Chapter 5 Flashcards
Negligence
A tort involving a failure by a person to exercise care in circumstances which require that person to take care. For example, a real estate licensee can be liable for failing to use reasonable care in dealing with a client, resulting in damage or loss.
Elements of Negligence
- Duty of Care: The defendant owed the plaintiff a duty to take care.<br></br>2. Breach of Standard of Care: The defendant breached the standard of care owed.<br></br>3. Damages: The damages suffered were not too remote in law.
Example of Negligence
A real estate agent fails to disclose a known defect in a property, causing the buyer to suffer financial loss after the purchase.
Negligent Misrepresentation
A false assertion of fact made negligently. Licensees can be liable if they give advice or information without verifying its accuracy, and the client relies on it, leading to a loss.
Elements of Negligent Misrepresentation
- An untrue statement.<br></br>2. Made negligently.<br></br>3. A special relationship giving rise to a duty of care.<br></br>4. Reasonable reliance by the plaintiff.
Example of Negligent Misrepresentation
A licensee incorrectly assures a buyer that a property is free from defects without verifying this information.
Vicarious Liability
A legal principle holding an employer liable for the wrongful acts of an employee when those acts are committed in the ordinary course of employment. For example, a real estate brokerage can be held liable for the negligent acts of its licensees.
Example of Vicarious Liability
A brokerage is sued because one of its agents made an error in drafting a contract while working on a transaction.
Breach of Fiduciary Duty
Occurs when an agent (licensee) acts in their own interest rather than the client’s, or fails to disclose relevant information. For example, failing to inform a client about a conflict of interest or acting secretly with another party.
Example of Breach of Fiduciary Duty
An agent accepts a kickback from a buyer without informing the seller, violating the duty of loyalty to the seller.
Money Laundering
The process of disguising the origins of money obtained through illegal activities by converting it into a legitimate source. Real estate is attractive for money laundering due to its high value and potential for profit.
Stages of Money Laundering
- Placement: Introducing dirty money into the financial system.<br></br>2. Layering: Concealing the source of the money through complex transactions.<br></br>3. Integration: Reintroducing the money into the legitimate economy.
Example of Money Laundering in Real Estate
Using illicit funds to purchase a property, then selling the property and claiming the proceeds are legitimate income.
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)
The Financial Transactions and Reports Analysis Centre of Canada, which collects, analyzes, and discloses information to combat money laundering and terrorist financing. Key tasks include requiring reports from entities, analyzing financial transactions, ensuring compliance, and promoting awareness.
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which imposes obligations on real estate licensees to identify clients, keep records, report suspicious transactions, and establish compliance programs.
Know Your Client (KYC)
Obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) for identifying clients and verifying their identity. This includes individuals and entities involved in real estate transactions. For example, identifying the beneficial owners of a corporation.
Suspicious Transaction Report (STR)
A report that must be filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) when there are reasonable grounds to suspect that a transaction is related to money laundering or terrorist financing. The report should include detailed information about the transaction and the reasons for suspicion.
Large Cash Transaction
Defined as receiving $10,000 or more in cash in a single transaction or over a 24-hour period. Licensees must identify the individual or entity and file a report with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Beneficial Ownership
Refers to individuals who directly or indirectly own or control 25% or more of a corporation or entity. Licensees must identify and verify the beneficial owners to combat money laundering.
Transparency Declaration
Required under the Land Owner Transparency Act (LOTA) when registering certain interests in land. It states whether the person receiving the interest is a “reporting body” such as a relevant corporation, trust, or partnership.
Transparency Report
Must be filed with a transparency declaration if the interest is registered in the name of a reporting body. The report includes information about the interest holders, such as their names, addresses, and nature of their interest.
Politically Exposed Persons (PEP)
Individuals who hold or have held significant public offices, along with their family members and close associates. Licensees must take reasonable measures to determine if they are dealing with a PEP or related individuals, and apply additional scrutiny.
Land Owner Transparency Registry (LOTR)
A registry under the Land Owner Transparency Act (LOTA) where transparency reports are stored. The public can search for information about the beneficial ownership of land, helping to combat hidden ownership and money laundering.
