Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 16 - Evidence - April 4, 2012
OTTAWA, Wednesday, April 4, 2012
The Standing Senate Committee on Banking, Trade and Commerce met this day
at 4:15 p.m. for the review of the Proceeds of Crime (Money Laundering)
and Terrorist Financing Act (S.C. 2000, c. 17), pursuant to section 72
of the said act.
Senator Céline Hervieux-Payette (Deputy Chair) in the chair.
The Deputy Chair: Honourable senators, this afternoon we continue
the five-year parliamentary review of the Proceeds of Crime (Money
Laundering) and Terrorist Financing act. This is our fourteenth meeting on
In conducting this review, the committee has heard from a number of the
so-called "regime partners" involved in the implementation and
administration of this legislation.
In recent weeks, we have been hearing from those familiar with and
impacted by the regime, including industry groups and associations, as well
as from independent experts in the field. We continue with that work today.
We are very pleased to welcome representatives of the legal community.
Representing the Federation of Law Societies of Canada, we welcome John
Hunter, president, and Frederica Wilson, Director, Policy and Public
Affairs. Also, representing the Canadian Bar Association, we welcome Ronald
Skolrood, member of the CBA Proceeds of Crime Working Group, and Gaylene
Schellenberg, a lawyer with the CBA'S legislation and law reform section.
Honourable Senators, before we begin, as you are aware, there is a
deferred vote scheduled in the Senate at 5:30 p.m. As such, we unfortunately
have only one hour for this session.
I will now immediately give the floor to Mr. Hunter, followed by Mr.
John J.L. Hunter, Q.C., President, Federation of Law Societies of
Canada: Let me thank all of you for allowing us to appear here and speak
to you on this important topic. I thought I should perhaps begin by
explaining why you have two legal organizations in front of you and not one.
I am serving this year as the President of the Federation of Law
Societies of Canada, and the Federation of Law Societies is a national
organization that represents all of the law societies in Canada. As I think
you know, lawyers are provincially regulated through law societies and in
Quebec through the Barreau du Québec and the Chambre des notaires. We
represent all of the regulators of the lawyers.
My friend Mr. Skolrood is from the Canadian Bar Association, which is the
senior organization of lawyers, and he and his organization speak for the
lawyers of Canada. I speak for the regulators of lawyers of Canada, and that
is why the difference.
We have 100,000 lawyers in Canada regulated by the law societies, plus
another 4,000 notaries in Quebec. The regulators have rules of conduct, as
you might imagine, for lawyers. The subject of the regulation of lawyers is
somewhat central to the position that I would like to articulate before you
As you may know, we appeared before you in 2006, when this committee
conducted its first five-year review of this legislation. Our position here
today is much the same as it was then: The regulators of the profession are
fully supportive of the efforts by the federal government to deter and
detect money laundering, and nothing that the regulators have done or will
do will in any way detract from that support.
However, we have a concern that some of you have heard before and will
hear again today about the application of the federal regime to the
relationships between client and lawyer.
Mr. Skolrood will talk in a little more detail about what the
significance of that problem is, the significance of the solicitor-client
privilege that maintains the confidentiality of communications between
lawyers and clients. This is a matter of considerable concern to the
regulators as well, but I will leave the detail of that to him. He may have
some comments about the impact of this legislative scheme on the
independence of the bar and the entitlement of Canadians, when they speak to
their lawyers, to be confident that they are speaking to lawyers who are
independent and whose loyalty is to the client.
I would like to comment in the few minutes I have at the beginning on how
the regulators have responded to this legislation. You may be aware there is
currently litigation in place between the federation and the federal
government in relation to the application of this legislation to lawyers and
to lawyer/client relationships. I just want to bring you up to date on where
This legislation, as it began to impact on lawyers, was enacted in 2001.
When it was enacted, it required lawyers to report suspicious transactions
of their clients, just as it required other financial intermediaries to
report on suspicious transactions. The federation and law societies
challenged the application of that legislation to those relationships on the
grounds that it would interfere in a fundamental way with the relationship
between lawyer and client and the solicitor-client privilege, which is a
principle of fundamental justice in this country.
That application was initially successful. There was an injunction issued
initially in British Columbia and then in many other jurisdictions
preventing the application of the legislation to lawyers.
I think the next step is an important one, and that is that the
federation developed a model rule for the regulation of the profession — it
was adopted across the country — which prevented lawyers from receiving more
than $7,500 in cash for a financial transaction.
