WHAT TO EXPECT
The mainstream media has been reporting on Canada’s perceived money laundering problem in recent months. RCMP studies have revealed that real estate is one of the most significant sectors used for money laundering purposes and homes are becoming more vulnerable to this emerging type of crime.
Money laundering is the process of converting or transferring cash or other assets generated from illegal activity in order to conceal their source. In other words, criminals bring illegal funds into the Canadian financial system through methods and techniques that disguise them as legitimate. These schemes have become more common, increasingly sophisticated and, unfortunately, harder to detect.
While the latest concerns have primarily occurred in British Columbia, money laundering is a far-reaching issue. Any type of mortgage fraud threatens the country’s economy and has a serious negative impact on housing affordability. The use of illegal funds in our housing market can falsely inflate selling prices, making them more expensive and, at times, even unaffordable.
MONEY LAUNDERING AND YOUR MORTGAGE
All parties within your homebuying team – real estate agent, mortgage broker and lender – are required, under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, to verify that all of the information you provide on your mortgage application is accurate.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), provides guidelines that are designed to assist those involved in real estate transactions to identify red flags and ensure they’re not unintentionally aiding in money laundering. Any questionable transactions must be reported to FINTRAC, which monitors trends and patterns to help identify offenders as well as disclose relevant information to law enforcement.
In addition to verifying information relating to your personal identification and employment and income statements, for example, an assessment of your down payment is also required. Verifying your down payment funds – which typically represent a significant amount of money – is required by the Anti-Money Laundering & Terrorist Financing Act (a division of FINTRAC), to ensure they originate from a reasonable and legitimate source.
You may be asked to provide details about the account from which your down payment will be withdrawn including the account number and history of account activity. An explanation of unusual deposits, particularly around the time of homebuying, may also be required in addition to providing any fund transfer details. If you received a monetary gift from a family member, for instance, you may be asked to provide details on the account from which the transfer was made.
Any unusual activity or transactions that don’t fit within your normal habits may trigger a red flag. It’s important to understand that this does not automatically mean your information is being checked for accuracy because there’s a question of you acting unlawful or that you pose a risk to your lender. Best practices like this are actually put in place to verify your information and protect you from fraudsters who may try to misuse your information to disguise their criminal actions.
Lending practices have changed in Canada and financial institutions are dealing with servicing homebuyers with non-traditional credit as well as those who are new to Canada and may not have established banking or credit history. It’s important to understand that all homebuyers, regardless of their status, are subject to the same scrutiny.