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Lawyers back on the hook in revised money laundering act

|Written By Helen Burnett

Proposed amendments to Canada’s anti-money laundering laws will likely force lawyers to record any transactions over $3,000.

Canada’s law societies are taking a close look at proposed changes that, if passed, will mean stricter record-keeping requirements for large transactions. However, Michael Milani, president of the Federation of Law Societies of Canada, says after a cursory look at the amendments, he doubts law societies are going to support it.

Even without seeing the details, Milani notes, “I can certainly say that the law societies have not and will not say that ‘yes they’re fine, they seem to achieve all needs.’ I would be amazed if that’s where we come back to.”

Since the Proceeds of Crime (Money Laundering) and Terrorist Financing Act was introduced in 2000, several law societies across the country have taken the government to court over some of its associated regulations, including one which required legal counsel who suspected that a transaction was related to the commission of a money-laundering offence to send a report to the Financial Transactions and Reports Analysis Centre of Canada.

The “suspicious transaction report” was to include information such as details and method of the transaction, complete account details, full information of the individual conducting the transaction, including name, address, country of residence, telephone number, government identification, date of birth, occupation, employer, business telephone number, and address. The regulation also prohibited a lawyer from disclosing the existence of the report to the client.

The law societies argued that this requirement violated solicitor-client privilege, as lawyers were forced by statute to act inconsistently with their duty of loyalty and confidentiality to their clients, according to court documents.

In several provinces, including Ontario, Alberta, British Columbia, and Nova Scotia, lawyers were ruled to be exempt from this regulation, pending the final determination of the constitutional issue.

Although the government announced that it would exempt legal counsel from the reporting requirement in 2003, consultations with the profession have continued. At the time, the government said it would “focus on developing a new regime that better takes into account the nature of the duties of legal counsel.”

The new set of proposed changes to the regulations, introduced at the end of June but subject to a 60-day consultation period, would bring lawyers back into the legislation, requiring them to keep a receipt-of-funds record for every amount of $3,000 or more they receive in the course of a single transaction, unless the amount is received from a financial entity or a public body. For those transactions, every lawyer and law firm will also be required to establish the identity of every person who conducts the transaction, or the existence of and the name and address of every corporation on whose behalf the transaction is conducted and the names of the corporation’s directors.

Milani says the federation will continue to consult with the federal government on this issue. He adds that over the last two years, the federation has had an active committee on the subject that has worked with the government to work through some of the issues.

“There were some discussions prior to the draft regulations having come out, the regulations of course don’t reflect the federation or the law societies’ position, but rather reflect the federal government’s view,” he says.

As a result, the committee will continue to meet with the department during the summer to specifically respond to the draft regulations, during the 60-day consultation period. According to the Department of Finance, details about when the changes will come into effect will be available once those regulations are finalized.

As part of the federation’s public interest mandate, Milani says it is keeping two main principles in mind when looking at the draft regulations: preserving solicitor-client privilege and the independence of the bar.

“All of the law societies are fully supportive of the government policy behind the initiative and that’s ensuring that members of the legal profession don’t get caught up in or become involved in money laundering,” says Milani.

As a result, he adds that the federation has already developed rules around this issue, dealing with client identification and record keeping.

In a submission to the senate committee on banking trade and commerce on Bill C-25, amending the act, last winter, the Canadian Bar Association said while it supported the bill’s objective, the legal profession, through the law societies, has voluntarily adopted regulations that prohibit lawyers from accepting large amounts of cash. This is based on the Federation of Law Societies Model Rule on Cash Transactions, which prohibits lawyers from receiving cash in excess of $7,500 from one client file, with a few exceptions, such as financial institutions, law enforcement agencies, or a public body.

“In our view, the measures put in place by the law societies are more than adequate to include lawyers in the fight against money laundering while upholding the core values of the profession,” says the CBA’s submission.

“Part of the analysis that will take place now is to consider the draft regulations and see how those match up with rules the law societies either have or the proposed model rules to deal with these matters again . . . to achieve the same result,” says Milani.

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