Money Laundering, Real Estate, and Alberta—How Industry Professionals Can Help
| August 01, 2019
The new report
Money laundering is a global issue that recently caught our country’s sober attention. Last May, the B.C. government released a report about money laundering in real estate which found that $47 billion was laundered across Canada last year.
Based on the authors’ mathematical models, which factor in GDP and crime rates, they estimated Alberta and Ontario were where most money laundering occurred.
While the report made news waves across the country, experts in provinces outside of B.C. met the report’s findings with some skepticism, citing the challenges of quantifying money laundering due to its hidden nature.
Money laundering and mortgage fraud
Money laundering and mortgage fraud do not always relate, but the large amounts paid for property make it a quick way to launder proceeds from crime.
In a typical scenario, criminals may engage in mortgage fraud in order to obtain a mortgage loan on a property, then repay the mortgage using money derived from criminal activity, and the illegitimate money becomes legitimate as equity in the property.
According to Cheryl Rumpel, a Senior Professional Conduct Review Officer with RECA, it’s difficult to distinguish money laundering real estate transitions from the vast majority of legitimate transactions.
“This is because most types of real estate money laundering transactions take place after the funds have already been placed in the financial system, and often after the funds have been layered to disguise their source,” said Cheryl.
In 2015, the Department of Finance Canada issued a report that identified mortgage fraud as one of the highest-risk areas for money laundering. On a scale of one to nine types of money laundering threats, with nine being the highest threat, mortgage fraud ranked at an eight.
When it comes to money laundering and real estate in Alberta, RECA’s role is indirect through its mission to protect against, investigate, detect, and suppress mortgage fraud as it relates to the industry, and direct through its mandate to protect consumers.
“Part of the work we do is informing and educating other agencies on how to spot mortgage fraud and other suspicious real estate and mortgage transactions,” said Cheryl.
“Mortgage fraud doesn’t always relate to money laundering, but usually when there is money laundering in real estate, mortgage fraud is involved.”
RECA actively participates in various forums that include law enforcement, financial institutions, and other stakeholders with the intent and purpose of combating money laundering and fraud.
This spring, RECA started an internal Money Laundering Working Group to explore new ways to engage with local, national, and global players to reduce money laundering.
What you can do
Cheryl and her colleagues are responsible for investigating transactions involving mortgage fraud, and they often find certain “red flag indicators” when it comes to money laundering and mortgage fraud.
Industry professionals can do their part in combating mortgage fraud and money laundering in real estate by being on the lookout for these red flags:
Money Laundering and Mortgage Fraud Red Flags
- A mortgage being paid off quickly. Most homeowners pay off properties over many years. Mortgages being paid off quickly means the owner has access to significant funds and was perhaps holding back funds from the purchase by choice.
- Use of straw buyers to purchase property. Straw buyers are a common tactic in mortgage fraud, however a case of fraud that may in fact be money laundering may be a straw buyer purchasing luxury properties.
Using another person as a straw buyer for a property allows for anonymity, uses another person’s good credit, and complicates any efforts to seize assets should the authorities get involved. Often these straw buyers purchasing luxury homes may have an occupation not in line with luxury home purchasing, such as student, homemaker, or unemployed.
- Several transactions involving the same party or those undertaken by groups of people who may have links to one another (e.g. family ties, business ties, or people of the same nationality, people who share an address, or people who have the same representatives or attorneys)
- Transactions involving an individual who has an unknown address or merely a correspondence address (e.g. a PO Box, shared office or shared business address) or where details are believed to be false or likely to be false
- Transactions which begin in one individual’s name and end in another’s without a logical explanation for the name change (e.g. the sale or change of ownership of the purchase or option to purchase a property which has not yet been handed over to the owner, or the subsequent transfer of rights to a third party)
- Transactions in which the parties show a strong interest in completing the transaction quickly, in absence of a logical or valid reason
“As a self-regulated profession, it’s important that industry professionals remain vigilant—ask questions and come forward with any information about suspicious transactions,” said Cheryl.
Last year RECA opened up an anonymous fraud tip submission form so consumers, industry professionals, or other third parties can anonymously provide RECA information about mortgage fraud.