TORONTO — Canada’s money-laundering watchdog drafted a document warning the real estate sector to be on guard for “specific ethnic communities” dealing with terrorism and war, before removing the reference at the behest of an industry association, documents show.

Correspondence between Fintrac and the Canadian Real Estate Association, obtained by The Canadian Press through an Access to Information request, shows that the industry group was concerned that the reference would encourage agents to stop doing business with people based on their ethnicity.

The draft guidance document was aimed at helping companies meet their obligations to detect money laundering and terrorist financing.

It lists several examples of factors that may increase a company’s risk of becoming entangled in financial crimes, including dealing with “a specific ethnic community that is currently dealing with specific events (e.g. prevalence of terrorism or money laundering, war, etc.) in the home country.”

Such a reference would constitute a violation of the Human Rights Act, the real estate association said in its letter.

“Canadians are rightly proud of the Human Rights Act, and especially in this day and age when we see what’s happening south of the border,” said CREA spokesman Randall McCauley.

“Our lawyers would have rightly pointed out or reminded Fintrac that no Canadian can discriminate against another or deny access to a service based on where they’re from.”

The federal agency says it was not referring to any particular ethnic community in the document.

“The intent of the guidance was to highlight, broadly, that regulated businesses may deal with clients that have a material connection to high-risk jurisdictions or other jurisdictions that are currently dealing with specific events, including terrorism or money laundering, war, a high level of corruption, or organized crime,” Fintrac spokeswoman Renee Bercier said in an email.

“Fintrac chose to remove the terminology as it recognized the potential for misinterpretation and misrepresentation.”

Companies in certain sectors — including banks, casinos and real estate firms — are legally required to identify their clients, keep records and report suspicious or large cash transactions to Fintrac. They are also required to assess their exposure to money laundering and terrorism financing risk.

Canada’s real estate sector has become an area of particular concern after a report released last fall by the Paris-based Financial Action Take Force said it is susceptible to the illegal dumping of cash.

Fintrac provided CREA with the draft of its guidance document in 2014.

In a letter to Fintrac dated Dec. 23, 2014, CREA calls the reference to ethnicity in the document “inappropriate,” particularly if read alongside another section of the guide that encourages companies to introduce measures that can be used to terminate business relationships, a process referred to as “de-marketing.”

“If this guidance were followed it could result in realtor members being liable for violating human rights law,” the letter reads, before going on to cite Sec. 5 of Canada’s Human Rights Act.

That section says it is a discriminatory practice to deny access to any good, service, facility or accommodation to someone for any of the prohibited grounds of discrimination.

In a response letter dated Feb. 6, 2015, Fintrac says it opted to remove the references to ethnicity and de-marketing.

The reference to ethnicity — and the decision to remove it — illustrates just how controversial the issue has become in the debate over foreign capital flowing into Canada’s real estate market.

Thomas Davidoff, an associate professor at the University of British Columbia’s Sauder School of Business, says affordability concerns in markets like Vancouver and Toronto have in some cases resulted in ethnic divisions.

“People get their underwear in a bunch when they’re feeling threatened about having a roof over their head,” says Davidoff.

For instance, reports of money flowing into Vancouver’s housing market from China have resulted in some Vancouverites blaming the Chinese for pricing them out of the market for single-family, detached homes, says Davidoff.

“Politicians and government needs to protect citizens while being tolerant and encouraging people to behave decently towards other people,” he said. “That can be a challenge.”