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FINTRAC’s powers to examine lawyers’ records struck down by Supreme Court of Canada


February 13, 2015   by Canadian Underwriter


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A law giving the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) the power examine certain firm’s records and search through their computers no longer applies to documents in the possession of legal counsel or in law offices premises, the Supreme Court of Canada announced Friday.

FINTRAC – established with the passage of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act – imposes reporting and record-keeping requirements on several categories of firms, including life insurance companies, brokers or independent agents and securities dealers.

The Supreme Court of Canada struck down part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, ruling FINTRAC cannot collect lawyers’ records.

“FINTRAC has broad access to the information which lawyers (and others) are required to collect, record and retain,” wrote Mr. Justice Thomas Cromwell of the Supreme Court of Canada, in a ruling released Feb. 13, in which the highest court partially rejected an appeal from the Attorney General of Canada.

The court was upholding part of a ruling in 2011, when a B.C. court ruled in favour of the Federation of Law Societies of Canada. The federation asked that several sections of the law be struck down under several provisions of the Charter of Rights and Freedoms, including Section 8, which protects Canadians against unreasonable search and seizure.

Related: Large electronic funds transfers must now be reported to Canada Revenue Agency

Interveners were Criminal Lawyers’ Association (Ontario), Canadian Civil Liberties Association, Law Society of British Columbia, Canadian Bar Association, Advocates’ Society, Barreau du Québec and Chambre des notaires du Québec.

“I do not accept the Attorney General’s contention that this scheme may be properly characterized as ‘an administrative law regulatory compliance regime,'” Justice Cromwell wrote, adding that the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act “are to detect and deter the criminal offences of money laundering and terrorist financing and to facilitate the investigation and prosecution of these serious offences.”

The law “imposes penal sanctions on lawyers for non-compliance” and “therefore has a predominantly criminal law character and its regulatory aspects serve criminal law purposes,” the Supreme Court of Canada ruled.

“I do not accept the proposition that there is a reduced expectation of privacy in relation to solicitor-client privileged communication when a FINTRAC official searches a law office rather than when a police officer does so in the course of investigating a possible criminal offence,” Justice Cromwell wrote on behalf of the court.

FINTRAC, which reports to the federal finance minister, is mandated to detect “unusual patterns of transactions that resemble money laundering or terrorist financing activity,” and in some cases to share that information with law enforcement agencies, the Canadian Security Intelligence Service or the Egmont Group of Financial Intelligence Units. The Egmont Group’s members include the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Britain’s National Crime Agency, among others.

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act generally does not require Canadian lawyers to report “communication that is subject to solicitor-client privilege.”

It “provides that where a lawyer claims a document in his or her possession is subject to solicitor-client privilege it cannot be examined or copied,” Justice Cromwell wrote. “However, this provision requires the lawyer to seal, identify and retain the document and to claim privilege in court within 14 days. FINTRAC has the authority under the regime to disclose to law enforcement information of which it becomes aware under the search provisions if it suspects that it would be relevant to investigating or prosecuting an offence arising out of a contravention of the verification or record keeping obligations.”

Section 64 of the law, which includes the method by which lawyers can claim privilege in court, “is of no force or effect,” the Supreme Court of Canada ruled Friday. Sections 62 , 63 and 63.1 “should be read down so that they do not apply to documents in the possession of legal counsel or in law office premises,” the court added.

Although the B.C. court also ruled that Sections 5(i) and (j) of the law – which essentially lets Ottawa make regulations specifying businesses which are required to retain records – the Supreme Court of Canada overturned that part of the ruling.

Two Supreme Court of Canada judges – Chief Justice Beverley McLachlin and Mr. Justice Michael Moldaver – disagreed with part of Friday’s decision, but not on the sections of the law that were struck down.

The majority ruled that part of the law “undermines a lawyer’s ability to comply with the duty of commitment to the client’s cause,” based on an analysis of Section 7 of the Charter of Rights, which states “Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”

“To the extent that the s. 7 interests of the lawyer are engaged, we do not share our colleague’s view that the principle of fundamental justice that would be offended is the lawyer’s commitment to the client’s cause,” wrote judges McLachlin and Moldaver.

The proceeds of Crime (Money Laundering) and Terrorist Financing Act “requires lawyers to gather and retain considerably more information than the profession thinks is needed for ethical and effective client representation,” Justice Cromwell wrote on behalf of the majority. “This, coupled with the inadequate protection of solicitor-client privilege, undermines the lawyer’s ability to comply with his or her duty of commitment to the client’s cause. The lawyer is required to create and preserve records which are not required for ethical and effective representation. The lawyer is required to do this in the knowledge that any solicitor-client confidences contained in these records are not adequately protected against searches and seizures authorized by the scheme. This may, in the lawyer’s correctly formed opinion, be contrary to the client’s legitimate interests and therefore these duties imposed by the scheme may directly conflict with the lawyer’s duty of committed representation.”


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