If I step back for a moment, you will recall that one of the themes that
underlie this legislation is the dangers that occur when someone shows up to
any financial intermediary with a hockey bag of cash, wants that cash put
into that intermediary's bank account and then, ultimately, the money is
laundered in this fashion.
The initial legislation and the legislation as I understand exists today
requires that a report be sent to FINTRAC if more than $10,000 in cash is
deposited in that fashion. The federation objected to that because we do not
want lawyers having to report on their clients. However, what we did is
facilitate a rule, which has now been accepted by all law societies across
the country, that a lawyer cannot accept more than $7,500, a lower
threshold, in cash for a financial transaction. What we think that does is,
effectively, instead of an after-the-fact reporting system, it is a
before-the-fact stopping of the money going into the system.
Those rules were enacted in 2004 and then in subsequent years right
across the country. In 2006, the federal government exempted, withdrew the
requirement in the statute that lawyers provide a report of suspicious
transactions. The federal government, we understood, accepted that the law
societies had appropriately stepped up to the plate and dealt with this
As of 2006, when the federal government withdrew that requirement, this
legislation did not apply to lawyers and their clients. However, a couple of
years later, the federal government through regulation passed what are
called Client Identification and Verification Rules. Those rules required
everybody involved, including specifically law firms, to take steps to
identify and verify the identity of their clients, to prepare reports of
financial transactions and to keep those reports, including the purpose of
the transaction and the like, in case law enforcement wanted to access them.
Again, the federation, the law societies and the CBA took exception to
this because we do not want lawyers writing reports about their clients for
the government. We do not think that is the appropriate role, given the
importance of the solicitor-client relationship.
From a regulatory point of view, the law societies again worked, through
the facilitation of the federation, this national body, to enact model rules
for client identification and verification that are similar to the rules
that would have been required under the federal regime, but they do not
include the requirement to make reports that could be used against clients.
We do not think that lawyers should be writing reports and gathering
evidence for law enforcement against their clients. We think there is a
sound legal reason for that as well as sound policy reasons.
The message I really want to bring to you today is that from the
regulatory point of view, we are very supportive of this effort, and we have
tried to take active steps to demonstrate that support and to fill any gaps
that might be thought to exist in the regulatory regime. I know you have
heard about gaps and about the lawyers' need to be involved and engaged in
this, but what we have done through proper regulatory process is ensure, to
the extent rules can do so, that lawyers are not the problem of cash getting
into the system and that lawyers are not the problem of anonymous clients
doing financial transactions with professionals because we had that covered
off. That is the main message I hope to bring to you today.
I should add that there is litigation in place. The initial litigation
was more or less resolved when the federal government withdrew the
requirement that lawyers provide reports of suspicious transactions to the
government. That is no longer in the legislation, so it is not a concern. If
there is a gap, it exists on the current legislation, but we think there is
not a gap because of the law society rules.
However, the government has not accepted that the Client Identification
and Verification Rules, without a report of client activities, are
sufficient, and that matter has gone to court. The status of that is the
issue was argued last fall in British Columbia, before the British Columbia
Supreme Court, and the judge, Justice Gerow, held that the legislation and
the legislative regime, insofar as it affected law firms and lawyers and
their relationship with their clients, were unconstitutional. The federal
government has appealed that judgment, and that will be going to the Court
of Appeal. I probably should not say too much about it, but that is the
status of that matter now.
We do not see any reason why law firms and legal counsel are targeted in
this legislation. The regulators, the law societies, have stepped up to the
plate in a way, quite frankly, that no other law societies around the world
that we know of have stepped up, and put in place rules and regulations that
apply to all lawyers across the country, all 104,000, that should, if not
resolve, at least resolve to the extent that rules can, the prospect that
lawyers may unwittingly be used as dupes by clients by putting cash into
Again, I emphasize that this whole legislative scheme and our response is
focused on lawyers being unwittingly used as dupes by their clients. If a
lawyer is involved in a criminal activity, the lawyer will be prosecuted as
well as the client, and nothing that we say should detract from that. There
is no effort by the law societies to in any way disable that. The law
societies, frankly, will be the first ones to send the evidence over to the
RCMP, and that has been done on other kinds of cases if lawyers are involved
in criminal activity. It is the innocent activity, the unwitting dupe
problem, that we have tried to address through the rules, and we think we
have done that.
We hope that when you review this again, now we are 10 years from the
initial stages, that you will give some serious consideration to
recommending that lawyers and law firms be taken out of this legislation,
recognizing that the law societies, the provincially authorized and
statutorily mandated regulators, have stepped up and have addressed this
issue, but still in a way that preserves the important, quasi-constitutional
basis of a solicitor-client relationship..
