Testing the limits of solicitor‐client privilege. Lawyers, money laundering, and suspicious transaction reporting
| Pages | 27-47 |
| DOI | https://doi.org/10.1108/13685200610645201 |
| Published date | 01 January 2006 |
| Date | 01 January 2006 |
| Author | Stephen Schneider |
| Subject Matter | Accounting & finance |
Testing the limits of
solicitor-client privilege
Lawyers, money laundering, and suspicious
transaction reporting
Stephen Schneider
Department of Sociology and Criminology, St Mary’s University, Halifax,
Canada
Abstract
Purpose – To explore how lawyers are used to launder the proceeds of criminal activity. Regulatory
measures that compel legal professionals to report suspected money laundering, and the implications
this has for solicitor-client privilege, are also addressed.
Design/methodology/approach – Data were collected from a sample of Royal Canadian Mounted
Police proceeds of crime (POC) case files using a standardized questionnaire.
Findings – A statistical analysis reveals that lawyers came into contact with the POC in 49.7 percent
of all RCMP cases examined. Lawyers are implicated in money laundering (both wittingly and
unwittingly) primarily through their role as an intermediary in a commercial or financial transaction.
In the majority of these cases, lawyers were facilitating a real property transaction by an individual
engaged in drug trafficking. Lawyers were also used by offenders or their nominees to incorporate
companies, purchase securities, and conduct bank transactions, including those pertaining to legal
trust accounts.
Research limitations/implications – The analysis of money laundering is based exclusively on
an analysis reliance of police cases. The RCMP database from which the sample was drawn was not as
complete as originally thought.
Practical implications – Associations representing the legal profession have vehemently resisted
mandatory reporting obligation, arguing that it abrogates solicitor-client privilege. This paper
supports the tacit consensus emerging internationally that mandatory reporting for legal professionals
should apply only to the financial and commercial transactions mediated by lawyers on behalf of
clients.
Originality/value – This research helps to inform the debate over the extent to governments should
mandate lawyers to report transactions or clients that may be involved in money laundering.
Keywords Lawyers, Legalprofession, Money laundering, Canada
Paper type Research paper
Introduction
In a 2002 report, the Financial Action Task Force (FATF), an international government
agency initiated by the G-7 Group of Nations to recommend and monitor national
money laundering laws, wrote that lawyers play numerous roles and provide several
benefits to those wishing to laundering the proceeds of crime (POC). First, lawyers’
trust accounts are used for the placement and layering of funds. Second, through their
specialized expertise, lawyers provide a “gatekeeper” service by creating the corporate
vehicles, trusts, and other legal arrangements that facilitate money laundering. Third,
lawyers offer the financial advice that is a required element of complex money
laundering schemes. Fourth, the use of lawyers and the corporate entities they create
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Testing the
limits of solicitor-
client privilege
27
Journal of Money Laundering Control
Vol. 9 No. 1, 2006
pp. 27-47
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200610645201
can provide the criminal with a veneer of respectability for the money laundering
operations. Facilitating all these money laundering services is the protection of secrecy
that is afforded by the solicitor-client privilege (Financial Action Task Force on Money
Laundering, 2002).
The goal of this paper is to examine and quantify how the proceeds from
profit-oriented (organized) criminal activities in Canada are disbursed through the
legitimate and underground economy, with particular emphasis on how criminal
entrepreneurs use lawyers to facilitate money laundering. The objectives of the study
that inform this paper are to identify, examine, and quantify the types of illegal activity
that generate the criminal revenue invested into the legitimate economy, the sectors of
the economy into which criminal proceeds are placed, specific assets or services used
within the respective sectors, transactions and processes used for money laundering
purposes, and specific guises and/or techniques employed to facilitate the money
laundering process at deposit institutions. For this paper, emphasis has been placed on
discussing cases involving transactions that are typically used by offenders to launder
the POC, transactions initiated or requested by a client that involves suspicious
circumstances, as well as questionable transactions carried out by a lawyer on behalf
of a client. This study did not include cases where lawyers came into contact with the
POC while serving in the capacity of defence counsel (i.e. the POC were provided for the
payment of legal fees or bail). This paper concludes by discussing measures
undertaken or considered by various countries to bring legal professionals under the
scope of suspicious and cash transaction reporting regimes and the implication this has
for solicitor-client privilege.
Research design
Data source and sampling method
The information presented in this paper has been adapted from a national study into
money laundering in Canada. The primary source of data for this study was RCMP
POC case files. To ensure a representative sample of POC files, a sampling frame was
compiled by identifying relevant POC files from the RCMP Management Information
System, a database of cases investigated by the RCMP. The population of POC cases
was refined through the application of criteria intended to maximize the relevancy and
quality of the cases to be included in the final sample. The most important criterion for
the inclusion of a case in the sampling frame was that the legal definition of
“possession of the proceeds of crime”[1] or “money laundering”[2] must be satisfied.
To this end, the two initial criteria for the inclusion of cases in the sampling frame were
as follows:
(1) the file was successfully closed between 1993 and 1998[3] (i.e. the file was closed
by the RCMP following the forfeiture of assets resulting from either a conviction
or plea bargain); and
(2) at least one POC seizure or restraint had been made or at least one possession of
POC or money laundering charge had been laid in this file.
Based upon the application of the above criteria to the sampling frame, the RCMP
database produced a total population of 371 POC cases.
An initial inquiry into the population indicated that additional criteria would have
to be applied to screen out certain cases from the final sample. The purpose of these
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