Canada’s Anti–Money Laundering and Anti–Terrorist Financing Regime: The Legal Profession’s Obligations

Adriane Yong
Economics, Resources and International Affairs Division

On 13 February 2015, the Supreme Court of Canada ruled that certain provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that impose obligations on lawyers violate the Canadian Charter of Rights and Freedoms.

The decision, in Canada (Attorney General) v. Federation of Law Societies of Canada, confirmed that legislation cannot enforce obligations on lawyers that would undermine solicitor–client privilege.

In exempting lawyers from the Act, Canada – like the United States and Australia – is among the few Financial Action Task Force members that do not impose obligations on lawyers as part of their anti–money laundering and anti–terrorist financing regime.

According to the Task Force, criminals may use lawyers to facilitate illegal financial transactions, particularly when they are acting as financial intermediaries.

The Act’s obligations on lawyers

Between 2001 and 2007, Parliament amended the Act and its regulations to oblige lawyers in all provinces, and notaries in Quebec, to fulfill certain requirements for reporting, customer identification and record-keeping.

Currently, lawyers must keep records of financial transactions and verify the identity of their clients when receiving or paying funds on their behalf. To ensure compliance with the Act, the Financial Transactions and Reports Analysis Centre of Canada has the power to search a lawyer’s office and computers, and make copies of documents.

Some exceptions to the Act’s requirements exist when lawyers are providing legal services, or when solicitor–client privilege is claimed in relation to a document and a court confirms the privilege.

The constitutional challenges

In 2001, the Federation of Law Societies of Canada and several provincial law societies launched constitutional challenges against the Act’s application to lawyers. They also asked for – and were granted – injunctions exempting lawyers from the Act’s requirements, pending the outcome of the challenges.

In 2002, the federal government and the Federation agreed that the latter’s challenge would be a national test case and would be heard by British Columbia’s courts.

British Columbia’s Supreme Court heard the case in 2011. The Federation argued that the Act’s provisions obliging lawyers to keep records and verify the identity of their clients violated section 7 of the Charter, as did provisions pertaining to the search and seizure powers of the Financial Transactions and Reports Analysis Centre of Canada.

Section 7 protects an individual’s right to life, liberty and security of the person. The Federation asserted that the liberty of lawyers was at risk, as they could be imprisoned for non-compliance with the Act.

The Federation also claimed that section 8 of the Charter, which protects individuals from unreasonable search and seizure, was violated by the Act because it allowed the Financial Transactions and Reports Analysis Centre of Canada to search lawyers’ offices without having to obtain a warrant.

Justification for the disputed provisions

In reply, the Attorney General of Canada said that the Act was designed to fulfill Canada’s international obligations to combat money laundering and terrorist financing. In addition to arguing that the Act did not violate section 7, the Attorney General asserted that the disputed provisions could be justified by section 1 of the Charter. This section allows the government to limit a person’s Charter rights if the limit is shown to be reasonable.

The Attorney General noted that minor amendments to the Act’s search and seizure provisions could lead to compliance with section 8 of the Charter.

British Columbia’s Supreme Court agreed that the Act infringed on section 7 and that the infringement was not justified by section 1. It ordered that the Act and its regulations not apply to legal counsel and law firms. It did not examine whether the Act infringed on section 8.

The Attorney General appealed the case to the British Columbia Court of Appeal, which dismissed the appeal in 2013. It too did not examine infringement on section 8 of the Charter.

The Attorney General appealed the decision to the Supreme Court of Canada, which heard the appeal on 13 May 2014. It examined the Federation’s section 7 and section 8 arguments.

Search and seizure provisions

The Supreme Court of Canada found that the Act violates section 8 of the Charter. It noted that provisions allowing the search and seizure of records from law offices without a warrant disregard the principles outlined in its 2002 decision in Lavallee, Rackel & Heintz v. Canada (Attorney General).

Although it agreed that combatting money laundering and terrorist financing is a “pressing” concern for society, it concluded that the search and seizure provisions could not be justified by section 1 of the Charter, as there are other constitutionally acceptable options for the searching of law offices.

Verifying identity and keeping records

As well, the Supreme Court of Canada found that the Act’s provisions violate section 7, because the liberty of lawyers is affected by potential imprisonment if they do not comply with the Act. As with the search and seizure provisions, the Court found that the provisions requiring the verification of identity and the keeping of records could not be justified by section 1.

The Supreme Court of Canada commented that complying with requirements to verify identity and keep records may undermine a lawyer’s ability to be “committed to a client’s cause.” As privileged records can potentially be seized by the Financial Transactions and Reports Analysis Centre of Canada, it noted that clients might perceive their lawyers as being agents of the government.

It also mentioned that, although law societies require their members to maintain client records for anti–money laundering purposes, those records are not available to the Financial Transactions and Reports Analysis Centre of Canada.

The Supreme Court of Canada dismissed the appeal. However, it found that two sections of the Act that pertain to the Governor in Council’s ability to prescribe the entities subject to the Act do not violate the Charter.

Effect of the ruling

The Supreme Court of Canada’s ruling confirmed the importance of solicitor–client privilege and the exemption of the legal profession from the Act.

In recognizing Parliament’s role in combatting money laundering and terrorist financing, the Supreme Court of Canada suggested that lawyers could be subject to the Act if there are protections in place for solicitor–client privilege and against self-incrimination.

To date, legislative amendments to put the Supreme Court of Canada’s ruling into effect have not been introduced.

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