Those, madam, are my opening remarks.
Ronald A. Skolrood, Member, CBA Proceeds of Crime Working Group,
Canadian Bar Association: I would like to echo Mr. Hunter's comments and
thank the committee for the opportunity for the CBA to attend here today and
to address some comments to the committee in your important review of this
The CBA, as Mr. Hunter noted, is the principal professional association
for lawyers in the country. We represent the practising lawyers, the ones
who, if this regime is made subject to them, have to deal with the
day-to-day implementation of it.
The CBA has been active since the implementation of this legislation in
reviewing it and providing comments, particularly in relation to how the
legislation might impact lawyers and, more importantly, and really this is
the driving point from our perspective, how the application of the
legislation might impact upon the rights and interests of our clients.
Like the federation, the CBA recognizes the importance of the
government's efforts to combat money laundering and terrorist financing, but
the CBA has always emphasized that, whatever measures are put in place, they
must conform to the requirements of the Canadian Constitution and the
individual rights and freedoms that are protected under the Constitution.
Specifically, with respect to lawyers and the legal profession, the CBA
has always emphasized the importance of maintaining respect for an
independent bar and protection for solicitor-client privilege, both of which
have been found on numerous occasions by the Supreme Court of Canada to be
cornerstones of the administration of justice in Canada.
As Mr. Hunter has noted, the provisions of the legislation are currently
inoperative in respect of lawyers by reason of the litigation. The CBA has
participated in the litigation in support of the position taken by the
federation throughout and will continue to do so in the current appeal.
Those decisions to date have found, recognizing that there is currently an
appeal, that legislative provisions that interfere unduly with the
solicitor-client relationship and do not offer adequate protection for
solicitor-client privilege do not conform to the Constitution.
The principal concern of the CBA, and I think, fairly, of the legal
profession generally, that has informed our position both in the litigation
and in connection with the review of the legislation is that, to the extent
that lawyers are compelled by the state to monitor their clients' activities
and to collect and maintain information about those activities for purposes
that are related to state law enforcement purposes and unrelated to the
lawyer's retainer of their client, that undermines the duty of loyalty that
is owed by lawyers to their clients and lies at the heart of the
It is essential, we say, to the administration of justice that clients be
able to consult with lawyers, seek their legal advice and, most importantly,
provide full and frank disclosure to lawyers of all of the relevant
information necessary for the lawyers to serve the client's interest with
confidence that the confidentiality of that information will be maintained
and that the lawyer is acting independently and in the interests of the
client. Again, to the extent that the anti-money laundering regime, if
applied to lawyers, essentially co-ops lawyers into collecting information
for law enforcement purposes, we say those fundamental objectives cannot be met
and that the client's rights and the client's ability to seek independent
legal advice are undermined.
As Mr. Hunter has touched upon, that is not to say at all that the legal
profession and lawyers do not support efforts to combat money laundering
because, indeed, the law societies, under the coordination of the Federation
of Law Societies, has put in place measures to deal with cash transactions
and to deal with client due diligence. The CBA supports those efforts and
maintains that that is the proper approach and mechanism for regulating the
conduct of lawyers.
In addition to those measures, it is important to keep in mind that
lawyers are subject, as are all citizens, to the requirements of the
Criminal Code and other statutes that make money laundering an illegal
activity. In addition, they are subjected to stringent codes of conduct
administered by the law societies, which, if breached, might result in
significant disciplinary consequences.
In material that we submitted, in addition to speaking to some of these
general points, we have offered some comments on the consultation papers
issued by the Department of Finance with some of the new proposals for
amendments to the legislation. I do not intend to go through those, but
there is one point I would like to emphasize, and we make it in one of the
submissions: In your review of the legislation, we think it is essential
that the anti-money laundering legislation be crafted with considerable
precision to the extent that reporting entities — including lawyers if, at
some point, lawyers are made subject to the legislation — who are subject to
significant penalties for not complying with the legislation know and
understand clearly what the requirements are. There is a considerable lack
of precision in some of the provisions, particularly ones relating to
suspicious transactions and the extension of the regime to the monitoring of
It is very difficult for reporting entities to really understand
precisely what their obligations are, and that imposition leads to perhaps
one of two consequences. One is to be safe and over-reporting of information
to FINTRAC, which I think has significant privacy ramifications. The other
consequence of imprecision in the legislation is subjective interpretation
and potentially arbitrary application of the law, which we say serves no
I will conclude my opening remarks by reiterating that the CBA's interest
in the legislation and its comments today are really driven by the core
objectives of maintaining an independent bar and protecting the
solicitor-client relationship and solicitor-client privilege, because those
really are, as found by the Supreme Court of Canada on numerous occasions,
fundamental cornerstones of the administration of justice.
