Why we won't let down our guard on money laundering
Robert W. McDiarmid, QC
A recent issue of the Calgary Herald contained a small article quoting a federal Department of Finance briefing note that pushed for more stringent anti-money-laundering legislation to combat terrorism.
Is it just me, or do others find it strange that the impetus for Canada’s legislation, or changes to it, comes from the Finance Department? If the object is truly fighting crime, wouldn’t it make more sense for these initiatives to come from the Department of Justice?
There is no doubt about the need for strong legislation to tackle serious crime. Terrorist attacks are horrid. Organized crime undoubtedly affects the well-being of our populace. But the point of a free and democratic society is to enhance freedom and democracy. For that reason, measures to combat terrorism and organized crime should be implemented by the Minister of Justice, following consultation with the legal profession to ensure measures designed to fight these activities only go as far as necessary.
I have some concerns that current laws on money laundering, overseen by Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), could well be an excuse for revenue-hunting expeditions that have nothing to do with crime or terrorism. This was underscored for me at a Federation of Law Societies of Canada meeting in Ottawa last fall when we heard about some police examples of proceeds of crime matters that actually seemed to be tax enforcement cases. If that’s so, it should concern members of the public. It should also concern lawyers who are entitled to give clients advice on legitimate tax avoidance.
Let me turn to the central issue for the Law Society. As you know, the Law Society, together with the Federation of Law Societies of Canada, challenged the constitutionality of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its requirement for lawyers to disclose privileged communications of clients. So far, our challenge to this legislation has been successful. Starting in BC, the courts in Canada began exempting lawyers from the legislation until the constitutional issue on solicitor-client privilege could be heard. The federal government agreed to be bound by the exemption. Yet the government is not dissuaded overall from proposing new Orwellian laws that would have the effect of breaching the confidences of our clients.
We have always worked to keep the lines of communication open on this issue. At the Federation of Law Societies meeting I mentioned, the Federation took the initiative to invite representatives from the RCMP who are directing anti-terrorism and anti- money-laundering activities at the highest levels.
We discussed the law society rules that prohibit lawyers from accepting large sums of cash, except in certain very narrowly defined circumstances. (These rules have been passed by all law societies in Canada, not just ours.) The RCMP expressed concerns that our rules would not be effective in preventing lawyers from assisting criminals in money laundering. Asked why, they said they had examples of Canadian lawyers involved in money-laundering — and they provided one or two examples that sounded as if there was a reason to investigate. But when asked whether they had brought complaints to the law societies that have the jurisdiction, the answer was “no.” Pressed further, the Superintendent who is the Director of the RCMP Proceeds of Crime Branch, said it was because of loopholes in the “no cash” rule (Rule 3-51.1).
As you know, the no-cash rule prohibits lawyers from receiving an aggregate amount of cash of $7,500 or more in respect of any one client matter or transaction, with a proviso that a lawyer may accept or receive an amount of $7,500 or more in cash for professional fees, disbursements, expenses or bail, but that any refund greater than $1,000 out of such money must be made in cash.
The Superintendent said that this Rule had a gaping loophole. Many of us at the meeting were perplexed. He said that the loophole was that disbursements were allowed to be paid in cash. We were all wondering how much terrorist financing could occur at the 35-cents-a-page photocopy rate, so we asked for a further explanation. The Superintendent said that, as an example, if a lawyer were handling a purchase of real estate for a client, the purchase price of the real estate (I believe he put it as “the price of the house”) would be considered a disbursement. He said this with a straight face, and honestly appeared to believe it! When it was explained that the purchase of real estate would not be considered a disbursement, it wasn’t entirely clear that he accepted this explanation.
Beyond this mistaken interpretation of the no-cash rule, what is often overlooked is that the rule is proactive. It prevents lawyers from accepting cash because we believe this is the best way to minimize risk. If cash cannot be accepted, it cannot be laundered. This rule is therefore even more stringent that the proceeds of crime legislation, which permits large amounts of cash to be accepted in transactions, provided it is reported to FINTRAC. Because of this, the rule deters dishonest people from attempting to use a lawyer for money laundering.
What became quite clear from the RCMP members attending our meeting, and perhaps it’s true of other federal officials, is that they do not have a firm grasp of lawyer regulation. And why should they? That is not their area of expertise. The expertise lies with the law societies. We have an understanding of the practice of law, the commitment to set high standards and the power to enforce them. I think we have a responsibility to say so.
We know the police have a job to do in tackling money laundering. If they do have evidence that a lawyer’s client is laundering money, they have a process to seek material from the lawyer, but of course that is properly subject to a court determination of what is protected by solicitor-client privilege. If it appears to police that a lawyer is directly involved, or is in breach of the no-cash rule, the Law Society needs to hear about that to pursue it as a complaint. We’ll investigate — and that includes the big files. Need I mention (though it’s not a money laundering example) our audit and investigation on Martin Wirick? Or the fact that the RCMP and Vancouver City Police acknowledged our lead in the investigative work in that case? In BC, I should add, we are beefing up our team of auditors and investigators and introducing compliance audits, which will be targeted and effective. The point is, we have a sound track record of fulfilling our responsibilities, and we do it in a way that does not jeopardize the constitutional rights of lawyers’ clients.
I recognize that we are sitting opposite the federal government in the proceeds of crime litigation. It still troubles me that this litigation is even necessary. But the federal government continues to propose legislation that affects entrenched principles such as solicitor-client privilege. It is therefore incumbent upon us to be wary and not to be afraid of appearing unpopular in contesting that legislation.
The price of freedom is, after all, eternal vigilance, and lawyers traditionally have been among the most vigilant. We do so, not for ourselves, but for the public who are our clients. Now is not the time to let our guard down.