Lawyers raise alarm bells about constitutional, privacy concerns in B.C. money laundering report

By Ian Burns

Law360 Canada (June 22, 2022, 3:33 PM EDT) -- A provincial commission has released a long-awaited report on how to tackle the issue of money laundering in British Columbia, but legal observers are saying recommendations contained in it could have a significant impact on people’s constitutional and privacy rights.

The mammoth 1,808-page report from commissioner Austin Cullen, which is the culmination of 133 days of evidentiary hearings with testimony from 199 witnesses, says that money laundering is a significant problem requiring decisive action and the federal anti-money laundering regime is not effective. As a result, it says British Columbia should establish an independent anti-money laundering commissioner, who will provide strategic oversight of the provincial response to money laundering. It also says a dedicated provincial money laundering intelligence and investigation unit is needed, and law enforcement bodies must make better efforts to follow the money and pursue money laundering and proceeds of crime charge.

The commission was set up after a series of reviews found significant levels of money laundering in B.C.’s real estate market and the province’s casinos. Cullen, a former judge on the B.C. Supreme Court, said the report “is the culmination of three years of dedication and commitment.”

“It is a substantial report and puts forward findings of facts and recommendations that are focused on making positive changes in many areas, addressing serious issues that the people of British Columbia care about,” he said.

Among the report’s 101 recommendations are calls for the provincial Attorney General to urge the federal government to introduce amendments to the federal Personal Information Protection and Electronic Documents Act, providing for a “safe harbour provision” allowing financial institutions to share information related to potential money laundering activity. It also recommends an expansion of the provincial civil forfeiture office and says the province should proceed with its plan to develop an unexplained wealth order regime in British Columbia, a system used in the United Kingdom which allows enforcement authorities to apply for an order requiring a person to provide information concerning the nature and extent of their ownership interest in a particular property, and how they obtained it.

Attorney General David Eby said the findings of the commission “validate the concerns of many British Columbians” on the issue of money laundering.

British Columbia Attorney General David Eby

British Columbia Attorney General David Eby

“They were right to be worried and right to be demanding action on money laundering. The commissioner’s finding, after more than a year of study, that the volume of money laundering in our province is ‘enormous’ is profoundly concerning. It is also well grounded in testimony from police, experts in the field and direct research,” he said. “This important conclusion and the commission’s connection of money laundering to violent crime and the illicit and poisoned drug trade also confirms our government’s reasons for taking action, and the need for further efforts from governments, regulators and businesses.”

Eby said the province will evaluate the recommendations and co-ordinate them with the work government already has underway, in particular in relation to housing and real estate.

“I believe these recommendations will help us to transform the meaning of the ‘Vancouver model’ from a description of unchecked dirty money moving through our casinos to a model of governments responding forcefully to the threat of money laundering,” he said. “I look forward to working on these reforms with my colleagues both inside and outside government, and all British Columbians.”

But the Cullen report did not receive unanimous support across the province. The British Columbia Civil Liberties Association (BCCLA) said it was disappointed, saying the report recommends invasive measures and a “tough-on-crime” approach which does not give due consideration to constitutional rights. The BCCLA had been granted full participant status in the commission.

BCCLA staff counsel Jessica Magonet said the association was “extremely troubled” that the commission is encouraging the province to ramp up civil forfeiture to fight money laundering.

“B.C.’s civil forfeiture regime grants extraordinary power to the state, impacts Charter rights, and harms marginalized communities,” she said. “We are also disturbed that the commission is calling for the introduction of unexplained wealth orders — a controversial legal tool that erodes the presumption of innocence.”

Magonet’s colleague Stephen Chin said he recognized that money laundering is a problem that requires commensurate solutions informed by the principles of balance and restraint, but the recommendations when viewed cumulatively cannot be reconciled with these principles and threaten constitutional rights.

“When the commission calls for substantial expansions to enforcement measures and information sharing, this is cause for concern,” he said.

Joven Narwal, a criminal lawyer with Vancouver’s Narwal Litigation LLP and an adjunct professor at the University of British Columbia school of law, said “predictably and perhaps prophetically” the recommendations all involve substantially increased state surveillance and an erosion of privacy protections for all British Columbians.

Vancouver Criminal lawyer Joven Narwal

Vancouver Criminal lawyer Joven Narwal

“And I do very much continue to believe that this is very much a case where the cure is worse than the disease, but distressingly the current public discourse has yet to grapple with that,” he said. “I think there is another method that can be used, which requires extensive consultation with stakeholders and a very clear mandate that this ought to be a process that has privacy architectures and foundations as a necessary element — particularly as it comes to the question of information sharing and collaboration among agencies and financial institutions.”

Narwal said when there is a piling-on of requirements and rules in order to isolate unlawful behaviour like money laundering it has the effect of “scooping out the entire ocean to catch a fish” and carries the risk that people who have nothing to do with the subject matter of the Cullen Commission may be pulled into unjustified investigations and inquiries.

“There is a rising tide of cases in which banks and other financial intermediaries will terminate banking relationships if they receive a simple inquiry from an enforcement agency about an individual, and where successive inquiries follow individuals to other financial institutions the termination pattern becomes a blacklisting from the financial system even when no finding of misconduct has been alleged or made,” he said. “And the individual who is subject to that kind of scrutiny may not even be aware of have no mechanism to find out who it is who is asking questions about them. The government is going to be permitted to co-opt this aspirational mission for anti-money laundering to impose a scheme which is going to erode the privacy protections of all of us and create a circumstance that quite frankly Kafka and Orwell had warned us about.”

In addition to its larger-scale recommendations, the Cullen report also makes several suggestions about the legal profession, including changing Law Society of British Columbia (LSBC) rules to require lawyers to verify a client’s identity when holding fiduciary property on the client’s behalf, and amendments to client identification and verification rules to explain what is required when inquiring into a client’s source of money.

Jason Kuzminski, the law society’s director of communications and engagement, said in an e-mail that the LSBC is still reviewing the report.

“The board of the Law Society will consider the findings and recommendations when it next meets in July,” he said.

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