B.C. Supreme Court Exempts Lawyers from Federal Anti-Money Laundering Laws
Posted in Fraud

The federal government and the legal profession have been at odds for a number of years over the extent to which lawyers can and should be regulated under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”).  The Government has long argued that if lawyers are not subject to the same anti-money laundering measures that apply to other businesses and professionals, such as accountants, securities dealers, trust companies and banks, there is a significant gap in the anti-money laundering regime that will be exploited by criminal elements.

In response, the legal profession has maintained that the federal legislation intrudes unduly into the solicitor-client relationship and fails to adequately protect solicitor-client privilege, one of the foundational principles of our system of justice.  The lawyers also argue that the oversight of lawyers’ conduct is best left to the provincial and territorial law societies through the mechanism of self-regulation.

Round one of this dispute was won by the lawyers when, in 2001, the Law Society of B.C. obtained an injunction exempting lawyers from the application of provisions of the Act and related regulations that would have required lawyers to report suspicions about their clients’ activities to a federal agency (Law Society of B.C. v. Canada (Attorney General), 2001 BCSC 1593 aff’d 2002 BCCA 49).  Similar injunctions were obtained in other Canadian jurisdictions as a result of which the Government, for a time, backed away from its attempt to bring lawyers under the Act.

More recently, in 2008, the Government purported to amend the Act and regulations to require lawyers and law firms to collect and maintain certain information about their clients when acting as financial intermediaries.  These provisions were challenged in a proceeding brought by the Federation of Law Societies of Canada (FLSC).  The case was heard in May 2011 and on September 27, 2011, Madam Justice Gerow of the B.C Supreme Court issued her Reasons for Judgment in favour of the FLSC (2011 BCSC 1270).

Madam Justice Gerow found that the impugned provisions violate section 7 of the Canadian Charter of Rights and Freedoms insofar as they purport to apply to lawyers.  She accepted the FLSC's argument that lawyer's liberty is put in jeopardy because of the potential penal consequences of failing to comply with the legislation.  She further found that the breach of the liberty interest does not accord with the principles of fundamental justice because the legislation interferes to an unacceptable degree with the solicitor-client relationship by compelling lawyers to collect and maintain information about their clients for law enforcement purposes.  Lastly, Justice Gerow held that the infringement of section 7 cannot be saved under section 1 of the Charter because there were less intrusive means of achieving the anti-money laundering objectives of the legislation, notably the client identification rules passed by the provincial law societies.

The decision is of importance to all lawyers in that it once again underscores the importance of solicitor-client privilege and confidence in our system of justice.  It also serves to strengthen the role of self regulation by recognizing that the law societies are best situated to regulate the conduct of lawyers because they can do so in the public interest while at the same time maintaining adequate protections for solicitor-client privilege.  Lastly, the decision should give comfort to clients that they can consult lawyers, and share confidential information, without fear that such information will be available to state agencies to be used against them.


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