LAWYERS AS GATEKEEPERS FOR MONEY LAUNDERING

BY: "Clayton Wilbern" cwilbern@edm.imag.net

Topic

Income tax evasion was the downfall of Al Capone who made millions off the avails of organized crime. Since his imprisonment, criminals have discovered better means of hiding their assets. Money laundering is “to knowingly engage in a financial transaction with the proceeds of some unlawful activity with the intent of promoting or carrying on that unlawful activity or to conceal or disguise the nature, location, source, ownership, or control of these proceeds” (Abadinsky, 2003). The 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances provided a definition of money laundering that has been summarized by Professor Beare. Beare (2003) states money laundering usually involves:

-the conversion of illicit cash to another asset, possibly involving the placement of the funds into a financial institution.

-the concealment of the true source of ownership of the illegally acquired proceeds, possibly through a technique referred to as “layering” whereby a series of otherwise legitimate transactions are carried out which due to the frequency, volume, or complexity of the transactions create a paper trail that is hard or impossible to follow;

-the creation of the perception of legitimacy of source and ownership. By this stage, funds may be integrated into the legitimate economy so thoroughly as to be interchangeable with legitimate earnings.

Money laundering allows organized crime to flourish. The integrity of a country’s financial system could be compromised by criminals that conduct such questionable financial business. Crimes from drug trafficking to terrorism can be the result of money laundering, therefore, it cannot be ignored by law enforcement. The terrorist events of 9/11 involved terrorist financing, which used similar money laundering techniques known by law enforcement.

At the international level, the Financial Action Task Force (FATF) made up of numerous countries has composed 40 recommendations to combat money laundering and terrorist financing. The FATF has been striving throughout the years for establishing better means to curb money laundering through various policy-making initiatives. Many countries have adopted these initiatives to varying degrees. The main stimulus for these countries seems to be peer pressure from the other countries to work together to fight against money laundering. The events of 9/11 have compounded this peer pressure for countries such as Canada that have been slow to implement the legislative initiatives.

The FATF has identified lawyers and accountants as being an instrumental part of the money laundering process. They have been identified as ‘gatekeepers’ for the flow of money. Recommendation #16 by the FATF specifically states, “Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in Recommendation 12(d)” (Financial Action Task Force, 2003). Some countries have embraced this recommendation and have created legislation that requires lawyers to report suspicious currency transactions. Canada did the same, but the Supreme Court (Law Society of British Columbia v. Canada Attorney General) struck the law. The challenge came at a time of unprecedented concern among the legal profession at moves to force lawyers to report on their clients (Tromans, 2002).

Questions

How does legislation balance the sanctity of lawyer/client privilege versus the protection of society from lawyers who help orchestrate money laundering of organized criminals? How can we ensure that lawyers are not allowing money laundering/terrorist financing to occur? Do we rely on their codes of ethics that they swear to? Can legislation be a viable option for these matters? Is legislation the answer or are there other alternatives? Does the Charter of Rights and Freedoms prevail at all costs? What are other countries doing in regards to lawyers and money laundering legislation and what seem to be the best viable options? How does law enforcement investigate lawyers who are suspected of orchestrating money-laundering schemes?

Constructs

For a number of countries, legislation appears to be guided by the Financial Action Task Force recommendations. Therefore, the FATF’s recommendations need to be examined and scrutinized, including the excerpts. The legislation of other countries needs to be studied and how it compares with Canadian legislation. For instance, do other countries have their attorneys file cash transaction reports? This is not the case in Canada where the law society successfully forced the government to strike down such impeding legislation. Canada’s eighty thousand lawyers argued, successfully, that the requirements forced them to spy on their clients by secretly reporting to an agency of the government (Robinson, 2003).

For law enforcement, money laundering investigations now stop as soon as they hit a lawyer’s office (Robinson, 2003). If possible research into actual police cases where lawyers are shown to have played a role in money laundering should be considered. If Canada is portrayed as a hub for money laundering/ terrorist financing, then there needs to be examples should be uncovered.

