OTTAWA - Canada’s law societies and the federal government may be headed for a showdown over new regulations intended to reassert contentious provisions of a money laundering and anti-terrorism law over lawyers and legal firms.
The regulations, set to take effect Dec. 30, will put legal counsel and firms back on the list of “persons and entities” subject to onerous record-keeping and scrutiny under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
The country’s 14 law societies, through the Federation of Law Societies of Canada, are resisting the move and have developed a “model rule” the federation says will allow each society to fulfill the requirements of the federal law through self-regulation by lawyers and the societies.
The standoff could lead to the second round of a legal battle between law societies and the federal government that began shortly after the controversial measures were first promulgated following the Sept. 11, 2001 terrorist attacks in the United States.
Canada joined other countries in the fight against terrorism that followed the attacks, and strengthened its monitoring of large cash transactions and electronic fund transfers by including terrorist financing with measures earlier aimed at money laundering.
The changes introduced unprecedented controls that also covered lawyers whose clients may be involved in large financial transactions.
The societies and the Federation of Law Societies won a series of court rulings that backed their arguments that a key section of the money-laundering and terrorism-financing law represented an “unprecedented intrusion into the traditional solicitor-client relationship.
An initial B.C. Supreme Court judgment, eventually affirmed by the Supreme Court of Canada, centered on a section that required lawyers, along with financial institutions and other businesses, to report any transactions they suspected were related to money laundering or terrorist financing.
Following the successful court challenges, the government amended the legislation to exempt the legal profession and removed lawyers and legal firms from the list of persons and entities subject to the act. The businesses include casinos, with precious metal and jewelry dealers to be added under the new regulations.
The businesses and entities listed under the law are required to provide the federal government’s Financial Transactions and Reports Analysis Centre (FINTRAC) with regular reports of major financial transactions, as well as information about “suspicious” financial transactions.
The Federation of Law Societies says the regulations to take effect in December will be unenforceable without the consent of the federation and the Canadian Bar Association - because of a 2005 order from the Supreme Court of British Columbia that stemmed from the earlier court actions.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act includes sections that exempt legal counsel from the requirement to report suspicious transactions or transactions for which they are providing legal services. It also contains a section that says the financial reporting provisions do not require lawyers to “disclose any communication that is subject to solicitor-client privilege.”
But the federation says the new attempt to list lawyers and legal firms with entities still covered by the act poses a new threat.
Of particular concern are existing compliance measures listed under s. 62 of the act, which allow FINTRAC investigators access, without search warrants, to “any premises” except a dwelling-house where they suspect there are records relevant to “ensuring compliance” with the act. The investigators may also search computer systems and data-processing systems and copy any records they want.
“The federal regulations would authorize government officials to come into law offices without a warrant and look through confidential client information,” Michael Milani, the federation’s president, tells Law Times. “That’s not acceptable and it’s also not constitutional.”
To maintain the claim of privilege, the law provides that the lawyer would have to seal the documents or information and ask a judge to confirm the claim of privilege within three weeks.
The judge could inspect the information if he or she thought it necessary to determine whether privilege applied, and could either confirm the privilege existed or order the lawyer to hand the document over the FINTRAC. If the lawyer did not ask a judge to confirm privilege, FINTRAC would automatically have access to the information.
Milani tells Law Times that unless something changes before December - and he and government officials say discussions continue - any lawyer who is asked to provide information after the regulations pass will claim privilege and refuse to do so.
“Unless something else is resolved between now and then, the lawyer would know to take a position that he or she objects to that [intrusion] occurring,” says Milani. “I expect the matter would then go to the courts for a determination.”
Another federation official, who did not want to be quoted, says the requirements to provide solicitor-client privilege in cases where FINTRAC sought access to client information could result in chaos for most large law firms.
The “model rule” the federation council approved on March 20 would allow law societies to regulate their own members to meet the requirements of the law, Milani says. The rule requires lawyers to record all cash transactions involving clients, information about the clients that is as stringent as the requirements of the act, as well as identity verification that is similar to the requirements of the act.
Each of the 14 law societies have agreed to adopt similar versions of the federation’s model rule.
Meanwhile, two lawyers who are knowledgeable about the money laundering and terrorist-financing law declined to comment on the regulations and the federation’s position.
