New federal bill requires real estate developers to comply with proceeds of crime (money laundering) and terrorist financing act, and expands duties of real estate brokers, Autumn 2008

In 2000, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the "Act") was passed by the Federal government. Under the Act, reporting entities such as financial institutions, insurance companies, securities dealers, money service businesses, real estate brokers and casinos were required to implement a compliance regime, keep certain records, complete reports, undertake client identification procedures and report suspicious and other prescribed transactions.

The Act was recently amended by Bill C-25, which will impose greater regulatory burdens and new obligations on existing reporting entities, and, in February 2009, on real estate developers.

The impact on developers is significant - they will be subject to the record keeping and reporting requirements of the Proceeds Of Crime (Money Laundering) And Terrorist Financing Act whenever they sell a new house, condominium, commercial or industrial building or multi-unit residential building.

Real estate brokers and sales representatives are already subject to the Act. Bill C-25 will require real estate brokers and sales representatives to collect and verify more information from purchasers and vendors than previously set out, and will also have to maintain a "client information record" for every purchase or sale of real estate. In addition, the requirement for a broker to report a suspicious transaction now applies to attempted suspicious transactions as well.

Bill C-25 will, commencing February 20, 2009, extend the coverage of the Act to Real Estate Developers. A "Real Estate Developer" is defined to include a person or entity who has sold to the public:

• five or more new houses or condominium units;
• one or more new commercial or industrial buildings; or
• one or more new multi-unit residential buildings each of which contains five or more residential units
• or two or more new multi-unit residential buildings that together contain five or more residential units.

Upon implementation of Bill C-25, developers will be required:

• to keep a "receipt of funds record" in respect of every amount received in the course of a single transaction, unless the amount is received from a financial entity or a public body, and a "client information record" in respect of every sale of a house, condominium unit, commercial or industrial building or a multi-unit residential building;
• where the "receipt of funds record" or the "client information record" is in respect of a corporation, to keep a copy of the corporation's corporate records relating to the power to bind the corporation;
• to report suspicious transactions and certain prescribed transactions – if a developer receives an amount in cash of $10,000 or more in the course of a single transaction, it will have to keep a large cash transaction record (unless cash is received from a financial entity or a public body) and will be required to report the transaction to FINTRAC Financial Transactions and Reports Analysis Centre of Canada); and
• to report suspicious transactions and attempted suspicious transactions to FINTRAC where there are reasonable grounds to suspect that the transaction is related to the commission of money laundering or terrorist financing.

Developers will also have to develop and implement a compliance program and provide employees with training on the implementation of office policies and procedures. Developers that do not comply with the Act are subject to penalties, with the maximum penalty amount for a person being $100,000 and an entity, $500,000.