Yesterday the Senate Banking, Trade and Commerce Committee released a report, entiled Stemming the Flow of Illicit Money: A Priority for Canada, which raises alarm at the size and scope of money laundering in Canada and, among other things, recommends that Parliament extend the reach of anti-money laundering legislation to cover the activities of lawyers. Specifically, the report suggests that lawyers be subject to the legislation's current customer-identification, record-keeping and reporting requirements.

There is a long background to the topic of money laundering legislation and lawyers. It is worth reviewing in order to appreciate the context within which the issue arises.

In 2000 the federal government passed detailed legislation aimed at requiring commercial and professional entities to report suspicious financial transactions to a quasi-independent agency called FINTRAC. In certain circumstances FINTRAC can release some of the information to the police. At the end of the day, the flow of information is part of an anti-money laundering law enforcement strategy. Lawyers were initially caught by this legislation, and several law societies launched a court challenge to have the statute struck down as it applied to the profession. The law societies mounted two main arguments. First, they contended that the duty of confidentiality is constitutionally protected, and the legislation violated the Charter by requiring lawyers to release confidential information even if not privileged. Second, the law societies argued that lawyers’ independence is also constitutionally protected, because it provides a necessary check against abuse of power by the State. Forcing lawyers to act as state agents by reporting suspicious transactions to the government fatally violates this independence.

In 2001 and 2002, the law societies successfully obtained injunctions in a number of provinces. Seeing the writing on the wall, in March of 2003 the federal government capitulated and amended its legislation to exempt lawyers.

Ever since the government backed off from the fight, the question has remained as to whether another attempt would be made to subject lawyers to anti-money laundering legislation. Indeed, in the federal government initially suggested that it would do exactly that. The Senate Committee report continues with this view, and in fact suggests that the old approach, whereby lawyers would be subjected to pretty much the same legislation as everyone else, is necessary.

Reverting to the original proposals may be difficult, however, given the Supreme Court of Canada’s November 2003 decision in Maranda v. Richer. Maranda contains wording strongly critical of any government attempt to conscript lawyers as a resource to be used in the criminal investigation and prosecution of clients. The judgment also suggests that not only communications, but additionally facts taking place within a solicitor-client relationship are as a general rule covered by privilege. In Maranda itself, the flow of retainer money through a trust account was therefore held to be privileged. Clearly, Maranda has backed Parliament into a tiny corner in terms of available options for regulating lawyers.