Proceeds of Crime legislation: lawyers should proceed with caution

September 7, 2001

The federal government's new Proceeds of Crime (Money Laundering) Act (PCMLA) and accompanying regulations will impose onerous new reporting requirements on lawyers beginning in November, 2001. The Law Society is gravely concerned about this legislation. To comply with the PCMLA, lawyers face breaching solicitor-client confidentiality, in conflict with their ethical obligations. At the same time, the consequences of non-compliance under the PCMLA are serious. The Law Society and the Federation of Law Societies have sought to delay implementation. The Federation recently resolved to launch a constitutional challenge.

B.C. lawyers need to be familiar with compliance requirements. To assist lawyers and their staff, the Law Society has published "A Guide to Managing A Lawyer's Obligations under the Proceeds of Crime Legislation," available on the Law Society website at www.lawsociety.bc.ca/services/frame_pcmla.html. This guide will be updated and lawyers are asked to check the site regularly for revisions.

Lawyers are also urged to monitor the constitutional challenge - the Law Society will publish more information on the progress of this initiative.


The federal government has passed sweeping new legislation on money laundering. The Proceeds of Crime (Money Laundering) Act, S.C. 2000, c.17 imposes onerous obligations on lawyers to report certain client transactions to a federal agency, in conflict with their ethical obligations to protect solicitor-client confidentiality.

Under the PCMLA and its pending regulations, lawyers - along with others such as accountants, securities dealers, realtors, banks and other financial institutions - will be required to report not only any transactions that exceed $10,000 in cash but also "suspicious transactions" to the new Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

The Law Society has learned that regulations will be introduced in three stages. The first set of regulations - which requires lawyers to report "suspicious transactions" - is expected to be introduced in early September for a 30-day notice and consultation period. These regulations are scheduled to come into effect in early November, 2001. The second set of regulations - which requires lawyers to keep extensive records and report client identities in transactions involving large fund transfers - is scheduled to come into effect in early 2002. The third set of regulations - which requires lawyers to report cross-border currency and monetary instrument transactions - will come into effect in mid-2002.

Reporting obligations under the Act will be triggered when lawyers engage in any of the following activities on behalf of a client:

  • the receipt or payment of funds, other than those received or paid in respect of professional fees, disbursement expenses or bail;
  • the purchase or sale of securities, real properties or business assets or entities; and
  • the transfer of any funds or securities by any means.

Solicitors are most likely to be affected by these reporting requirements.

The Benchers are gravely concerned about the legislation and regulations. Although Part I of the Act protects communications that are subject to solicitor-client privilege, there is no protection for the confidentiality of solicitor-client communications. In addition, lawyers, like all individuals and entities subject to the Act, are subject to search without a search warrant.

Complying with this legislation may place lawyers in conflict with their obligations under the Professional Conduct Handbook. Non-compliance, however, will carry significant penalties under the PCMLA, including incarceration for up to 5 years and/or fines of up to $2,000,000. These fines are not covered under the Law Society liability insurance policy.

The Law Society, together with the Federation of Law Societies of Canada, has sought to delay the proclamation of the PCMLA in order to have our concerns addressed. The Federation has now decided to launch a court challenge of the legislation and regulations on constitutional grounds.

The constitutional challenge will be directed by a special committee of the Federation, chaired by Law Society Vice-President Richard Gibbs, Q.C. Lawyers are urged to monitor the progress of this constitutional challenge closely.

In the meantime, lawyers should understand the implications of this legislation and the obligations it imposes. To assist the legal profession and law firm staff in deciding how to comply with the PCMLA, the Law Society of B.C. has published A Guide to Managing a Lawyer's Obligations under the Proceeds of Crime Legislation, based on a similar guide published by the Lawyer's Professional Indemnity Company (of Ontario). This guide is available in portable document format (PDF) on the Law Society website at www.lawsociety.bc.ca/services/frame_pcmla.html. Please check the site regularly for revisions.

The Law Society recognizes the potential for conflict with a lawyer's professional responsibilities and obligations under the Professional Conduct Handbook. The Ethics Committee will from time to time consider professional responsibility questions arising from this legislation.

A Guide to Managing a Lawyer's Obligations under the Proceeds of Crime Legislation will be updated as the Law Society learns of revisions to, and interpretations of, proposed regulations, as opinions are received from the Ethics Committee and as the Federation of Law Societies proceeds with its constitutional challenge.