We appreciate the opportunity to be here today and make our concerns
known, and I am happy to answer any questions the senators may have. Thank
The Deputy Chair: Thank you for your presentation. For the sake of
those of us who are not lawyers, could you talk about the inspection done on
trust funds and the fact that law firms are visited by the different groups?
I know the system in Quebec, but I wonder if the same system exists in the
rest of the country. The other question is to Mr. Hunter. If a client were
paying $5,000 a month in cash every month because a case is going on, would
it be considered as less than $7,500 or is it that the overall case cannot
be more than $7,500?
Mr. Hunter: I will answer the second question first. If the client
is paying the fees of the lawyer in cash, that is not caught by either the
rules or the federal regime. I think it was always contemplated that a
payment of fees can be made any which way. If the client is paying $5,000 a
month in cash for a single transaction, that would be caught, as soon as the
second $5,000 added up to $10,000, for a single transaction. If there is a
series of transactions, it is a bit grayer, but one would hope that a
lawyer's antenna would go up if that were set up.
On the first question, you are correct. Not only in Quebec but also, as
far as I am aware, throughout the country, Law Societies do regular and
semi-regular audits of law firms' trust accounts. As you may be aware,
lawyers almost inevitably keep two types of bank accounts: a general account
for their own money and a trust account for their clients' money. The trust
accounts are the ones that the law societies are most concerned about
because they are not the lawyers' money. As it happens, I can tell you as I
sit here before you that the Law Society of British Columbia is in my office
conducting an audit of our trust accounts, by coincidence.
Senator Massicotte: Is something wrong?
Mr. Hunter: No. I would emphasize that this is a regular audit. On
a cycle, every firm in the province is audited. They are there for several
days, and they ask picky questions. My bookkeepers are very nervous.
Hopefully, we have dotted all our Is and crossed all our Ts. That is
repeated throughout the country on varying scales of regularity depending to
some degree on the size of the bar. As I understand it, all firms are
covered, or certainly all firms where there is a potential problem are
covered. In British Columbia they are all covered.
Senator Massicotte: I do not dispute the importance to Canadians,
as provided by the Constitution, of lawyer-client privilege. I have no
debate about that, and I want to make that clear. However, there is a
lingering doubt by the federal government and by many Canadians as to
whether your existing procedures are adequate to cover the objectives of
this whole whitewashing of money.
What is the problem? I have not reviewed your details on procedure but do
you have a third party, perhaps an auditor, who can say that the procedures
you propose are adequate to catch any circumvention of the intended
regulations? You have not convinced the federal government, obviously.
Mr. Hunter: In part we have and in part we have not. As you may
recall from my opening comments, the initial requirement on law firms and
lawyers was to report any suspicious transactions. Then the law societies
introduced a no-cash rule, and the government did accept that and withdrew
that requirement. That is the state of the legislation today. To that
extent, the government seems to have been satisfied that we have instituted
a good rule that applies to all of these lawyers and keeps the cash from
getting into the system in the first place.
The part where they have not been satisfied is the area of client
identification and verification and record keeping parts because we have
client identification and verification rules that are similar to those of
the federal government; but we do not have the report writing. The federal
government, evidently, wants lawyers to be writing up reports on every
financial transaction that their clients are involved in above $3,000. Think
for a moment of how many transactions that would be in terms of acquisitions
of property and businesses and all the rest of that.
Senator Massicotte: Is it any transaction above $3,000?
Mr. Hunter: Any financial transaction.
Senator Massicotte: It is any financial transaction.
Mr. Hunter: Correct — any financial transactions. We do not know
why that is so important except the government has said to us in the
litigation that it wants a paper trail in case there is a problem later. It
wants to have this report sitting in the law office so that law enforcement
can access it and have evidence if they want to. I do not know whether that
is a money laundering problem or an evidence gathering problem.
Senator Massicotte: The paper trail will be provided if the
transaction is by cheque or bank transfer. The issue seems to be cash, does
Mr. Hunter: We solved that issue.
Senator Massicotte: No lawyer in Canada can accept any cash
transaction in excess of $7, 500. It is totally prohibited.
Mr. Hunter: For client financial transactions, you can for fees,
and there are certain exceptions, such as from a financial institution where
one can be confident of the source of the money, for bail purposes. There
are limited exceptions. However, for the kind of transactions that I think
people are worried about — money laundering on the large transactions and
shipping money around, lawyers cannot accept more than $7, 500 in cash,
Senator Massicotte: Obviously, you have not convinced the key
party, which is the government.
