Mortgage Fraud & Money Laundering

[00:00:00] Welcome to the Canadian Real Estate Investor, where host Daniel Foch and Nick Hill navigate

[00:00:06] the market and provide the tools and insights to build your real estate portfolio.

[00:00:12] Okay, welcome back to the Canadian Real Estate Investor podcast which is a show in which we

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[00:01:04] We are actually going to make it our quest to find the best deal in Canada in this five day

[00:01:09] challenge. Yeah, very exciting. A lot of buzzwords in there, my favorite buzz word is free,

[00:01:16] free and tons of value in here with the ultra exclusive free five day challenge of

[00:01:25] dance talking. So joining on that, but we've also got a side of the five day challenge more

[00:01:30] amazing free content and that is today's episode and we've got a spicy one today down.

[00:01:36] What are we talking about? We are talking about today HSBC is a legit mortgage fraud, half

[00:01:43] a billion dollars worth which is very related to a certain group of international foreign capital

[00:01:50] that I think the author of the article is attentive to that for political reasons, but

[00:01:55] we don't do politics on this show. We're interested in that for economic reasons because

[00:01:59] said economy where said capital is from, we've talked about it on this show before, that

[00:02:05] economy's not doing so well, but we'll get to that. It's funny because we're re-recording

[00:02:10] this episode and the second point on this says I was just going to say, so quick story

[00:02:16] we recorded this last week, you know 170 episodes and still experiencing the occasion of technical

[00:02:22] difficulty. So except but you have to mention that you are the technical difficulty. Don't put

[00:02:27] this on me, dude. I'm having fun with this because like Nick's actually really, like he gets super

[00:02:32] frustrated about it. Like he went on a rant. It would have been like fit for it would have been

[00:02:36] for WWE or something. I thought it was a chair. Do the people's elbow or something? There was

[00:02:41] a chair that I could have like smashed against something, you know, one of the little folding chairs.

[00:02:45] I would have. Yeah, we ended up losing almost two episodes. A lot of work, a lot of time,

[00:02:51] a lot of effort and coordination going to put these things together. So when we lose one for no

[00:02:56] reason other than something fails on the technical side of things it's frustrating. But anyway,

[00:03:01] to be fair though, it did kind of save us because that episode would have been airing

[00:03:05] the same day that this one is and it would have been wrong because we said, oh, our rate cuts off

[00:03:09] the table because Canada's job numbers were strong and now all of a sudden inflation is coming down.

[00:03:15] CPI today, 2.9. That's supposed to be 3.3. Yeah, that was the exact same thing.

[00:03:22] Yeah, 3.3. So I mean, hey, that's 3.4 was last month. 3.3 was their expectation.

[00:03:27] Projected it. Okay. Yeah. So I mean, hey, look, things are moving in the right direction. And now we can go

[00:03:32] back and correct ourselves or something we never even needed to correct ourselves for because that

[00:03:36] episode never aired. But look at us admitting our faults even we don't need to. So anyways, let's

[00:03:44] let's get into it here Dan start us off. Yeah. So I just basically put in this article from Sam

[00:03:50] Cooper who is one of my favorite Canadian journalists and actually very exciting. We have another

[00:03:54] Canadian journalist coming on the show next week. So stay tuned for that Greg or Craigie who we have

[00:04:00] we have some free copies of his book to give away. So also check that out. Really cool. Give me

[00:04:04] details on yeah, that was an awesome conversation. We just recorded it. So we're totally fanboying

[00:04:08] over here and he's having an event in Toronto that we'll talk about on the show too because we're

[00:04:13] going to attend that if anybody wants to hang out there. Anyway, this is an article from Sam Cooper

[00:04:18] who is a Canadian journalist who started his own thing on Substack now but he was he was working for

[00:04:23] a couple of different publications in Canada. And I put basically the whole article in here so that

[00:04:28] you can basically just read it. Maybe we'll just we'll do a new segment called Next Story Time

[00:04:32] because you have the good voice on the show and then so you read it and then I'll discuss it after.

