Wednesday, October 28, 2020

B.C. lawyers tweak self-imposed anti-money laundering rules ahead of public inquiry

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However the changes, adopted July 12, do not require suspicious transactions to be reported to the Canadian government agency Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

The society, which is the self-regulating agency for lawyers, will now require trust accounts to be used only for legal services provided by the lawyer or law firm. A second change requires lawyers to refund clients in cash for any transaction over $7,500. Third, lawyers will have more robust requirements to know their clients.

Donald Avison, executive director and CEO of the society, said he expects more changes over the coming year as the federal government undertakes a working group to address anti-money laundering policies.

Money laundering has come under greater scrutiny in B.C. with an upcoming two-year public inquiry, which, according to the provincial government, will look at the “full scope” of the matter, including real estate, gaming, financial institutions and the corporate and professional sectors.

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A March 2019 report commissioned by Attorney General David Eby, titled Combatting Money Laundering in BC Real Estate, made no definitive determination as to the extent of the problem, though it did target legal practices specifically as one potential source of the problem.

“Money laundering also requires enablers, often professionals who are trusted by society to provide needed business and personal services, including lawyers, accountants, real estate professionals, securities dealers and mortgage brokers,” the report said.

Related: Canada: Money laundering offenders will be named publicly

The report from professor Maureen Maloney recommends: “The BC Minister of Finance should suggest that her federal counterpart consider incorporating legal professionals in the anti-money laundering framework by requiring them to report suspicious transactions to the appropriate law society under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.”

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Aside from the society, lawyers are not required to report directly to FINTRAC, which monitors suspicious transactions, as a result of a 2015 Supreme Court of Canada decision that protects solicitor-client privilege as a constitutional right.

Avison said FINTRAC reporting isn’t in the cards for this reason. But he said lawyers are bound to not knowingly process proceeds of crime through trust accounts.

Maloney stated in her report that Canada’s AML regime does not comply with Financial Action Task Force recommendations, and the court decision “is a significant loophole in Canada’s AML framework.”

One of the chief critics of anti-money laundering policies in Canada remains skeptical the society is up to the task to combat the crime.

“The changes in the model rules do nothing to allow law enforcement and intelligence agencies to look behind the curtain,” said Adam Ross, a corporate investigator with White Label Insights and co-author of No Reason to Hide: Unmasking the Anonymous Owners of Canadian Companies and Trusts, published by Transparency International Canada.

Related: BC Real Estate Sector Submits Anti-Money Laundering Recommendations To Government

“So, investigating financial crimes is going to be as difficult as it always has been,” said Ross. “There is just no ability to access records and communications that are channelled through a lawyer. Until that’s addressed we will run up against the same problems again and again.”

Ross suggested lawyers be regulated from an independent and arms-length agency, as in the United Kingdom.

But Avison said more collaboration with government agencies and ministries should suffice and the society has ramped up its investigations – although Ross contended such investigations are self-governed and not transparent.

And, Avison said total citations have nearly doubled over the past few years.

But Ross questioned the changes, particularly the policy that money handled by lawyers must be for legal services.

“It leaves the window open to lawyers justifying any transaction going through their account as being linked to the provisions of legal services. I think it’s very difficult for the law society to monitor that.”

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Avison said the society audits every law from every six years.

Money laundering, he said, “has been pretty much at the centre of my focus since I walked through the front door” in January 2018.

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