Toronto’s booming real estate market is vulnerable to money laundering because real estate agents aren’t notifying authorities of suspicious property transactions, leading the national anti-money laundering agency, FINTRAC, to step up its audits of the industry.

Real estate agents are required by federal law to file “suspicious transaction reports.” From 2013 to 2017, there were more than 2.5 million real estate transactions in Canada, according to the Canadian Real Estate Association. In that same five year period, real estate agents and developers made only 197 suspicious transactions reports.

“These reports are critical to the centre’s analytical process and the financial intelligence it generates for police, law enforcement and national security agencies,” writes FINTRAC in its latest annual report. “Because suspicious transaction reports have a narrative component, these reports have the potential to provide tremendous intelligence value to the centre.”

The small number of reports shows that relying on real estate agents to catch money launderers isn’t going to work, said John Pasalis, the founder of the real estate analytics website Realosophy. “It’s self-reporting,” he said. “People are not going to police themselves.”

Large commissions create a perverse financial incentive for agents, Pasalis says, deterring them from filing reports.

“In a lot of these cases, the agents know what’s going on,” he said. “The expectation that the people doing it are actually also going to raise their hand and say: ‘By the way I’m helping someone launder money.’ I mean it’s a little bit silly, right?”

This month, the parliamentary finance committee recommended stricter anti-money laundering rules for the real estate sector, which it said is “highly vulnerable” to money laundering.

“We see it as a serious issue,” Liberal MP Wayne Easter, chair of the committee, told the Star. “We want to stop those using the real estate industry for ulterior motives.”