Canadian lawyers play key role in money laundering, says financial intelligence report

Canadian lawyers play key role in money laundering, says financial intelligence report

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Government agency found Canadian lawyers involved in transactions with organized crime groups.

A previously unreleased intelligence report says Canadian lawyers are laundering money on behalf of transnational crime groups. (Zak Vescera/Investigative Journalism Foundation)

(This story is a collaboration between the Investigative Journalism Foundation and CTV News.)

For years, Vancouver lawyer Ronald Pelletier helped fraudsters hide dirty money, according to the Law Society of British Columbia.

Between 2014 and 2018, the Vancouver lawyer moved more than $31 million through his trust account from clients he knew were being investigated by American authorities for stock manipulation, the law society tribunal determined.

He bought 20 “burner” cell phones over 18 months, worried police might be listening in. He used pseudonyms in email addresses. And he raked in nearly $900,000 in ‘legal fees’ for moving the dirty cash, as set out in the tribunal’s decision.

In November 2023, Pelletier became the first lawyer in B.C. to be disbarred for money laundering. The Law Society tribunal described his actions as a “complete abdication of the ethical standards to which lawyers are expected to adhere.”

But a report from Canada’s financial crimes watchdog suggests Pelletier isn’t the only lawyer complicit in money laundering.

The Investigative Journalism Foundation and CTV News have obtained a never-released report suggesting Canadian lawyers are playing a key role in helping criminals launder their ill-gotten gains.

The 2022 report from the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac, found legal professionals and law firms “implicated in a wide range of suspicious activity,” including deals with organized criminal groups, drug traffickers and fraudsters.

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A screenshot from the 2022 Fintrac report shows the types of transactions the agency analyzed.

In an analysis that examined nearly $22 billion worth of transactions from 2017 to 2020, Fintrac found Canadian lawyers facilitating transactions involving organized crime groups with connections to foreign banks and individuals “suspected of money laundering through the purchase of high-value commodities including real estate, automobiles and luxury goods.”

In 229 cases between 2017 and 2021, Fintrac sent that information to police and national security agencies, meaning the government watchdog suspected money laundering or terrorist financing.

In 92 disclosures, the report said, Fintrac found connections between the legal profession and what it describes as “professional money laundering schemes.” The report said such networks conduct “large-scale money laundering on behalf of large transnational organized crime groups, such as drug cartels and biker gangs.”

The report, which the Investigative Journalism Foundation obtained through Access to Information legislation, suggests criminals rely on Canadian lawyers to launder money through real estate, setting up shell corporations and trust accounts that are shielded by solicitor-client privilege.

Many of those are legitimate financial activities regularly used by practicing lawyers. But the report said they can also be used to move dirty money and obscure who owns what. Available data suggest lawyers are rarely criminally charged or disbarred for involvement in money laundering.

A 2024 Fintrac report claims some “key enablers” are even connected to law firms that “openly advertise” services used to launder money.

“The role of legal professionals in financial transactions is significant and they can have outsized perspective on more complex or sophisticated laundering schemes,” said that document.

Fintrac’s report is based on an analysis of more than 140,000 reports sent to the agency from third-party reporting entities, including banks and credit unions, between the start of 2017 and the end of 2020.

Reported transactions are not necessarily evidence of any crime, and Fintrac’s report does not say whether lawyers involved in those transactions are believed to have acted improperly.

But Michelle Gallant, a University of Manitoba law professor whose area of expertise includes money laundering, said the fact Fintrac sent disclosures based on those reports is significant.

“When they disclose, it means they’ve looked at something and they have enough reason to believe that maybe there’s some hints of wrongdoing or tainted finance,” Gallant said.

Lawyers breaking laws? 

The report, which contains redactions throughout, appears to be the most detailed analysis Fintrac has ever done on the role lawyers play in laundering money.

The 2022 Cullen Commission on money laundering in British Columbia described lawyers as a “gatekeeper” profession who “possess the knowledge, skill, and scope of practice that would be of interest to criminals.”

Lawyers can create companies, wire money, transfer real estate and deposit money into a trust account, all under the cover of solicitor-client privilege, according to the 2022 Fintrac report.

The report does not name those lawyers. But it does include anonymized and undated case studies.

In one, Fintrac claims a Montreal businessman gave US$3 million to a Quebec attorney, cash that eventually found its way to a reputed Colombian drug trafficker via intermediaries in the United States, Panama and Switzerland.

The IJF contacted Montreal police about the example, who said the information was too vague to connect to any case. Quebec RCMP said the same.

More than 80 per cent of the transactions Fintrac studied involved less than $10,000. But the agency found that electronic fund transfers sent to lawyers accounted for 44 per cent of the nearly $22 billion value of all the studied transactions.

Many of the suspicious transfers involved jurisdictions outside of Canada.

“The use of international electronic funds transfers by legal professionals to move funds for clients, particularly in and out of high-risk jurisdictions, is a well-documented money laundering/terrorist financing typology,” the report said.

The report said Fintrac also found examples of lawyers and accountants being used to “help criminals conceal wealth and illicit assets.”

One 2024 document, which is presented as a “backgrounder” on money laundering and the legal profession, said Fintrac had found lawyers play a “central role” in creating corporate structures like shell companies that help hide dirty cash and conceal the identity of an asset’s owners.

“Open source research shows that key enablers in this space are often linked to law firms that openly advertise their company formation and management services,” the 2024 document said.

Fintrac also claimed its Strategic Intelligence, Research and Analytics unit had “observed Canadian shell companies linked to legal professionals engaging in likely evasion of Russian sanctions” related to that country’s invasion of Ukraine.

