Impact of the Proceeds of Crime (Money Laundering) Act on Lawyers' Ethical And Fiduciary Duties to Clients

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1 Impact of the Proceeds of Crime (Money Laundering) Act on Lawyers' Ethical And Fiduciary Duties to Clients By: Victoria Rees, Director of Professional Responsibility Nova Scotia Barristers' Society

2 Regulations (MLA) Application of Money Launderin2 Act to the Le2al Profession The Regulations of the Act provide "Every legal counsel is subject to Part 1 of the Act when they engage in any of the following activities on behalf of any person or entity, including the giving of instructions on behalf of any person or entity in respect of those activities: (a) Receiving or paying funds, other than those received or paid in respect of professional fees, disbursements, expenses or bail; (b) Purchasing or selling securities, real properties or business assets or entities; and (c) Transferring funds or securities by any means. Q) Nova Scotia Barristers' Society

3 Regulations (MLA) (continued) Record keeping and reporting of suspicious transactions: s.5 (i) persons engaged in a business, profession or activity described in regulations made under paragraph 73(1)(a); s.6 Every person or entity shall keep and retain records that relate to financial activities in accordance with the regulations made under subsection 73(1). s.7 Every person or entity shall report to the Centre, in the prescribed form and manner, every financial transaction that occurs in the course of their activities and in respect of which there are reasonable grounds to suspect that the transaction is related to the commission of a money laundering offence. s.8 No person or entity shall disclose that they have made a report under section 7, or disclose the contents of such a report, with the intent to prejudice a criminal investigation, whether or not a criminal investigation has begun. s.9(1) Every person or entity shall report to the Centre, in the prescribed form and manner, every prescribed financial transaction that occurs in the course oftheir activities. s.ll Nothing in this Part requires a legal counsel to disclose any communication that is subject to solicitor - client privilege.

4 Guideline 2 Guideline 2: Suspicious Transactions:. Common Indicators of Money Laundering "When a reporting person or entity, or an employee, believes that a transaction or a group of transactions, or the nature of the people involved, raises questions about the appropriateness or intent of the transaction(s) or gives rise to discomfort, apprehension or mistrust about the transaction(s) or the people involved, the transaction(s) may be connected to money laundering. An assessment of suspicion should be based on a reasonable evaluation of relevant factors, including the knowledge of the customer's business, financial history, background and behavior. Further, transactions may be suspicious regardless of the sum of money involved; there is no monetary threshold for making a report on a suspicious transaction" ~ Nova Scotia Barristers' Society WJ

5 Chapter 4 - Honesty and Candour When Advising Clients (NSLEPRH) Rule A lawyer has a duty to be both honest and candid when advising a client. Commentary Dishonesty or fraud by client 4.7 When advising the client the lawyer has a duty never to knowingly assist in or encourage any dishonesty, fraud, crime or illegal conduct and never to instruct the client on how to violate the law and avoid punishment. ~ Nova Scotia Barristers' Society

6 Chapter 4 - Honesty and Candour When Advising Clients (continued) Commentary Advice on non-legal matters 4.11 In addition to opinions on legal questions, the lawyer may be asked for or expected to give advice on non-legal matters such as the business, policy or social implications involved in a question or in the course the client should choose. Dishonesty or fraud by client organization 4.21 A lawyer, acting for an organization, who learns that the organization, or an employee or agent on behalf of the organization, is engaging in or contemplating dishonesty, fraud or illegal conduct, should take appropriate action. This may include (a) following a procedure prescribed by the organization; (b) explaining the nature of the activity to (i) the employees or agents involved, and (ii) the person with whom the lawyer normally deals advising of the reasons why the lawyer recommends the activity should not be pursued, and outlining the consequences to the organization, the employees or agents, and to the lawyer which could result from the activity; and January 11,2002 ~ Nova Scotia Barristers' Society

