Model Rules to Fight Money Laundering and Terrorist Financing

Like all people in Canada, legal professionals are subject to the Criminal Code, but they are exempted from the federal legislative regime under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) due to constitutional principles that protect the rights of clients and the obligations of legal professionals within their confidential relationships. The legal profession has adopted model rules for lawyers and notaries to follow that are designed to reflect the government’s legislative objectives under PCMLTFA, while reflecting the rights of clients and the obligations of legal professionals. To assist the legal profession in following the model rules, the Federation of Law Societies has developed the booklet Guidance for the Legal Profession which details the professional responsibility to avoid facilitating or participating in money laundering or terrorist financing activities.

As an additional resource, the Federation’s Anti-Money Laundering and Terrorist Financing Working Group (“AMLTF Working Group”) has also developed Risk Assessment Case Studies to raise awareness of money laundering risks in legal practice by exploring real world scenarios. Each case study identifies “red flags” arising on the facts and offers guidance on how members of the legal profession might respond to mitigate the risks of involvement in or facilitation of illegal activity.

To address the money laundering and terrorism financing vulnerabilities they may face, legal professionals need to be aware of the risks that may be inherent in legal practice. A Risk Advisory document published by the Federation is intended as a quick reference on money laundering risks that can arise in five areas. These include real estate transactions, litigation, setting up and managing trusts, setting up shell corporations and private lending transactions. Law societies are invited to share the document with members at their discretion.

Some risks identified in this publication are related to clients and their activities; others may arise from the nature or circumstances of a transaction. Some risks may be more likely to arise in specific practice areas, others may arise regardless of the area of practice.

Cash Transactions Rule

Members of the legal profession are prohibited from accepting more than $7,500 in cash to ensure that individuals involved in money laundering or terrorist financing cannot use their legal advisors’ trust accounts for illegal activities. The Federation’s Model Cash Transactions Rule, as revised in October 2018, is available here.

Client Identification and Verification Rules

Members of the legal profession are 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 Federation’s Model Rule on Client Identification and Verification, as revised in October 2018, is available here.

Trust Accounting Rule

In October 2018, the Council of the Federation also approved the introduction of a Model Trust Accounting Rule, as part of the Model Rules to Fight Money Laundering and Terrorist Financing.

The Legal Debate

In March 2015, the Supreme Court of Canada struck down certain provisions of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act and regulations pertaining to the legal profession. That decision by the Supreme Court concluded a 14 year legal debate between the Federation and the government of Canada over application of the federal anti-money laundering and terrorist financing regime to lawyers and Quebec notaries. The regulations would have forced lawyers to collect information about their clients and their financial transactions and turn that information over to the government on demand. The Supreme Court found those requirements violated protection in the Charter against unreasonable search and seizure, and rights of security of the person. In March 2018, the Federation appeared before the House of Commons Finance Committee and presented a brief during its statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In October 2018, the Council of the Federation approved amendments to the No Cash and Client Identification and Verification Model Rules,  and approved a new Trust Accounting Model Rule. The report to Council recommending the changes is available here.

On June 13, 2019, the federal finance department and the Federation of Law Societies of Canada announced the creation of a Working Group. The group mandate is to explore issues related to money laundering and terrorist financing that may arise in the practice of law and to strengthen information sharing between the regulators of the legal profession and the Government of Canada.