Benchers pass new rule to fight money laundering
April 2, 2004
On April 2 the Benchers adopted a new financial rule to ensure that BC lawyers are at the forefront of the fight against money laundering. The new rule takes effect on May 7, 2004.
Under new Rule 3-51.1 (set out below), lawyers are prohibited from accepting $10,000 or more in cash, other than when a lawyer receives the funds from a law enforcement agency; pursuant to a court order; in the lawyer's capacity as executor of a will or administrator of an estate; or for professional fees, disbursements, expenses or bail.
Like the Proceeds of Crime (Money Laundering) and Terrorist Financing Act regulations, the new rule defines a cash transaction as the receipt of $10,000 or more in cash in a single transaction or the receipt of two or more cash amounts in a 24-hour period that total $10,000 or more. Clients who wish to deposit $10,000 or more in cash with a lawyer will be required to convert the cash into negotiable instruments through a financial institution before depositing the money with a lawyer.
PC(ML)TFA regulations require all professionals who accept $10,000 or more in cash to report the transaction to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Lawyers are currently exempt from PC(ML)TFA reporting requirements after the Law Society of BC, along with the Federation of Law Societies of Canada, obtained an injunction from the BC Supreme Court in November, 2001. The law societies argued that the PC(ML)TFA violated the constitution because it required lawyers to report privileged client matters to the government, contrary to the obligations of an independent legal profession. The BC Supreme Court ordered that lawyers be exempt from the reporting requirements of the legislation until the constitutional issue could be heard. The BC Court of Appeal upheld the decision, and the superior courts of several other provinces granted similar injunctions. The federal government later agreed to be bound by the exemption in all Canadian jurisdictions until the court case is concluded. The trial is set for November, 2004.
While there are few cases of lawyers knowingly laundering money on behalf of criminal or terrorist organizations, the Law Society of BC recognizes that the legal profession must take steps to prevent money laundering or being led unwittingly into advancing criminal schemes. Rule 3-51.1, along with longstanding Law Society rules that prohibit lawyers from engaging in illegal activity, will ensure that BC lawyers effectively combat money laundering without the need for government intrusions into lawyer-client privilege and confidentiality.
A number of law societies across the country are now considering rules similar to Rule 3-51.1.
New Rule 3-51.1 reads:
3-51.1 (1) This Rule applies to a lawyer when engaged in any of the following activities on behalf of a client, including giving instructions on behalf of a client in respect of those activities:
(a) receiving or paying funds, other than those received or paid in respect of professional fees, disbursements, expenses or bail;
(b) purchasing or selling securities, real property or business assets or entities;
(c) transferring funds or securities by any means.
(2) This Rule does not apply to a lawyer when
(a) engaged in activities referred to in subrule (1) on behalf of his or her employer, or
(b) receiving or accepting currency
(i) from a peace officer, law enforcement agency or other agent of the Crown,
(ii) pursuant to a court order, or
(iii) in his or her capacity as executor of a will or administrator of an estate.
(3) While engaged in an activity referred to in subrule (1), a lawyer must not receive or accept an amount in currency of $10,000 or more in the course of a single transaction.
(4) For the purposes of this Rule,
(a) foreign currency is to be converted into Canadian dollars based on
(i) the official conversion rate of the Bank of Canada for that currency as published in the Bank of Canada’s Daily Memorandum of Exchange Rates in effect at the relevant time, or
(ii) if no official conversion rate is published as set out in paragraph (a), the conversion rate that the client would use for that currency in the normal course of business at the relevant time, and
(b) two or more transactions made within 24 consecutive hours constitute a single transaction if the lawyer knows or ought to know that the transactions are conducted by, or on behalf of, the same client.