Let me make an observation to see how you respond. Unfortunately, in your
societies, as in our population, there are some dishonest people. I read too
frequently in the newspaper about some lawyer or notary in Quebec being
involved in organized crime or basically cooperating. They all deny it and
say they are innocent, but they are involved in these transactions. The bar
society then reviews the discipline. I often hear comments, which I agree
with, that the discipline is very shallow and meek and that the professions,
including your own, seem to protect their own or are very forgiving. How do you
respond to that? Is that a problem?
Mr. Hunter: I would be surprised by both parts of that. To the
extent that lawyers are involved in criminal activity, nothing that we are
talking about would diminish in any way the ability of law enforcement to
deal with that.
Senator Massicotte: The proof, but that is tough.
Mr. Hunter: We are not aware of many cases — there have been a few
but not many — where lawyers have been involved. One hears about this in an
anecdotal way, and I think you have been told that this is a problem. We
have been asking for some evidence of this for quite awhile. The law
societies will come down on lawyers who are actively involved in this, and
we have not seen any. If you are being told by others, whether FINTRAC or
anyone else, that this is a real problem, I would invite you to ask for some
evidence that it is a real problem because we do not see it. However, if it
exists, you would find that the law societies would move fairly hard on it.
We had a celebrated case in British Columbia a few years ago. It was not
a money laundering case but it involved a lot of money in a fraud case. As
soon as the Law Society found out about it, they held their hearings,
disbarred the lawyer and turned their evidence over to the police. It took
many years before they charged and convicted him.
I would be surprised to learn that it is an endemic problem. If it is, we
would like to hear about it because it should not be.
Mr. Skolrood: My colleague Mr. Hunter speaks as former President
of the BC Law Society and as a regulator; and I think he is right.
As a practising lawyer, I can say with absolute certainty that we think
our law societies do a good job. Occasionally, people complain that it is
slow and cumbersome. That is true of probably every regulatory process in
the country. As a practising lawyer, I can assure senators that the people
who sit at the bench or table for the Law Society of British Columbia take
that role seriously. There is absolutely no reticence in going after rogue
lawyers or lawyers who are perceived not to be complying with proper ethical
I think Mr. Hunter is right: One of the difficulties has been a real
absence of any concrete evidence about the role that lawyers are alleged to
be playing in money laundering.
Senator Massicotte: What does the government say to that argument?
Mr. Hunter: Our impression is that the government's central
position is that lawyers should be part of the system because they want a
comprehensive system. They feel that there is a risk of a gap if lawyers are
not in part of the system.
We think that we have filled that gap with the no-cash rule and that the
government has substantially accepted that by withdrawing the reporting
requirements of suspicious transactions. I must say that I am a bit unclear
at this time as to why we are battling with them about whether lawyers have
to make a report about a $4,000 financial transaction. Evidently someone has
decided to draw a line in the sand, but we do not think it is us. We do not
want to be fighting with the federal government. We want to be part of the
solution to this and not part of problem; and we think we are.
Senator Massicotte: What is happening in the United States and in
England? What are they doing?
Mr. Hunter: The United States has not required lawyers to be part
of the anti-money laundering rules and the U.K. has. We have different
Senator Massicotte: They have similar laws.
Mr. Hunter: They have similar laws but they do not have the same
charter that we have. Our case is built around the Charter.
I am not aware of any other law societies outside Canada that have
adopted the kind of rules we have in order to meet these problems. I think
if the U.K. Law Society had done that there may well have been a different
resolution to this.
Senator Tkachuk: Could I ask a separate question on the Charter?
To make it clear you say in Britain they do not, but Britain operates under
custom. They basically have the same rights. They do not have the Charter,
but in practical terms they must operate in the same way we do here, do they
Mr. Hunter: There are a lot of similarities and the source of much
of our law is Britain. However, the Charter introduces a concrete mechanism
for enforcement of individual rights that is, perhaps, more difficult to
access in the U.K.
I would put a little emphasis on the fact that U.K. law societies have
not done what your law societies have done to try to prevent this. It may
well be that government in the U.K. felt there was a serious gap not being
fulfilled and the law societies and lawyers accepted that. In this country,
we have stepped up and filled that gap, we think. Substantially, the
government has accepted that by withdrawing the requirement that lawyers
report suspicious transactions. However, we still have one piece left that
they have not accepted and I cannot tell you exactly why other than the
general theory that we should all be part of it.