Reasonable Grounds to Suspect
A standard for filing Suspicious Transaction Reports (STRs) with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), indicating that there is a possibility of a transaction being related to money laundering or terrorist financing. It is based on a mix of facts, context, and indicators, and does not require proof.
Anti-Money Laundering (AML) Compliance Program
An anti-money laundering program that brokerages must establish, including appointing a compliance officer, developing policies and procedures, conducting risk assessments, training, and regular review to ensure effectiveness.
Errors in Drafting Agreements
Licensees must draft legally enforceable documents such as contracts of purchase and sale accurately and clearly. Errors can lead to liability. For example, failing to specify terms clearly in a contract can result in a transaction dispute.
Example of Errors in Drafting Agreements
In Russell v. Wispinski, poorly drafted amendments to a purchase agreement led to a court case, highlighting the need for clear and precise contract language.
Duty of Full Disclosure
A fiduciary duty requiring licensees to disclose all relevant facts to their clients, including any potential conflicts of interest or information that could affect the transaction.
Example of Duty of Full Disclosure
A licensee must inform a client if they have a personal interest in a property being sold.
Role of FINTRAC
Collecting, analyzing, and disclosing financial transaction information to combat money laundering and terrorist financing. FINTRAC ensures compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and promotes public awareness.
Trigger for KYC Obligation: Receipt of Funds
Licensees must identify clients when they receive funds, except from financial entities or public bodies.
Trigger for KYC Obligation: Purchase or Sale Transaction
Licensees must identify clients and unrepresented parties in real estate transactions.
Trigger for KYC Obligation: Large Cash Transaction
Licensees must identify clients when receiving $10,000 or more in cash.
Trigger for KYC Obligation: Suspicious Transactions
Licensees must identify clients when a transaction is suspected to be related to money laundering or terrorist financing.
How to Identify an Individual
Methods include reviewing government-issued photo ID, referring to the individual’s credit file, or using the dual process method (matching name with address, date of birth, or financial account information).
How to Confirm the Existence of a Corporate Entity
Licensees can refer to public records such as certificates of incorporation, annual reports, or government notices to verify the existence of a corporation.
Third Party Determination
Licensees must determine if a client is acting on behalf of someone else in certain transactions, such as purchase and sales or large cash transactions.
Beneficial Owner (PCMLTFA)
An individual who directly or indirectly owns or controls 25% or more of a corporation or entity. Licensees must trace ownership through layers of entities to identify beneficial owners.
Example of Beneficial Ownership Information
Recording names and addresses of individuals who indirectly own or control significant shares of a corporation involved in a transaction.
Land Owner Transparency Act (LOTA)
Requires transparency declarations and reports for certain land interests to combat hidden ownership and money laundering.
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) Compliance Program
Brokerages must establish a compliance program, including appointing a compliance officer, developing policies, conducting risk assessments, training, and reviewing the program regularly.
Record Keeping Obligations
Licensees must keep records of Suspicious Transaction Reports (STRs), large cash transactions, client information, receipt of funds, unrepresented party records, and reasonable measures taken to identify parties for at least five years.
FINTRAC Compliance Activities
Includes outreach, engagement, compliance meetings, onsite exams, administrative monetary penalties (AMPs), and disclosures to law enforcement for extensive non-compliance.
Administrative Monetary Penalties (AMPs)
Issued by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) for non-compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), ranging from $1 to $100,000 per violation for individuals.
General Money Laundering/Terrorist Financing (ML/TF) Indicators
Red flags include the use of corporate entities, cash purchases without financing, ownership by foreign persons, and unregulated lenders.
Client Behaviour Indicators
Suspicious behaviors include over-justifying a purchase, lack of concern for transaction costs, and unusual interest in government reporting requirements.
Atypical Transaction Indicators
Transactions below or above market value, frequent ownership changes, and anonymous transactions are red flags for money laundering or terrorist financing.
Use of Other Parties Indicators
Involvement of third parties in transactions without clear reasons, such as buying property in another’s name or using a third party for payments, can indicate suspicious activities.
Components of a Suspicious Transaction Report (STR)
Includes details of the transaction, accounts involved, individuals involved, reasons for suspicion, and actions taken in response to the suspicious transaction.
