Ottawa’s budget earmarked about $200 million over the next five years to address Canada’s massive money laundering problem.
This was promising news, but follows years of neglect resulting in the creation of gigantic laundering networks in Canada, the growth of criminal organizations, increased drug trafficking, housing unaffordability, and few prosecutions.
The budget came on the heels of a critical report by the U.S. State Department in March stating Canada is a global problem and vulnerable to major laundering operations, along with nations such as Afghanistan, the British Virgin Islands, China, Macau and Colombia.
Especially undefended,it stated, are casinos, real estate, money services businesses, currency exchanges, wire exchanges, offshore corporations, legal “funnel accounts,” and hawala transactions (international transfers between immigrants through agents in South Asia, the Arab world, and parts of Africa, Europe, and the Americas).
Ottawa’s new funding will create money-laundering task forces staffed by police and prosecutors as well as CRA teams to audit real estate deals. Funds will also be used to develop expertise in trade-based money laundering, and to ensure support for financial intelligence gathering and sharing. The Liberals are also promising to amend the criminal code to lower the prosecution threshold concerning laundering.
Not only must implementation of all these reforms be rapid, but Ottawa must also rein in the legal profession.
“Lawyers, they’re the biggest problem with money laundering in this country, as far as I’m concerned,” said Kim Marshin an interview in 2017. He is the former head of the RCMP’s International Crime Unit and now a security consultant.
In 2015, the Supreme Court of Canada made a huge mistake when itconstitutionally exempted lawyersfrom a newly minted Proceeds of Crime and Terrorist Financing Act and Regulation (the ‘Proceeds of Crime Regime’). This followed arguments by the Federation of Law Societies of Canada that laws violated solicitor-client privilege and that the legal profession alone had the responsibility for policing itself.
This puts lawyers above the law compared to other self-regulating professionals. Accountants, doctors, nurses, social workers or teachers are never exempt under the law from reporting abuse or criminality by their clients. This is foolishness.
Besides, the law societies are riven with conflicts and have done a lousy job. For instance, it took five years for the B.C. Law Society tosuspend a lawyer for six monthsafter he allowed $25 million in suspicious transactions to flow through his trust account.
Obviously, unregulated lawyers can enable laundering. And as an unregulated profession, they can sabotage Ottawa’s money laundering initiatives, including, notably, to make prosecutions easier and to provide beneficial ownership transparency, so that law enforcement agencies “can more clearly know who owns which corporations in Canada.”
Lawyers will continue to set up dummy corporations, and international structures, on behalf of persons unknown without question. And some will continue to “rent out” their trust funds to criminals and kleptocrats, bypassing reporting requirements that others must adhere to.
In 2016, this gap was emphasized by the world’s foremost watchdog, the Financial Action Task Force (FATF) launched by the G7 and United Nations and yet nothing changed. TheTask Force stated: “All high-risk areas (in Canada) are covered by … measures, except legal counsels, legal firms and Quebec notaries. This constitutes a significant loophole in Canada’s framework.”
“In light of these professionals’ key gatekeeper role, in particular in high-risk sectors and activities such as real-estate transactions and the formation of corporations and trusts, this constitutes a serious impediment to Canada’s efforts to fight money laundering (or terrorist financing),” stated the FATF.
Another priority for Ottawa should be enhancing enforcement and prosecutorial capabilities. Given the sheer scale of the problem, the fact that only a handful of indictments and convictions have occurred speaks for itself.
There’s no question that Canada is a laggard.