I must completely examine the Canadian Charter of Rights and Freedoms, specifically in regards to the issues of lawyer/client privilege and its importance. According to case law (Law Society of British Columbia v. Canada Attorney General, 2003) while remaining sensitive to the social and political context of the impugned law and allowing for difficulties of proof inherent in that context, the courts must nevertheless insist that before the state can override constitutional rights, there be a reasoned demonstration of the good which the law may achieve in relation to the seriousness of the infringement.

Significance

Money laundering and terrorist financing are very serious crimes that need to be dealt with by law enforcement. Because criminals who commit money laundering rely on lawyers as gatekeepers to conduct their illegal business, lawyers become a key component of the process. Lawyers like any other profession need checks and balances to prevent illegal or immoral behavior. Some industrialized countries have responded to the Financial Action Task Force recommendations and have made lawyers comply with reporting suspicious currency transactions. Canada did initially implement such legislation but has backtracked. Clearly, there is considerable debate on this issue and little research to provide any guidance. The Police feel lawyers should comply as they are stopped at a lawyer’s trust account when doing money-laundering investigations. However, lawyers argue that solicitor/client privilege cannot be compromised for any reason.

Summary

Money laundering is an international social ill that is currently being addressed by the Financial Action Task Force that has provided various recommendations. As ‘gatekeepers’ of money laundering, lawyers are very much a part of the process. In Canada, legislation has been developed to force lawyers to report suspicious currency transactions, however, the law society had this quashed arguing the law to violate constitutional rights. The debate continues across the globe as to whether such legislation is appropriate. Research in this area could help provide much needed direction or insight to legislators, lawyers and law enforcement personnel.

It must be made very clear that there are dishonest lawyers knowingly orchestrating money laundering for organized crime clientele. These lawyers hide behind codes of ethics and the constitutional right of solicitor/client privilege allowing these crimes to be committed. In many instances lawyers are benefiting from these heinous crimes knowing there is little the police can do to detect, investigate and successfully prosecute them. Law enforcement needs to be able to more effectively investigate these issues with either legislation or a system of checks and balances within the law society. Something is clearly needed to fully address this issue so that the Canadian public is satisfied that lawyers are not part of the process that makes Canada appear to be a money-laundering haven.

References Cited

Abadinsky, H. (2003). Organized Crime (7^th ed.). Toronto, ON:

Wadsworth/Nelson Thomson Learning.

Allan, M. J. The Honourable Madam Justice. (2003). Law Society of British

Columbia v. Canada (Attorney General). Retrieved July 19, 2004 from

http://www.canlii.org/bc/cas/bcsc/2001/2001bcsc1593.html

Beare, M. (2003). Critical reflections on transnational organized crime, money

laundering and corruption. Toronto, ON: University of Toronto Press.

Financial Action Task Force (FATF). (2003). The Forty Recommendations.

Retrieved July 19, 2004 from http://www1.oecd.org/fatf/40Recs_en.htm

Hubbard, R., Murphy, D., O’Donnell, F., and P. DeFreitas. (2004). Money

Laundering & Proceeds of Crime. Toronto, ON. Irwin Law Inc.

Robinson, J. (2003). The Sink. Toronto, ON: McClelland & Stewart Ltd.

Tromans, R. (2002). Canadian lawyers win reprieve from new reporting

legislation. Legal Week. Retrieved May 30, 2004 from

http://www.1wk.co.uk/ViewItem.asp?id=11548

Topical Outline of Annotated Bibliography

Textbooks:

Abadinsky, H. (2003). Organized Crime (7^th ed.). Toronto, ON:

Wadsworth/Nelson Thomson Learning.

Beare, M. (2003). Critical reflections on transnational organized crime, money

laundering and corruption. Toronto, ON: University of Toronto Press.

Hubbard, R., Murphy, D., O’Donnell, F., and P. DeFreitas. (2004). Money

Laundering & Proceeds of Crime. Toronto, ON. Irwin Law Inc.

