PROFESSIONAL RESPONSIBILITY AND ETHICAL ISSUES OF PROCEEDS OF CRIME (MONEY LAUNDERING) LEGISLATION

Transcription

1 \,.. PROFESSIONAL RESPONSIBILITY AND ETHICAL ISSUES OF PROCEEDS OF CRIME (MONEY LAUNDERING LEGISLATION. }. ~. J J ;J l, J J These materials were prepared by Allan Snell,Q.C., of The Law Society of Saskatchewan Regina, Saskatchewan and presented at the CBA (Sask. Branch Mid~Winter Meeting in a session sponsored by The Law Society of Saskatchewan and Saskatchewan Legal Education Society Inc. February 1, 2002.

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3 Dpofessional Responsibility and Ethical Issues of Ppoceeds of Cpime (Money Laundepinq Leqislation by Allan T. Snell, Q.C. Solicitor/Client Privilege and Confidentiality "The foundation of this Rule is not difficult to discover. It is not (as has sometimes been said, on account of any particular importance which the law attributes to the business of legal professors, or any particular disposition to afford them protection, those certainly may not be very easy to discover why a like privilege has been refused to others, and especially to medical advisors. But it is out of regard to the interests of justice, which cannot be upholden, and to the administration of justice, which cannot go on, without the aid of men skilled in jurisprudence... If the privilege did not exist at all, everyone would be thrown upon his own legal resources; deprived of all professional assistance, a man would not venture to consult any skillful person, or would only dare to tell his counsellor half his case." (per Brougham L.C. Greenough v. Gaskell ( E.R. 618 (L.C.». The above, in all its 19 th century elegance, is as good a description of the classic solicitor/client privilege as is necessary to defend it. It describes the essential legal unity that exists as between a lawyer and his/her client, at least insofar as specific communications are concerned. The common law adversarial system is based on solicitor/client privilege and although there have been several exceptions developed over the years and there have been, particularly in recent years, calls for a tighter definition of privilege, it remains, for the most part, unchallenged as a concept (Descoteaux v. Mierzwinski (1982, 1 S.C.R In fact, solicitor/client privilege is now well recognized as not only as an evidentiary rule, but a substantive right, the breach of which may ground a cause of action (Solonsky v. The Queen (1979, 103 D.L.R. (3d 745; Town ofamhurst v. CaC :- tj The importance of solicitor/client privilege is recognized in The Proceeds of Crime (Money Laundering Act. Section 11 specifically exempts privileged communications from reporting requirements under the Record-keeping and Suspicious Transactions Part. ;The difficulty is that a lawyer's duty to his/her client is both legal and professional. The Code ofprofessional Conduct, Chapter IV(2 provides as follows: This ethical rule must be distinguished from the evidentiary rule of lawyer and client privilege with respect to oral or written communications passing between the client and the lawyer. The ethical rule is wider and applies without regard to the nature or source of the information or to the fact that others may share the knowledge."

4 2 This ethical requirement is an extension of the duty of loyalty to the client, without which the essential confidence and trust placed in the lawyer by client is difficult to establish. Clients are aware of, and place great importance, on the confidentiality requirement and while ~there has always been a requirement that confidential (as opposed to privileged information must be disclosed in the face of a legal requirement to do so, there has never been such an active requirement as that contained in The Proceeds of Crime (Money Laundering Act. Under the Act, the lawyer must accurately determine what information is privileged and what information is merely confidential and in the latter circumstance, report it to FINTRAC. There are two major concerns here: 1. That a lawyer who is uncertain as to whether the information in question is privileged or not (after all a legal question to be determined ultimately by the court will report rather than risk criminal prosecution, thus erring on the side of breaching, rather than maintaining, confidentiality and privilege; and j 2. The lawyer is required to become an agent for the state against his or her client, whether or not there is any actual criminal conduct by the client. 1. What is Privileged? The issue as to what is protected and what is not is not easy. states in his book Lawyers and Ethics: As Gavin MacKenzie "Almost all of the most obstinate problems of professional responsibility are confidentiality problems. Legitimate interests compete with one another - those are the client, the public, the court and the truth, for example". Professor Wigmore attempted a description which has been favoured by the Supreme Court in Descoteaux: "Where legal advice of any kind is sought from a professional legal advisor in his i'capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal adviser, except the protection be waived." However, problems still surface which are extremely difficult to resolve. Amongst the examples of information which mayor may not be privileged are as follows: 1. Identity - normally the identity of a client is not privileged. It is, however, confidential (see Chapter IV of The Code of Professional Conduct, Commentary 3 as a general rule lawyers should not disclose having been consulted or retained by a person unless the nature of the matter requires such disclosure. ---j I I I J

