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 theProceeds 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 contention there was a reduced expectation of privacy in relation to privileged communications when a search is conducted under the Act as opposed to a standard criminal investigation. Quoting from Lavallee, the court stated:

“It is critical to emphasize here that all information protected by the solicitor is out of reach for the state […] [A]ny privileged information acquired by the state without the consent of the privilege holder is information that the state is not entitled to as a rule of fundamental justice.”8 

The court went on to hold that the Act’s search and seizure powers combined with the inadequate protections for solicitor-client privilege constituted a significant limitation on the right to be free from unreasonable search and seizures guaranteed by section 8 of the Charter. This violation did not meet the minimal impairment test, the court concluded, and therefore could not be justified under section 1. Specifically, the court held there were other less drastic measures available to pursue the legitimate objective of preventing money laundering and terrorist financing. 

As for section 7 of the Charter, the Supreme Court held that the impugned provisions of the Act limited the liberty of lawyers in a manner inconsistent with the principles of fundamental justice. The duty to avoid conflicting interests is at the heart of lawyers’ fiduciary duties and the ethical principles governing lawyers’ professional conduct. The court declined to comment on the “independence of the bar” as a constitutional principle but held that another dimension of the solicitor-client relationship – the lawyer’s duty of commitment to the client’s cause – is deserving of a measure of constitutional protection.9 

The court noted clients and the broader public must be confident that lawyers are committed to furthering their clients’ legitimate interests and are free from competing obligations that may interfere with this duty.10 As such, the “duty of commitment to the client’s cause” is critical both to the representation of individual clients and the public’s confidence in the administration of justice. Speaking for the court, Justice Cromwell stated:

“We should, in my view, recognize as a principle of fundamental justice that the state cannot impose duties on lawyers that undermine their duty of commitment to their clients’ causes. Subject to justification being established, it follows that the state cannot deprive someone of life, liberty or security of the person otherwise than in accordance with this principle.11”   

The court held that the Act and Regulations limited lawyers’ liberty by creating the possibility of imprisonment, and this limitation was inconsistent with the lawyers’ commitment to their clients’ cause as a principle of fundamental justice. A reasonably informed person would perceive the impugned provisions of the Act as significantly undermining the capacity of lawyers to provide committed representation, the court also noted. Agreeing with the application judge and Court of Appeal, the Supreme Court concluded this scheme failed the proportionality test under section 1 of the Charter and therefore could not be demonstrably justified in a free and democratic society.

On that basis, the court deemed unconstitutional those provisions of the Act and Regulations related to record keeping, retention of information, identification and search and seizure insofar as they apply to the legal profession.

Takeaway

This decision reaffirmed the importance of solicitor-client privilege to the adjudicative process and the public perception of Canada’s legal system. Moreover, this decision recognized the lawyers’ commitment to their clients’ cause as a principle of fundamental justice. Although it was reached with reference to Canada’s anti-terrorist legislation, this decision reaffirms the broad implications and power of solicitor-client privilege.

The author wishes to thank Jonathan Preece, articling student, for his help in preparing this legal update.