[00:04:39] The article is titled Fake Chinese Income Mortgage's Fuel Toronto Real Estate Bubble HSBC

[00:04:46] Bank Leaks. I found out a huge mortgage fraud showing borrowers with exaggerated income from one

[00:04:53] specific country. The bureau investigates whistleblower documents. The whistleblower, a Canadian

[00:05:01] business school graduate was staggered by the suspicious home loans he discovered in 2022 when

[00:05:06] he joined a mortgage approval team at a small HSBC branch in the outskirts of Toronto. He knew

[00:05:15] of suspicions surrounding Chinese capital in British Columbia real estate but had never witnessed

[00:05:20] shady lending while working at his HSBC branch in Campbell River which is a small kind of rustic

[00:05:28] town on the coast of Vancouver Island. When he arrived at HSBC's bank in Aurora which is an

[00:05:37] affluent suburb north of Toronto, he discovered explosive growth in home loans to Chinese

[00:05:44] diaspora buyers during the COVID-19 pandemic. So fun fact Aurora was the the highest or the

[00:05:52] biggest price drop in 2017 when there was real estate only goes up right except for a couple of

[00:06:00] times. So in 2017 there was this huge drop in house prices in the GTA because there was this huge run

[00:06:07] up in luxury homes and that's where the foreign buyers bands started in BC in 2016 and Canada in

[00:06:13] 2017. This policy responds to try and shut out some of this house hoarding basically that was

[00:06:19] taking place in Aurora coincidentally well now we're learning not coincidentally saw the biggest

[00:06:25] run up in price and the biggest collapse in price after that policy introduction in 2017. So just a

[00:06:31] fun fact also Aurora when they say affluent suburb it's like a top five affluent suburb but it's

[00:06:36] top like top five wealthiest municipalities in Canada I believe up based on the household income

[00:06:41] basis. Like you got like King City, Oakville there's like a Oakville I didn't pull up the list

[00:06:46] while you're continuing. Mark time and that's just in the GTA I mean you got a Vancouver you got

[00:06:50] Sean O'Cee and a couple other sexy ones there but anyways we're getting off top of you're back to

[00:06:56] next story time please some respect for the story time Dan migrants living across Toronto were

[00:07:01] obtaining mortgages from HSBC well supposedly earning extravagant salaries from remote work jobs

[00:07:09] back in China and one example an Ontario casino worker that owned three homes also claimed to earn

[00:07:16] $345,000 in 2020 analyzing data remotely for a Beijing company Dan you and I literally analyzed

[00:07:24] data all the time and I haven't made anything close to 344 we just gonna be shopping for better

[00:07:28] remote work apparently. I'm getting I'm getting like we like weird memories of the big short as I

[00:07:35] read this year yeah yeah it does I mean like here we just did like actual fraud whereas the banks used

[00:07:41] in the US they the banks did the fraud for you as opposed to so. So before joining HSBC our whistle

[00:07:49] blower had studied fake income mortgage frauds for his business master's degree as he attended Vancouver

[00:07:56] Island University now after arriving in Aurora in February of 2022 well digging into the branches

[00:08:04] loan books and interrogating his colleagues he made some mind blowing assessments since 2015 the

[00:08:13] whistle blower concluded that more than 10 Toronto area HSBC branches had issued at least $500

[00:08:22] million in home loans to diaspora buyers claiming exaggerated incomes or non-existent jobs back in

[00:08:33] China now these foreign income scams spiked during the pandemic the whistle blower bleed because

[00:08:40] borrowers could somewhat plausibly claim to be working remotely in other countries while riding out

[00:08:45] the COVID-19 pandemic here in Canada. Well a small bank the HSBC Aurora well a small bank of

[00:08:54] that size was expected to issue about $23 million in residential loans every year this branch had

[00:09:02] shoveled out a whopping $88 million in mortgages in 2022 alone and according to the whistle blower over

[00:09:10] $50 million in 2021 so almost quadruple in 2020 and more than double what they are expected to

[00:09:19] in 2021. So as the whistle blower probed his colleagues he's his belief gained conviction that HSBC

[00:09:28] and other banks including C IBC has systematic problems and highly questionable mortgages

[00:09:37] from the buyers with unverified sources of wealth. So what do you think of story time?

[00:09:46] It's a great story great story yeah I wish I had a happier and I used to be to read that story

[00:09:50] and I think it's not really news like and I admire Sam as a journalist one of my favorite

[00:09:58] Canadian journalists if you get the chance awesome writer as well did a great book called

[00:10:02] Welfare Blindness that talks a lot about this and a lot about political infiltration money laundering

[00:10:08] snow washing drug cartels. We covered some of that stuff on different pods as well yeah

[00:10:14] and you know I mean I think a lot of that like I don't it's tough to say because like some of it

[00:10:20] could be a little bit not sensational but like you know how much of it is actually like stuff

[00:10:26] that really impacts us or we brush up against or whatever versus you know like what are the things

[00:10:33] that we need to be thinking about worrying about but there's a few like I think important considerations.

