OTTAWA MOVES TO CLOSE LAUNDERING LOOPHOLE

Rules Would Force Lawyers To Record Large Transactions

The federal government is renewing a controversial plan to close
loopholes in Canada's anti-money-laundering rules by making lawyers
adhere to a law designed to sever gangsters and terrorists from their
illicit cash.

Canada's law societies have waged a fierce battle against the
government's moves to make them follow the same rules as bankers,
accountants, investment advisors, real estate agents, insurance
dealers and casinos, winning a series of court battles that placed
the secrecy of solicitor-client privilege ahead of the war on dirty money.

This week, the Department of Finance proposed changes to the Proceeds
of Crime (Money Laundering) and Terrorist Financing Act that will
place requirements on lawyers who move money on a client's behalf.

The proposed changes to the act are less onerous than those
previously rejected by the courts: they will require lawyers to
demand photo identification from clients wishing to engage their
services for transactions of $3,000 or more.

Lawyers will also have to record detailed information both on the
client -- such as name, address and occupation -- and on the
transaction itself, according to a Department of Finance briefing on
the proposed regulations provided yesterday to the National Post.

"The lawyer's records will exist so that in the event there is an
investigation by law enforcement there are records that can be
investigated," said the Department of Finance official.

"We have always said that we want to bring the legal profession back
into the act because they are a sector that is at risk of being used
for money laundering and terrorist financing," the official added.

Lawyers, however, still object to the revised plans.

"We will certainly look at what is being proposed to see how it fits
with the fundamental values that the Canadian Bar Association is
concerned about, namely the independence of the bar and the
protection of solicitor-client privilege," said Ron Skolrood, a
Vancouver lawyer and chairman of the bar association's constitutional
law section.

"There are concerns we will have to look at, including the nature and
extent of information that lawyers will be required to collect and
the provisions of the regulation that might allow federal officials
to come in and inspect those records," he said.

The proposed laws will also not satisfy law enforcement, said a
former RCMP financial crimes investigator.

Lawyers are a major concern to police tracing dirty money, said Chris
Mathers, a crime and risk consultant who once worked undercover as a
money launderer for the Mounties.

"This is like kissing your sister -- it's lip service but it's not
very effective," said Mr. Mathers of the proposed rules for lawyers.

"I have not been involved in a money laundering case ever -- ever --
when a lawyer was not involved in some way," he said.

"What lawyers don't seem to realize is that bringing them into the
regulations protects them. If you enforce the money laundering
regulations everywhere but one place, guess where the bad guys are
going to go? It makes them targets," Mr. Mathers said.

Mr. Skolrood said the best way to ensure lawyers are not used to move
dirty money is through rules imposed by the provincial law societies.
Many have already introduced measures to prevent lawyers from dealing
with more than $7,500 in cash.

Since 2001, Canada has required other money handlers to automatically
report suspicious and large cash transactions to the Financial
Transactions and Reports Analysis Centre of Canada (FinTRAC), a
federal government agency.

Also included in the proposed changes is a crackdown on precious
metals and stones -- such as gold bars, jewellery, and both raw and
cut diamonds -- which, to the frustration of police officers and
border agents, have so far not needed to be declared at the border
when carrying them.

That would change under the new rules.

As well, dealers in precious metals and stones will be required to
report transactions of $10,000 or more to FinTRAC.

"We are closing that loophole," said the Department of Finance official.

That move is likely to not draw the same sort of fire the government
caught from lawyers.

After law associations won court injunctions in Alberta,
Saskatchewan, Nova Scotia and Ontario against rules requiring them to
report transactions to FinTRAC, the government agreed to reevaluate the law.

Officials with the departments of Justice and Finance have been
meeting with representatives of the Federation of Law Societies and
the Canadian Bar Association to find a compromise.

Those negotiations are reflected in the proposed rules.

Members of the public have until mid-August to submit comments on the changes.

Half of all dirty money cases tracked by the RCMP saw the proceeds of
crime slip into the legitimate economy through the hands of a lawyer,
according to a detailed report on money laundering released in 2004.