Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”) is the federal legislation through which Canada seeks to establish specific measures to detect and deter money laundering and the financing of terrorist activities. Amendments to the Act were introduced in 2007, making it applicable to lawyers and certain other professionals. As a result, the Canadian Federation of Law Societies – the national coordinating body of Canada’s 14 provincial and territorial law societies (“FLSC”) – filed a judicial petition challenging the constitutionality of the reporting obligations being applicable to lawyers.
Broadly, the amendments require various professionals (including lawyers) to record information relating to financial transactions, as well as report suspicious activity and disclose records to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). The Act also contains warrantless search powers to ensure compliance. Under the new regime, lawyers could face criminal charges for non-compliance and, though clients are not directly exposed to criminal charges in this same respect, information obtained from counsel (pursuant to the Act) can be disclosed in certain circumstances by FINTRAC to law enforcement agencies.
In 2011, the Supreme Court of British Columbia (the superior trial court in Canada’s western-most province) found that legal counsel should be exempt from the Act on the basis that its obligations infringed s. 7 of the Canadian Charter of Rights and Freedoms (the “Charter”) and were not justifiable: 2011 BCSC 1270. Specifically, the regime violated solicitor-client privilege, which is constitutionally entrenched as a principle of fundamental justice. Canada appealed the decision. The Court of Appeal for British Columbia dismissed the appeal in April 2013, but decided the case on slightly different grounds: 2013 BCCA 147.
The Court of Appeal found that the regime violated the liberty interests of counsel and potentially those of clients, whose information could be forwarded on to law enforcement agencies. The Court was satisfied that this violation engaged three aspects of the solicitor-client relationship: (1) solicitor-client privilege; (2) the independence of the bar and (3) counsel’s duty of loyalty to the client.
The Court focussed its analysis on the second issue, finding that the Act built-in safeguards likely sufficient to address issues of solicitor-client privilege. The Court went on to definitively pronounce, for the first time in Canada, that the independence of the Bar is indeed a principle of fundamental justice. It further found that the record keeping obligations and external monitoring requirements under the amended regime had the combined effect of turning law offices into archives for use of the prosecution, effectively making lawyers agents of the state in some circumstances. Consequently, lawyers would find themselves in a conflict of interest, divided between their legal obligations under the regime, their professional obligations to clients, and their personal interests (to avoid criminal sanction).
This decision of the British Columbia Court of Appeal gives valuable guidance on what role lawyers can and will play in the fight against money laundering and terrorist financing in Canada. The Court recognizes that legal professionals may be attractive targets for criminal attempts to use professional status to conceal suspicious transactions or the perceived cloak of solicitor-client privilege to protect transaction details.
The above notwithstanding, the Court was convinced that the amended legislation was an unjustifiable infringement of Charter rights and values, given that the various law societies across the country, through their rules of professional conduct, had already been addressing the same concerns as those of the legislation, while respecting the constitutional rights of counsel and their clients.
Solicitor-client privilege and the independence of the Bar must be adequately protected, despite the ever present threat of money laundering and terrorist financing. However, that is not to say lawyers are excused from participating in efforts to combat these threats. In deciding to exempt lawyers from the Act’s application, the Court very much relied on the existence of regulations by the various law societies – referenced above – that require lawyers to take steps to protect against becoming tools for money laundering.
It would be inaccurate to perceive this ruling as diminishing the role and obligations of Canadian counsel in Canada’s on-going efforts to prevent becoming a haven for money laundering and terrorist financing. However, the Court sent a message that any involvement of lawyers in the State’s anti-money laundering regime must respect the unique role of legal counsel in a well-functioning and democratic society: [2013] SCCA No 235.