Bring title insurers under anti-money laundering rules, former executive says
The Canadian PressNews anti money laundering fraud money laundering
By Darryl Greer
Title insurers need to be brought under anti-money laundering rules to fight against scam artists who impersonate homeowners to sell or mortgage their properties, a former insurance executive says.
Tim Hyde, who spent years in the title insurance business in Ontario, said dozens of cases involving impersonators in Ontario and B.C. showed the need for title insurers to be designated as “reporting entities” under Canada’s money laundering law.
Hyde has been lobbying the federal government for the changes alongside fellow lawyer Kevin Comeau and Denis Meunier, an anti-laundering consultant who previously worked at both the Canada Revenue Agency and Fintrac, Canada’s financial intelligence agency.
The spate of title fraud cases include that of a Toronto condo owner who discovered her property had been listed and sold last year for $970,000 by someone using her name.
Owner Moffy Yu, who lives in China, told The Canadian Press in January that she was shocked to discover her name had been replaced on the title and a stranger was living in the property. Police said they were investigating.
Hyde, Comeau and Meunier wrote to Finance Minister Chrystia Freeland in November 2022, urging the inclusion of title insurance firms in Canada’s anti-money laundering regime due to the companies’ involvement “in the high-risk real estate sector, which has been very attractive to money launderers and corrupt foreign kleptocrats.”
“Title insurance is not well understood,” Hyde said. “Even though, frankly, it’s been around for 20 years, it’s insuring every mortgage in the country, it’s insuring every transfer in Ontario and it’s insuring most of the transfers in the rest of the country.”
Hyde said title insurance firms have a larger stake than lawyers, agents or brokers in real estate transactions that involve money laundering or identity fraud, yet they don’t have to report suspicious transactions, unlike counterparts in the United States.
Simply bringing title insurers under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act won’t eliminate title fraud, Hyde said. But it could be a useful tool in the fight against launderers.
“It’s just, to me, incongruous that the entity that searches for the indicia of fraud the hardest has no reporting obligation to anybody except themselves,” he said.
Hyde said three big U.S.-based insurance companies with Canadian subsidiaries control most of the title insurance market in North America, and they have anti-money laundering obligations to America’s Financial Crimes Enforcement Network.
“They’re already reporting a deal in Niagara Falls, New York, that they don’t have to report in Niagara Falls, Ontario,” he said. “That just seems crazy.”
Unlike other insurance policies with monthly premiums, title insurance polices involve a one-time payment to a small number of companies handling large numbers of land transfer and finance transactions, Hyde said.
Not only do those companies keep records of those transactions, they also likely know of any red flags when they deny title insurance coverage, Hyde said.
Bringing the firms under anti-money laundering rules, he said, would mean records of those denials and transactional paper trails could potentially be used when investigating or preventing cases of title fraud.
But Daniel Pinnington, president and CEO of the Lawyers’ Professional Indemnity Company in Ontario, said he doesn’t believe title insurers in Canada can play a significant role in stamping out money laundering cases involving title fraud.
Pinnington said title insurers like his company, which is owned by the Law Society of Ontario, have a small market share and don’t operate the same as American firms that are more involved in real estate transactions by handling the receiving and transferring of funds.
“Obviously we’d love to see a reduction in title fraud because it leads to claims,” he said. “Anything that can be done to reduce those frauds, we support it. Real estate fraud has been around for a long time.”
Pinnington said sophisticated identity theft involving government documents used to dupe lawyers and lenders is more of a pressing issue than money laundering.
“It’s amazing how sophisticated these these frauds are now,” he said.
He said there’s been a few “waves” of title fraud throughout his career, prompting provincial law societies and his company to ramp up fraud prevention education for lawyers.
“Lawyers got more sophisticated about recognizing and spotting the red flags of fraud and we saw lawyers preventing them,” he said.
The Financial Consumer Agency of Canada says there are two main avenues for real estate fraud involving titles to properties and bogus foreclosure proceedings.
“Title fraud happens when fraudsters steal the title to your home. They sell your home or apply for a new mortgage against it,” the agency says. “Title fraud usually starts with identity theft, which may happen if someone steals your personal information.”
This report by The Canadian Press was first published March 28, 2023.
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