Last week an international task force report called on the Canadian government to tighten Canada’s money-laundering rules. Among other things, the report cites the legal profession’s exemption from requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act as a concern.
Law societies across Canada supported litigation that succeeded in establishing that the Act’s requirement to report suspicious transactions to a federal agency violated their clients’ rights. The Supreme Court of Canada ruled that collecting information about clients and their financial transactions and turning that information over to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) violated provisions of the Canadian Charter of Rights and Freedoms.
In its decision, the Supreme Court observed:
The information gathering and record retention provisions of [the law societies’ rules] serve important public purposes. They help to ensure that lawyers take significant steps so that when they act as financial intermediaries, they are not assisting money laundering or terrorist financing. The scheme also serves the purpose of requiring lawyers to be able to demonstrate to the competent authorities that this is the case.
The Law Society of British Columbia introduced a no-cash rule in 2004, which prohibits lawyers, except in very limited circumstances, from receiving $7,500 or more in cash from a client. The federal anti-money-laundering legislation, by comparison, does not prohibit cash being accepted by professionals but requires those who accept $10,000 or more in cash to report the transaction to FINTRAC.
Our rule is specifically limited to the amount of cash a lawyer can accept because any amount a lawyer receives by way of cheque or electronic transfer will have been subjected to the FINTRAC-reporting requirements at the point of deposit with a financial institution. Our rules also specify that a lawyer can only accept electronic transfers from banks in countries that have adopted similar anti-money-laundering measures.
In 2008 the Law Society introduced client identification and verification rules similar in scope to those of the federal Act, but without the requirement to report to FINTRAC. A lawyer must verify not only an individual’s full name, address and phone number, but also the client’s occupation. If the client is an organization, the lawyer must obtain and keep a record of the general nature of the type of business it engages in, and the name, position and contact information of individuals from whom the lawyer will be receiving instructions. There are limited exceptions, largely pertaining to public institutions for which such information is a matter of public record.
The rules are enforced by a compliance audit program, introduced in 2006, that requires regular, periodic audits of the trust accounts of all law firms.
Our profession takes its role in combatting money laundering and terrorist financing seriously. If we receive information or evidence of a lawyer engaged in activity that has any indication of money laundering, or that a lawyer is not complying with Law Society rules that protect against money laundering, we will promptly and thoroughly investigate that lawyer’s conduct.