Chapter 2.2: Money Laundering / FINTRAC Flashcards by Kale Blakely

____________: the process used to disguise the source of money earned from criminal activities

Money laundering

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Money laundering is a __________________ in Canada under section 462.31(1) of the criminal code

Criminal offence

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A money laundering offence is committed when we someone deals in any manner with property or the proceeds of property with the intent to __________ or ___________ it, knowing or believing that some or all of it was obtained or derived as a result of the commission of a designated offence

Conceal or convert it

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Examples of money laundering

Drug trafficking
Fraud
Stock manipulation
Tax evasion

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One negative impact of money laundering is that it may increase the ___________________________

Corruption of public officials

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One negative impact of money laundering is that it threatens the “______________”.

Rule of law

Accountability of persons, institutions, and entities to follow our laws

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One negative impact of money laundering is that it erodes the _______________________ who assist money launders

Public trust of professionals

Such as lawyers, accountants, realtors, etc

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One negative impact of money laundering is that is that it reduces _______________ for public services (tax evasion)

Tax funds

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One negative impact of money laundering is that it causes _________________________ (real property )

Distortions in the market

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One reason real estate is attractive to money launders is due to its ________________, meaning large amounts can be laundered in a single transaction

High value

Houses are expenses so conveying $1m dirty money to clean money is substantial

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One reason real estate is attractive to money launders is due to ______________, as fairly secure and stable assets cannot be stolen

Security

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One reason real estate is attractive to money launders is due to its ______________, it doesn’t require a large degree of sophistication

Simplicity

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One reason real estate is attractive to money launders is due to its _________________________, which typically increase in value over the long term

Potential for profit

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One reason real estate is attractive to money launders is due to the _____________________________. Such as use of separate legal entities in real estate purchases/ sales, and unregulated lenders in financing

Variety of methods to launder money

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One reason real estate is attractive to money launders is due to its ________________, as prices can be manipulated to control the amount of money laundered in a transaction

Subjective value

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One reason real estate is attractive to money launders is due to the __________. There are ‘weak spots’ in the industry that criminals can exploit

Oversight

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One reason real estate is attractive to money launders is due to the ___________. The identity can be hidden through the use of corporations, trusts, and nominees

Anonymity

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One reason real estate is attractive to money launders is due to the ______________________. Criminals can flip properties as part of their money laundering activities without necessarily raising suspicion

Speculative component

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There are ____ stages in the money laundering process

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What are the 3 stages in the money laundering process

Stage 1: placement
Stage 2: layering
Stage 3: integration

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Stage 1 - placement

Explain what happens in this step

Process of placing the proceeds of crime into the financial system

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Stage 2: layering

Converting the criminal funds into another form in order to conceal the criminal origins of the proceeds

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Stage 3: integration

Reintroducing and reintegrating the laundered funds into the legitimate economy to create the perception of legitimacy and having the funds appear to have been legally earned

In simple, putting the money back into circulation to make it look legal

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Examples of Stage 1 - placement

Use of Smurf’s
using dirty money to repay loans
using dirty money for gambling (then converting the chips back into cash)

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What does it mean to use a Smurf

arranging for multiple people to deposit small amounts of cash at different financial institutions

What are examples of stage 2 - layering

Cash deposits in other bank accounts, split and merge between bank accounts

What are examples of stage 3 - integration

- may renovate a property by paying cash, with the sale of the improved property and the resulting profit appear to be legally earned - purchase high value items (lambo’s and such)

What stage is the most complicated money laundering stage

Stage 2 - layering As it involves multiple complex transactions May involve sophisticated professionals such as lawyers and accountants

There are _______ money laundering methods in real estate

3 Three Tres

One money laundering method in real estate is the use of __________, ________ and __________

Corporate entities, trusts, and nominees

The use of corporate entities, trusts, and nominees is strategic why?

Because beneficial ownership is not recorded in any land title offices in Canada

Another money laundering method in real estate is the _______________

Use of cash

Use of money Money laundering method #2

Purchasing, renting, renovating, lending, discharging, mortgages without lender involvement minimizes exposure to suspicion

Money laundering method in real estate #3 is the use of _____________

Unregulated lenders

Unregulated lenders Money laundering method #3

Private and unregulated lenders are not subject to reporting requirements under PCMLTFA

What does PCMLTFA stand for?

Proceeds of crime, money laundering, and terrorist financing act

The PCMLTFA applies to 3 groups, who!

1) real estate brokers 2) sales representatives 3) real estate developers

_______________ - acting as an agent for the purchase and sale of any type of real estate

Reporting entity

PCMLTFA does not apply to a licensees ____________________________ (examples: leases or rental management)

Property Management activities

What does FINTRAC stand for

Financial Transactions and Reports Analysis Centre of Canada

Is FINTRAC separate from the RCMP?