Senator Tkachuk: One last piece of general information: Do the
Americans have a no cash rule in most of the states?
Mr. Hunter: My understanding is that the Americans do not, but
they have reporting transaction rule where if lawyers receive more than
$10,000 in cash they must report.
Senator Tkachuk: Thank you.
Senator Ringuette: I certainly respect and recognize the necessity
for solicitor-client privilege. It is a pillar of our justice system.
I will ask a series of questions. Since 2004, you have had a rule that
lawyers cannot accept more than $7, 500 in cash. However, proposed changes
to the current legislation bring that standard that was $10,000 to $1. What
will you have to do in order to comply if that recommendation from the white
paper is put in place?
Second, since 2004 — since you have had that regulation for your
membership — have any of your members been found not complying with your
regulations? What was the discipline that has been applied?
Mr. Hunter: On the second question, yes. We do not have detailed
data on that. British Columbia has provided some data indicating that there
have been lawyers who have not complied with that. These matters go to a
discipline committee. If the committee thinks it is appropriate, a citation
is issued and it goes to a discipline panel, which holds a hearing and can
discipline. The evidence we had before the court case — and I do not know if
it is completely up-to-date — was that there were four such instances where
lawyers had been disciplined by disciplinary panels.
Senator Ringuette: Four in British Columbia or four in the entire
Mr. Hunter: In British Columbia. I do not have data on the others.
I am told there have been a few scattered across the country. Our
information is that it is not a large number but, yes, there have been some.
Senator Ringuette: In the last seven years.
Mr. Hunter: Yes.
Senator Ringuette: Now for my first question.
Mr. Hunter: On the first question, we adopted the $7,500 rule
substantially looking at the federal regime of $10,000 and trying to make it
even better. We thought we were making it better in two respects. One was
lowering the threshold; the other was preventing the cash from getting into
the system at all instead of an after the fact kind of approach.
If the federal government, you and Parliament come to the conclusion that
the number should be dropped right down — did you say to $1? I was not aware
of that — we will have to look at that again if the view of Parliament is
that it is a problem. The law societies and the federation will have to look
at it again.
Mr. Skolrood: If I may jump in — and I stand to be corrected —
there may be some confusion between large cash transactions which have that
threshold and which the law societies have set at $7,500 and the proposal to
eliminate the $10,000 threshold, which applies to electronic fund transfers.
Senator Harb: Overseas. That is right.
Mr. Skolrood: It does not necessarily deal with the cash issue
but, rather, the electronic funds issue. I am not sure that has ever been an
issue for lawyers because we are typically not engaged in that.
Senator Ringuette: I suspect some of your members deal
internationally and receive international transfers.
Mr. Skolrood: Probably not directly. They would go bank to bank.
That is, to the financial institution.
Senator Ringuette: The financial institution would be reporting to
Mr. Skolrood: For example, we keep a trust account in one of the
banks. They would deal directly with the international wire transfers; law
firms typically would not.
Senator Ringuette: If such a transaction would occur and money was
transferred internationally to a trust fund — I am not a lawyer — is that
trust fund under your legal name or under your client's legal name? How does
Mr. Hunter: The trust funds are in the name of the law firm and
the firm has to keep detailed accounting records as to whose money it is.
Normally the trust accounts are pooled accounts, so there will be a pool of
funds. Sometimes a separate account will be set up to generate income for a
particularly large amount of trust money.
Senator Ringuette: If there was an international transfer to the
trust fund under your name for a certain client, would the bank report that?
Mr. Hunter: If it was a reportable —
Senator Ringuette: The trust fund under your name? You do not have
to disclose the client's name, though.
Mr. Hunter: Right, if it was a reportable matter in the mind of
the bank, yes, the bank would be the one. Our trust account is with a bank
or other financial institution so that would be the obligation of the bank.
Senator Ringuette: Yes, but my question is would the report
mechanism for the bank — the requirement of the regime to the bank — report
this transfer under your name, not your client's name?
Mr. Hunter: That is true.
Senator Ringuette: You do not have to report that international
transfer of your client to the regime?
Mr. Hunter: That is true.
Senator Ringuette: In other words, in such a transfer system and
trust system, your client is invisible.
Mr. Hunter: I guess it would depend a bit on the size and nature
of the transaction. It is invisible to the bank, which does not know who the
other clients are. On the other hand, the trust transfer documentation will
provide a certain amount of information.
Our understanding is that the main concern on financial transactions are
cash transactions because cash cannot be traced back to its source. If you
have an international wire transfer you do have a degree of paper trail. It
may not be complete. If this becomes a problem and is identified as such —
to my knowledge, it has not been identified as a problem with respect to
lawyers' trust accounts — then the law societies are committed to looking at
this from a good regulatory point of view and addressing it.
