On April 8, 2009, Fraser Milner Casgrain LLP and Deloitte hosted a seminar to discuss how amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) impact the real estate industry. PCMLTFA has applied to real estate agents and brokers since June 23, 2008, and began to apply to real estate developers as of February 20, 2009.
The PCMLTFA has a wide impact on the business of real estate developers, with a particular emphasis on identifying clients to financial transactions, maintaining client identification records and reporting large cash transactions ($10,000 or higher) or suspicious transactions. Reporting entities, such as real estate developers, must develop internal policies to comply with PCMLTFA, as well as internal policies to monitor and ultimately audit their compliance. The PCMLTFA is administered by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). FINTRAC is tasked with identifying criminal or terrorist financing transactions, as well as ensuring that industry groups comply with the various administrative requirements imposed by PCMLTFA.
Until recently, failures to comply with the PCMLTFA were punishable only by way of criminal sanctions. Potential criminal sanctions are significant, ranging from fines of up to $2,000,000 to prison terms of up to five years, but are not considered to be the most efficient way to support and enhance administrative compliance with PCMLTFA. Accordingly, further amendments to the PCMLTFA, in force as of December 30, 2008, provided FINTRAC with the power to level Administrative Monetary Penalties (AMPs) intended to provide for a measured and proportionate response to instances of administrative non-compliance by reporting entities.
The amount of any given AMP can range from $1 to as high as $500,000, depending on: (a) the nature of the violation (b) whether the entity is an individual or a company and (c) the reporting entities' internal policies and procedures in place to ensure compliance, and identify suspicious transactions. How a reporting entity responds to an identified area of non-compliance also influences FINTRAC's decision to assess an AMP, as well as the amount of the AMP.
Importantly, FINTRAC also reserves the right to publish the name and industry of a violator, and the amount of the AMP, on its website, as a means of shaming violators and providing further motivation for reporting entities to comply with the administrative requirements. FINTRAC's stated policy is to only publish those violations it considers "Serious" or "Very Serious," or where the total penalty is $10,000 or more.
At the time of the FMC/Deloitte seminar, FINTRAC had yet to publish any assessed AMPs, and accordingly, it was difficult to predict how FINTRAC might administer AMPs. However, on August 19, 2009, FINTRAC published two AMPs assessed against reporting entities in the money services business. The AMPs and their public notice can be read at the following link: http://www.fintrac-canafe.gc.ca/pen/4-eng.asp. Both violations were of the "Serious" or "Very Serious" nature, and were due to the failure of the reporting entity to register with FINTRAC. Although little detail is provided in the public notice, as more AMPs are published, reporting entities should receive additional guidance on conduct that will lead to an assessment of an AMP and its subsequent publication.
Now that some AMPs have been published, we can say that even for violations with relatively small AMP fines, FINTRAC is prepared to publish the names of violators. In an industry like real estate development, where the reputation of the developer in the community is of significant importance, public naming may carry greater harm than any fine.
In summary, it is important for the real estate industry to comply with PCMLTFA. Initial compliance must also be monitored and revised as need be, depending on the nature of the industry, the entity's clients and the type of transactions commonly entered into by the reporting entity. In addition, a quick and efficient response to an incident of non-compliance can avoid the stigma that comes with the public reporting of non-compliance, as well as the financial impact of an AMP.