As part of the Canadian government's crack down on money laundering and terror financing, which began in 1999 and is now being brought up to international standards, real estate developers will soon be faced with a greater regulatory burden.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the "Act"), originally passed in 2000 to deter money laundering in Canada, has been strengthened by Bill C-25. Bill C-25, which received Royal Assent on December 14, 2006, comprises amendments that expand the coverage of the law, strengthen its deterrence provisions and broaden the range of information that the Financial Transactions and Reports Analysis Centre ("FINTRAC") may disclose to law enforcement and national security agencies. FINTRAC, created by the Act in July 2000, is Canada's financial intelligence unit, a specialized agency created to collect, analyze and disclose financial information and intelligence on suspected money laundering and terrorist activity financing.
The amendments affecting real estate developers come into effect on February 20, 2009. The amendments will apply to every developer who has sold to the public at least five new homes, one new commercial or industrial building, or a new condominium or apartment complex. Developers will be required to meet the reporting requirements of Part One of the Act, being client-identification, record-keeping and transaction reporting.
The amendments will significantly impact a real estate developer's policies and procedures. The client-identification requirements mean that developers will have to ascertain the identity of every person who conducts a transaction, confirm the existence of and ascertain the name and address of every corporation on whose behalf the transaction is conducted (including the names of the corporation's directors), or confirm the existence of every entity, other than a corporation, on whose behalf the transaction is conducted. The record-keeping component requires a developer to keep a "receipt of funds record," a "client information record," and in corporate transactions, part of the transacting corporation's corporate records. The reporting requirements are two fold: (1) when a developer receives $10,000 or more in cash for a single transaction, a large cash transaction record must be filled out and the details of the transaction must be reported to FINTRAC, and (2) where a developer has reasonable grounds to suspect a suspicious transaction (where it is believed that the money will be laundered or directed towards terrorism), the details of the transaction must be reported to FINTRAC.
Real estate developers that do not comply with the Act and its regulations are subject to potentially very serious penalties. A new administrative monetary penalty scheme will allow for penalties that are proportionate to the violation. The maximum penalty for a violation that is classified as very serious is $100,000 in the case of a person and $500,000 in the case of an entity.
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