7 Chapter 4 - Honesty and Candour When Advising Clients (continued) Commentary (c) if the issue is not resolved after the lawyer takes the action suggested in (a) and (b), then, depending upon the circumstances, it may be appropriate for the lawyer to (i) provide in writing the same advice which was given orally, (ii) advise as to the steps to be taken by the lawyer if this conduct is not stopped or suitably abated, (iii) inform the person's immediate superior, describing the nature of conduct, its potential consequences, and the action already taken by the lawyer, and (iv) provide advice in writing to a senior member of management, and thereafter, if necessary, to the chair and an outside member of the Board of Directors, or the Minister in case of a lawyer working in government, and include with such advice the information and correspondence already provided If a lawyer, after taking reasonable action to discourage such activity receives instructions that would involve breaching the duties in the Handbook, dishonesty, fraud or illegal conduct, the lawyer is under a duty to withdraw from the representation of the organization in the particular matter. m Nova Scotia Barristers' Society ~

8 Chapter 5 - Duty of Confidentiality Rule A lawyer has a duty to hold in strict confidence all information conceming the business and affairs of a client where the information is acquired by the lawyer as a result of the professional relationship with the client except where disclosure is (a) expressly or impliedly authorized by the client; (b) required by law; or (c) pennitted or required by this Handbook. Commentary N on-disclosure of lawyer-client relationship 5.2 As a general rule, a lawyer has a duty not to disclose that he or she has been consulted or retained by a person unless the nature of the matter requires the lawyer to do so. m Nova ~ Scotia Barristers' Society

9 Chapter 5 - Duty of Confidentiality (continued) When disclosure permitted Commentary 5.10 Confidential information may be divulged with the express authority of the client concerned and, in some situations, the authority of the client to divulge may be implied. For example, some disclosure may be necessary in a pleading or other document delivered in litigation being conducted for the client. Unless the client directs the lawyer to the contrary, the lawyer may disclose the client's affairs to partners and associates in the firm and, to the extent necessary, to non-legal staff such as secretaries and clerks. A lawyer, therefore, has a duty to impress upon associates, students and employees of the lawyer's office the importance if non-disclosure, both during their employment and afterwards, and to take reasonable care to prevent them from disclosing or using any information that the lawyer is bound to keep in confidence. ~ Nova Scotia Barristers' Society

10 Chapter 5 - Duty of Confidentiality (continued) Commentary 5.12 A lawyer has a duty to disclose information necessary to prevent a crime where (a) the lawyer has reasonable grounds for believing that the crime is likely to be committed; and (b) the anticipated crime involves violence However, a lawyer has a duty, when disclosure is required by law or by order of a court of competent jurisdiction, not to divulge more information respecting a client than is specifically required and to assert the client's privilege. ~ Nova Scotia Barristers' Society

11 Chapter 9 - Protecting Clients' Property A lawyer has a duty to the client to Rule (a) observe all relevant laws and rules respecting the protection and safekeeping of the client's property entrusted to the lawyer; and (b) in cases where are no such laws or rules or the lawyer is in doubt, to take the same care of such property as would a careful and prudent owner when dealing with property of a like description. ~ Nova Scotia Barristers' Society ~

12 Chapter 9 - Protecting Clients' Property (continued) Confidentiality Commentary 9.5 A lawyer has a duty to keep a client's papers and other property out of sight as well as out of reach of those not entitled to see them. This duty is closely related to those concerning confidential information. Privilege 9.7 A lawyer has a duty to claim on behalf of a client any lawful privilege respecting information about the client's affairs, including the client's files and property where a third party seizes or attempts to seize them. To the able to meet this duty, the lawyer must be familiar with the nature of the client's privilege and the relevant constitutional and statutory provisions, such as those in the Canadian Charter of Rights and Freedoms, the Criminal Code and the Income Tax Act. m Nova Scotia Barristers' Society

13 Regulations (MLA) (continued). - --_... _._.- Records to be Kept and Retained 4. (l) (a) Every person referred to in section 3 of the Act who in the course of a transaction receives cash in the amount of $1 0,000 or more shall keep and retain a large cash transaction record that indicates either (i) where the cash is received for deposit by a recipient and the name of the person... (b) (c) (d) the date and the nature of the transaction; the number of any client account that is affected by the transaction; the amount of the cash received and the currency in which it is received; ( e) the transaction is conducted on behalf of a third party and, if so, (i) (ii) the name of the third party and, if the information is not readily obtainable from other records kept and retained by the recipient pursuant to these Regulations, the third party's address and the nature of the principal business or occupation in which the third party is engaged, or that that individual purports to be keeping and retaining a large cash transaction record pursuant to these Regulations in respect of the receipt of the cash from the third party.