5 ., I 3 Sometimes the identity of the client and the fact of consultation with a lawyer is in fact privileged. (Lavallee et al v. Canada [2000] A.J. No. 159 (Alta. C.A.; Douglas v. Small [1989],6 W.W.R. 746; Re a Solicitor (1962, 36 D.L.R. (2d 594; Dorchak v.krupka (1997, 196 A.R Address of a Client - again, and relying on the same authorities, while the client's address would normally be seen as not privileged, it is a means of identifying a particular client and therefore may, in some circumstances, be privileged. 3. Solicitor's Client Bills and Fees Exemption - Section 5 of the Regulations specifically excludes monies paid in respect of professional fees, disbursements, expenses or bail from the reporting requirements. Furthermore, case law is supportive of maintaining solicitor/client privilege in respect of statements of account from lawyer to client (Mutual Life Assurance, 84 D.T.C I \ 4. Trust Account Records - again, the cases are divided on this matter and it will depend on the circumstances. There is an additional issue which arises with respect to trust account records in as much as separate trust accounts held on behalf of certain clients may, depending on the nature of the account and how it is opened, represent a waiver of privilege insofar as the financial institution is concerned, which waiver may operate to effectively eliminate the privilege altogether. 5. Suspicious Circumstances - FINTRAC has provided a list of indicators to assist in determining whether a particular transaction is "suspicious". It is attached as an Appendix. In assessing whether to report information which, while not perhaps privileged, is nonetheless confidential, lawyers will have to carefully weigh what may be objectively suspicious against the clients' individual circumstances. 2. Loyalty to the Client (a Reporting Requirements --J Chapter III, Commentary 7 of The Code ofprofessional Conduct provides: Dishonesty or Fraud by Client 7. When advising the client the lawyer must never knowingly assist in or encourage any dishonesty, fraud, crime or illegal conduct, or instruct the client on how to violate the law and avoid punishment. The lawyer should be on guard against becoming the tool or dupe of an unscrupulous client or of persons associated with such a client. 6

6 4 6. Cf. CBA 3(5: "...the great trust of the lawyer is to be performed within and not without the bounds of the law." See also ABA DR 7-102(A. Any complicity such as abetting, counselling or being an accessory to a crime or fraud is obviously precluded. Cf. ABA ECs 7-3 and 7-5: 'Where the bounds of law are uncertain...the two roles [of advocate and adviser] are essentially different. In asserting a position on behalf of his client, an advocate for the most part deals with past conduct and must take the facts as he finds them. By contrast, a lawyer serving as adviser primarily assists his client in detennining the course of future conduct and relationships... A lawyer should never encourage or aid his client to commit criminal acts or counsel his client on how to violate the law and avoid punishment..." (emphasis added. "The arms which [the lawyer] wields are to be the arms of the warrior and not of the assassin. It is his duty to accomplish the interest of his clients per fas, but notpernefas.", per Cockburn, L.C.J. in a speech in 1864 quoted as being derived from Ouintilian in Rogers, "The Ethics of Advocacy" ( L.O.R. 259 at Applied to a solicitor in a "very clear case where the solicitor has been guilty of misconduct" and is "floundering in a quagmire of ignorance and moral obliquity" (he having, pending trial of an action and in anticipation of an adverse outcome, advised his client to dispose of its property and, after verdict, taking an assignment of part of that property. Centre Star v. Ross/and Miners Union ( B.C.R. 194 at (B.C. Full Ct.. Furthermore, Chapter IV, Commentary 2 allows disclosure of confidential information in order to prevent a crime and makes disclosure mandatory where the anticipated crime involves violence against the person. Finally, privilege does not extend the communications which are themselves criminal in purpose (Descoteaux v. Mierzwinski (1982, 1 S.C.R A lawyer has never been able to justify complicity in criminal activity on the basis of privilege or client loyalty, either ethically or legally. However, the lawyer was not required to report the mere suspicion of criminal activity and never with respect to past conduct as opposed to prospective conduct. These are the major effects of The Proceeds of Crime (Money Laundering Act. (b Conflict of Interest (section 7 The requirement to report and the prohibition against advising the client of the report (section 8 creates an insurmountable conflict of interest between lawyer and client. It would seem to be impossible for a lawyer to continue to act, and withdrawal without explanation seems the only option. It has been suggested that although advising the client of the report is prohibited, it cannot be improper or illegal for a lawyer to advise clients at the outset of the retainer of the reporting requirements of the Proceeds of Crime (Money Laundering Act. ----:l.

7 5 It is, after all, the law and it is not in any way improper to advise clients of the law. That is what lawyers do. In addition to advising all clients right at the beginning of the relationship of the requirements of the Proceeds of Crime (Money Laundering Act, including record keeping and reporting and in what circumstances, it is prudent to point out the consequences of reporting by the lawyer. That is, the client should be aware that in some circumstances, it may be necessary for the lawyer to withdraw from representing the client suddenly and without explanation and further, that if there is any money being held in trust by the lawyer at the time of withdrawal, it may be difficult or impossible for his/her to pay it out on the direction of the client without risking prosecution. (c Civil Liability It may be that reporting of information to FINTRAC and subsequent withdrawal with respect to an innocent client will result in damages to the client. One might expect the client to look for compensation for these damages. While obedience to the law should provide a good defence to an action against a lawyer, if the reporting was the result of overcautiousness, it may be argued that the lawyer was at fault in making the report in the first place. Obviously, at this point there is no clear indication of what level of suspicion will be deemed to be sufficient to require reporting. As well, we do not know if there is a level below that which requires reporting, but which is nonetheless a "reasonable" level of suspicion so that reporting at that level would not be seen as an actionable breach of confidentiality. If indeed an "unreasonable" reporting and withdrawal by the lawyer results in civil liability, then sailing the waters between the Scylla of prosecution for not reporting and the Charybdis of breaching client confidentiality becomes even more complicated. Conclusion As of the date of writing, there are more questions than answers surrounding the effect of The Proceeds of Crime (Money Laundering Act on lawyers' duties to their clients. It is a problem that is not confined to criminal practitioners, indeed, it is more likely to be encountered by solicitors. There will be a period ofcontinuing uncertainty, however, it is to be hoped not a lengthy one. --J ~ g. Whatever assistance the Law Society of Saskatchewan can provide, both informationally and in individual cases, it will provide.

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