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 29 Among the report's recommendations was that "governments and professional associations should introduce rules prohibiting lawyers, accountants and other professionals who are not registered with the relevant anti-money laundering supervisory body from engaging in real estate transactions." Marsh points to the millions coming into Canada from China, which is being poured into the real estate market. He says lawyers and banks aren't doing enough to vet people and determine the true source of the money. "So if you've got 10 people sending 50K each, how do you know what the sources of funds are? Did you do due diligence on all 10 of those people?" Lawyers can also make it difficult to determine who is the actual beneficial owner of a corporation, says Johnson. "A bank, just as an example, does business with that corporation, they have to ask the question that is in Canadian law — who is really behind the corporation. They need to know. Is it legitimate or is it a corrupt official? Is organized crime the true owner? "What we find is when due diligence is performed is that often a trail hits a brick wall at a law firm and then the information is simply unavailable." Johnson is concerned that Canada's legal profession risks being a weak link in Canada's anti-money-laundering, anti-terrorism- financing system. "If I were a criminal organization or terrorist group looking to set up a trust for illegal purposes, would I pick a trust company or financial institution? Probably not," says Johnson. "They have statu- tory AML rules and obligations and they are quite strict; whereas solicitor-client privilege and the way things are currently could be quite attractive to criminals seeking anonymity for their illegal enti- ties, arrangements and transactions." Without the co-operation of the professionals who participate in transactions, money laundering is difficult for police to detect, adds Johnson. "I think the real difficulty with AML is that it is very different from other kinds of offences and other kinds of crimes in that it's completely secret and hidden unless it is detected by the people who are there helping with the transactions." While a lawyer can refuse to represent a client who asks them to do something they believe is illegal, solicitor-client privilege means they can't then alert authorities that somebody is trying to break the law, Johnson points out. "What if a client asks a lawyer to do something that is clearly ille- gal and the lawyer says no? There's no reporting function. Unlike, say, financial institutions or others, that information will never see the light of day. It will never be useful to law enforcement." The fact that some professionals, such as lawyers and Quebec's notaries, aren't covered by federal anti-laundering rules undermines Canada internationally and risks Canada getting a reputation that could subject business transactions conducted in Canada to more checks, says Meunier. "When Canada makes claims about money laundering or a commitment to prevent tax evasion and money laundering and that kind of thing, it can make all kinds of claims except it has this big hole in its system and that is because some of the most desirable facilitators and gate keepers and the most professional and well- educated people aren't covered." L aw societies, though, say they are taking the steps necessary to prevent and police any potential money laundering by their members. The Federation of Law Societies of Canada has drafted two model rules, which have been adopted by individual law societies across the country. The first, known as the No-Cash Rule, was adopted in 2004. "It prevents lawyers and Quebec notaries from accepting cash in amounts of $7,500 or more other than if the payments fall within certain defined exceptions mirroring exceptions contained in the federal regulations," says Piette. The second is the Client Identification and Verification rule adopted in 2009, which imposes comprehensive know-your-client requirements on lawyers and Quebec notaries, says Piette. Individual law societies can go further. In British Columbia, for example, Van Ommen says the law society audits every lawyer's books every six years and more often if they are considered "at risk." British Columbia's law society has also given seminars, webinars and issued information briefs on the client ID and no-cash rules, he says. In Nova Scotia, the law society is vigilant about the rules to pre- vent money laundering, says Darrel Pink, executive director of the Nova Scotia Barristers' Society. "Any time we learn that a lawyer in Nova Scotia has failed to comply with the Client ID Rules, the soci- ety works with that lawyer to address the weaknesses and ensure future compliance or undertakes another response that will ensure the purpose of the rules is met." Meunier says the no-cash rule is good, but the law societies have too many loopholes in their client ID rule, which can be exploited. "There are so many exceptions to that rule that basically you could probably find a reason if ever a law society auditor comes to you and say I applied this exemption so, therefore, I didn't have to go too far." Beyond the requirements of the law societies, Meunier says there are questions lawyers should ask themselves to ensure that they don't end up facilitating laundering — wittingly or unwittingly. "Requiring legal counsel to report confidential client information to the state is unconstitutional because it would violate fundamental legal principles designed to protect the public." MAURICE PIETTE, Federation of Law Societies of Canada

• Cover