Changes aimed at fighting money laundering raise privacy concerns
By AdvocateDaily.com Staff
A number of newly proposed measures aimed at combating money laundering in British Columbia’s real estate sector will likely create a huge burden as well as an invasion of privacy for a large number of property owners, says Vancouver corporate lawyer Jonathan Reilly.
The report, released by the province’s Expert Panel on Money Laundering in B.C. Real Estate following a public consultation, conservatively estimated annual money laundering activity in the province at $7.4 billion for 2018.
Almost five per cent of the value of real estate transactions in the province, it cautiously estimates, are the result of money laundering investment, resulting in an estimated five per cent increase in housing prices, although the panel says data limitations make it difficult to estimate the impact.
As a result, the panel made 29 recommendations where it says “improvements are urgently needed” to combat money laundering, including disclosure of beneficial ownership by implementing the B.C. Land Ownership Transparency Act, enhancing provincial regulatory efforts to complement criminal justice efforts, creating new tools to fight and uncover money laundering including Unexplained Wealth Orders, and implementing the principle of a data-sharing framework.
However, as Reilly, founder of English Bay Law Corporation, tells AdvocateDaily.com, the report has taken an issue of concern and “proposed very sweeping and dramatic changes to our legal and democratic institutions to address it, and none of what they propose is likely to resolve it.”
“This is the single broadest assault on professionals, and an extension of government into private life since the Patriot Act — and the Patriot Act isn’t even Canadian,” he adds.
For example, says Reilly, one of the key recommendations in the report — to implement the Land Owner Transparency Act as quickly as possible, which would create a new, publicly accessible registry of those who own real estate in the province — is particularly concerning with respect to privacy.
“The theory is, if you have absolute transparency, criminals won’t want to do business in your jurisdiction because then you can see that they’re the ones doing business. And that sounds like a great theory, but the problem is that I don’t think it’s actually possible to get to absolute transparency, and along the way, you hurt a lot of innocent people, and you create criminals out of people who aren’t criminals,” says Reilly.
One area that is likely to be caught up in this change, he says, are estates that contain trusts that are being kept confidential for legitimate reasons.
“There could be sleeper issues in a lot of wills where they were set up prior to this legislation being contemplated, and those trusts could then come into being on someone’s death and there may have been very good reasons for obscuring some of their estate plan from other members of the family — that would then be compromised,” says Reilly.
“I don’t think people are actually turning their minds to the significant invasion of their privacy that this represents. It’s like swatting at flies with a mallet,” he adds.
“What you end up doing is putting a huge burden and invasion of privacy on every individual with no real rational reason to think you’re actually going to catch any criminals,” says Reilly.
Rather than making extensive changes, such as introducing Unexplained Wealth Orders — a tool which could be used to confiscate property where there is no evident legitimate source of funds — Reilly suggests the government address the issue of money laundering within the scope of the existing civil forfeiture regime.
“Maybe it needs some tweaking, but the major problem with the civil forfeiture regime is it’s underfunded and underutilized. So they don’t need sweeping changes to the law, what they need to do is to fund the enforcement of existing laws.”
For the legal profession specifically, he says, the report’s recommendation that lawyers take on the responsibility of verifying that a client’s money is legitimate is a major concern.
As the report notes in recommendation 14, “The B.C. Minister of Finance should suggest that her federal counterpart consider incorporating legal professionals in the anti-money laundering framework by requiring them to report suspicious transactions to the appropriate law society under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.”
“If someone comes to my office and they bring me a certified cheque or a bank draft or a wire transfer, and I have to verify those funds, how am I supposed to do that? I’m a lawyer, I’m not a financial institution, and I’m not a financial expert — I rely on the fact that the Canadian bank issued a cheque or certified one of the cheques that the client issued,” says Reilly.
“They are the gatekeepers, and they have the expertise and the information to be able to do that. So I get put in a position as a professional where this person shows up at my office, they’re buying real estate, they’ve got a bank draft and I have to decide whether or not I’m going to provide legal services to them on the basis of whether or not I think their money’s legitimate,” he adds.
Rather than increasing transparency around the beneficial ownership of real estate, Reilly suggests the focus be directed instead towards making a correlation between many deposits and the beneficial ownership of a bank account.
“In the last five years, the advancements with AI and the use of algorithms to detect patterns is incredible. Even 15 years ago, they were using GST numbers to detect areas of the criminal economy,” he says.
“We’re already gathering a fair bit of information that we’re apparently not making use of. So why don’t we start out by improving the use we make of the information we already have?” adds Reilly.
Recommendation 14, he says, also raises concerns about legal privilege.
“It would require lawyers to report information to the government and then require government agencies to share that information with other agencies, and it’s astounding that in a democracy, any government could even contemplate this,” says Reilly.
Lawyers, he says, have the right to assist a client in making a legitimate transaction, but are not required to assess or have knowledge about any activity a client conducts that is outside of what that client brings into the lawyer’s office.
“If a client asks me to do something that I know is wrong, then I am not required to participate and I, in fact, may be required not to participate, or I could lose my licence — but I am not required to assess whether or not my client is an ethical person, or whether or not my client is a criminal,” he says.
“We know there’s crime, we know there’s money laundering, we know that money makes its way into the B.C. economy. Lawyers are not the people who are able to change that,” adds Reilly.