With the recent release of another 1.2 million files in data from a further “Panama Papers” leak, there are renewed questions being asked internationally around the complicity and facilitation of money laundering by lawyers.
With the recent release of another 1.2 million files in data from a further “Panama Papers” leak, there are renewed questions being asked internationally around the complicity and facilitation of money laundering by lawyers. Following the controversy, Canadians should be looking closely to ensure our legal profession is not a weak link where money could be laundered.
First, some background. Since 2015, a massive number of documents — 11.5 million — have been leaked in what is now known as the Panama Papers.
The documents involved the investing methods of the now-shuttered Panama-based law firm Mossack Fonseca, and a host of its clients from around the world. The papers were initially sent to German reporters, who shared them with worldwide major media outlets across the world, through the International Consortium of Investigative Journalists based in Washington.
The original Panama Papers leak took place in 2015, with the information then released in 2016 detailing financial and solicitor–client information concerning more than 214,000 offshore entities.
Some of these offshore entities are entirely legal. Other documents link high-profile figures around the world, such as the then-Prime Minister of Iceland, the King of Saudi Arabia and the Prime Minister of Pakistan to shell companies and investments. Icelandic Prime Minister Sigmundur David Gunnlaugsson resigned after the papers were released. In Canada, none of the funds have been recovered yet by the Canadian Revenue Agency, who told a media outlet earlier this year they were auditing 123 people and companies as a result of the leak.
The Mossack Fonseca firm itself closed in March of this year, after the firm’s founders Ramon Fonseca and Juergen Mossack were charged in Brazil in relation to allegations of money laundering and corruption, in 2017. They are still awaiting trial.
But, the Panama Papers aren’t the only problem.
In 2017, the release of the Panama Papers was followed by an even larger leak, dubbed the Paradise Papers. These were a set of 13.4 million confidential electronic documents leaked from the law firm Appleby, which had ten offices around the world, including in Bermuda, the British Virgin Islands, the Cayman Islands, Isle of Man, Jersey, Guernsey, Mauritius and Seychelles as well as Hong Kong and Shanghai. These documents also relate to offshore investments, all of which the firm claims are legal, held by over 120,000 individuals and entities.
On June 20, 2018, a new set of records from the Mossack Fonseca firm were leaked. The files in the latest leak date from early 2016 through December 2017. They detail the decline and fall of the firm Mossack Fonseca under pressure from regulators, investigators, and clients, from around the world.
Which makes me wonder, what kind of protections do Canadians have from legal regulators when it comes to firms like those affected by the leaks? Put more directly: is ours a properly regulated jurisdiction?
The Supreme Court of Canada in Canada (Attorney General) v. Federation of Law Societies of Canada, 2015 SCC 7,  1 S.C.R. 401 confirmed that Canada’s Provincial and Territorial Law Societies have the jurisdiction to regulate lawyers when those lawyers claim that documents in their possession are privileged. In my opinion, this is tantamount to leaving the sole jurisdiction to regulate the conduct of lawyers sufficiently to prevent and curtail lawyers’ involvement in money laundering, ousting the jurisdiction of Federal authorities which otherwise regulate and control money laundering in other sectors. Consequently, this decision places a high burden on law societies as regulators.
The scope and magnitude of the global problem of money laundering as revealed by the Panama Papers, and the Paradise Papers, calls into question the extent to which law societies are positioned to effectively combat the use of law practices as shields for money laundering as well as what capacity legal regulators as currently constituted reasonably have to do so in future. The magnitude of this problem is underscored by the Financial Action Task Force, the intergovernmental body developing and promoting policies to combat money laundering and terrorist financing, in a 2016 report.
The report specifically raised concerns about the vulnerability of the Canadian legal services sector to money laundering presents a weak link in an otherwise strong regulatory framework. The FATF Report states that “Canadian legal entities and legal arrangements are at a high risk of misuse for [Money Laundering/Terrorist Financing] purposes and that risk is not mitigated.”
The Supreme Court of Canada’s judgment in the Federation of Law Societies case rests on a concession that money laundering is a global problem. Because this point was conceded, the SCC did not look into the details of the current magnitude of money laundering in our globalized economy. Consequently, the decision did not include a contextual assessment of the capacity of law societies to address money laundering in Canada.
I do not doubt that the law societies are well intentioned. I do wonder, however, whether the resources of these law societies are up to the task?
In Federation of Law Societies of Canada, Justice Cromwell, writing for a majority of the Supreme Court of Canada, held certain provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17, as unconstitutional.
“I would declare that s. 64 is of no force or effect and that ss. 62, 63 and 63.1 should be read down so that they do not apply to documents in the possession of legal counsel or in law office premises,” said the ruling.
The consequence of this is that neither regulatory authorities nor the RCMP can search or seize documents from lawyers’ offices if solicitor-client privilege is claimed in relation to those documents. Thus by operation of the Federation of Law Societies decision, our legal regulators are tasked with independently addressing any concerns about potential lawyer facilitation of money laundering or terrorist financing.
This situation speaks to a need to better resource the legal regulators, or to legislatively move jurisdiction over money laundering to government regulators more up to the task. As our country has left the curtailment of lawyers’ involvement in money laundering up to our provincial and territorial law societies, the scope of the global problem strongly suggests that we need to either publicly resource legal self-regulators, or publicly take on the task of curbing money laundering. The scope of money laundering as a problem — as revealed in the Panama Papers and Paradise Papers leaks — indicates a crisis situation speaking to a need for state action, either through funding, or legislative action, or both.
Dr. Rebecca Bromwich teaches and researches criminal law and conflict resolution in the Department of Law and Legal Studies at Carleton University, and co-editor of the RobsonCrim blog.