Solicitor-Client Privilege Trumps Federal Anti-Terrorist Laws

The Supreme Court of Canada recently struck down sections of the federal terrorist financing and money laundering law because it violated solicitor-client privilege.

In Canada (Attorney General) v Federation of Law Societies of Canada1, the Federation of Law Societies challenged the identification, record-keeping, and search and seizure provisions found in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act2 (the Act) and Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations3 (the Regulations).

In reaching its long-anticipated decision, the Supreme Court reinforced the importance of solicitor-client privilege and recognized a lawyer's commitment to his or her client is a principle of fundamental justice.

The legislation

The Act addresses the risk that financial intermediaries may, inadvertently, facilitate money laundering and, by extension, terrorist financing. To reduce that risk, the Act imposes duties on financial intermediaries such as lawyers, accountants, securities dealers and life insurance brokers to verify the identity of those on whose behalf they pay or receive money, keep records of transactions, and establish internal practices to ensure compliance. The Act also created the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to oversee compliance.

The Regulations made under the Act particularize how this legislative scheme applies to legal counsel. In addition to imposing identity verification and record-keeping obligations, the Regulations give FINTRAC wide powers to "examine records and inquire into the business and affairs" of any lawyer.4 This includes the power to search and make copies of lawyers' records and requires that lawyers provide information upon FINTRAC's request. Under the Act, lawyers who violate this legislative scheme are liable to significant fines and incarceration.

The Supreme Court decision

Referring to Lavallee, Rackel & Heintz v Canada (Attorney General)5, the Supreme Court held that a power to search a law office is unreasonable unless it provides a high level of protection to solicitor-client privilege.6

The court noted the expectation of privacy for communications subject to solicitor-client privilege is invariably high and the main driver of this expectation is the nature of the solicitor-client relationship and not the context in which the state seeks to intrude into that "specially protected zone."7 As such, the court rejected the...