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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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