Sherriff, S. (2003). Convicting the guilty. A strategy manual of law and

technique for dedicated investigators and prosecutors combating major

crime. (10^th ed.). Toronto, ON. Steve Sherriff.

Case Law:

Allan, M. J. The Honourable Madam Justice. (2003). Law Society of British

Columbia v. Canada (Attorney General). Retrieved July 19, 2004 from

http://www.canlii.org/bc/cas/bcsc/2001/2001bcsc1593.html

Financial Action Task Force excerpts:

Financial Action Task Force (FATF). (2003). The Forty Recommendations.

Retrieved July 19, 2004 from http://www1.oecd.org/fatf/40Recs_en.htm

FinTrac, FinCen:

Interview staff and read published literature.

Interviews:

Specifically The Honourable Anne McLellan the Minister of Justice who was pivotally involved with the lawyer-exempt money laundering legislation evolution. (She lives in Edmonton)

Money Laundering Books:

Robinson, J. (2003). The Sink. Toronto, ON: McClelland & Stewart Ltd.

Money Laundering Articles:

Tromans, R. (2002). Canadian lawyers win reprieve from new reporting

legislation. Legal Week. Retrieved May 30, 2004 from

http://www.1wk.co.uk/ViewItem.asp?id=11548

Websites:

Lots of developments on the anti-money laundering front recently:
* NEW YORK. The National Association of Securities Dealers, the
NY Stock Exchange and the SEC team up for a national ML sweep. LINK:
http://www.compliancereporter.com/news/nasd+nyse+sec+to+join+forces.asp

* LONDON. British accountants are pressed into being government
anti-ML agents. LINK: http://www.accountancyage.com/News/1121812

* MONTREAL. Sovereign Society advisor Prof. Pierre LEMIEUX
explains "Why Big Brother Attacks Money Laundering"
LINK: http://www.zolatimes.com/V5.21/tyranny_laundering.html

* EUROPE. Introduction of euro notes & coins on Jan. 1st means
risk of money laundering, counterfeiting and fraud in Europe. LINK:
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT34P68L0NC&liv

* MOSCOW. The Russian Dumas creates a new anti-ML agency in
an effort to get of the FATF blacklist and clean up their image.
LINK: http://www.themoscowtimes.com/stories/2001/05/25/002.html

* KUALA LUMPUR, Malaysia. Warnings that the Internet is
becoming a lucrative, new conduit for dirty money activity.
LINK: http://www.siliconvalley.com/docs/news/tech/021288.htm

* HONOLULU, Hawaii. The Asian Pacific region is a major ML area.
LINK: http://www.tax-news.com/asp/story/story.asp?storyname=3708

* ABU DHABI, U.A.E. The Gulf states defend themselves against
charges of rampant ML action in the area.
LINK: http://www.gulf-news.com/Articles/news.asp?ArticleID=17668

* BEIRUT, Lebanon. Tough new anti-ML law adopted here.
LINK: http://208.2.80.22/business/23_05_01_b.htm

Database Money Laundering Articles:

Aninat, E., Hardy, D., & Johnston, R. B. (2002, September). Combating money

laundering and the financing of terrorism. Finance & Development. 39(3),

44-7. Retrieved September 21, 2003 from WilsonSelectPlus database.

Geddes, J. (2002, May). The money trail. Canada’s fight against money

laundering. Maclean’s. 115(19), 44. Retrieved October 1, 2003 from

WilsonSelectPlus database.

Komisar, L. (2003, Spring). Offshore banking: The secret threat to America.

Dissent. 50(2), 45-51. Retrieved September 21, 2003 from WilsonSelectPlus

database.

Lavoie, E. & Leclerc G. (2001, October). Keeping your hands clean. Accounting

firms; complying with money-laundering rules. CA Magazine. 134(8), 35-38.

Retrieved October 1, 2003 from WilsonSelectPlus database.

McLaughlin, P. (2001, October). The spin cycle. CA Magazine. 134(8), 20-24.

