Canada’s financial crimes watchdog has flagged thousands of suspected cases of criminal money laundering operations involving legal professionals.
Members within Canada’s law societies hold a unique window into how to aid criminals seeking to launder money gained from their criminal enterprises, according to a special report by Statistics Canada.
Around 2,400 suspicious transactions submitted to the Financial Transactions and Reports Analysis Centre of Canada between 2022 and 2023 reported “entities within Canada’s anti-money laundering and anti-terrorist financing regime referenced transactions involving legal professionals and/or law firms.”
“An analysis of FINTRAC data holdings demonstrates that the role of legal professionals in financial transactions is significant and high volumes of funds are potentially exposed,” reads the report.
“While the vast majority of legal professionals undertake legitimate transactions, suspicious transaction reporting submitted to FINTRAC indicates that many professional money laundering schemes may rely on the involvement of a legal professional.”
Members of the legal profession possess the necessary knowledge and skills useful to criminals who need to launder the proceeds of crime, while evading economic sanctions.
Canada is home to 14 law societies, established by the provinces and territories to regulate the Canadian legal profession in the best interest of the public, and to hold lawyers accountable to their rules.
These law societies conduct ongoing reviews, audit programs and investigate complaints received against members of the legal profession, which can ultimately lead to disciplinary hearings, fines, restrictions, suspensions and disbarment in the worst case.
However, “the established principles of solicitor-client privilege in common law systems and professional secrecy in Quebec that protect the communication of legal advice between certain legal professionals and clients may also be misused to shield information and shut down lines of inquiry by financial institutions relating to transaction details and source of funds.”
Additionally, outside of B.C., legal professionals are not obligated to maintain a compliance program, record keeping, know-your-client requirements, or reporting under Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime.
Instead, the legal profession is self-regulated and not under the supervision of FINTRAC, which is likely to attract money launderers and transnational organized crime groups “who seek to exploit the sector to move and mask illicit funds and activity.”
Legal professionals offer a variety of services that involve conducting monetary transactions held in trust accounts for their clients and creating legal entities such as corporations and trusts for real estate.
Lawyers themselves may also act as shareholders or directors in these proceedings.
For example, it’s very common to utilize the services of a lawyer in real estate dealings and there are a variety of ways that such transactions provide opportunities to move illicit proceeds quickly, like back-to-back successive sales of property, with or without a mortgage or by inflating the value of the property.
Additionally, illicit activity can involve concealing ownership through purchase with a false name, via intermediaries, or through a company and or trust.
Finally, engaging in mortgage fraud with antecedent laundering are all ways to advance money while remaining under the radar.
“The services that legal professionals provide give them a unique window into their clients’ business structure, arrangements, and practices,” reads the report.
“In 2022–23, an estimated 615,000 large cash transaction reports and electronic funds transfer reports involved legal professionals with combined transaction values totalling $110 billion, reflecting only a part of the sizable role legal professionals and law firms play in Canadian economic activity.”
Money laundering, sanction evasions and even terrorist activity financing have all been reported and well-documented within the legal community by the Financial Action Task Force and the Egmont Group of Financial Intelligence Units.
A 2018 joint assessment published by the FATF and the Egmont Group assessed how legal professionals can aid criminals in concealing their wealth and illicit assets, which revealed the important role of professional intermediaries in forming and operating corporate structures that enable the identity of their beneficiaries and controllers to remain anonymous.
The report found this to be a key feature of such schemes, especially in cases where the proceeds of crime were significant.
“Complicit legal professionals, as enablers and third-party money launderers separate from the proceeds-generating criminal activity, can offer a veneer of legitimacy and respectability to a financial transaction that may dissuade questioning or suspicion from financial institutions,” reads the report.