[00:10:39] Two things have come out since then since this so I'm almost glad we got a chance to re-record

[00:10:43] this so number one was that it wasn't just like an isolated branch thing it ended up having to go

[00:10:50] or like all these deals had to get underrided underwritten underrided I'm not this is why I don't do

[00:10:56] next story time underwritten on I guess like off the branch probably Bay Street something like that

[00:11:04] where you know the non-branch people analysts underwriters etc do the credit file and adjudicate

[00:11:10] the deal and then lend the paper that's you know if I'm trying to create value for you

[00:11:15] as a as a real estate investor that's how kind of the supply chain of you getting your mortgage right

[00:11:20] you go to the branch where you go to a mortgage broker they decide the credit product they're

[00:11:27] going to try and fit you in you do your application it gets adjudicated or underwritten by credit

[00:11:31] they ask you a bunch of questions ask you to prepare some documents maybe ask you to sell your truck

[00:11:36] or change some brand of financial stuff speaking from experience that actually happened to me

[00:11:41] and uh and then they send you the deal back as a yes or no so what happened I guess because of

[00:11:46] that because it was just like a non isolated incident now I guess the regulators in Canada are

[00:11:51] sort of being forced to take a look at this according to to Sam's Twitter he was saying you know

[00:11:55] the government's gonna kind of have to say something about this so that's that's piece number one

[00:11:59] that I find interesting and and if that's interesting because our RBC is buying HSBC Canada right now

[00:12:07] they're supposed to close sometime this year it was um approved just before Christmas of last year

[00:12:12] we'll we'll go through it because there's a little bit of like I have have all the articles that

[00:12:16] explain that but and I'm curious to see how the regulators respond to this given that FinTrack was

[00:12:22] doing a lot of these I guess wrist slaps will call it to Canadian banks last year so FinTrack find

[00:12:28] RBC and CBC towards the end of last year both in December and I had sort of thought that that was

[00:12:34] as a response of TD's attempted purchase of first horizons bank in the US getting smacked down

[00:12:41] by US regulators and that kind of Canadian regulators sort of being like oh we should probably do

[00:12:47] something about this if Canadian banks can't like aren't considered compliant enough to participate

[00:12:52] in the US market and that's really the only market for us to expand and export banking so all

[00:12:58] that's up fascinating FinTrack is super relevant because we're going to explain it in the second

[00:13:02] half of this episode but FinTrack is super important to us as real estate investors but the other

[00:13:06] piece is it came out that some individuals were getting rejected from HSBC because they couldn't

[00:13:14] prove the funds or whatever and then just went and got mortgages from two other Canadian big six

[00:13:20] banks so to say that this is and I think it is it is almost disingenuous to say that this is one

[00:13:27] funds from one country you know or funds in one city or it's only happening in one

[00:13:32] industry or whatever I mean this is a very rampant phenomenon in Canada there's two instances

[00:13:38] that I know that have been happening outside of like again using the foreign capital as an example

[00:13:45] where trades people for a long time would just like have their buddy write them a job letter like

[00:13:49] that was always a thing back in the day right that's mortgage fraud it's yeah I was mortgage fraud

[00:13:53] of the same level right don't do this stuff by the way but then another one that's super common

[00:13:58] that you see people doing all the time and you hear about it all the time as people say oh I'm

[00:14:02] gonna get this as my primary residence and then they go and not move into it and rent it out I

[00:14:08] mean that's it that's like tax but that's it's the same thing right it's the same it's mortgage fraud so

[00:14:14] anyway I think it is it's just generally funny that it was HSBC of all of all banks that ended up

[00:14:22] like this and are we really surprised that it was HSBC to be the one that got caught here I suppose

[00:14:28] well I mean I guess you're asking that question because HSBC has a bit of a history of being

[00:14:36] the bad boy bank or in more professional term some more nefarious behavior now going back to 2012 HSBC

[00:14:46] who is one of the biggest global banks got slapped with a massive $1.9 billion fine now when you

[00:14:54] hear banks getting slapped with you know okay $10 million for being a bad boy doing this $10

[00:14:58] million for banks to drop in the bucket literally a non starter $1.9 billion that's going to affect

[00:15:05] any bank that's like a GDP of a small country yeah that's a lot of money so again back in 2012 HSBC

[00:15:13] you get slapped with a massive $1.9 billion fine for helping out those Mexican drug cartels

[00:15:22] with their transactions so I mean literally like big big bank big big criminal organization why not

[00:15:29] and as if that wasn't enough they had to cough up another $665 million in civil penalties so we're

[00:15:37] approaching the 2.5 billion dollar mark here in penalties now talk about having some serious

