Experts estimate $130bn in suspicious transactions flow through real estate transactions
Canada's financial watchdog has released a new guide identifying potential red flags for money laundering and tax evasion in the real estate sector.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Canada Revenue Agency have published an operational alert to help the industry spot suspicious activities in property transactions that may conceal proceeds from illegal activities, including tax evasion.
FINTRAC's guide detailed several methods used to launder money through real estate, such as purchasing properties without using traditional financial institutions or employing "straw buyers" to obscure the true owner.
Straw buyers often lack sufficient income or documentation to obtain a mortgage, which raises suspicions about the legitimacy of the transaction.
“Straw buyers serve as intermediaries to distance the funds from the ultimate beneficiary and conceal ownership,” the alert stated.
The watchdog noted that money earned through illegal activities, including drug trafficking, human trafficking, and terrorism, is being funnelled into Canadian real estate transactions to mask its origins.
Canadian properties, particularly those involved in farming, commercial, industrial, and residential sectors, are considered attractive for money laundering due to the relative ease with which illicit funds can be moved through the market.
“This is often done by relying on a private lender or unlicensed money services business,” FINTRAC explained. Tax evasion can also be facilitated through unsuspecting mortgage brokers, immigration consultants, and the use of trust accounts in tax havens, where funds are used to buy properties without establishing a mortgage or interest payments.
The practice of "snow-washing," a term used to describe money laundering in Canada, remained a persistent issue. Anti-money laundering experts estimate that as much as $130 billion in suspicious transactions flow through Canada's financial system annually.
A 2019 US State Department report identified Canada as a "major money laundering country."
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FINTRAC’s report also highlighted how some developers and builders exploit assignment contracts to evade taxes. This involves reselling a property multiple times before construction is complete, often resulting in unreported profits and capital gains.
Another tactic, known as "shadow flipping," enables brokers and investors to profit by transferring property before the final sale, avoiding taxes and inflating property prices.
The issue of underreporting suspicious transactions by Canada's big banks also remains a concern. Recently, several major banks, including TD Bank, RBC, and CIBC, were fined millions of dollars for failing to report cash transactions over $10,000 as required by the 2001 Proceeds Of Crime & Terrorist Financing Act.
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