Michael Levi, a Cardiff University professor who has studied money laundering for decades and is referenced in the Fintrac report, said lawyers involved in suspicious transactions are not always acting improperly.

Lawyers who facilitate such transactions may have little reason to suspect wrongdoing.

But Levi said examples cited in the document highlight “pretty dodgy” behaviour on the part of the attorneys.

“I would regard it as dodgy, at best reckless,” Levi said.

Who watches the watchers? 

Unlike real estate brokers or banks, for example, lawyers are not subject to Canada’s anti-money laundering laws, which would require them to report suspicious transactions to Fintrac.

That means Fintrac’s ability to study lawyers is also limited since it must rely on reports from third-party financial institutions.

Canada has tried twice to cover lawyers under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. But lawyers resisted, arguing such laws would violate solicitor-client privilege and undermine their independence.

“Law societies said ‘You’re asking lawyers to snitch on their clients, and that’s nuts,’” Gallant said.

In 2015, Canada’s law societies won a Supreme Court case that affirmed that the federal government’s proposed legislation at the time “constituted state interference with the lawyer’s duty of loyalty to the client.”

Those self-regulating law societies have introduced rules intended to prevent money laundering in the profession, including limits on accepting large cash payments and requirements that lawyers ascertain the source of a client’s wealth. Provincial and territorial laws give those societies the power to investigate and discipline lawyers who don’t comply.

The Law Society of British Columbia and the Federation of Law Societies of Canada, a national umbrella organization, both declined to be interviewed for this story.

But in prepared statements, they said their organizations took money laundering seriously.

Law Society of B.C. spokesperson Christine Tam said her organization conducts audits on law firms every four to six years, at a minimum, and that it has taken a number of steps to educate members about money laundering.

The society also established a task force in 2022 to consider recommendations made by the Cullen Commission on the handling and management of lawyers’ trust funds and client identification rules. The law society’s statement said that work continues.

The Federation of Law Societies of Canada said it participates in a working group with RCMP, Fintrac and the federal government to discuss money laundering risk in the legal profession.

A statement sent by spokesperson Alex Bolt argued law societies can address those risks in a “constitutionally compliant way.” The statement also argued law societies were better positioned than government agencies to regulate money laundering risk among their members.

“The powers and tools available to law societies to investigate breaches of anti-money laundering rules, including the power to compel production of information protected by solicitor-client privilege, far outstrip those available to Fintrac and law enforcement agencies,” said that statement.

Lawyer and former Fintrac officer Jean-François Lefebvre disagrees. Lefebvre, who now works as an anti-money laundering consultant, said he believes law societies have gotten considerably better at addressing money laundering in recent years. But he argues they lack the expertise of an agency like Fintrac, which deals exclusively with financial crime and terrorist financing.

“It’s not because they were not good. But we had to teach them what to look for,” Lefebvre said.

“To me, you shouldn’t be able to hide criminal stuff or terrorist stuff in the name of solicitor-client privilege,” Lefebvre said. “Because there’s a bigger interest attached to our country and the security of people.”

Open data suggest serious penalties for lawyers implicated in money laundering are rare.

The IJF surveyed law society hearing results from Ontario, Alberta, British Columbia, Saskatchewan, Manitoba and Quebec since 2019. It found only 4 cases where lawyers were disbarred for their involvement in such schemes.

Proposed reform 

The B.C. government recently passed legislation that would create a new, single regulator for legal professionals like lawyers, notaries and paralegals. An unattributed statement from B.C.’s Ministry of Finance said the new body could issue fines of up to $200,000 for violating rules. In comparison, the maximum fine the Law Society of B.C. can issue a respondent or law firm is $50,000.

The new legislation is controversial and the Law Society of B.C. has challenged it in court, arguing it violates the profession’s independence.

“We are confident that new rules enacted by the future single regulator will maintain, even strengthen, the protections in place to prevent the role that lawyers might have in money laundering, either knowingly or unknowingly,” the B.C. government spokesperson said.

Levi, though, said Canada’s response to money laundering and the legal profession is ultimately constrained by the fact lawyers are not subject to federal anti-money laundering laws.

Levi said Canada — along with the United States and Australia — are “outliers” among other developed countries in that regard.

“Canada is a kind of super-secrecy jurisdiction, in many senses, and that is the culture,” Levi said.

A 2018 Finance Canada report describes the current system as a “deficiency that negatively affects Canada’s global reputation.”

But the Cullen Commission did not recommend imposing such rules on lawyers, citing the “constitutional difficulties” in doing so and noting the improvement made by the Law Society of B.C. in addressing it.

The Financial Action Task Force (FATF), a coalition of countries combating money laundering, has previously determined Canada’s regulation of lawyers does not meet its standards.

FATF is set to review Canada’s performance next year, something Lefebvre believes could spur the federal government to once again try to regulate lawyers.

Finance Minister Chrystia Freeland’s office declined to provide an interview for this story.

And the Ministry of Finance would not share the government’s position on the matter.

“Everyone must follow the law, including when it comes to anti-terrorism and anti-money laundering laws,” said a spokesperson for the Ministry of Finance.

Gallant said lawyers should be regulated at a higher standard than other professionals, like accountants, because of the power they hold.

“If lawyers fail to adequately govern themselves and adequately do what they need to do to resist money laundering, the right to self-governance is not constitutionally guaranteed,” Gallant said.

About Post Author

URBANATVFM

Jorge de Jesús Núñez García es un periodista y escritor dominicano radicado en Toronto, quien se ha destacado en Canadá como locutor, comentarista, animador, tanto en radio como en televisión. Dirige emisoras y medios digitales, además de prensa escrita.
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