A SCAPEGOAT FOR FOREIGN-MONEY FEARS?
Law society used client to prove real estate deals are monitored: lawyer
The Law Society of B.C.’s ability to police money laundering and offshore real estate investment is being questioned after a lawyer was found guilty of professional misconduct for nearly $26 million in suspicious transactions.
Lawyer Paul Jaffe said the disciplinary decision Wednesday against his client Donald Gurney imposes standards and expectations of conduct for the profession that may be impossible to meet.
He underscored: “The law society conducted a two-year investigation in connection with the transactions under review by the (disciplinary) panel and were not able to identify any wrongdoing or suspected wrongdoing, or illegality involving the transactions.”
Jaffe insisted his fellow lawyer, a 49-year veteran of the bar, was a victim of the legal regulator’s desire to show it was dealing with fears about foreign investment and money laundering in the overheated real estate market.
The watchdog was “under pressure,” he maintained, to show it has procedures in place to regulate its members following a 2015 Supreme Court of Canada decision that exempted lawyers from some financial tracking laws.
“In short, through the disciplinary process, the LSBC seeks to advance policy objectives at my client’s expense,” Jaffe complained. “While seeking to convince the public that it takes money laundering seriously, it has chosen to not apply its resources against lawyers who are actually engaged in that activity.”
The panel criticized Gurney for being evasive and ignoring “a sea of red flags” in four questionable transactions that saw $25,845,489.87 flow through his professional trust account between May and November 2013. He reputedly took a tenth of one per cent as a fee.
It found he made no inquiries regarding who the lenders were, the source of the funds or the client’s use of the money and concluded he had shown “a gross culpable neglect to his duties to make reasonable inquiries.”
The panel said a lawyer cannot delegate the duty to inquire or rely upon a client’s assurances as to the legitimacy of the transaction, Jaffe noted.
The suspicious transactions — involving funds from Nevis, Marshall Islands and Belize — surfaced during a compliance audit, a regular check of a law firm’s books conducted by the society roughly every six years.
Painting Gurney as a scapegoat, Jaffe said the society had made public no information or evidence to indicate it had applied its regulatory efforts to any real estate transactions involving offshore parties or how it was policing lawyers handling foreign investment.
He pointed to China as a prime example — “a hotbed” for investment during the past number of years — and cited the reportage of my Postmedia colleagues Douglas Todd and Sam Cooper.
A 2015 study that sampled 172 Vancouver houses, purchased in the last few years for between $1.25 million and $9 million, found 35 per cent were owned by homemakers or students, Jaffe said — one a Point Grey mansion bought for $31.1 million.
Further, he continued, a third of the 100 most valuable properties in Metro Vancouver are owned by holding companies, four are registered offshore, 11 held through nominees and six held in trust for anonymous beneficiaries.
“Presumably the vast majority of these transactions would have raised suspicions and would have required a lawyer to make reasonable inquiries,” Jaffe noted.
“The lawyer would have to obtain evidence of the identification of all parties involved, evidence as to the source of funds, evidence that the funds are not tainted with illegality, be satisfied of the bona fides of the ownership structure and be satisfied that there was compliance with Chinese currency laws and ensure compliance with Canadian law, amongst other matters depending on the circumstance.”
He scoffed that any lawyer would be able to satisfy such criteria.
“This work would be time-consuming and expensive and may prove impossible to perform,” Jaffe said. “In the end it will be a judgment call by the lawyer as to whether sufficient inquiries have been made, with a risk that the law society may not agree, given the absence of any specific guidelines in the area.”
With the panel’s decision, he said, lawyers should be wary of becoming involved in offshore funding with a Chinese connection “at the inquiry stage of transactions.”
“In fact,” Jaffe warned, “it may be ill-advised for lawyers to become involved at all.”
The ruling also has implications for criminal lawyers, he added.
“A lawyer handling a criminal matter such as a drug-trafficking or drug-conspiracy charge who receives cash to apply on his fees must, according to the decision, make reasonable inquiries to verify that the money is not proceeds of crime,” Jaffe explained.
“According to the decision, it is not sufficient for the lawyer to take the word of the client.”
A spokesperson for the Law Society of B.C. said it could not comment because the disciplinary panel had not finished its work and had yet to decide on a penalty for Gurney’s misconduct.