Ottawa will attempt to close money-laundering loophole

Thursday, January 1st, 1970

Legal system ?vulnerable to misuse for money laundering,? report says

The Vancouver Sun

The federal government will try to close a loophole in Canada’s antimoney-laundering system that excludes lawyers from having to report suspicious transactions, Postmedia has learned.

In 2015, the Supreme Court of Canada ruled that, unlike other professionals such as bankers and real estate agents, lawyers do not have to report to Canada’s antimoney-laundering agency, Fintrac.

Lawyers in B.C. won that case based on a constitutional argument about solicitor-client privilege, and the argument that law societies already regulate lawyers to prevent involvement in money laundering. But Canada faces increasing international scrutiny as concerns over money laundering in Vancouver real estate grow.

In September, the Financial Action Task Force, a Paris-based intergovernmental group that makes recommendations for fighting money laundering, asked Canada to close the lawyer loophole.

A report by the agency suggested there is a close relationship between money laundering in real estate and the services provided by lawyers, such as placing wire transfers in legal trusts and creating investment vehicles that can shield the true ownership of property.

A number of sources confirmed to Postmedia that the federal government aims to bring lawyers under Fintrac’s oversight.

“The government is examining the impact and implications of the 2015 Supreme Court decision that excluded lawyers from Canada’s anti-money laundering regime and will announce next steps in due course,” Paul Duchesne of the federal Finance Department told Postmedia.

“We will review (the task force) recommendations closely to ensure that Canada continues to combat money laundering … while respecting the constitutional division of powers.”

“After the Supreme Court decision, Finance Canada has been weighing next steps,” another official in Ottawa said. “You can’t appeal a Supreme Court decision. But you can adjust the legislation.”

The federal government’s case will be bolstered by a Fintrac study that shows lawyers are often charged in money laundering cases. The 2015 study, obtained by Postmedia under freedom of information law, is based on Canadian court cases from 2004 to 2014.

“The second-largest profession in the sample are lawyers, representing 15 per cent,” the report states. “Based on court documentation, lawyers convicted of money laundering were willing to exploit reporting exemptions in order to launder funds … (and use) solicitor-client privilege to enhance money-laundering services.”

Cases in the study represent only a portion of the money-laundering intelligence gathered by Fintrac, the report says.

Kim Marsh, of due diligence company IPSA International, said that before the 2015 Supreme Court case, the company was asked by the federal Justice Department to do a report on money laundering risks connected to lawyers. “I think there are some people in the legal industry that are aiding and abetting money laundering, with impunity,” said Marsh, a former RCMP organized crime unit leader. “And the problem is coming to light now with the huge amount of money flowing into the property market, some of it stinky.”

Marsh said he believes Canadian law societies neither provide adequate member training on money laundering nor have the internal auditing and investigation needed to crack down on bad apples.

NDP MLA David Eby, who is a lawyer, said that his reading of the Supreme Court’s ruling is that judges believed Fintrac’s legislation granted law enforcement too much power to search the legal trusts and offices of lawyers. But the ruling left the federal government room to rewrite anti-moneylaundering legislation, Eby said.

For any new Fintrac legislation to pass a Supreme Court challenge, Eby believes, there likely must be evidence that law societies have failed to self-regulate.

David Jordan of the B.C. Law Society says the society is an effective self-regulator on money laundering.

Postmedia asked the B.C. Law Society to provide a list of citations in connection to its money-laundering rules. The society has cited six lawyers since 2004 for breaking a rule of handling cash transactions of over $7,500, according to Jordan. In one of the cases, a lawyer’s office received $40,000 in cash from a client in China who wanted to immigrate to B.C. The lawyer was fined $1,000. Jordan said in addition to “no cash” rule cases, the society will investigate complaints of suspicious transactions.

The recent Financial Action Task Force report underlined moneylaundering vulnerabilities in Canada’s legal and real estate sectors.

“The legal profession in Canada is especially vulnerable to misuse for money laundering … due to its involvement in activities exposed to a high money laundering risk, e.g., real estate transactions,” the agency said. “The real estate sector is highly vulnerable to money laundering, including international money laundering activities, and the risk is not fully mitigated, notably because legal counsels … are not required to implement anti-money laundering.”

The report pointed specifically to risks in Vancouver real estate.

“The real estate business is exposed to high risk clients, including politically exposed persons, notably from Asia, and foreign investors,” the report said. “For example, there are cases of Chinese officials laundering proceeds of crime through the real estate sector, particularly in Vancouver.”

© 2016 Postmedia Network Inc.

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