By Ellen Baragon, Guest Contributor
Due to the real estate sector’s size, its services, and the high monetary values involved, real estate is at risk of being targeted for money laundering – as are banks and financial sectors where large transactions are common. One important way a real estate brokerage can reduce this risk is by regularly conducting an assessment to identify the factors that could expose them to this kind of crime.
Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the Financial Transactions and Reports Analysis Centre of Canada Risk (FINTRAC) requires each real estate brokerage to conduct an assessment and documentation of risks related to money laundering and terrorist financing, as well as mitigation measures to deal with those risks, and review it at least every two years or sooner, if risk factors change.
While there are specific legal requirements of brokerages around managing the risk of money laundering, REALTORS® also have an important role to play in combatting money laundering.
Considerations for a risk-based approach to money laundering
Assessing risk tolerance
When conducting a risk assessment, it’s important to consider what is an acceptable level of risk for your brokerage. This should be assessed with consideration of the risk that exists, and the controls and measures you have already implemented to reduce the level of risk.
Determining risk factors
To help you assess risk, consider the following factors:
- the brokerage’s clients and business relationships, including their activity patterns and geographic locations,
- the services and delivery channels that the brokerage offers,
- the geographic location(s) where the brokerage conducts their activities (e.g., the geographical area of Metro Vancouver has a large international port and airport and close proximity to the US border. These may be factors that increase vulnerability to money laundering and terrorist financing.),
- new technologies and their impacts on the brokerage’s clients, business relationships and services or delivery channels of their activities, and
- other relevant factors affecting the brokerage’s business (e.g., turnover, rules and regulations for the real estate industry, etc.).
Implementing controls to mitigate the brokerage’s identified risks will enable the brokerage to stay within its risk tolerance. If a brokerage sets a higher risk tolerance, this will require stronger risk mitigation measures and controls. The brokerage will want to ensure that the risk mitigation and controls correspond with the risks that have been identified.
Addressing residual risks
When conducting a risk assessment, you must also consider the level of risk that remains after the implementation of mitigation measures and controls. Money laundering is a crime with many complex elements and money launderers constantly adapt their methods and channels to avoid detection, therefore the risk is residual and requires ongoing monitoring.
Helping mitigate risk through a culture of compliance
An effective risk assessment goes far beyond simply meeting regulatory requirements and ticking the boxes. Compliance officers, managing brokers and real estate professionals should build a “culture of compliance” in their businesses, marked by awareness and knowledge of money laundering, and a willingness to follow the guidance set out by FINTRAC. In a future blog post in this series, BCREA will explore ways to establish a culture of compliance.
FINTRAC risk assessment requirements
FINTRAC expects a brokerage to demonstrate in writing that they have tailored their risk-based approach considering all facets of their exposure to money laundering and terrorist activities, documented the risks and implemented mitigation measures. The FINTRAC site provides guidance on the risk-based approach to combatting money laundering and terrorist financing as well as workbooks that include a “how to” methodology.
Compliance officers are also expected to be able to demonstrate to FINTRAC that they have reviewed and, if necessary, updated their risk assessment and mitigation measures if the brokerage or practice has changed or expanded in a way that would require a revision of their risk management plan.
For more information and resources on anti-money laundering, visit BCREA’s AML resources page.
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