Senator Ringuette: Does the Department of Justice address this
type of situation with both of your organizations?
Mr. Hunter: It is the Department of Finance that we have dealt
Senator Ringuette: The Department of Finance, then.
Mr. Hunter: Ms. Wilson, who knows the details of this better than
I, tells me that, to her knowledge, they have not expressed a concern about
Mr. Skolrood: I do not think it has ever been part of the
legislation that the Department of Finance has indicated an interest in
having applied to lawyers, in large measure, probably because, as Mr. Hunter
says, there are other checks and balances in the system, although I
understand your point.
Senator Ringuette: Do you understand that in 2004, the legislation
had set a standard of $10,000 in cash or transfer? Now the proposal is to
reduce the amount of international transfer with regard to reporting
mechanisms to $1.
With respect to the objective of the legislation, then, how will you deal
with that? I cannot help but question the fact that there must be some
evidence somewhere to justify this recommendation from $10,000 to $1. I
guess that is why I am asking these questions.
Mr. Hunter: That is a reasonable assumption. There has not been
any presented to us, but the law societies are fully committed to best
practices in regulation of the profession. If we are provided with
information, either from FINTRAC, the Department of Finance or some other
source that our regulation has a hole in it that needs to be filled, then
that is something the law societies I am sure will address. We have not been
provided with that information to date.
Senator Ringuette: To clarify, currently, with respect to an
international transfer through a trust under your name on behalf of a
client, would the bank at least report the income and the information from
the entity that money was received from?
Mr. Hunter: I think if a report were required in that
circumstance, my understanding is that is what they would report, yes.
Senator Maltais: My questions will be brief, and I think they are
to the right people.
Mr. Skolrood, in your presentation, you indicated that the Canadian
charter covers both your clients and yourself. I do not believe that
government wants to go beyond the Canadian Charter of Rights and Freedoms.
We cannot and it would be folly to do so.
If your client is a foreigner, from any country, and has dealings with
your office, would he be covered by the Canadian Charter of Rights and
Mr. Skolrood: If he is in Canada, yes, I believe so.
Senator Maltais: I will ask again. Following Mr. Hunter's
response, if the client is invisible, how can he be covered by the Canadian
Charter of Rights and Freedoms?
Mr. Skolrood: That is also a very good question. Maybe I can
approach it this way: One of the fundamental problems, we say, with this
whole regime is that it interferes with the lawyer-client relationship, and
we have made that point. I do not know that turns greatly on where the
client is from. If the legal advice being sought is in Canada, we are
concerned with the administration of justice in Canada. To the extent that
the application of this regime is to lawyers and to clients who are
litigating in Canada or transacting in Canada, we would say that the same
Again, it is that notion that the compulsion on lawyers to collect and
retain information about their clients, which is then subject to disclosure
or inspection by state agents, is what we say attracts the constitutional
scrutiny, and it does not survive that scrutiny.
Senator Maltais: Let me go back to the issue of confidentiality.
It is very important to protect solicitor-client privilege. The issue is
important whether we are talking about civil or common law. I do not believe
any government would wish to overstep solicitor-client privilege or
confidentiality. You also indicated that a little more stringent legislation
is needed. In what way?
Mr. Skolrood: The point I was trying to make was not so much about
the stringency of the legislation but perhaps the clarity and the precision
with which it is drafted.
For example, when lawyers were originally subject to the requirements
around suspicious transaction reporting, it was very difficult for them —
and I think this probably applies to all reporting entities that are in a
similar situation — to ascertain whether this is something I should be
suspicious about or not. The fact that as a lawyer or other reporting entity
I may be in jeopardy by reason of penalties for non-compliance, it puts
those entities in a very difficult position because they may well not know
whether or not what they are doing, or in this case not doing, is a
violation of the statute.
My point simply was that when you are talking about a statute such as
this which imposes significant obligations and significant penalties for
failure to comply, the person subject to the obligation has to have a clear
understanding of what it is they are supposed to do. We have some concerns
about some of the provisions in the legislation around that.
Senator Maltais: Essentially, what you are asking for is
legislation that is a lot clearer. The problem is that the legislation is
drafted by lawyers. You are in the best position to interpret them. For the
legislator, things are slightly more complex because, in all legislative
committees, legislation is drafted by lawyers, and it is preferable to have
it that way because that is their specialty.
Do you have any statistics about the $7,500 amounts that you had to
declare to FINTRAC?
