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.

No-Cash 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 No-Cash 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.