Mortgage Broker

Fall 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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12 | fall 2019 CMB MAGAZINE proportionate to the wrong committed (for example, in B.C. a Lamborghini was forfeited for having been involved in the unlawful activity of street racing). However, some provinces' laws do contain a provision allowing a court to not order forfeiture when it would not be just to do so. e relative ease with which civil forfeiture can be obtained produces an incentive for the government to pursue it rather than pursuing a criminal conviction for the substantive charge. is can sometimes deprive a person of property without ever having their day in court concerning the primary accusation. B.C. is considering expanding its civil forfeiture program further by allowing forfeiture: n once the Crown links the asset to unlawful activity, unless the defendant proves the property is not an instrument or proceed of unlawful activity; and n allowing the Crown to hold the asset before the Crown starts court proceedings (this in effect deprives the defendant of the use of the asset without a forfeiture proceeding, let alone not having been heard on the primary charge). MONEY LAUNDERING Forfeiture is easier if people are prohibited from hiding proceeds of crime. Proceeds of crime that are converted into another form can be difficult to trace, locate and have forfeited. e various methods of money laundering involve the following three stages: n placing ("dirty money" is introduced into the financial system) n layering • Proceeds of crime are converted into another form (such as real estate purchases, mortgage investments, stocks, and bonds). • Sequences of financial transactions, some complex, are created (to disguise the audit trail and the source and ownership of funds). n integration • e laundered proceeds are in the economy (to be perceived as "clean" money). e Criminal Code, in effect, makes it an offence to deal with proceeds of crime in any way (Criminal Code, section 462.31). is prohibits being involved in any of the conduct concerning any of the stages of money laundering. While not precise, suffice it to say that almost all (if not all) conduct engaged in by mortgage broker in dealing with proceeds of crime would contravene the section. e mortgage broker will have violated the section if the conduct was engaged in: n with the intention to conceal or convert the proceeds and n knowing, believing, or being reckless as to the property being proceeds of crime. Recklessness standard and implications for industry participants e recent addition of recklessness being enough to satisfy the mental component lowers the standard for being charged with money laundering. Professionals who facilitate real estate and mortgage transactions might be charged with money laundering if they proceed with a transaction in the face of red flags. ey may be said to have been reckless in the face of the red flags. e defence to such an allegation might be showing that the person did not ignore but rather conducted appropriate assessments in dealing with the red flags. Superiors might now have to be more attentive of alerts of money laundering raised by subordinates, or risk being found to have been reckless. DETECTION Governments have enacted various laws to make detection of money laundering easier. FINTRAC: e Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires various entities conducive to conversion or concealment of funds (such as banks, credit unions, life insurance companies, securities dealers, money services businesses and foreign exchange dealers, accountants, real estate brokers, casinos, dealers in precious metals and stones, notaries, and real estate developers) to report suspicious transactions and those above certain amounts to FINTRAC. A suspicious transaction is one that is related to the commission or attempted commission of a money laundering offence or a terrorist activity financing offence. Even those who are not required to report suspicious transactions to FINTRAC are permitted to do so. FINTRAC analyzes the information made available to it and as part of their reporting out provides money laundering/terrorist financing red flags/indicators for various industries. Corporate Shares Transparency Register B.C. requires corporations to maintain a corporate shares transparency register indicating the true owners of their shares. is avoids true owners from hiding behind trustees and/or corporations who hold shares in other corporations. Other provinces are considering following suit. Landowner Transparency Registry B.C. is on its way to having in place the Landowner Transparency Act (LOTA). When in place, LOTA will require corporations, partnerships and trusts that hold land in British Columbia to disclose the "true" ownership of that land. is information will be accessible by the public. Unexplained Wealth Orders? e March 31, 2019 report to the B.C. government entitled "Combatting Money Laundering in B.C. Real Estate" recommended the government should consider introducing unexplained wealth orders. A person served with such an order would have the onus to show that the source of their wealth is legitimate, or risk forfeiture of their property. Presumably the targets of such orders would be persons whose assets and lifestyles are far greater than their known, legitimate income would support. We will have to wait to see whether B.C. follows through, and whether other provinces follow suit. It will also be interesting to see whether successful enforcement of such orders leads to further allegations, such as tax evasion. TAKEAWAY A mortgage broker would do well to be diligent in knowing/verifying the source of money they are handling. e law does not require that a thorough investigation be conducted; it does require diligence. is article is not intended as legal advice or to be authoritative. To address specific circumstances, the reader should obtain (as appropriate) legal, financial and other advice. legalease

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