10. Fraud and money laundering indicators

To help you recognize, assess and report suspicious real estate-related financial transactions, FINTRAC has created a list of fraud and money laundering indicators provided below.

These indicators are potential red flags that could initiate suspicion or indicate that something may be unusual in the absence of a reasonable explanation. When faced with such a situation, you must be vigilant and proactive by asking questions that will help you learn about the nature and legality of the transaction. Otherwise, you could be found guilty of failing in your duty to carry out your activities diligently or of being complacent or wilfully blind. 

Value

• Client negotiates a purchase for the market value or above, but requests that a lower value be recorded on documents, and pays the difference “under the table.”
• Loan/mortgage amount is above the market value of the property/real estate.

Anonymity

• Client purchases property in someone else’s name such as an associate, nominee, company, legal person, trust or a relative (other than a spouse).
• Client inadequately explains the last-minute substitution of the purchasing party’s name.
• The client pays initial deposit with a cheque from a third party, other than a spouse or a family member.
• Transaction is completed anonymously, in collusion or innocently, through a lawyer or notary – deposits are made into lawyer’s or notary’s trust account.
• Use of real estate brokers/agents/developers, lawyers or notaries, wittingly or unwittingly, to accept false personal or financial information related to any aspect of a real estate transaction, or to mortgage/loans.
• Company purchasing real estate has a complex organizational structure .
• Company or individual has no e-mail address, physical address, home or business telephone number (disconnected or fake), company logo, contact person.
• Client refuses to provide his own name on documents, or uses different names on offers to purchase, closing documents and deposit receipts.
• Client insists on providing signature on documents by fax only.
• Client uses a post office box or general delivery address where other options are available.

Flipping

• Client buys back a property that he or she recently sold.
• Successive buying and selling transactions of the same real estate.

Transaction speed

• Client shows strong interest in quickly completing the transaction without good cause, or without interest in property characteristics, price negotiations, risks, commissions or other related details, or may offer unusually high bids relative to current value/industry standard.
• Clients show considerable interest in transactions relating to buildings in particular areas without caring about the price they have to pay.
• Accelerated repayment of loan/mortgage shortly after deal is completed even if penalties are incurred.

Loan

• The information in the loan agreement is inconsistent or incorrect.
• The conditions in the loan agreement are unusual (for example, no collateral was required) or the complex nature of the loan scheme could not be justified.
• Underlying collateral is either not referenced in a loan agreement, is insufficient or fictitious or the collateral provider and other parties involved in the loan structure are not known.
• Company lending the money for the purchase of real estate, possibly an offshore company, has no direct relation with the borrower.

Renovations

• Invoices for real or phantom large remodelling or renovations are paid with cash.

Income generating

• Buyer of income-generating property shows no interest in generating profit by filling-in vacancies or by adjusting rent or lease value based on market value.

Flow through

• Incoming payments from abroad possibly linked to a trust account, followed immediately by wire transfers abroad without a logical reason.

Structuring or “smurfing”

• Multiple transactions involving payments in cash or in negotiable instruments (for example, bank drafts) which do not state the true payer and where the accumulated amount is considered to be significant in relation to the total amount of the transaction.

Geography

• Foreign buyer, either an individual or company, or source of funds are from a jurisdiction with strict bank secrecy laws, weak anti-money laundering regimes, or with a high level of political corruption.
• Foreign buyer, either an individual or company, especially if on a watch list, whose only connection to Canada is the real estate transaction.