Lawyers and other legal professionals are vulnerable to exploitation by money launderers and other financial criminals, according to a special bulletin from the federal anti-money laundering agency, FINTRAC.
The agency issued a bulletin to warn banks and securities dealers that are required to report certain transactions to the federal authority about the risks of illicit activity involving legal professionals.
“Members of the legal profession possess knowledge and skills that may be useful to criminal actors seeking to launder the proceeds of crime and/or evade economic sanctions,” it said, noting that they provide services, such as holding assets in trust for clients, creating corporations and trusts, facilitating real estate transactions, and acting as corporate shareholders or directors, that can be exploited by criminals.
FINTRAC said an analysis of its data on reported transactions shows that legal professionals have a “significant role” in financial transactions and that “high volumes of funds are potentially exposed.”
For instance, it reported that in 2022–23 legal professionals were involved with an estimated 615,000 transactions, which totalled $110 billion. It received approximately 2,400 suspicious transaction reports that involved legal professionals and/or law firms.
The agency said that its data indicates that “many professional money laundering schemes may rely on the involvement of a legal professional.”
These schemes are sometimes connected to cases of human trafficking, drug trafficking and fraud.
Additionally, FINTRAC said that, apart from notaries in British Columbia, legal professionals aren’t covered by the federal anti-money laundering regime. Instead, they are self regulated.
“This gap in legislative anti-money laundering and counter-terrorist financing oversight may attract professional money launderers, organized crime and transnational organized crime groups who seek to exploit the sector to move and mask illicit funds and activity,” it said.
Given that most legal professionals aren’t part of the federal anti-money laundering regime, “the perspectives provided by [banks, dealers, etc.] in relation to suspected money laundering, terrorist activity financing, or sanctions evasion is critical,” it said.
To help financial firms identify these risks, the bulletin flagged how legal professionals can be involved in illicit financial activity — including, through the misuse of trust accounts, the creation of companies and trusts, and in real estate deals — and it details red flags for industry firms to watch out for in their dealings with the legal sector.
“Corporate vehicles can be used as a means of confusing or disguising links between offenders and the proceeds of their crimes, and offshore bank accounts provide a level of secrecy that can be used to hide illicit funds,” it said.
While there are legitimate reasons for the creation of complex corporate structures, “there are increasing concerns over the use of corporate vehicles such as shell companies to hide beneficial owners for illegitimate reasons.”
“Lawyers may also act as directors, officers, trustees, or even as owners or shareholders of a company, with their law offices serving as the corporate addresses for companies controlled by criminal actors,” it said.