BC money laundering response must uphold privacy interests, privilege: CBABC

  • May 21, 2019

By Ian Burns for The Lawyer's Daily

The government of British Columbia has announced a public inquiry into money laundering in the province, but legal observers are raising concerns about some of the recommendations made in a recent report aimed at stemming the flow of dirty money in the province.

Premier John Horgan announced the creation of the commission of inquiry into money laundering in British Columbia May 15, coming hot on the heels of the release of a series of reviews which found significant levels of money laundering in B.C.’s real estate market and other sectors of the economy.

“From day one, our government has been working to tackle the housing crisis and fraud that went unchecked for over a decade, hurting people and B.C.’s economy,” said Horgan. “We have taken decisive actions to combat money laundering, but questions remain and people in B.C. deserve answers. That is why we have decided to proceed with a public inquiry.”

B.C. Supreme Court Justice Austin F. Cullen has been appointed to head the inquiry, which will look at the full scope of money laundering in British Columbia, including real estate, gaming, financial institutions and the corporate and professional sectors. He will also examine regulatory authorities and barriers to effective law enforcement of money laundering activities and will have the ability to compel witnesses and order disclosure.

“This inquiry will bring answers about who knew what when and who is profiting from money laundering in our province,” said B.C. Attorney General David Eby. “Justice Cullen will have the mandate, authority and resources to seek answers, perhaps most importantly among people and organizations who refuse to share what they know unless legally compelled to do so.”

The expert panel on money laundering in real estate’s report, which was released May 9, estimates that a total of $7.4 billion was laundered in B.C. in 2018. The panel, which was chaired by Maureen Maloney, a professor of public policy at Simon Fraser University, says $5 billion was laundered through the real estate market. As a result, the report makes several recommendations to stem the flow of dirty money.

The expert panel’s report was released along with the remaining chapters of an additional review into money laundering in the province chaired by former RCMP deputy commissioner Peter German. That review found thousands of specific properties worth billions as “high risk” for potential money laundering, tax evasion or both. He also found that there was no agency or police force with adequate oversight or resources to investigate these suspicious activities.

However, some of the recommendations in the Maloney report have raised some concern in the legal community. Recommendation 14, for example, suggests the B.C. minister of finance ask her federal counterpart consider incorporating legal professionals in the anti-money laundering framework by requiring them to report suspicious transactions to the appropriate law society under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

Law Society of British Columbia (LSBC) president Nancy Merrill said the law society met with German on several occasions, as well as members of Maloney’s panel, to outline their regulatory processes and provide them with information for their reports. She added recommendation 14 is “important and has to be considered further.”

“The Federation of Law Societies, of which the Law Society of B.C. is a member, is currently in discussions with the federal government about potential frameworks for addressing suspicious transactions that will also respect the Supreme Court of Canada ruling on the constitutional right of Canadians to have the information that they provide to their lawyers remain confidential,” she said.

Merrill noted the law society has several safeguards against money laundering in place, including requiring law firms to file annual trust reports and auditing every law firm at least once every six years — four years in the case of firms that provide services in real estate or wills and estates.

“Our team holds lawyers to account for every dollar going in or out of their trust accounts,” she said. “If a lawyer is found to have breached our rules, we will investigate and take disciplinary action as appropriate.”

Canadian Bar Association, B.C. Branch (CBABC) president Margaret Mereigh said she is still absorbing the report and trying to work her way through the materials “to begin to learn as much as I possibly can.”

“It’s really trying to better understand the complexity of the money laundering scheme,” she said. “What can be said that is very clear is that money laundering is real, and I think the important piece is in looking at what needs to be done is to work with governments and the B.C. Law Society to look for solutions.”

Mereigh said looking at the recommendations in the Maloney report “it is fairly clear that any solution is going to having to be multilevel and multipronged.”

“I think from the CBA perspective we support working collaboratively in coming up with solutions, but those actions themselves must be constitutionally sound and uphold fundamental legal principles including privacy law, privacy interests and solicitor-client privilege,” she said.

Christine Duhaime of Duhaime Law said both reports “have some issues with lawyers” regarding the use of trust accounts and other activities and said there is a role for lawyers and the law society to explain what they do to undertake client identification and how they don’t provide services to criminals.

“That’s not the practice of law but nobody’s really said that,” she said. “I think that is a message that needs to get out and there’s room for the law society to be more protective of lawyers and explain to the public not only what we do but how we protect the justice system by making sure our services are not being used by criminals.”

Another of Maloney’s recommendations suggested the B.C. government adopt unexplained wealth orders (UWOs) in the province, which were introduced by the British government in 2017 as a mechanism to address money laundering in cases where it is not possible to tie assets to a specific crime. UWOs involve an application to a court to confiscate property if there is a discrepancy between a person’s apparent legal income and actual visible assets, and there are reasonable grounds to suspect they are involved in crime.

Micheal Vonn, policy director of the B.C. Civil Liberties Association, called the idea of UWOs an “incredibly troubling notion.” But criminal lawyer Kevin Westell of Pender Litigation said what will likely be looked at is taking the principles that have already been found constitutional as part of B.C.’s civil forfeiture realm and “applying them more broadly.”

“In the civil forfeiture realm, we’re talking about criminality being found on a balance of probabilities and a nexus between that criminality and property,” he said. “It’s really going to come down to a situation where you would take a broader view of that nexus in light of the fact that the person can’t justify where the money came from, and in light of the fact we know from the reports this tends to occur.”

And Duhaime added that privacy issues are attached to some of the solutions government is considering, especially with the use of information registries.

“Do you really want people to know what company you own, how much you own and where you live? Now you’ll have no privacy whatsoever, so I think it could lead to more crime where people will take bigger steps in order to protect their privacy,” she said. “Did anybody talk to the privacy commissioner? I didn’t see any impact on affected groups and there should be an impact statement on what these proposals mean.”

But Westell said what speaks the loudest in both reports is a focus on resources being set aside for dedicated officers in the area of white-collar crime and money laundering, and he feels there is going to be a renewed commitment to that considering what has been revealed. He added public inquiries can be costly and lengthy, but they can offer a focused lens on the particular issues that the reports have laid out, particularly when the power to compel testimony is given.

“And the piece that we don’t have in the reports is that personal accountability for people in power that must have known they should have done more,” he said.

But it will take a federal commitment to do something about money laundering in British Columbia, said Duhaime.

“Until the federal government decides to fund the RCMP to beef up its resources in B.C., I don’t think much will happen,” she said. “So, I think the next step is the federal government has to do their part — all British Columbia can do is change some of its policies and procedures to make the RCMP’s job easier and better when it gets funded.”

The commission will deliver an interim report within 18 months and a final report by May 2021. The provincial government is also moving ahead with the creation of a new compliance and enforcement unit to investigate complaints and take action against landlords and renters.