Court of Appeal for B. C. confirms Canada’s law society rules to fight money laundering are effective

(April 5, 2013) The regulation of the legal profession by Canada’s law societies provides an effective and constitutional way to fight money laundering and terrorist financing, the Court of Appeal for British Columbia has ruled.

In a judgment handed down April 4, 2013, the Court  said if the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the related regulations were applied to the legal profession, they would interfere with the independence of the Bar to an unacceptable degree. The Court held that independence of the Bar is a principle of fundamental justice under the Canadian Charter of Rights and Freedoms.

“That is a crucial point” says Gerald Tremblay, Q.C., Ad.E, President of the Federation of Law Societies of Canada. “In this decision, the Court of Appeal has held that the independence of the Bar is a principle of fundamental justice, and dismissed the appeal on that basis.”

The case was brought to the Court of Appeal by the federal government following a B.C. Supreme Court decision in September 2011. That decision also said that the anti-money laundering rules imposed on the legal profession by Canada’s law societies are effective, and that the application of the federal regime to the legal profession would be unconstitutional. The Federation of Law Societies of Canada was supported in its position by the Law Society of British Columbia, the Barreau du Québec, the Chambre des notaires du Québec and the Canadian Bar Association.

The Federation had argued the case on a theory of three principles of fundamental justice: solicitor-client privilege, the lawyer’s duty of undivided loyalty to the client and the independence of the Bar. The Federation’s position is that the federal legislation is also unnecessary for the legal profession because Canada’s law societies have already implemented rules requiring legal professionals to identify their clients, and prohibiting them from accepting large amounts of cash from clients except in certain limited circumstances.

The parties had previously consented to a court order agreeing that the legislation would not be applied to the legal profession pending the resolution of the constitutional challenge, so the Court’s decision preserves that status. The parties also agreed in advance that the decision from the B.C. Courts would be binding across Canada.

“We are pleased that the Court of Appeal has identified the importance of the issue of independence of the Bar, as well as again recognizing the important and proactive role the law societies are playing in the fight against money laundering” the President of the Federation of Law Societies, Gerald Tremblay, Q.C., AD.E. said. In its decision, the Court of Appeal said that “the regulation of lawyers by the law societies minimally impairs the rights of clients and lawyers while providing an effective and constitutional anti-money laundering and terrorist financing regime.”

The decision says the federal Anti-Money Laundering regime “engages the liberty interests of both clients and lawyers in a manner which does not accord with principles of fundamental justice”. The Court also held that independence of the Bar is a principle of fundamental justice and that this principle is infringed by the (federal) Regime.

The  model “no-cash” and “know-your-client” rules developed by the Federation are two key components of the law societies’ initiatives to fight money laundering. Members of the legal profession are prohibited from accepting more than $7,500 or more in cash to ensure that lawyers cannot be used by clients to launder illicit funds. They are also bound by strict “know-your-client” rules to ensure that they are providing advice only to bona fide clients whose identity can be reliably ascertained. The model rules are available on the Federation web site.

The federal government has 60 days from the date of the Appeal Court decision to decide if it will seek leave to appeal to the Supreme Court of Canada.

The Federation was represented in these proceedings by John Hunter, Q.C., of Hunter Litigation Chambers, and Roy Millen of Blake, Cassels & Graydon LLP.

The full text of the judgment from the B.C. Court of Appeal is available on CanLII.