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EXTRA Vol. 137, No. 2Canada Gazette Part II OTTAWA, TUESDAY, MARCH 25, 2003Registration PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT Regulations Amending Certain Regulations Made under the Proceeds of Crime (Money Laundering) and Terrorist Financing ActP.C. 2003-311 20 March, 2003 Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 73(1) (see footnote a) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (see footnote b) , hereby makes the annexed Regulations Amending Certain Regulations Made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. REGULATIONS AMENDING CERTAIN REGULATIONS MADE UNDER THE PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING ACT PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING SUSPICIOUS TRANSACTION REPORTING REGULATIONS 1. The definition "legal firm" in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations (see footnote 1) is repealed. 2. Section 5 of the Regulations is repealed. PROCEEDS OF CRIME (MONEY LAUNDERING) AND TERRORIST FINANCING REGULATIONS 3. The definition "legal firm" in subsection 1(2) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (see footnote 2) is repealed. 4. The heading before section 31 and sections 31 to 33 of the Regulations are repealed. COMING INTO FORCE 5. These Regulations come into force on the day on which they are registered. REGULATORY IMPACT ANALYSIS STATEMENT (This statement is not part of the Regulations.) Description The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), sets out a regulation making authority for carrying out the purposes and provisions of the Act, including the implementation of the record-keeping and client identification requirements and the requirements to report suspicious and prescribed transactions, as well as the cross-border movement of large amounts of currency and monetary instruments. All of the regulations are now in force, with the exception of the requirement to report certain international electronic funds transfers (EFTs), which will come into force on March 31, 2003. Subsection 5(j) of the PCMLTFA provides the authority to prescribe by regulations persons and entities engaged in a business or profession that is subject to Part I of the Act. It is by virtue of this authority that legal counsel are covered by the PCMLTFA through the following two sets of regulations: the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations and the Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations. The Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations require financial institutions and intermediaries, including legal counsel, to report to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) certain financial transactions, such as large cash transactions and international EFTs of $10,000 or more. They also require reporting entities to ascertain the identity of their clients whether they are individuals, corporations or other entities, keep certain records and implement an internal compliance program. The Proceeds of Crime (Money Laundering) and Terrorist Financing Suspicious Transaction Reporting Regulations require financial institutions and intermediaries, including legal counsel, to report to FINTRAC terrorist property and suspicious transactions where there are reasonable grounds to suspect that they are related to money laundering or terrorist financing. On November 8, 2001, the Federation of Law Societies of Canada and the Law Society of British Columbia (the Federation) launched a petition in British Columbia challenging the constitutionality of the application of the PCMLTFA to legal counsel and legal firms. The Federation is of the view that the application of the PCMLTFA requirements to legal counsel violates the solicitor-client confidentiality and the independence of legal counsel. On November 20, 2001, the Federation was granted interim relief for legal counsel in British Columbia pending a full hearing on the constitutionality issue. Similar decisions were taken by the courts in other jurisdictions. To streamline the litigation process, the Attorney General and the Federation reached an agreement, on May 14, 2002, to have the interim relief granted by the courts in a number of provinces apply to legal counsel and legal firms across Canada. The interim relief granted by the courts exempts legal counsel and legal firms from regulatory requirements such as reporting, record-keeping, client identification and compliance. The hearing on the substantive issue is scheduled to be held in the British Columbia Supreme Court in June 2003. Furthermore, a decision rendered in September 2002 by the Supreme Court of Canada (SCC), Her Majesty v. Lavallee, Rackel & Heintz (Lavallee), raised new issues in respect of the litigation with the Federation. This decision renders section 488.1 of the Criminal Code unconstitutional as the Court found it was inconsistent with the Charter of Rights and Freedoms. Section 488.1 of the Criminal Code sets out a procedure for determining a claim of solicitor-client privilege in relation to documents seized from a law office under a search warrant. The decision may be relevant for FINTRAC's authority to conduct compliance audits of legal firms. As a result of the litigation with the Federation and the additional issues posed by the Lavallee decision, the Government has conducted a thorough review of the provisions of the PCMLTFA as they apply to legal counsel and legal firms. The Government concluded from this review that it is preferable not to retain the current regime for legal counsel. Accordingly, the Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act repeal the provisions that subject legal counsel and legal firms to the client identification, record-keeping, reporting and internal compliance requirements under Part I of the PCMLTFA. Legal counsel and legal firms are therefore no longer subject to these regulatory requirements. The amendments come into force upon registration of the regulations. The Government nonetheless believes it is important that Canada's anti-money laundering and anti-terrorist financing regime cover all entities that act as financial intermediaries, including legal counsel and legal firms, in order to be effective. The government therefore intends, following consultations, to put in place a new regime for legal counsel consistent with this principle and which better takes into account the nature of the duties of legal counsel. Alternatives The alternative to these amendments is to maintain the existing requirements for legal counsel and legal firms. The Government has concluded, following a review of the issues surrounding the litigation and the Lavallee decision, that it is preferable not to retain the current regime for legal counsel. Benefits and Costs As legal counsel in Canada are already exempted by the Courts from the reporting obligations under Part I of the PCMLTFA, the amendments will not result in a reduction in the amount of information currently being received by FINTRAC from reporting entities. This will also allow the Government to focus on developing a new regime that better takes into account the nature of the duties of legal counsel. Consultation Since the amendments provide relief from the regulatory requirements that apply to legal counsel, the Government did not undertake consultations on these Regulations. Compliance and Enforcement As a result of the temporary exemption granted by the courts, FINTRAC has not monitored compliance of legal counsel with the client identification, record-keeping and reporting requirements. Given the nature of these regulatory amendments, no change in FINTRAC's enforcement activities is required. Contact
Financial Sector Division Department of Finance L'Esplanade Laurier 140 O'Connor Street, 20th Floor, East Tower Ottawa, Ontario K1A 0G5 Telephone: (613) 995-1814 FAX: (613) 943-8436 E-mail: fcs-scf@fin.gc.ca S.C. 2001, c. 41, s. 73 S.C. 2002, c. 17; 2001, c. 41, s. 48 SOR/2001-317; SOR/2002-185 SOR/2002-184 |
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