Yes sir! And they can even do their own investigations

FINTRAC is an ____________________ which operates at arm’s length from the law enforcement

Independent government agency

FINTRAC collects, analyzes, and discloses information to law enforcement and national security agencies to combat _________________________

Money laundering and terrorist financing

Licensee have ____ key requirements to stay on top of when looking out for money laundering

The 4 components the licensee must be aware of

1) compliance program 2) know your client 3) reporting 4) record keeping

1) compliance program _____________ must establish a compliance program for their brokerage, which provides the structure that ensures that the obligations under the PCMLTFA are fulfilled

Managing brokers

2) Know your client (KYC)

Each licensee identifies their own client only

There are 3 methods to best Know Your Client, what are they?

1) Government-issued photo identification method 2) credit file methods 3) dual process method

1) Government-issued photo identification method

Part of know your client ID must be authentic, valid, and current Must either examine the document in person or virtually through sophisticated software that will analyze for security features

What type of government issued ID is not valid

Viewing identification through video conferencing platforms such as zoom or Skype

2) Credit File Method Matching personal information provided by the client to a Canadian credit file that has been in existence for at least _______________

3 years Three years!

Dual process method The name, _________, _________, or confirmation of account just match what the individual provided to the licensee

Name, address, date of birth

Know your client (KYC) obligations can also extend to ___________, if they are not represented by another licensee

Non-client

5 parts to the compliance program

1) compliance officer 2) policies and procedures 3) risk assessment 4) training program 5) review - every 2 years

Four triggers to identify the person / entity

Trigger #1: receipt of funds (bank drafts, cashier cheques) Trigger #2: purchase or sale transaction Trigger #3: large cash transactions Trigger #4: suspicious transactions

____________ : a person / entity who instructs another person / entity to conduct an activity or financial transaction on their behalf

Third party

Utilizing a third party creates separation between the _________ and the transaction by using “__________”

Criminal Nominees

Examples of nominees (aka third parties)

Corporations, trusts, associates, friends, and family members

_______________________ is required in purchase and sales transactions and large cash transactions

3rd party determination Realtors must take reasonable measures to determine if a client is acting on behalf of someone else

3rd party determination is completed through a _____________________

Reasonable measures record

There are multiple ways to confirm the existence of a corporate entity. What are 3 records you can use to confirm the corporation exists:

1) certificate of incorporation 2) certificate of active corporate status 3) record that has to be filed annually

Licensees must also verify the corporations _______, ______, and the ____________________

Name, address, and names of its directors

Reporting means providing certain documents to _________ and not to __________

FINTRAC BCFSA

3 different components to FINTRAC reporting

1) Terrorist property 2) Large cash transactions 3) Suspicious Transactions

Terrorist Property suspicion must be reported to who?

Report must also be sent to the RCMP and the Canadian Security Intelligence Service (CSIS)

Large cash transactions are considered what?

$10,000 or more in cash in a single transaction, or multiple payments of cash that add up to $10,000 or more in 24 hours

If you notice a large cash transaction, aka more than $10,000 in one day, how soon should you report it?

Within 15 days

_________________ is a key obligation upon licensees

Suspicious transactions

Suspicious Transaction Reports (STR’s) must be submitted to _________________ as soon as practicable by a licensee when you determine that there’s reasonable grounds to __________ that a transaction is related to money laundering or terrorist financing offences

FINTRAC electronically SUSPECT

Record keeping must be kept in such a manner where they can be provided to ________ within __________ of a request

FINTRAC 30 days

Records must be kept for at least ____________ from the date it was submitted to FINTRAC and include what documents!

5 yearS ``` Suspicious transaction reports Large cash transactions reports Client information records Receipts of funds recorded Unrepresented party record ```

What does AMP stand for

Administrative Monetary Penalties

Administrative Monetary Penalties May range from ________ to ________ per violation

$1 - $100,000

Administrative Monetary Penalties are not issued _________ in response to non compliance

Automatically

FINTRAC may disclose cases of non-compliance to ____________ when there is extensive non-compliance

Law enforcement (but it isn’t mandatory, just must)

FINTRAC must make public all ______________ imposed

Administrative Monetary Penalties

Noncompliance can result in ________________ and or ____________

Administrative Monetary Penalties criminal proceedings

The maximum criminal penalties include up to $_________ and or _____ years if imprisonment

$2m 5 years

A licensee is required to file a suspicious transaction report when they think a transaction is related to a money laundering or terrorist financing offence and it meets which of the following burden of proof?

Reasonable grounds to suspect SUSPECT IS IMPORTANT

Which of the following statement about Fintracs administrative monetary penalties is true

FINTRAC is required to publish the names of the individuals or empties that have committed violations resulting in an AMP