Mr. Hunter: Perhaps I should deal with that because the law
society rules do not permit lawyers to take more than $7,500, so there is no
reporting to FINTRAC.
If I may just add an additional comment, senator, relating to my
acceptance of an invisibility term a moment ago, which was invisibility to
the bank perhaps because of a pooled trust account.
I did not want to leave you with the impression that because someone is
foreign or perhaps even across the continent, that lawyers can act without
knowing who that is. Our client identification and verification rules for
financial transactions require that if you are not face-to-face with your
client, then you have to verify that client's identity. It goes so far as to
say that if a client is in a foreign country, then that verification has to
take place before a commissioner of oaths for Canada. Our client
identification verification requirements are quite stringent, particularly
when they are not face-to-face, because of the abuse that could occur.
The Deputy Chair: I have a small question. Why not keep the same
rule for the legal fee? We have some very good organizations that usually
function just with cash. When they need a lawyer, I would be tempted to say
that they will pay their lawyer with cash. Why would you not have a rule to
deal with these matters?
Mr. Hunter: I think the answer in the first instance is that the
legislation itself, even if it were to apply to lawyers, exempts fees. The
government's legislation took that into account. Perhaps what underlies that
is the concern is about monies going in and then circulating around and
coming out to buy some different asset with clean money as opposed to paying
for services rendered and then never seeing than money again. In other
words, the person who brought the cash in will not get something back. I
think that is what underlies it.
The Deputy Chair: It merits reflection on our part.
Senator Tkachuk: I apologize for being late for your presentation.
I just wanted to clarify the $7,500 and a couple of other items. The $7,500
applies for money that would be going to a trust account; is that what it
would be? If I came in with $10,000 in cash to put in my trust account for a
future purchase or whatever —
Mr. Hunter: For a financial transaction.
Senator Tkachuk: That would not be allowed.
Mr. Hunter: Correct.
Senator Tkachuk: It would have to be $7,500. If I hired you and
paid you $10,000, that would be okay?
Mr. Hunter: Yes. That would be welcome.
Senator Tkachuk: I am sure. If a lawyer was involved in working
with money laundering, they would be accepting cash, or they could accept
cash. You do not know if that cash is for fees. It is not necessary that it
just be in the trust account. It may not raise a big suspicion at the bank
because they are obviously used to seeing cash come in from lawyers'
accounts. You could dispose of a lot of cash simply by the lawyer receiving
the cash and depositing it in his account, and every once in a while $7,500
would also slip into the trust account.
Mr. Hunter: There are two parts to this. One is that if the
lawyer, of course, is acting in cahoots with his client, you are right. If a
lawyer is going to break the law, our rules will not help. Our rules try to
minimize the possibility of this by saying that if a client shows up with
$10,000 and says, "Here is $10,000 in cash as retainer against future
fees," and then comes back tomorrow and says, "I would like it back; give
me your trust cheque," the lawyer cannot do that. The lawyer has to give it
back in cash. It prevents that money from getting into the system and coming
out in a clean cheque.
Senator Tkachuk: I am not a fan of the government receiving all of
this information. I like the idea of suspicious transactions and maybe
reporting those, only because from the people who were testifying here from
the bank, there were much more positive results from the people who were put
in charge of this who were reporting suspicious transactions rather than
from the paperwork that was shipped by the millions over to FINTRAC. As far
as a law firm or lawyers are concerned in commercial enterprises, or lawyers
in real estate or lawyers in business, it would seem to me they would be
more prone to report suspicious transactions and be correct rather than
worrying about whether they were sending in $7,500 or $10,000.
Mr. Hunter: I suspect lawyers would be in a good position to
report on their clients, but that would go right to the heart of the
solicitor-client relationship, and I think we can all imagine.
The Deputy Chair: Just a second.
Senator Tkachuk: Let me just take one more step there. If a person
walked in with a serious amount of money to pay for assistance, as soon as
you deposited the money, that is automatically reported by the bank. You
cannot accept it, so what kind of relationship would you have?
Mr. Hunter: If this money is for a financial transaction, we
cannot accept it beyond $7,500, so the client would have to go somewhere
else or bring a cheque.
Senator Tkachuk: He will have nowhere to go unless he brings a
Mr. Hunter: Right.
The Deputy Chair: Thank you for sharing your expertise. If you
have other comments that deal with this matter, not related to your
organization but in general, as you do in general, we will take into account
what you have written to us. If you have any other ideas about the $1
threshold that we mentioned or other matters of substance of the future
bill, we would welcome your assistance.