Retrieved October 1, 2003 from WilsonSelectPlus database.

Robin, R. (2001, October). Not-so-easy money. Canadian Business. 74(20), 52-

54. Retrieved October 1, 2003 from WilsonSelectPlus database.

Schroeder, W. R. (2001, May). Money laundering: a global threat and the

international community’s response. FBI Law Enforcement Bulletin. 70(5), 1-

9. Retrieved September 21, 2003 from WilsonSelectPlus database.

Suter, K. (2002. August/September). Banking on terrorism. The World Today.

58(8/9), p. 35-6. Retrieved September 21, 2003 from WilsonSelectPlus

database.

Weintraub, S. (2002, Winter). Disrupting the financing of terrorism. Washington

Quarterly. 25(1), 53-60. Retrieved September 21, 2003 from WilsonSelectPlus

database.

Dissertations on Money Laundering:

Benning, J. (2001). "That's where the money is": An exploration of the

international effort to contain transnational organized crime through the

formation of an anti-money laundering regime. Dissertation Abstracts

International, 62, (02), 765A. (UMI No. AAI3003033). Retrieved September

28, 2003 from Dissertations database.

Government websites:

Department of Justice Canada. (2000). Federal action against organized

crime. Retrieved September 15, 2003 from

http://canada.justice.gc.ca/en/news/nr/2000/doc_25605.html

Department of Justice Canada. (2000, September 11). Government of Canada

makes significant progress in combating organized crime. Retrieved

September 27, 2003 from

http://canada.justice.gc.ca/en/news/nr/2000/doc_25603.html

U.S. Department of State. (2000). Canada, Mexico and Central America.

Retrieved September 27, 2003, from Office of Citizens Services and

Communications Online via GPO Access:

http://www.state.gov/g/inl/rls/nrcrpt/2000/888.htm

Conferences on Money Laundering:

Johnson, J. E. (2000, October 21). Treasury under secretary for enforcement

James E. Johnson remarks to the pacific rim money laundering and

financial crimes conference Vancouver, Canada (Publication No. LS-965).

From the Office of Public Affairs. Retrieved September 27, 2003, from Office

of Citizens Services and Communications Online via GPO Access:

http://www.treasury.gov/press/releases/ls965.htm

O’Neill, P. (2001, November 17). Statement by U.S. Treasury Secretary Paul

O’Neill Ottawa, Canada (Publication No. PO-805). From the Office of Public

Affairs. Retrieved September 27, 2003, from Office of Citizens Services and

Communications Online via GPO Access:

http://www.treasury.gov/press/releases/po805.htm

Legislation:

Canadian Charter of Rights and Freedoms

Criminal Code

American Constitution

Bill of Rights

Peer Reviewed Articles:

Malkin, A. & Elizur Y. (2001, Spring). The dilemma of dirty money. World

Policy Journal. 18(1), 13-23. Retrieved September 15, 2003 from

WilsonSelectPlus database.

Malkin, L. & Elizur, Y. (2002, Spring). Terrorism’s money trail. World Policy

Journal. 19(1), 60-70. Retrieved September 21, 2003 from WilsonSelectPlus

database.

Controversial Scholars:

Naylor, R. T. (2000, September 29). Expert panel on emerging crimes. From the

Research and Statistics Division, Canada. Retrieved September 27, 2003,

from the Department of Justice Canada Access:

http://canada.justice.gc.ca/en/ps/rs/rep/expertpanel.pdf

Experts:

Police

Criminologists

Lawyers

Police Case Files:

From RCMP offices across the country

Foreign Literature and Legislation:

Review of various laws and perspectives across the globe.

Dr. MICHAEL A. S. GUTH Editor-in-Chief Ph.D. (Economics), J.D. Univ. of Tenn. Licensed in Tennessee since 1998 send e-mail (E-mail is best method of contact).   116 Oklahoma Ave.   Oak Ridge, TN   37830-8604   Phone: (865) 483-8309

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