[00:15:43] issues with their compliance and their anti money laundering controls and anti money laundering

[00:15:49] obviously has an acronym which is AML but that was a yeah and if it's an acronym you say it AML

[00:15:56] yeah AML right we're saying AML yeah yeah close relatively there was here being an initiative

[00:16:01] this is an initialism doesn't it's an AML

[00:16:06] so again this fine was no joke right I mean we're talking upwards of $2.5 billion dollars here

[00:16:11] it's one of the biggest ever given to a bank for breaking United States banking laws

[00:16:17] so basically it was a big wake up call for HSBC they had to step up their game and fix their

[00:16:22] operations that they wanted to keep their charter in the US which I'm sure they did the regulations

[00:16:30] and regulators went with this approach to save HSBC from going under which could have some major

[00:16:36] consequences all around the world so a few key takeaways from that they were hit with almost 2.5

[00:16:43] billion in penalties for significant lapses in compliance and lapses in their anti money laundering

[00:16:51] systems they laundered almost $1 billion dollars from Mexicans Sinolua and the Colombians

[00:16:58] Northeal Devale drug cartels I don't know how to say that one but go watch the

[00:17:03] narcos not related to Northeal the not Northeal the can you tell about me actually you know I just

[00:17:09] watched the Griselda thing did you know it was actually really good cheap rio is doing that's

[00:17:14] price so go talk to HSBC back there HSBC's weak AML controls led to illegal fun transfers and

[00:17:22] currency exchanges through different correspondence and you know unfortunately they weren't the only ones

[00:17:27] there was a string of major globally recognized banks that were caught with illicit transactions

[00:17:31] including i and g barclays and even our good old friends at the impeccable and impenetrable credit

[00:17:38] suisse among others that face serious fines for violating sanctions in place against certain

[00:17:45] countries and organizations such as Iran Libya and of course the cartels out of central and south

[00:17:52] america very fun so i guess the idea is that this is obviously as a large total addressable market

[00:18:00] when we're thinking about so great tam on this while yeah well probably not a safe industry to

[00:18:06] get into probably a lucrative one and it's funny like you know to me i think about the classic case

[00:18:13] which is Ozarks right okay great Marty bird and he talks about money laundering and obviously he's

[00:18:20] doing it for drug cartel in that show great show like excellent show by one of the best the best

[00:18:24] Netflix shows ever yeah and but he uses this blue cat lodge so it's a yeah i think yeah yeah

[00:18:32] it's a riverboat casino yeah no but no but for spoiling yeah anyone has a logical watcher

[00:18:38] but yeah i know he's he's developing this resort like it's like a waterfront motel hotel kind of thing

[00:18:44] to to laundering money and the reality is like if you this isn't a not not financial advice and not

[00:18:51] not explaining to somebody how to or why one should but you know contractors like cash and so

[00:18:57] a lot of people will buy real estate and then spend the the cash by giving it to contractors

[00:19:02] and then they'll refinance the equity out of the house afterwards they're out of the

[00:19:06] blue cat lodge afterwards and and then use it to convert and then they'll earn money on paper

[00:19:12] from this legitimate business and every time that thing earned money on paper they're now

[00:19:17] recollecting that money they've invested I mean people think it's like some complex stuff and a

[00:19:22] lot of people like I don't know doesn't have anything to do with the washing machine at the end

[00:19:25] of the day yeah yeah no well it is funny because in another show breaking bad he literally puts

[00:19:31] it in a washing machine and actually Marty bird does the same thing he puts it in like a

[00:19:35] it always goes back to the wash machine like dirt and stuff because it's like too clean I think he

[00:19:38] says yeah just like me with my hard had if you remember that story no I don't bet you yeah oh

[00:19:44] I don't think maybe I didn't tell you that but anyways a fresh hard had like oh yeah you did

[00:19:48] yeah last time we record bringing out of this mirror I live that I was an amazing story yeah so Nick

[00:19:54] had a hard had and he had to rough it up because he didn't want to be outed as this guy who has

[00:19:59] never been on it's a long time ago okay yeah decades ago yeah that's funny such a finance guy

[00:20:06] can't wait to go out take my LinkedIn photo with my heart this is before I was like I was a

[00:20:11] construction guy back then it is funny because I put I put this like me you know like the starter

[00:20:15] packs I put a starter pack me out and it was like politician at at a like development site ribbon

[00:20:20] cutting and it was like a bunch of like really expensive like hard hiking boots like that

[00:20:25] look like work boots so they can use them later and and uh and then like a hard had obviously

[00:20:30] and then a shovel with the sticker still on and I did I literally saw I'm not gonna say who but

