Lawyers could face an ethical minefield – and onerous new recording and reporting obligations – if the B.C. Court of Appeal rules against them in a decision expected in early 2013.
The appeal involves the B.C. Supreme Court judgment obtained in 2011 by the Federation of Law Societies of Canada (FLSC), assisted by the Canadian Bar Association, Law Society of B.C. and Quebec law societies as intervenors. That judgment effectively let lawyers off the hook from thorny recording and reporting provisions under Part I of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
The federal government (represented by the Attorney General) appealed, and that appeal was heard by a panel of five judges October 15 to 17, 2012.
Proceeds of Crime (Money Laundering) and Terrorist Financing Act
Introduced in 2000 (and brought in force for lawyers in 2001), the Act is intended to combat money laundering and the financing of terrorist activities.
The Part I regime requires lawyers to record all receipts of $3,000 or more. They must also record certain key information, including the identity of clients providing the funds and the financial institutions and account numbers from which the funds are received. This information must be given to the Financial Transactions Reports Analysis Centre of Canada (FINTRAC) on demand, creating a paper trail that allows FINTRAC to trace the flow of funds.
Under the legislation, lawyers who don’t comply with these requirements could be fined or imprisoned.
The federal government’s position is that the Act reflects its commitment, as part of a joint international effort, to fight money laundering and the international flow of funds financing terrorist activities. It claims that, without this legislation, lawyers are unwitting tools for facilitating such unlawful activities – in effect, perpetrators can hide behind the anonymity afforded by the solicitor-client relationship to shield them and their nefarious transactions.
Constitutional Challenge
In a related 2002 case, the FLSC won its constitutional challenge of earlier legislative provisions affecting lawyers (since repealed). Afterwards, the FLSC and federal government agreed to shelve other provisions pending the outcome of the FLSC’s court case here.
“This case is one of long-running interest for law societies and the Federation, and has attracted the attention of law societies around the world,” says Roy Millen at Blake, Cassels and Graydon in Vancouver, co-counsel for the FLSC.
In the meantime, law societies across Canada instituted rules to tackle the money laundering and terrorist financing issues, without significantly gnawing away at the fundamental obligations of confidentiality binding all Canadian lawyers.
As a result, while this constitutional challenge has been pending, lawyers across most of Canada have generally been prohibited from accepting cash of $7,500 or more. As well, in 2008, the FSLC introduced “know-your-client” identification and verification rules, subsequently adopted by common law provincial and territorial law societies.
Fast forward to the 2011 B.C. Supreme Court case.
FLSC Arguments
The FLSC argued that upholding the legislation would:
- place lawyers in a conflict of interest (potentially forcing them to breach their duty of undivided loyalty to clients),
- jeopardize the principle of solicitor-client privilege (a pillar underpinning the proper administration of justice), and
- put at risk the independence of the bar (turning lawyers into agents of the state who must report on their clients).
It also argued that the jail penalties for lawyers infringe the Charter provisions designed to protect Canadians against unjust deprivation of liberty. And because the recording and reporting of client identity and other information to FINTRAC could result in clients incriminating themselves, clients’Charter rights are also infringed.
B.C. Supreme Court Decision
The B.C. Supreme Court was faced with a conflict between the admittedly worthwhile objectives of the federal legislation and some of the most fundamental ethical obligations enshrined in the legal profession’s rules and codes of conduct.
It decided the Charter is indeed engaged, rendering the particular provisions of the money laundering/terrorist financing Act unconstitutional for lawyers. The Court “read down” or severed the problematic provisions to exclude lawyers from the information-collecting and reporting obligations.
The Court noted that the steps taken by law societies in the meantime also mean there’s no significant gap left by its ruling that targeted criminal groups could slip through by improper use of lawyers. Nor has Canada strayed substantially from its international obligations in this area.
Probable Appeal to the Supreme Court of Canada
Both sides have agreed that, no matter how the B.C. Court of Appeal decides, each won’t oppose a further appeal by the other side. “The case probably will go to the Supreme Court of Canada,” predicts Millen. If that happens, the government’s agreement with the FLSC exempting lawyers from complying with the Part I provisions of the Act will remain in effect, pending the Supreme Court of Canada’s decision.
Ethical Dilemma
If the B.C. Court of Appeal and ultimately the Supreme Court of Canada uphold the statutory provisions and overturn the B.C. Supreme Court judgment, lawyers and their governing bodies will be faced with troublesome issues of how best to reconcile their traditional professional and ethical obligations with these Part I provisions of federal law.
“It will put lawyers in the very difficult position of trying to advise clients properly and protect their interests, while at the same time being required to obtain information from them for the federal government, which may use that information against the lawyers’ clients,” says Millen.
Lawyers can only hope that the higher court judgments will offer some guidance if the decisions ultimately go that way – beyond merely leaving a bald ruling that (despite any erosion of the fundamental principles involved) this will now be the law and new ethical regime.
Janice Mucalov and George Mucalov are lawyers and writers living in Vancouver.