Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m J U N E 2 0 1 7 31 Some areas are more prone to money-laundering activities than others, he says. "Lawyers are involved in real estate transactions particularly. But also setting up complex structures in such a way that it would be dif- ficult to find out who the beneficial owner is and mortgage fraud." Know not only your client but also the key risks they present, Meunier advises. "This is what the casinos, the banks, everybody else is supposed to be doing and that is to identify the client in terms of who they are, what kind of business they're in. What kinds of products are they involved in? The delivery channels — how do they conduct their business? Face to face? In person? The geographic location of the person? Other relevant factors such as is this person potentially a politically exposed person? Who is in front of me?" One should also ask pointed questions about where they got the money, says Meunier. "When you take a look at that and you put the lawyer in front of those people, they should be asking questions about the source of funds. Somebody who tells you 'I got a big bonus because I left the public service and here's $20 million invested in a particular corpo- ration' . . . maybe that's the kind of question you should be asking." Lawyers should also ensure their own offices are equipped to deter prospective money laundering, says Meunier. "Are they training their staff and are they updating the rules, following what's going on in the trends in this business? Do they have a compliance officer who is responsible for making sure that everybody is following the rules within the firm and do they review their policies and procedures to make sure that they detect those situations?" Meunier says Canada is an international outlier when it comes to applying rules to prevent money laundering to the legal profes- sion, but other countries have found ways to include lawyers in anti-money-laundering regimes without jeopardizing solicitor- client privilege. For example, lawyers aren't subject to an anti-money-laundering regime in the United States, but they are in the United Kingdom, he says. Australia and New Zealand are moving to include lawyers in their anti-money-laundering systems. In the case of New Zealand, they are tying it to specific types of transactions such as real estate sales or acting as a nominee. "I did a count a while back and you're probably looking at over 70 per cent of countries — and we're talking some of these banana republics included — have national legislation that applies to law- yers," Meunier says. One example is the U.K.'s Solicitors Regulation Authority, which handles all regulatory activities on behalf of The Law Society but operates independently from it. When it comes to anti-money-laundering issues, the SRA's investigation and supervision directorate takes the lead, says James Dipple-Johnstone, director of investigation and supervision at the SRA who will move to work with Canadian Elizabeth Denham at the U.K. Information Commissioner's Office in June. "These teams receive intelligence from law enforcement, banks and other regulators, as well as reports from those we regulate about activity that might give rise to money-laundering and terrorist-financing concerns and the effectiveness of practice within firms. We investigate these and work with firms and individuals to improve practice, or, where necessary, discipline any misconduct in these areas," says Dipple-Johnstone. He says the SRA receives around 12,000 reports of concerns about law firms or solicitors each year. In 2016, it received 193 reports of potential involvement in money laundering. The SRA also shares knowledge and best practices with other agencies investigating money laundering. "Our Fraud and Confidential Intelligence Bureau shares intel- ligence with law enforcement agencies, the National Crime Agency and other regulators," he says. In addition, the SRA publishes information, guidance and warn- ing notices for solicitors and alerts them to emerging threats. Dipple-Johnstone says they do it without compromising solici- tor-client privilege. "The solicitor's obligations to the court and to uphold the rule of law by adhering to the money-laundering and counter-terrorist financing legislation, as well as our own accounts rules, can be dis- charged without impacting on privilege," he says. "The main requirements are for due diligence (and enhanced due diligence in higher-risk matters) before acting in the transac- tion and to report suspicious activity, via a money-laundering reporting officer, to the U.K. Financial Intelligence Unit before proceeding with the transaction. In addition, we have powers to inspect [legal professional privilege] material in the course of its investigations." However, Dipple-Johnstone believes the SRA could be even more effective if it was completely independent of The Law Society. "We believe that regulation in general, and AML supervision in particular, is most effective when undertaken by a body which is independent of the profession it oversees. There is not only a clear conflict of interest, which undermines public confidence, but also very real practical difficulties." Mercer says the SRA's model is one that could be examined. He points out that the system developed by Canada's law societies is a version of the British model with privileged information in com- plaints, investigations and audits remaining under the control of the law societies. "The law societies have access to privileged information. The regime which was established was to have the know-your-client anti-money-laundering rules as part of the law society bylaws and rules of professional conduct." Mercer doesn't rule out the idea of going further. "It certainly may be the case that it's worth considering stronger law society regulation in this area." Johnson is also open to change. "I think the status quo is not ideal at the moment. "It's a very tricky, a very difficult question, but we do potentially have a problem in this country that we're falling behind other coun- tries in this area." Johnson says she would like to see the federal finance depart- ment and Canada's law societies sit down and work together to find a solution. "I think it would be in everyone's interest to find some com- mon ground and find a regime that is constitutional, that protects solicitor-client privilege, but also ensures that law firms don't end up being a loophole."

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