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What borrowers need to know about anti-money laundering legislation Follow us on Twitter @Robert_Fleet and on LinkedIn. Peter Cook and Robert Fleet are committed to helping borrowers strategize the best loan structure possible. They are available for oneon-one consultation for any CAM reader requiring multi-residential financing. As “Apartment Financing Specialists” with First National Financial LP they have originated over $4 Billion of mortgages. Their combined 35 years experience in the financial industry has lead to frequent speaking engagements across the country. They freely share their knowledge and techniques with audiences, clients and prospective clients. If you have questions, Peter and Robert may be reached by phone or email.

Peter Cook — (416) 593-2913 pcook@firstnational.ca Robert Fleet — (905) 301-3449 robert.fleet@firstnational.ca

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Money laundering and terrorist financing is a common problem that no country, politician or law enforcement in the world has been able to escape, because it ranges from small individual operations to organized crime.

It’s been around for decades and it takes on many different forms, which makes it very hard to identify. It’s also been a hot topic over the last few years because of its direct correlation to a country’s economic growth, and is more than a billiondollar problem in Canada alone.

New government legislation is cracking down on this illegal practice to help preserve the integrity of the financial services industry and the social demand to put criminals behind bars. If you’ve applied for funding in Canada since 2008, you may have noticed new detailed requirements that – while certainly frustrating to navigate – provides a significant contribution to Canada’s defense against money laundering and other illicit financial activity.

Regulating bodies Canada has several organizations to prevent money laundering and terrorism financing (AML). The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) was created in the early 2000s. The intention was to facilitate the detection, prevention and deterrence of money laundering and terrorist activity financing while ensuring the protection of personal information. To support the role of FINTRAC, the Office of the Superintendent of Financial Institutions Canada (OSFI) plays a valuable role by overseeing hundreds of financial institutions to verify their financial condition, ensure compliance with governing statute law and make the appropriate recommendations to FINTRAC. To help strengthen their

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To demonstrate just how seriously they take AML issues, FINTRAC and OSFI have implemented a strict auditing process for all regulated institutions”

efforts against financial fraud, FINTRAC and OSFI consulted with the federal government to amend the Proceeds of Crime (Money laundering) and Terrorist Financing Act, S.C. 2000, c. 17 (Act) in 2008. Real estate investors are now seeing the effects from changes to this act, as they purchase new properties, refinance debt and renew existing mortgages.

Effects of the legislation The amendments have increased the burden on banks, credit unions, and other financial institutions to verify the identity of their client and prove the origin of equity for all real estate transactions. Mortgage lenders typically accomplish this by verifying the identity of the client with two pieces of ID and having them complete a detailed borrower information form. Lenders must also verify down payment proceeds by reviewing three months of bank statements to confirm the client has had the proceeds for an extended period of time.

In addition to borrowers providing identification for new mortgages, they will need to provide ID upon renewal of their existing mortgages funded pre-legislation. Both new and experienced investors are generally surprised by these extra steps when working with their lender, as they believe it is specific only

to their institution. In fact, this is not the case as every FINTRAC and OSFI-regulated institution must abide by this legislation.

Penalties To demonstrate just how seriously they take AML issues, FINTRAC and OSFI have implemented a strict auditing process for all regulated institutions. OSFI employs a number of methods ranging from regular monitoring, intensive document reviews and regular communication with the lender’s senior management.

OSFI also reserves the right to audit any service provider of a regulated institution provided it gives reasonable notice. It provides feedback when necessary to insure the institutions and their service providers adhere to the provisions within the act.

If an institution is found to be non-compliant, FINTRAC has the legislative authority to issue administrative penalties which can include: Infraction Type Penalty Minor (individual/entity) Up to $1,000 Serious (individual/entity) Up to $100,000 Very serious (individual) Up to $100,000 Very serious (entity) Up to $500,000

FINTRAC also has the ability to report extensive non-compliance to law enforcement. These infractions include: Infraction Penalty Failure to report suspicious transactions Up to $2 million and/or 5 years imprisonment.

Failure to report a large cash transaction or an electronic funds transfer Up to $500,000 for the first offence. Up to $1 million for subsequent offences.

Failure to meet record keeping requirements Up to $500,000 and/or 5 years imprisonment.

Failure to provide assistance or provide information Up to $500,000 and/or 5 years imprisonment. during compliance examination Disclosing the fact that a suspicious transaction report was made, or disclosing the Up to 2 years imprisonment. contents of such a report, with the intent to prejudice a criminal investigation These are serious offences that management of lending institutions cannot take lightly. Lenders must make sure they cross all their T’s and dot all their I’s when it comes to AML. Failure to comply with the AML legislation can be damaging to an institution with both monetary penalties and more importantly restrictions on their ability to lend. With these mandatory provisions present in commercial financing and the regulatory bodies stepping up their efforts against money-launderers, lenders and borrowers should certainly expect additional hurdles to navigate in order to get their mortgages funded.

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