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Developers, Brokers and Anti-Money Laundering Legislation: Who Is Responsible?




by:
Ashley Bozek
McCarthy Tétrault LLP - Vancouver Office

 
June 17, 2014

Previously published on June 10, 2014

In situations where developers retain real estate brokers to conduct sales activities on their behalf (for example, in a sales centre), questions may arise as to whether the developer has any obligations under the Proceeds of Crime (Money Laundering) and Terrorist Finance Act (Canada) (the “Act”) and the Proceeds of Crime (Money Laundering) and Terrorist Finance Regulations (the “Regulations”) with respect to purchaser identification and reporting, particularly where the real estate broker is already collecting such information for his or her own purposes.

Subsection 39.5(1) of the Regulations provides that, generally, Part I of the Act (which contains certain purchaser identification and reporting requirements) will apply to developers “when:

(a) in the case of a person or of an entity other than a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building; and

(b) in the case of an entity that is a corporation, they sell to the public a new house, a new condominium unit, a new commercial or industrial building or a new multi-unit residential building on their own behalf or on behalf of a subsidiary or affiliate.”

However, when developers do not directly engage in sales activities and retain the services of real estate brokers to conduct or assist with such activities, it becomes less clear whether the developer’s actions will trigger responsibilities under the Act and the Regulations.

The Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), the agency responsible for implementing the Act and the Regulations, has advised that in situations where a developer engages a real estate broker to conduct or assist with sales activities, it is a question of fact as to whether both the developer and the broker must fulfill the requirements set out in the Act and the Regulations. However, FINTRAC has provided examples of certain scenarios which may assist in determining which party has responsibilities under the Act and Regulations when a developer engages a real estate broker:

(1) The developer employs a real estate broker to provide certain services such as advertising, providing information to prospective purchasers and assisting purchasers with purchase transactions. In this scenario, the developer would remain responsible for any reporting or identification obligations under the Act and Regulations as, presumably, it would still be taking part in the sale of real estate to the public. The real estate broker would also have an obligation to report suspicious transactions should he or she have reasonable grounds to suspect that a transaction is related to the commission or attempted commission of a money laundering offence or terrorist activity financing offence (see Section 7 of the Act).

(2) The developer contracts with a real estate broker to act as an agent for identification purposes. Pursuant to Section 64.1 of the Regulations, an entity such as a developer that is required to take measures to ascertain the identity of purchasers may rely on an agent to conduct these activities only if that entity has entered into a written agreement with the agent for such purposes. In this scenario, the developer is required to obtain the identification information obtained by the agent under such written agreement.

(3) The developer hires a real estate broker to conduct the purchase and/or sale of real estate. In this scenario, the developer would be the client of the real estate broker. If the real estate broker is solely responsible for all functions related to the purchase and sale of real estate, and is not simply providing certain services such as advertising or assisting purchasers with purchase transactions, the real estate broker would be the only entity responsible for fulfilling the requirements under the Act and the Regulations.

As noted above, these scenarios are examples only and each developer-broker relationship must be evaluated on a case by case basis with a view to the specific facts involved. However, these scenarios can provide valuable information to developers in evaluating existing relationships and entering into new relationships with real estate brokers.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Ashley Bozek
Practice Area
 
Criminal Law
 
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