[00:20:34] I literally saw a picture of like five politicians standing on a job site all with like matching brand

[00:20:40] new shovels with the stickers still on and I was like I meant to post it but anyway it's funny

[00:20:45] it's just funny politicians are funny to me so let's let's get back on track the the AML thing

[00:20:52] AML anti-money laundering AML is what we're calling it here I always kind of felt like the regulators

[00:20:57] in Canada really started getting serious after that TD for Sarasand deal fell through so let's just

[00:21:02] quickly I'll do a quick summary on that so May 4th of 2023 TD and first Sarasand mutually

[00:21:08] agreed to terminate the merger account and then May 8th it came out this is in the Wall Street Journal

[00:21:13] that US regulators concerns over TD anti-money laundering practices helped scuttle the first Sarasand deal

[00:21:19] and so I think this just really woke up the Canadian regulators right and uh that and also I think

[00:21:25] Fin Track and like all a lot of other government agencies in Canada are the government needs revenue

[00:21:30] because they also have to pay these crazy interest costs and so we're seeing a lot of revenue

[00:21:36] generation attempts from them and other government agencies like the CRA etc but anyway so the

[00:21:40] Wall Street Journal Bloomberg reported on May 9th that US regulators concerns about the way TD

[00:21:45] handled suspicious transactions was at the root of their reluctance to approve the Canadian banks

[00:21:50] 13.4 billion dollar take over a first Sarasand bank adding a layer of mystery to TD's decision to bail

[00:21:58] earlier that month on what would have been its biggest acquisition and so I guess TD just knew

[00:22:03] that they weren't going to get the approval and so they said okay let's just put an axe in this one

[00:22:07] and then later that year you saw Fin Track hit two Canadian banks with fines

[00:22:14] and this is extremely relevant to real estate by the way because when you hear us talk about Fin Track

[00:22:18] you have to fill out one of these forms from Fin Track to report a transaction every time you buy

[00:22:24] or sell real estate so example number one Fin Track imposes an administrative monetary penalty on

[00:22:29] the Royal Bank of Canada 7.5 million dollars not in the billions like HSBC after Fin Track says

[00:22:38] the bank failed to report suspicious transactions these are just speeding tickets from my perspective

[00:22:43] yeah you know that's all it is literally two days later December 7th Fin Track imposes an

[00:22:49] administrative monetary penalty on the Canadian Imperial Bank of Commerce so why is this important

[00:22:54] why do we care about money laundering and I mean obviously it has an impact on the housing market

[00:22:59] obviously it's interesting to see how exploitable the Canadian mortgage space is but like why as real estate

[00:23:06] trans actors do we care about Fin Track yeah great question so Fin Track first of all Fin Track is

[00:23:11] the financial transactions and reports analysis center of Canada so financial intelligence agency

[00:23:20] is an easy way to look at them now perf in track on their website on the government of Canada website

[00:23:26] says real estate agents or real estate brokers or sales representatives and real estate developers

[00:23:32] must fulfill specific obligations as required by the proceeds of crime and terrorist financing

[00:23:41] and that is through the money laundering and the PCM L TFA do we have a is that an acronym

[00:23:50] acronym yeah pick Malf the pick Malf the this is to help combat money laundering and terrorist

[00:23:57] activity financing in Canada now according to the PCM L FTA which is proceeds of crime money laundering

[00:24:06] and terrorist financing and its regulations a real estate broker or sales representative can

[00:24:11] be an agent for buyers or sellers in real estate transactions and as a real estate broker

[00:24:16] you've got to do some stuff under the pick Malf the that's it you know time with the

[00:24:23] they really designed that acronym well yeah rules off the time now you've got to abide by the

[00:24:29] rules under this one representing buyers of sellers no matter the commissions or your fiduciary

[00:24:34] duties but hey if you only handle property management activities like leases or rentals and don't

[00:24:40] do any of the buying or selling you don't have to worry about these obligations but if you're a real

[00:24:47] estate sales representative working for a broker working for a brokerage have an active license

[00:24:52] and are buying and selling reporting suspicious transaction is mainly the broker of records job

[00:25:00] but you are both going to be accountable if any of this stuff comes up yeah and the way that it

[00:25:07] would come up is I guess they have to review your FinTrack forms that you fill out so I guess

[00:25:12] that maybe I'll I'll do the developer piece quickly because this was actually something that I learned

[00:25:15] when we were doing this episode the first time but we're doing the second time so I'll pretend

[00:25:20] that I'm just learning it for the first time and yeah I'm really surprised right yeah and but yeah

