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The Federation of Law Societies of Canada Submission in Response to Finance Canada's Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime consultation:
September 30, 2005
Director, Financial Sector Division
Department of Finance
140 O'Connor Street
Dear Ms. Lafleur:
Re: Comments on "Enhancing Canada's Anti-Money Laundering and Anti-Terrorist Financing Regime" Consultation Paper, June 2005
The Federation of Law Societies of Canada ("the Federation") is pleased to provide comments on the above-referenced Consultation Paper, and grants the Department of Finance permission to post the comments on its website. The Federation is the national coordinating body of the 14 law societies in Canada who have responsibility to regulate Canada's 88,500 lawyers and Québec's 3,500 notaries in the public interest.
The Federation's comments are directed to the section of Chapter 2 of the Consultation Paper entitled "Status of Negotiations With the Legal Profession", and Section 6.17 entitled "Documents Protected by Solicitor-Client Privilege" in Chapter 6.
Fundamental Canadian constitutional principles require that lawyers maintain undivided loyalty to their clients, consistent with the independence of the Bar and the integrity of the administration of justice. There is a strong presumption that all communications between lawyer and client, along with financial information arising from the solicitor and client relationship, are confidential and may not be disclosed to, or obtained by, government authorities without a court Order. The Supreme Court of Canada has affirmed that lawyers, who are bound by stringent ethical rules, must not have their offices turned into archives for the use of state authorities.
These principles define a clear threshold between constitutional and unconstitutional requirements imposed on lawyers when it comes to the gathering of information from clients: a lawyer must obtain and keep all information needed to serve the client, but must not obtain any information which serves only to provide potential evidence against the client in a future investigation or prosecution by state authorities.
In the context of anti-money laundering and terrorist financing initiatives, requirements imposed on lawyers, whether by way of law society rules or federal regulations, must be defined by and limited to the purpose of serving the public interest in the success of those initiatives only to the extent that they do not conflict with the paramount public interest in the fundamental constitutional values on which the Canadian legal system rests.
As Chapter 2 indicates, as an interim result of the Federation's pending constitutional challenge to the application of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("the Act") to lawyers, lawyers are not required to file any reports under the Act including suspicious transaction reports under Section 7 of the Act and large cash transaction reports under Section 9 of the Act. As negotiations between the Department of Finance and the Federation continue, in recognition of the importance of and to support the fight against money laundering, each law society has passed bylaws or rules of professional conduct prohibiting lawyers from receiving or accepting large amounts of cash from clients in respect of specified activities. These by-laws or rules are based on the Federation's Model Rule on Cash Transactions adopted in October 2004.
Within the next few months, the Federation will be considering a proposal for a second Model Rule on certain client identification and verification requirements that would be imposed by its member law societies on all lawyers in Canada. These requirements would be adopted by the law societies pursuant to their statutory duties to uphold and protect the public interest in the administration of justice. Because the nature of the legal services provided by each lawyer differs for each client matter, the information that a lawyer requires of a client in relation to each matter also differs. Accordingly, while certain information from a client will usually be necessary for most lawyers to serve most clients, it is not possible to define precisely, in advance, all of the information that must be sought by every lawyer of every client. The second Model Rule is being formulated based on these considerations.
The proposed Model Rule would make all lawyers in Canada subject to certain client identification and verification requirements when a lawyer engages on behalf of a client or gives instructions on behalf of a client in respect of the following activities:
1. Receiving or paying funds other than in certain specified circumstances (similar to the requirement in the Federation's Model Rule on Cash Transactions);
2. Purchasing or selling securities, real properties or business assets or entities;
3. Transferring funds by any means.
When engaged in these activities, including non-face-to-face transactions, the proposed Model Rule would prescribe that lawyers be required to:
1. Obtain all information required to provide the client with the service for which the lawyer is retained, which information may include, but is not limited to, the following:
a. client's first and last name;
b. client's home or business address;
c. client's home or business telephone number;
d. where the client is an individual, the client's occupation;
e. where the client is an organization, the general nature of the type of business engaged in by the organization, where applicable;
f. where the client is an organization, the individuals authorized to give instructions with respect to that organization; and
g. where the client is acting for a third party beneficiary, necessary information about the beneficiary, such as that set out above.
2. Take reasonable steps to verify the identity of the client and, where appropriate, the beneficiary, which may include the following:
a. where the client or beneficiary is an individual, obtaining government-issued identification, such as a driver's licence, birth certificate, provincial health card or passport or any similar record and keeping a photocopy of the document;b. where the client or beneficiary is an organization such as a corporation or society which is created pursuant to legislative authority, obtaining a copy of either the incorporating document of the organization, or a confirmation from a government registry as to the existence and name of the organization, including the name of its directors and officers; and,
b. where the client or beneficiary is an organization such as a trust which is not registered in any government registry, obtaining a copy of the organization's constating document(s).
3. Retain a record of this information for the duration of the client relationship and for as long as is necessary for the purpose of providing service to the client.
4. If a lawyer reasonably suspects that he or she might be assisting a client in dishonesty, fraud, crime or illegal conduct, make reasonable inquiries to obtain information about the client and about the subject matter and objectives of the retainer, including verifying who are the legal or beneficial owners of the property and business entities, verifying who has the control of the business entities and clarifying the nature and purpose of a complex or unusual transaction where the purpose is not clear. The lawyer should record the results of these inquiries.
Law societies would monitor lawyers to ensure that they comply with these rules. Law societies would impose appropriate sanctions for non-compliance, as determined by each law society in accordance with its internal procedures. Information recorded by lawyers could be obtained by law societies only for the purpose of ensuring compliance with applicable law society rules. Information obtained by the law societies would not be forwarded to state authorities without a court Order which gave due consideration to the solicitor and client confidentiality and privilege existing in respect of the information.
With respect to information gathering, the second matter on which the Federation briefly comments relates to the requirement to produce documents. The Federation supports the proposal in section 6.17 of the Consultation Paper to amend sections 62 to 65 of the Act to conform with the principles established by the Supreme Court of Canada on seizure of solicitor and client privileged documents. These sections are modeled closely on those in the Criminal Code, which have been struck down as unconstitutional by the Supreme Court. The Court, in confirming that privilege does not come into being by an assertion of a privilege claim, but exists independently, found that by the operation of s. 488.1 of the Criminal Code, the "constitutionally protected right" of privilege could be violated by the mere failure of counsel to act, without instruction from or communication with the client. The Federation agrees that the Act must be amended to ensure that solicitor and client privilege is protected.
The existence of an independent Bar governing in the public interest is not one common to all jurisdictions in the world. It is a concept in our country that is fundamental to the administration of the rule of law. The Federation supports efforts to eradicate money laundering within a framework that acknowledges the value of this principle.
George D. Hunter
Chair, Committee on Anti-Money Laundering
Federation of Law Societies of Canada