Skip to content
Join our Newsletter

Battle over lawyers’ money-laundering loophole shapes up in B.C.

B.C. is the front line of a developing skirmish between federal Finance Department officials and Canadian lawyers over rules designed to fight money laundering.
0227-lawyerspic.jpg
Scales of Justice statue at B.C. Supreme Court in Vancouver.

B.C. is the front line of a developing skirmish between federal Finance Department officials and Canadian lawyers over rules designed to fight money laundering.

In a Supreme Court of Canada ruling in 2015, lawyers won an exemption from reporting requirements that apply to other professionals, such as bankers and real estate agents. The ruling was based on concerns about lawyer-client privilege. B.C. lawyers argued they protect confidentiality while counteracting money laundering risks by policing themselves.

But a growing chorus of international critics say Canada’s lawyer loophole is unique among developed countries, and leaves a dangerous gap in the federal government’s money-laundering defences.

“The law societies claim to have rules in place to prevent money laundering but they are weak, non-transparent and almost never enforced,” said Adam Ross, the author of a recent Transparency International report, which pointed to lawyers and money laundering risks in Vancouver real estate.

“Unless the law societies demand more of their members and start enforcing those rules, billions of dollars will continue to be washed through lawyers’ trusts accounts without any consequence,” he said in an interview. “So far, we’ve seen that self-policing doesn’t work.” 

Lawyers must make annual reports of trust account activity to show they comply with B.C. Law Society rules, spokesman David Jordan said.

Trust accounts can be audited if the Society spots indicators of non-compliance in these reports, and trust accounts are also subject to random audits, he said. The society also has rules against large cash transactions, and has cited six lawyers since 2004 for handling cash transactions of over $7,500, according to Jordan. 

Sources in Ottawa say the Finance Department is working on legal amendments that would bring Canadian lawyers into the national anti-money laundering system.

The department won’t disclose details. Changes would likely demand more from lawyers in the reporting of potentially suspicious transactions, but it is not clear how amendments could work around the issue of client confidentiality.

“There must be a solution where lawyers are held to higher standards of due diligence and anti-money laundering compliance without compromising attorney-client privilege,” Ross said.

Meanwhile, the B.C. Law Society is hearing what is believed to be the first case alleging that a member allowed a legal trust to be abused through suspicious transactions from offshore. 

The Law Society alleges West Vancouver lawyer Donald Gurney allowed $25,845,489 in offshore funds to pass through his trust account between May and November 2013, without providing substantial legal services. It’s alleged Gurney did not ask where the money was coming from, and accepted it “without making reasonable inquiries about the circumstances, including the subject matter and objectives of the retainer,” Jordan said.

“When they fail in that obligation (to protect legal accounts against abuse) there must be robust professional discipline with a view to ensuring public confidence in the profession and its ability to regulate itself,” the Society’s counsel told the hearing panel.

Gurney’s lawyer, however, argued there was no evidence of nefarious transactions in the case, and that B.C. lawyers have no responsibility to investigate the sources of funds placed in their accounts beyond what theirs client tell them. The outcome of the case could clarify the boundaries of B.C. lawyers’ responsibilities to the public and likely will influence the Finance Department’s efforts to bring lawyers into the suspicious transaction reporting system.

Another anti-money-laundering expert, former RCMP unit leader Kim Marsh, said he believes many B.C. lawyers are “wilfully blind” to the origins of offshore cash flooding through legal trusts and into real estate.

“I think a lot of trust accounts in B.C. are used as flow-through accounts,” Marsh said. 

Marsh said offshore investors use flow-through accounts as “a conduit to move the money into another location or investment; and what better conduit than a lawyer’s trust account? It’s a big red flag in offshore banking when money just goes in and out of an account.” 

Details alleged in court filings for another case appear to highlight some of the issues that the Financial Action Task Force, a Paris-based intergovernmental group, asked Canada to address in a 2016 report. Its report pointed to concerns with offshore investment in real estate and the services provided by Canadian lawyers, such as placing wire transfers in trusts and creating investment vehicles that can shield true ownership of property.