[00:25:24] there's there's documents that everybody like real estate agents need to fill out when they're buying

[00:25:29] and if it says like there's a third party like as an example like if like next trying to buy a

[00:25:33] house off me and some like random guy shows up with a bag of cash to like that's what I put the

[00:25:39] deposit down I should probably make a note of that oh that's my cash yeah and so you know there's

[00:25:46] steps that you have to take to verify third parties you have to verify identification of people so

[00:25:51] if you've ever had a realtor ask you for your driver's license during a transaction so they can

[00:25:56] copy down that information this is why also if you've never had a real estate agent

[00:26:00] I have to verify since during a transaction the first part of the episode is why I was a red flag yeah

[00:26:05] but yeah so so real and it I do I'm gonna admit I do find it kind of funny that realtors are

[00:26:10] the last line of defense against money laundering in Canada and perhaps why it is such a almost

[00:26:16] comical well it's yeah it's not just like that like putting aside the reputation that realtors have

[00:26:22] in the the world right now but in Canada especially as just like what they are I don't need to even

[00:26:28] dive in on that one but it's it's that you literally have the person who is most financially incentivized

[00:26:35] to see the transaction succeed like you know what I mean that that is like yeah ironic

[00:26:41] is that what that is I mean it was just it's just it's a conflict of interest yeah that's

[00:26:47] that we different that's what I think yeah so so I guess Finntrac realized this and now mortgage

[00:26:52] professionals also have to do Finntrac documents I think lawyers do too I'm not sure about the

[00:26:57] lawyers more reasons yes lawyers would make sense I mean to be honest everyone involved in a

[00:27:01] massive real estate transaction massive being anything in the couple hundred thousands of dollars

[00:27:04] because that's likely the biggest thing most people ever buy yeah everyone should be abiding by

[00:27:08] these principles and regulations I mean I don't really think it's too much to ask yeah I would agree

[00:27:14] with them so so anyway they go on to say real estate developers also have to do this so if a real

[00:27:18] estate developer isn't selling the house through real estate broker agent then they have to collect

[00:27:27] Finntrac documents themselves so they would have to go they would have to verify the identity of the

[00:27:31] person purchasing the house rather on their own rather than having the real estate professional do

[00:27:36] it and they go on to qualify like what is in new house and some of this is actually interesting

[00:27:40] because it could qualify to some of these like up up zoning or flips like if you're a flipper

[00:27:44] you might actually have to do it because like not I substantially renovated home with 90%

[00:27:48] or more of its interior renovated and subsequently sold by real estate developer this threshold

[00:27:52] aligns with Canada Revenue Aidencies Guidance on New Homes for Tax purposes in the case of

[00:27:56] substantial renovations brief fab homes institutional buildings etc anyway the goal here is that they don't

[00:28:02] want you doing what I was describing Marty bird could do right and it's more the seller they would

[00:28:08] be trying to say hey you know like they would want to say hey where where'd that cash come from

[00:28:13] you know because one of the things that I think a lot of people don't realize and it is that

[00:28:19] there's a cost there's a I think you would call it a frictional cost or a transaction cost

[00:28:23] the cost of doing business if you're laundering money right I think Marty bird describes this in

[00:28:28] that show but you know if we cost you like 10 20 15% to wander the money so you're taking cash

[00:28:35] and you're losing 15% of it you're converting it to money that's on the books you know capital gains

[00:28:39] would be in line with that if you had to pay 100% capital gains because you had no tax inductions

[00:28:42] because you paid for everything on the renovation of your blue cat lodge in cash right you would still

[00:28:48] only be paying an effective tax rate of what is it like 26% on 50% like whatever your capital gains

[00:28:53] tax rate is on all of that money and obviously you're probably going to pay for the materials

[00:28:59] on paper because you can't find a cash supplier for materials but labor I think is really that's

[00:29:05] that's the one thing where obviously and I've had people ask me this like I'm not just saying this

[00:29:08] because I like it's it's a it's just hidden in plain sight like it's not like I'm doing these deals

[00:29:13] it's just like you can go through any small town anywhere and say there's an example there's an example

[00:29:19] talk to and not to throw contractors or trades on the bus we love you we need more you guys but yeah

[00:29:24] I mean yeah you go to a small town and everybody's driving around and denali HDs that paid for

[00:29:30] cash and you know five CDs and all you know and and it's a good life something's going on

[00:29:36] something's going on there so so anyway I think there's a lot of things that Fin Track and the

[00:29:41] industry is trying to do to start kind of cracking down on this stuff and and it's worth paying

