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 the subject.

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. Skolrood.


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 today.

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 that stands.

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 issue.

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 their accounts.

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 legislation.

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 solicitor-client relationship.

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 business relationships.

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 one's purpose.

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 you.

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 it not?

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, period.

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 standards.

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 systems.

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 not?

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 country?

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 the scheme?

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 that happen?

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 with.

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 this.

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 Freedoms?


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 principles apply.

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 cheque.

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.

Thank you so much.

(The committee adjourned.)