Canada: Lawyers partially relieved of money laundering reporting requirements

With the coming into force, on 6th January 2003, of the final version of reporting regulations relating to international funds transfers the continuing battle between lawyers and the Attorney-General as to the extent of the obligations of law firms reached another milestone.

The Federation of Law Societies of Canada says that is "has sought and received clarification from the Attorney General of Canada on who is obligated to file reports on reportable cross-border transactions under section 12 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)."

The Federation acknowledges that lawyers are not exempted from final set of regulations on the cross-border movement of currencies and monetary instruments under Part II of the PCMLTFA. The regulations require persons to report to FINTRAC the importation or exportation of amounts of CD10,000 or more of currency or monetary instruments in bearer form.

However, the clarification reduces the burden on lawyers. The Federation says there is no requirement to report bank drafts, cheques or other negotiable instruments made payable to a named person if the drafts, etc have not been endorsed. Nor, it says, is there any requirement to report knowledge of the importation or exportation of such monetary instruments by another party.

The Federation says "The Government of Canada has informed the Federation that, if a lawyer is involved in a reportable cross-border transaction on behalf of a client, under ss. 12(3) (b)-(e), it is the client that is obligated to report the transaction, not the lawyer. This is the case as under these parts of s.12 (3) it is the client, not the lawyer, that is considered the exporter or importer, and it is the exporter or importer that is specified as the person who is obligated to report. While it is the client who has the obligation to file the report in these circumstances, the lawyer may do so as a service to the client if so instructed.

"The advice provided to the Federation indicates that pursuant to s.12 (3) (a), lawyers would be required to report cross-border transactions only if they physically carry currency or monetary instruments across the border on behalf of a client. In all other cases, reporting is the client's obligation."

The constitutional challenge to the requirement that lawyers make reports remains in progress. In May 2002, the Federation and the Attorney General for Canada agreed that all lawyers and law firms in Canada will be temporarily exempt from the recording and reporting requirements imposed by Part I of the PCMLTFA pending determination of the constitutional challenge and that, if the challenge is unsuccessful, lawyers will not have to make retrospective reports in respect of the period since May 2002. Further, according to the Federation "law firms must not collect information from clients solely for the purpose of providing it to FINTRAC." Under the agreement agreement, lawyers and law firms are also exempt from the requirement to set up a "compliance regime" imposed in Part I of the PCMLTFA.

The nett effect of this is that no financial institution should rely on any representation made by any Canadian law firm as to the identification of any client or funds, says Silkscreen Consulting, the leading counter-money laundering strategist. "Institutions should undertake their own due diligence, and bear in mind that the regime in Canada is significantly different to that in many other countries."