Chapter 2.2 Money Laundering/FINTRAC Flashcards
____________: the process used to disguise the source of money earned from criminal activities
Money laundering
Money laundering is a __________________ in Canada under section 462.31(1) of the criminal code
Criminal offence
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
Examples of money laundering
Drug trafficking
Fraud
Stock manipulation
Tax evasion
One negative impact of __________ is that it may increase the corruption of public officials
Money laundering
One negative impact of money laundering is that it threatens the “______________”.
Rule of law
Accountability of persons, institutions, and entities to follow our laws
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
One negative impact of money laundering is that is that it reduces _______________ for public services (tax evasion)
Tax funds
One negative impact of money laundering is that it causes _________________________ (real property )
Distortions in the market
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
One reason real estate is attractive to money launders is due to ______________, as fairly secure and stable assets cannot be stolen
Security
One reason real estate is attractive to money launders is due to its ______________, it doesn’t require a large degree of sophistication
Simplicity
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
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
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
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
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
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
There are ____ stages in the money laundering process
3
What are the 3 stages in the money laundering process
Stage 1: placement
Stage 2: layering
Stage 3: integration
Stage 1 - placement
Explain what happens in this step
Process of placing the proceeds of crime into the financial system
Stage 2: layering
Converting the criminal funds into another form in order to conceal the criminal origins of the proceeds
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
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)
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
1) Complex Transactions: Using multiple financial transactions to obscure the money’s origin.
2) International Transfers: Moving funds through various countries and banks.
3) Shell Companies: Transferring money through shell companies.
4) Asset Purchases: Buying and selling high-value assets like real estate or art.
5) Currency Changes: Converting money into different currencies.
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 __________ (hint to hide identity)
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 _____ method in real estate is the use of cash
Money laundering
Use of money
Money laundering method #2
Purchasing, renting, renovating, lending, discharging, mortgages without lender involvement minimizes exposure to suspicion
The use of unregulated lenders is a ______ method
Money laundering
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
4
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
True or False you can view and identify ID via zoom or Skype
False - you can only verify in person or through a sophisticated software
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
- Receipt of Funds: Unusual or unexpected inflow of money.
- Purchase or Sale Transaction: High-value purchases or sales that seem inconsistent with normal activity.
- Large Cash Transactions: Deposits or withdrawals of large amounts of cash.
- Suspicious Transactions: Transactions that lack clear economic purpose or have unusual patterns.
____________ : 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 be sent FINTRAC and to the RCMP and the Canadian Security Intelligence Service (CSIS)
What makes a transaction a Large cash transactions?
$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
Licensees must lookout for 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 
True or false FINTRAC is required to publish the names of the individuals or entities that have committed violations resulting in an AMP
True
