Proceeds of Crime (Money Laundering) and Terrorist Financing Act

Lawyers across Canada exempt from all Part I recording and reporting provisions

In mid-May the Attorney General of Canada announced an agreement with the Federation of Law Societies of Canada (on behalf of provincial and territorial law societies) that all Canadian lawyers will be exempt from all of the provisions of Part I of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, including the recording and reporting provisions, until the Federation's constitutional challenge is heard in BC Supreme Court and the Court makes a decision on the merits.

Should the Federation of Law Societies be successful in its challenge in BC Supreme Court, the Attorney General has agreed that lawyers in all provinces will remain exempt from all Part I requirements pending the outcome of any appeal to the BC Court of Appeal. Should the Federation be successful before the BC Court of Appeal, lawyers in all provinces will remain exempt from the legislation pending the outcome of any appeal to the Supreme Court of Canada.

On June 12, 2002 new regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act came into effect.

Under these regulations, law firms were to be one of the entities required to record and report suspicious transactions, as well as large cash transactions, to the federal agency FINTRAC.

As a result of the agreement dated May 15, 2002 between the Federation of Law Societies and the Attorney General, however, lawyers and law firms in Canada remain exempt from these recording and reporting requirements, both with respect to suspicious transactions and large cash transactions.

Consent orders reflecting this exemption from Part I of the legislation were entered in BC Supreme Court on June 12 and in courts across Canada as close to June 12 as possible. The exemption will remain in effect so long as the Federation of Law Societies is successful in the litigation underway in BC with respect to the legislation, whether on the hearing of the petition or at various levels of appeal.

The BC Supreme Court hearing, originally scheduled for June 24, 2002, has been adjourned by consent. A new date has not been set, but the constitutional challenge is unlikely to be heard before 2003.

The May 15, 2002 agreement between the Federation and the federal Attorney General addresses the order in Alberta in which Watson, J. had required lawyers to provide sealed reports to the Law Society of Alberta, and the Law Society to hold such reports pending the outcome of the constitutional challenge. The agreement provides that the Attorney General would consent to a variation of the order in Alberta such that the Law Society of Alberta may dispose of any reports it may have received pursuant to Watson, J's original order.

Since the Attorney General has agreed that any such reports may be destroyed it seems clear that, even if the constitutional challenge is eventually unsuccessful, lawyers will not be required to report retroactively, that is, lawyers will not be required to report previous transactions.

Lawyers should not, therefore, collect from clients information that is required to comply with Part I of the Act unless, of course, the information is otherwise relevant to your retainer and collected in the interests of the client.

Law firms are also exempt from the requirement to set up a "compliance regime," which is included in Part I of the Act.

The principle of solicitor-client confidentiality is therefore preserved at least until the hearing of the constitutional challenge.

Please note that, on June 22, 2002, the Cross-Border Currency and Monetary Instruments Regulations were published in the Canada Gazette. These Regulations, when they come into force later this year, will implement Part II of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which requires persons to report to Canada Customs and Revenue Agency customs officers the importation or exportation of amounts over $10,000 of currency and monetary instruments in bearer form, whether carried across the border or imported or exported by mail, courier or by any other means. There is no requirement to report bank drafts or cheques or other negotiable instruments that are made payable to a named person and that have not been endorsed.

Lawyers will not be exempt from the Regulations implementing Part II of the Act.

If you have questions, please contact Felicia S. Folk, Practice Advisor, by telephone at (604) 669-2533 (toll-free 1-800-903-5300) or email her at advisor@lsbc.org.