Canada is still searching for a way to give lawyers a bigger role in its fight against money laundering, four years after the highest court in the country ruled it was unconstitutional to force lawyers to report to the federal financial intelligence watchdog.
This month’s B.C. governmental reports into money laundering in the real-estate sector noted the legal profession often creates a “black hole” for police because it does not report to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC). A provincial public inquiry called last week is set to investigate whether there are any loopholes that the legal profession and its regulator could close as part of a wider review into how money laundering has corroded B.C.'s economy.
“The gap left in Canada’s [anti-money-laundering] regime by the non-reporting of lawyers is akin to following a route on your car’s GPS, only to learn that satellite coverage ends half way to your destination,” stated the report by former senior RCMP officer and licensed lawyer Peter German. "As a result, you must guess where to go in the hope that both you and the satellite will converge at just the right location and the GPS can continue its mission.
“Lawyers are at high risk of being targeted by money launderers, not only because they are exempted from financial reporting but by the very nature of the risks inherent in dealing with real estate, trusts, and other financial vehicles, and most of all because they can hold funds in a trust account.”
Lawyers have been exempt from reporting suspicious transactions to FinTRAC since a 2015 Supreme Court of Canada decision, which found this requirement unconstitutional because it put lawyers at risk of unreasonable search and seizure or jail time if they refused to give up records and violate their solicitor-client privilege.
That ruling invited Ottawa to rework its legislation to make it compliant with the Charter, a complex task that the federal government said last week it is still undertaking.
Separate reports by Mr. German and Maureen Maloney released earlier this month both called on Canada to at minimum bring more visibility to the financial accounts of the legal profession by forcing lawyers to report suspicious transactions to their provincial law societies, which can then investigate these claims and track statistics on this issue. Last November, a federal report on the country’s record fighting money laundering and terrorist financing included a recommendation that Canada adopt a model similar to one in Britain, whereby an independent body supervises whether self-regulating professional organizations such as law societies are complying with their obligations to counter these sophisticated crimes.
Mr. German’s report said the simplest fix may be following the United States in forcing lawyers to report any cash transaction over $10,000 along with a few details, including the name and address of the person that sent the money as well as the date, amount and nature of the transaction.
Pierre-Olivier Herbert, head of communications for the federal Finance Minister, said Ottawa is still trying to create a new level of oversight for the legal profession in a way that is constitutional.
“Since this issue is complex, we [are] diligently conducting thorough research and consulting with key international and domestic stakeholders, as policy options are being assessed,” he said in an e-mailed statement.
One success, Mr. Herbert noted, is the new rules created by the Federation of Law Societies Canada last October banning lawyers from accepting cash transactions above $7,500 as well as new standards for vetting potential clients and record-keeping.
Ross Earnshaw, president of the Federation of Law Societies of Canada, which won the 2015 Supreme Court case and represents the provincial regulators, said so far only the industry regulators in Alberta and the Northwest Territories have adopted these rules, but the remaining societies are expected to update their standards by the end of this year.
Mora Johnson, an Ottawa-based lawyer who once worked in Global Affairs Canada tackling anti-corruption and money-laundering, said these new rules represent important steps toward shifting the legal culture across the country toward greater transparency. However, she said the typical real estate lawyer is operating out of a small office and doesn’t have the resources to do more diligent background checks into their clients.