Tuesday, October 04, 2005
Suspicious Real Estate Transactions.
In this day and age of increased criminal activity it was only a matter of time for the latest crime wave to reach Real Estate. I am referring to money laundering. Real Estate brokers and sales representatives must report suspicious transactions if there is reasonable grounds to suspect that the transactions are related to the commission of a money laundering offence.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires Realtors to report suspicious transactions to the Financial Transactions and Report Analysis Centre of Canada (FINTRAC). Suspicious real estate transactions come in different flavors: for example, when a Client arrives at a real estate closing with a large amount of cash (it has actually happened - twice, in both instances in Toronto), or when the Client buys a property in the name of a nominee, like an associate or a relative. Naturally not all transactions involving nominees are symptomatic of shady dealings, but some may be. Another situation that may raise eyebrows is when Clients do not want their names to appear on documents connecting them with the property they are in the process of acquiring, or when they insist on using different names or fictitious business names on documents and forms. Or when they change the name of the purchasing party at the very last minute and fail to adequately explain the reasons for the substitution.
There are, of course, explanations for changes that the parties - especially Buyers - may wish to make, and some of these explanations are absolutely legitimate. For instance, in a recent transaction where I was involved the Buyer made an offer to purchase a restaurant in New Westminster, then was advised by his own accountant that it would have been tax-proficient for him to complete the transaction in the name of his limited company. I prepared an Amendment to the Contract of Purchase and Sale, had the parties sign it and that was the end of it.
There are instances, however, when changes cannot be reasonably explained. Take a look at this one, happened right here in Vancouver a few months ago: a Buyer negotiated a purchase price through his Real Estate Agent, but then requested his own Agent as well as the Agent for the Seller to record the transaction at a lower value on all documents, as he was going to pay the difference in cash 'under the table'. A quick report to FINTRAC by both Agents uncovered a money laundering scheme involving marijuana. A variation of this example is when a Seller agrees to sell his property for below market value requesting an additional 'under the table' payment. And in another recent case (again in Toronto - which is not developing a great reputation these days when it comes to money laundering in real estate), a Buyer proceeded to purchase a property by making a large down payment in cash and financed the balance through an unusual offshore banking institution.
Some of these crooks have no business sense at all. Take for instance the Tenant that proceeded to lease an apartment right here in Downtown Vancouver. The term of the Lease was one year, and the Tenant showed up at the doorsteps of the Property Management Company with all twelve monthly installments plus the half-a-month security deposit ... all in CAD $20.00 cash bills. The whole CAD $15,000 in $20.00 bills, in advance ... now, you tell me if this is not dumb.
When there is a grounded suspicion, the real estate professional has a duty imposed on to him to report the transaction to FINTRAC within 30 days. FINTRAC maintains a toll free telephone number at 1.866.346.8722 and a website at http://www.fintrac.gc.ca . Once the report is finalized, moreover, the real estate professional has an obligation not to inform anyone of such reporting, including of course the Client, if this could harm or otherwise impair a criminal investigation. No legal proceedings can be brought against the Agent for making a report in good faith.
Luigi Frascati
Real Estate Chronicle
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Would it be possible for me to quote some of this info on my Nashville real estate website? Thank you!
Certainly. Feel free to quote as much as you like. Just please note that when it comes to real estate and taxation law I specifically refer to British Columbia, the province where I am a licensed practitioner.
All the best.
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All the best.
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