A spokesman for the Department of Finance would only say discussions continue between the government and the federation. The Justice Department declined to comment, saying the Finance Department and FINTRAC were the lead agencies.
The regulations, set to take effect Dec. 30, will put legal counsel and firms back on the list of “persons and entities” subject to onerous record-keeping and scrutiny under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.The country’s 14 law societies, through the Federation of Law Societies of Canada, are resisting the move and have developed a “model rule” the federation says will allow each society to fulfill the requirements of the federal law through self-regulation by lawyers and the societies.
The standoff could lead to the second round of a legal battle between law societies and the federal government that began shortly after the controversial measures were first promulgated following the Sept. 11, 2001 terrorist attacks in the United States.
Canada joined other countries in the fight against terrorism that followed the attacks, and strengthened its monitoring of large cash transactions and electronic fund transfers by including terrorist financing with measures earlier aimed at money laundering.
The changes introduced unprecedented controls that also covered lawyers whose clients may be involved in large financial transactions.
The societies and the Federation of Law Societies won a series of court rulings that backed their arguments that a key section of the money-laundering and terrorism-financing law represented an “unprecedented intrusion into the traditional solicitor-client relationship.
An initial B.C. Supreme Court judgment, eventually affirmed by the Supreme Court of Canada, centered on a section that required lawyers, along with financial institutions and other businesses, to report any transactions they suspected were related to money laundering or terrorist financing.
Following the successful court challenges, the government amended the legislation to exempt the legal profession and removed lawyers and legal firms from the list of persons and entities subject to the act. The businesses include casinos, with precious metal and jewelry dealers to be added under the new regulations.
The businesses and entities listed under the law are required to provide the federal government’s Financial Transactions and Reports Analysis Centre (FINTRAC) with regular reports of major financial transactions, as well as information about “suspicious” financial transactions.
The Federation of Law Societies says the regulations to take effect in December will be unenforceable without the consent of the federation and the Canadian Bar Association - because of a 2005 order from the Supreme Court of British Columbia that stemmed from the earlier court actions.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act includes sections that exempt legal counsel from the requirement to report suspicious transactions or transactions for which they are providing legal services. It also contains a section that says the financial reporting provisions do not require lawyers to “disclose any communication that is subject to solicitor-client privilege.”
But the federation says the new attempt to list lawyers and legal firms with entities still covered by the act poses a new threat.
Of particular concern are existing compliance measures listed under s. 62 of the act, which allow FINTRAC investigators access, without search warrants, to “any premises” except a dwelling-house where they suspect there are records relevant to “ensuring compliance” with the act. The investigators may also search computer systems and data-processing systems and copy any records they want.
“The federal regulations would authorize government officials to come into law offices without a warrant and look through confidential client information,” Michael Milani, the federation’s president, tells Law Times. “That’s not acceptable and it’s also not constitutional.”
To maintain the claim of privilege, the law provides that the lawyer would have to seal the documents or information and ask a judge to confirm the claim of privilege within three weeks.
The judge could inspect the information if he or she thought it necessary to determine whether privilege applied, and could either confirm the privilege existed or order the lawyer to hand the document over the FINTRAC. If the lawyer did not ask a judge to confirm privilege, FINTRAC would automatically have access to the information.
Milani tells Law Times that unless something changes before December - and he and government officials say discussions continue - any lawyer who is asked to provide information after the regulations pass will claim privilege and refuse to do so.
“Unless something else is resolved between now and then, the lawyer would know to take a position that he or she objects to that [intrusion] occurring,” says Milani. “I expect the matter would then go to the courts for a determination.”
Another federation official, who did not want to be quoted, says the requirements to provide solicitor-client privilege in cases where FINTRAC sought access to client information could result in chaos for most large law firms.
The “model rule” the federation council approved on March 20 would allow law societies to regulate their own members to meet the requirements of the law, Milani says. The rule requires lawyers to record all cash transactions involving clients, information about the clients that is as stringent as the requirements of the act, as well as identity verification that is similar to the requirements of the act.
Each of the 14 law societies have agreed to adopt similar versions of the federation’s model rule.
Meanwhile, two lawyers who are knowledgeable about the money laundering and terrorist-financing law declined to comment on the regulations and the federation’s position.
A spokesman for the Department of Finance would only say discussions continue between the government and the federation. The Justice Department declined to comment, saying the Finance Department and FINTRAC were the lead agencies.