14 Regulations (MLA) (continued) Records to be Kept and Retained 4.(4) Subsection (1) does not apply to a person who in the course of a transaction receives cash in the amount of $10,000 or more if the information referred to in paragraphs (l)(a) to (e) is readily obtainable from other records kept and retained by that person pursuant to these Regulations. Refer also to Nova Scotia Barristers' Society Trust Account Regulations 47B(2) re: books, records and accounts to be maintained. m Nova Scotia Barristers' Society

15 Chapter 18 - Duties to the Profession Generally Rule A lawyer has a duty to uphold the integrity of the profession and to promote the reputation of the profession for fairness, justice and honesty. Commentary Duty to report 18.1 A lawyer has a duty to report to the Society particulars of improper professional conduct by another lawyer if it is reasonably perceived by the reporting lawyer that such conduct may result in serious damage to a client or other member of the public. Lawyers who have a tendency to disregard the rules for ethical and professional conduct contained in this Handbook, unless checked at an early stage, may cause loss or damage to clients or others. Evidence of minor breaches may, on investigation, disclose a more serious situation or may indicate the beginning of a course of action which would lead to serious breaches in the future. Q Nova Scotia Barristers' Society

16 Chapter 18 - Duties to the Profession Generally (continued) Commentary 18.2 It is therefore proper for a lawyer to report to the Society any occurrences involving an ostensible breach of this Handbook where there is a reasonable likelihood that someone will suffer serious damage as a consequence. For example, where there is a shortage of trust funds the lawyer has the obligation to the professional to report the matter unless it is privileged or otherwise unlawful to do so. In all cases the report must be made bona fide and without malice or ulterior motive. Outside interests 18.8 A lawyer has a duty to the profession not to become involved in a dishonourable business, investment, property or occupation. GJ Nova Scotia Barristers' Society

17 Chapter 21 - Justice and the Administration of Justice Rule The lawyer has a duty to encourage public respect for justice and to uphold and try to improve the administration of justice. Commentary Scope of the Rule 21.3 The lawyer has a duty not to subvert the law by counselling or assisting in activities which are in defiance of it and has a duty not to do anything to lesson the respect and confidence of the public in the legal system of which the lawyer is a part. m Nova ~ Scotia Barristers' Society

18 Guideline #4: Compliance Regime (MLA) A compliance regime ".shall include, as far as practicable", ~ the appointment of an individual responsible for implementation of the regime; ~ the development and application of compliance policies and procedures; and ~ a periodic review of policies and procedures in this area to ensure effectiveness. ~ Nova Scotia Barristers' Society

19 _".,."._.._~"'_'.. """M_&'_'."~,...., _., ",'_.~""'~'M'~_ ~M~ Conclusion ' '" -".. ---".._.. - Suggested practice tips in your preparation for compliance: ~ Acquire general infonnation for you and your staff about how money is laundered. ~ Review the legislation creating money laundering offences. ~ Refresh your knowledge of the law of solicitor client privilege. ~ Ensure all new or potential clients intending to retain you for legal services in respect of transactions which may be subject to the legislation, are advised ofthe implications of the legislation on the professional relationship prior to undertaking any legal services. ~ Reduce the advice to writing. ~ Ideally, the written record of the advice should be executed by the client to confinn receipt of the advice. ~ Obtain fonnal identification for all clients depositing substantial sums through your trust account. ~ Nova Scotia Barristers' Society

20 Conclusion (continued) ~ Always regard with some suspicion a request by a client for anonymity, never use your trust account as a vehicle to obtain anonymity for a client. ~ Ensure that all transactions which pass through your trust account have a legitimate commercial justification. ~ Avoid associating with any arrangement which involves the misrepresentation of the true nature of a transaction, the true sources of funds, the true ownership of an asset, or which depends on lack of disclosure for its effectiveness. ~ Implement a policy that requires you and your staff to consider whether a claim of privilege should be made over any document subject to a request for disclosure or seizure. ~ Review and have readily available to you and your staff, the search and seizure provisions set out in s of the Criminal Code. ~ If required to report any transaction or to maintain any record, ensure that the information provided in the report strictly complies with the statutory and regulatory provisions so as to ensure that no more information than required is disclosed. o Nova Scotia Barristers' Society ~