The case, proceeding through separate but related B.C. Supreme Court civil actions, involves prominent Richmond real estate and immigration lawyer Hong Guo. 

Documents filed in B.C. Supreme Court allege that about four years ago, Guo’s Chinese investor clients used her legal trust to wire tens of millions from offshore into Guo’s accounts. Next, various B.C. shell companies either incorporated or owned by Guo were used to invest the funds in various land and resource deals, according to legal filings.  

In the largest deal, Chinese investors bought three properties on Richmond’s Minoru Boulevard in 2013 for a condo development.

According to allegations in legal filings, the condo development stalled for financial reasons. The investors had difficulty getting enough money into B.C., legal filings say, and they struggled to find lenders in B.C. because “the whole transaction looked suspicious.” In connection to the financing difficulties, Hong Guo “admitted to sending false disclosure information to the prospective lenders in the Minoru Deal,” legal filings allege.

When the development failed to proceed, some investors wanted to sell the Richmond properties quickly and get their money back, legal filings say, but others wanted to hold the land. These investors are now fighting each other in B.C. courts to prove who invested funds for the deal. 

Guo and her business associate Allen Sun are also locked in several court battles over these deals.

In one court action, Allen Sun questioned who really owns the $20 million wired into Guo’s legal trust to invest in the deal. One of Guo’s Chinese clients, a man named Zhongping Xu, claims that the $20 million belongs to him. But records filed in court by other investors say most of the $20 million came not from Zhongping Xu, but from a Chinese man named Li Zhen, and two Hong Kong registered companies known as Sparkle Long and Double Wealth International.

Allen Sun’s lawyer questioned Zhongping Xu in court about the source of funds.

 “It says all of these balances were received from Li Zhen … who is Li Zhen?” Sun’s lawyer asked Xu, according to examination transcripts, while showing him Guo’s trust account records.

“My friend,” Xu answered. 

“And what was his involvement in … any of these companies? Was that your money that was being funnelled through Li Zhen?”

“I don’t want to answer because I don’t want to talk about my money,” Xu responded. “It doesn’t matter where it is from. The source is from Hong Kong, that’s my business.”

“Was it transferred to Ms. Guo’s account from China?” Sun’s lawyer pressed, according to transcripts. “How did you get the $20 million you say that you have invested in this deal, from China to Vancouver?”

“I will not provide you with the documents in China,” Xu answered.

Legal filings from Allen Sun assert that “the money coming in for these deals was from a completely unknown source offshore,” and “there are hundreds of thousands of dollars which flowed into and out of Ms. Guo’s trust account to unidentified parties including $350,000 to Mr. Xu personally.”

In March 2016, in a B.C. Supreme Court order granting Allen Sun’s lawyer an opportunity to re-examine Zhongping Xu, Master Douglas Baker stated that: “It is my observation that when matters got close to the bone, so to speak, when significant issues (were asked) like ‘where did you get the $20 million, how did you get it to Canada,’ he does become, I think, the nice word would be ‘circumlocutory.' ”

Also in the Richmond land deal case, Guo’s client Qing Yan has sued Zhongping Xu and Hong Guo.  

Affidavits filed by Yan in the case say that in January 2016, before Yan sued Xu, the two investors discussed meeting in Macau or Hong Kong to resolve their differences in the Richmond land deal, and that scrutiny of regulatory authorities was a consideration. 

“Mr Yan … using a third party transferee (you don’t have to show your face) so that actual payment will be in cash … the signing can actually take place in Hong Kong,” Zhongping Xu texted to Qing Yan, affidavits filed in B.C. Supreme Court say. “It’s better our future discussions take place either face to face or via WeChat! … If someone out of unfriendly intention complains to the regulatory authority, then it will lead to intervention, delay or termination!”

There is no indication that the B.C. Law Society is investigating Guo’s involvement in the Richmond land deal case.

In interviews with Postmedia, Guo insisted strongly that she and her clients have done nothing wrong in the contested Richmond land deal.

“Who is Li Zhen? I don’t know, I really don’t know what you are asking,” Guo said. “I’m just in the middle to help the two parties. I’m not benefiting. I don’t have any benefit from this deal, even a penny.”