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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.

Canada’s Proposed AML Changes for MSBs

What’s Old is New Again, Well Updated

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 Money Services Businesses (MSBs).

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.

♬The Times Regulations Are Changing♬

Foreign MSBs

Currently, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued a policy interpretation (PI-5594) in August of 2013, which states that a “real and substantial connection” to Canada must be present for an entity to be required to register as an MSB with FINTRAC.  A “real and substantial connection” was defined in the interpretation as having one or more of the following:

  • Whether the business is incorporated in Canada;
  • Whether the business has agents in Canada;
  • Whether the business has physical locations in Canada; and/ or
  • Whether the business maintains a bank account or a server in Canada.

The draft amendments introduce a new definition, which is “Foreign Money Services Business” that means anyone serving Canadian customers or entities in Canada is now subject to all Canadian requirements no matter where they are located.  Throughout the proposed changes, where there is a reference to money services businesses, there is also a reference to foreign money services businesses.  This will be significant to MSBs who operate non-face-to-face in the online marketplace and do not reside in Canada.

Non-Face-To-Face Customer Identification

Currently, there is a requirement that when customers are identified using the dual process method, the document and/or data that you collect is in its “original” format. This has been interpreted to mean that if the customer receives a utility bill in the mail, they must send you the original paper (not scanned or copied) document. The word “original” will be replaced with “authentic” (meaning that so long as you believe that the utility bill is a real utility bill for that person, it doesn’t need to be the same piece of paper that they received in the mail).

In addition, there are provisions that would allow reporting entities to rely on the identification conducted previously by other reporting entities. If this method is used to identify a customer, the reporting entity must immediately obtain the identification information from the other reporting entity and have a written agreement in place requiring the entity doing the identification to provide the identification verification within 3 days of the request.

Reporting EFTs of $10,000 or More

If you conduct international remittance transactions at the request of your customers, the requirement to report transactions of $10,000 or more will now be your responsibility, not your financial services provider.

The proposed change removes the language commonly known as the “first in, last out” rule.  This means that the first person/entity to ‘touch’ the funds for transactions incoming to Canada or the last person/entity to ‘touch’ the funds for a transaction outgoing from Canada had the reporting obligation (as long as the prescribed information was provided to them).

The update will change the reporting obligation to whoever maintains the customer relationship. So if you initiate a transaction at your customer’s request (outgoing transaction) or provide final receipt of payment to your customer (incoming transaction), it will be your obligation to report that transaction to FINTRAC.

For example, if the flow of the instructions for payment were as follows:

Currently, the reporting obligation of the outgoing EFT would fall to the bank in Canada.  With the draft updates, the reporting obligation would now fall to the MSB in Canada, because they have the relationship with the customer initiating the transaction.

 

Third Party Determination

Currently, the obligation to determine whether a third party is involved in a transaction relates to Large Cash Transactions.  The proposed changes would include the obligation to make a third party determination for all EFTs of $10,000 or more.  This would also require similar record keeping obligations as a third party determination under the current Large Cash Transaction records.

Suspicious Transaction Reporting

Currently, 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. This change appeared in the last round of amendments that came into force last year, and the proposed new wording would be another significant change:

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 means that a report would be due three days after the reporting entity conducts an investigation or does something that allows them to reach the conclusion that there are reasonable grounds to suspect.

Information Included In Reports to FINTRAC

Certain information is required in reports to FINTRAC. Even where information is marked as being optional, if a reporting entity has the information, it becomes mandatory to include it. Some of the additional proposed data fields are:

  • every reference number that is connected to the transaction,
  • 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.

These fields may require significantly more data to be included in reports, especially for transactions that are conducted online.

Ongoing Compliance Training

Currently, there are five required elements of a Canadian AML compliance program, but there is soon to be a sixth.  Before you get too worried, it’s not that major.  The change is specific to your ongoing compliance training obligations, which says you must institute and document a plan for your ongoing compliance training program and the delivery of the training.  Basically, in your AML compliance program documentation, you need to provide a description of your training program for at least the next year and how the training will be delivered. Many MSBs have already implemented this best practice.

Risk Assessment Obligations

With the recent addition of the “New Technologies and Developments” category to the Risk-Based Approach requirements, the next logical progression has be added.  The updates include the obligation to assess the money laundering and terrorist financing risk of any new technology before implementation.  Meaning, if you are looking to take your business online and are going to use this fancy, new non-face-to-face ID system, you had better take careful inventory of where your risks are and be sure the appropriate controls have been put in place before going live. Much like the training plan, many MSBs have already implemented this best practice.

Virtual Currency

The draft updates also include major changes related to virtual currency. “Dealers in virtual currencies’ would be regulated as MSBs. New record keeping and reporting obligations would apply to all reporting entities that accept payment in virtual currency, or send virtual currency on behalf of their customers.

For more information on updates specific to virtual currency, please check out our full article.

What 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!

If you are interested in sharing your comments with the Canadian MSB Association (and we highly encourage you to do so) please email luisa@global-currency.com. She will have more information on the industry group’s submission and consultation process.

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