[00:29:45] attention to as real estate investors go through this this list of the penalties that we've seen

[00:29:51] over the last little bit because I think the first one this year was was it a mortgage brokerage

[00:29:56] or a real estate brokerage I think it was right yeah so if we go through the public notice of

[00:30:03] administrative monetary penalties and this is from the Fin Track website the first result and so far

[00:30:11] the only penalty issued in 2024 is a real estate brokerage they would find $132,000 for committing

[00:30:19] five violations so then I think it did a YouTube video on this and like that I was starting to

[00:30:26] anticipate that the Canadian real estate industry would be the next target for Fin Track if they are

[00:30:33] going on a revenue generating mission I mean it makes sense look what's happening with the states

[00:30:37] right now right I mean yeah the Department of Justice is is targeting real estate agents

[00:30:41] and they're because they were making too much money and yeah a lot of those like class action lawsuits

[00:30:46] in the US and then there's another there's a second class action lawsuit being launched in Canada

[00:30:51] I might actually maybe we'll try and get somebody on there on here to talk about that but that's

[00:30:54] in regards to real estate commissions and and I think real estate is a pretty low hanging fruit

[00:31:00] of an industry like realtors aren't really the best at doing paperwork properly and I say that

[00:31:05] from experience like I'm pretty self-aware but like you know like present company knowledge I have

[00:31:10] to have somebody help me with a board you know so and I've done a lot of deals it's just like

[00:31:15] doing a pretty little they do change a lot to be fair like they're they've added like four new

[00:31:19] signatures in the last couple of years and stuff like that so and I do think I mentioned earlier

[00:31:22] that government arms like Fin Track and the CRA are kind of trying to generate revenue right now

[00:31:27] because the government is downsizing due to a budget deficit yeah and are are they downsizing

[00:31:33] I'm not sure because I think our 48,000 new public sector jobs say otherwise and Dan can you

[00:31:40] clarify what I'm talking about right there because you had a really great I think it was Twitter

[00:31:44] or ex-posting math yeah some brief could try to keep up here everyone is Dan does some very

[00:31:49] yeah also great segue that might actually be the best one so we'll move over to the job numbers

[00:31:53] and rate cuts potentially which now is maybe the opposite I don't know our our rate cuts back

[00:31:59] on the table they off the charts or high terms and then it's a mental data the bond yield curve is

[00:32:04] like a roller coaster but anyway so it says a rate cut will need to wait until mid-year at the

[00:32:10] earliest markets and economists react to Canada's jobs data and they're referring to the data

[00:32:16] of the labor force survey January 2024 is what their articles are referring to where it says

[00:32:20] employment increased by 37,000 in January following three months of little change

[00:32:26] and basically what happened was so you said sorry the public sector added 48,000 jobs

[00:32:32] but yet unemployment or employment increased by only 37,000 so the public sector added 48,000 of

[00:32:38] those 37,000 jobs which means that the Canadian economy on the private sector actually added

[00:32:44] negative 11,000 jobs and so the question becomes you know are are we actually

[00:32:52] like is the economy actually growing right is employment is employment actually improving and

[00:32:58] estimates that are that a 10,000 of those 11,000 jobs that were lost were part time I mean

[00:33:04] that's those are numbers that you know you can't see this because it's a podcast but really my

[00:33:10] eyes a little bit right now public sector jobs being added great it's great thing right we want

[00:33:16] jobs to be added if the government is incentivizing and increasing their workforce that's awesome we

[00:33:21] you know go hire more people at CMHC that's probably the first thing you should do but to see

[00:33:27] the public sector grow like that and the private sector literally shrinking as the public sector grows

[00:33:36] that's that's a hard pill to swallow I mean we've talked about it so many times then and especially

[00:33:41] now more than ever how important public or sorry how important private sector jobs and private

[00:33:47] sector growth are for building homes for you know starting new businesses essentially for creating

[00:33:54] a better and more vibrant and more lucrative economy for everybody so when we see the private

[00:34:01] sector shrinking at the same time that the you know quote-unquote public sector is growing it is

[00:34:07] slightly concerning for me yeah we agree with that and I think especially in a period of time where

[00:34:15] we're vulnerable to inflation like an inflation could kind of keep the interest rate high and we

[00:34:21] just saw inflation at 2.9 percent which is not as low as they want it but it's not definitely

[00:34:25] it's in that two to three percent range yeah let's see if you have that that's Tuesday February 20th

[00:34:30] yeah that was the inflation so that was January's inflation print yeah and so more adding more

[00:34:35] jobs is inflationary because more people make more money which means that they have more money

