Canada's new "Proceeds of Crime (Money Laundering) Act," which kicks in today, requires brokers to report to a new government agency if a real estate transaction appears suspicious. Failing to do so could result in a fine of up to $2 million and five years in prison.

Reports must be filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). It has been established as an independent federal agency that collects and analyses information intended to help law enforcement officials investigate and prosecute money laundering offenses. Information sent to FINTRAC could also end up with other government agencies if it points to possible tax evasion, violation of immigration laws or a threat to national security.

The agency says that money laundering is the process whereby "dirty money" -- cash produced through criminal activity ş is transformed into "clean money" by placing it in the financial system, layering it in complex financial transactions so it is difficult to trace its origins, and integrating it into the economy. FINTRAC says in Canada, money laundering is a multi billion-dollar problem.

"It is." says FINTRAC, "an integral element of organized criminal activity, and is the proven method by which organized crime groups seek to transform the proceeds of drug trafficking, contraband goods and people smuggling, extortion, fraud and other activities into apparently legitimately earned funds. Laundered proceeds of crime provide seemingly legitimate financial support to drug dealers, terrorist organizations, arms dealers and other criminal to amass wealth and operate and expand their criminal empires."

The act focuses on industries that deal with large monetary transactions, such as real estate, insurance, financial institutions and casinos.

"We'll be relying on the good judgement of the professionals in the real estate industry," says Peter Lamey, senior public affairs officer for FINTRAC.

Lamey worked a booth at the recent Canadian Real Estate Association (CREA) trade show to help educate those attending about the act. "We've put a system in place that makes it very easy to report any transaction to us," says Lamey. Reporting will be done via FINTRAC's website.

Lamey says he thinks most real estate professionals will know when a transaction involving real estate and cash doesn't seem quite right. The FINTRAC website says: "Suspicious transactions are financial transactions that you, as a reporting person or entity, have reasonable grounds to suspect are related to the commission of a money laundering offence. `Reasonable grounds to suspect' is determined by what is reasonable in your circumstances, such as normal business practices and systems within your industry."

Some specific examples of warnings that real estate professionals can watch for:

• Client arrives at a real estate closing with a significant amount of cash.

• Client does not want to put his or her name on any document that would connect him or her with the property or uses different names on Offers to Purchase, closing documents and deposit receipts.

• Client inadequately explains the last minute substitution of the purchasing party's name.

• Client sells property below market value with an additional "under the table" payment.

• Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank.

• Client purchases property without inspecting it.

• Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition and anticipated repair costs of each property.

• Client pays rent or the amount of the lease in advance using a large amount of cash.

• Client is known to have paid large remodelling or home improvement invoices with cash, on a property for which property management services are provided.

Lamey says most of the real estate professionals he's been dealing with are already aware of money laundering issues. Some provinces already have reporting systems in place.

Although the act was passed in June 2000 and goes into effect Nov. 8th, not all of the reporting regulations have been ironed out. The act calls for the reporting of all cash transactions involving amounts of $10,000 or more, but this requirement is not yet law. At the moment, only "suspicious" transactions must be reported.

All of these provisions were in place long before the recent terrorist events, but if controversial anti-terrorism legislation currently before Canada's House of Commons is passed, FINTRAC will have even more authority to look into financial transactions. Some opponents to the terrorism legislation, which allows for preventative arrests and the right to keep evidence secret, say the bill is too strong and a threat to the civil liberties of law-abiding citizens.

For more articles by Jim Adair, please press here.

Published: November 8, 2001

Use of this article without permission is a violation of federal copyright laws.

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .