounds to suspect it may be related to a money laundering or terrorist financing offense.  The Compliance Officer will document their decision and, if necessary, submit an STR to FINTRAC.

Need a Hand?

If you are a reporting entity that interacts with the real estate industry and would like assistance updating your AML compliance program documentation or simply have some questions, please contact us.

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