[00:34:39] to spend and I think the bank of Canada is kind of watching a lot of this stuff very carefully

[00:34:43] and core inflation hasn't it hasn't been a little bit stickier to come down and that's the

[00:34:48] main metric that they use so I think a lot of people want to say oh rate cuts are going to happen

[00:34:51] or first it was like rate cuts are off the table because of employment you know

[00:34:54] I mean I think minister finance was like cheering on oh the economy is so strong it's like okay

[00:34:58] well you don't cut you don't cut rates in a strong economy and then then it was like okay well

[00:35:05] now this now inflation is low so maybe maybe cuts are back on the table I think they'll probably skip

[00:35:09] uh as April the first cut I think April April is supposed to be the next one yeah I think

[00:35:13] those skip that maybe we'll see July I think July is kind of where they're forecasting now who knows

[00:35:19] we'll be back in two weeks with a new news article to tell you yeah seriously I went off this ride

[00:35:24] maybe just before we wrap up there's a couple things I want to do we'll just go through these forms

[00:35:28] the the Fin track forms that you'll see in your real estate transaction that shows like how relevant

[00:35:34] and how the money launders are just ruined it for everyone you know now you have to do three

[00:35:40] actually kill a couple extra trees to do all those paperwork so you have the first one you have here

[00:35:44] is the individual identification record I'm going to put the second one in the notes so you can

[00:35:49] present that one there Nick for seat of funds is the second one so there's individual identification

[00:35:54] record receipt of funds and then there's this new one called politically exposed persons and heads

[00:35:59] of international organizations are you one of those I'm a field based so and that one's like

[00:36:05] basically where you have to consult the database to find that you're not a PEP or an HIO and then

[00:36:10] so anyway individual identification record if you're in the Ontario Real Estate Association which

[00:36:13] I know like a good portion of our real estate for real listeners are I think like the majority

[00:36:17] of our listeners are from Ontario form 630 it's like address of the property verify the individual

[00:36:23] driver's license ID you have to state if there's a third party involved like so if some sketchy

[00:36:28] person's coming to put a deposit or like if your parents are lending you the deposit as an

[00:36:32] example because you're not as liquid or they're just lending you the positive or giving you the

[00:36:35] deposit you have to put yeah you have to put them on there you have to determine if the client's

[00:36:39] low risk or what their risk level is low risk so Canadian citizen or resident physically

[00:36:44] presence fairly classic K.Y.C stuff yeah it's a K.Y.C. form high risk like that's where the check

[00:36:51] box says foreign citizen resident that operates in a high risk country physically present or not

[00:36:57] and then business relationships etc and then the next one is the receipt of funds you want to

[00:37:01] just quickly read me through that Nick and then we will jump off for sure yeah so K.Y.C. by the way

[00:37:05] for everyone is is know your client and you should also be knowing where your clients funds are

[00:37:11] coming from so that's what this Fin Track document is about basic transaction information they want

[00:37:18] information on the funds the amount what type of funds how were they received and then into information

[00:37:25] on the individuals or the entities providing those funds so as the whole bunch of boxes that need

[00:37:32] to be checked or explanations they need to be given for for that and and then just before you wrap

[00:37:37] us up I mean the one of the things everyone needs to remember here in whatever role you're playing

[00:37:43] in this transaction is that you've got a fiduciary duty which is a legal responsibility to act solely

[00:37:50] in the best interest of another party in this case it's the party that you're representing so

[00:37:56] fiduciary means trust so this is this whole thing comes down to a trust that you are doing

[00:38:04] the transaction correctly yeah absolutely hit us with the third and final the third piece here is

[00:38:13] well you I guess you have to show like what account it came from any additional information especially

[00:38:17] cash has to be documented so and then this is all just to make sure that people aren't money laundry

[00:38:22] it's your job to make sure that fiduciary trust anyway I think that's it for today yeah is it go

[00:38:27] uh go sign up for the five day challenge check out the course check at the merch the newsletters the

[00:38:32] meetups and all the other awesome stuff that we are trying to build an amazing community around

[00:38:38] thanks so much for listening everybody be fiduciary and we'll see you soon

[00:38:44] the Canadian real estate investor podcast is for entertainment purposes only and it is not

[00:38:50] financial advice nick hill is a mortgage agent with premier mortgage center and a partner in the

[00:38:56] GNH mortgage group license number 10317 agent license m21004037 deno foch is a real estate broker licensed

[00:39:08] with rare real estate a member of the Canadian real estate association the Toronto real estate board

[00:39:16] and the Ontario real estate association