As B.C. braces for real estate rules to fight money laundering, lawyers across the country expect stricter rules on transparency to come
There’s more up in the air than housing prices for real estate lawyers in British Columbia as the profession awaits regulations that will bring the Land Owner Transparency Act into force.
“Most lawyers who deal with real estate know it’s coming, they know generally what it’s about; but I think until [they] see the draft regulations, the devil’s always going to be in the details,” says Edward Wilson, a partner at Lawson Lundell LLP in Vancouver.
He says clients have been asking what the act means to them, because they’re structuring investment vehicles and going to the investment markets to collect funds. What do they tell potential investors?
“Right now, that’s a challenge,” says Wilson, noting that it creates uncertainty investors don’t like. “We say here’s what the act says, here’s what we think they’re going to require — but we don’t know.”
LOTA, which became law last May, is to be administered by the Land Title and Survey Authority. The act requires all landowners in B.C. to report their identities to the government, regardless of how they own it — either directly, indirectly or through corporations, trusts and partnerships.
Wilson notes that the advantage of laundering money in B.C. through real estate was that one would make a profit — buy a property for $1 million sell it for $2 million — and the government cooling the housing market has likely helped address money laundering as financial criminals might seek new vehicles to wash the dirty money.
Wilson says that, over the last several years as it became higher profile, lawyers have become more live to the issue of money laundering and are engaging in “defensive practice” — generally protecting themselves by brushing up on the existing rules and passing on any files that “don’t pass the smell test.”
He hopes the regulations and policies, expected in the spring, refine a few areas of the legislation — a silent prayer on his part, he says.
“There are certain areas we’re concerned about. One of the interpretations is you have to have all the information about every limited partner,” Wilson says, noting that the firm has a number of clients that use limited partnerships for their investment vehicles, such as developers, and a lot of them have limited partnerships where some of the owners of units are themselves limited partnerships.
Another example is not knowing all the details one needs to provide about all shareholders, without which one can’t file the transfer. When there is a transaction coming in and one can’t file, what does one do?
“That’s going to cause a few heart attacks I’m sure. I don’t think anybody has really come to grips with that yet,” says Wilson.
He says he “can certainly see, at some point, perfectly legitimate investors saying ‘I just don’t want all the hassle of my particulars disclosed, so I’m not going to do it.’”
Because land titles are all provincially based, each province would have implement their own version of LOTA — and Wilson’s guess is that “everybody’s going to sit back and see what happens” because it’s an expensive process nobody would take on lightly. It’s a bit of an experiment, he says, but if it works in B.C., he could see other provinces adopting a similar regime.
Fraser MacFadyen, a partner at Stewart McKelvey in Nova Scotia, says there hasn’t been any discussion in the province about going as far as a publicly searchable registry like LOTA provides, but he notes that there has been a general call for more “look-through” tools to combat money laundering.
In March 2015, the Supreme Court of Canada in Canada (Attorney General) v. Federation of Law Societies of Canada struck down certain aspects of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act pertaining to the legal profession. The SCC decision ended a 14-year legal battle between the federation and the federal government over application of this regime to lawyers and Quebec notaries.
But despite the hard-won exemption, with a push toward more transparency on these issues both domestically and internationally, “there was a response from the profession recognizing this concern should be addressed,” says MacFadyen.
In March 2018, the federation presented a brief to the House of Commons Finance Committee following its statutory review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In October 2018, the Council of the Federation approved amendments to the cash transactions rule, the trust accounting rule and client identification and verification rules.
Working with the government of Canada, the federation created the Anti-Money Laundering and Terrorist Financing Working Group in June of last year with a mandate of examining best practices for the profession. Last February, it released a Guidance to the Legal Profession with suggested model rules summarized.
“This is on our radar screen,” says MacFadyen, noting that the Nova Scotia Barristers’ Society is expected to adopt the model rules this year.
But, like how B.C. lawyers feel about the LOTA requirements, imposing an obligation on the law firms to drill through complicated corporate structures to the individuals who actually control it could be “quite burdensome in some situations,” he says.
The rules themselves talk about using judgment, MacFadyen says, so “it’s not clear how the different law firms and the law society are going to actually enact this and what their expectation actually is.
“They still talk about making efforts to identify who owns even broadly held companies — I think that’s entirely unrealistic,” MacFadyen says. “I struggle to see how anybody would actually do that.”
The changes to the rules by the federation are part of a process of law societies across the country adopting tighter rules, Wilson says, noting that B.C. adopted the trusts and cash funds limits last year.
In other jurisdictions — such as England or the United States — lawyers are subject to the money-laundering rules, and it causes “a lot of frustration within police organizations that lawyers are exempt and that lawyers are somehow shielding their clients from money-laundering detection,” Wilson adds.
He predicts “the day will come” where either the provinces adopt laws that say lawyers are subject to money-laundering rules or, more likely, law societies will eventually need to create a similar registry that may be confidential and protected — only accessible after a court order, for example — if the profession wants to maintain self-regulation.
“If the provinces or the feds get concerned enough about this issue, I could see them saying if you don’t do something about this issue then we’re going to do it,” Wilson says. “It may not be taking over regulation of the law society, but they may say they’re amending the Legal Profession Act and you must now maintain this registry.”
He says he’s “a big fan” of the federation leading the charge because then the country would have consistent practices and rules across all provinces, and “that makes life a little easier.”
“Ninety-five per cent of the world is legit, and they’re suffering because they have to jump through hoops to deal with the five per cent,” he says. “But, at the end of the day, I think that’s a good thing — it’s just a complicated thing.”
Vancouver housing prices
- $1.2 million, average sold price 2019
- $2.3 million, average sold price 2018
- 28 days, average time on market
The long road to SCC’s Canada (Attorney General) v. Federation of Law Societies of Canada
- 2000: Parliament adopted the Proceeds of Crime (Money Laundering) Act
- The Federation of Law Societies of Canada challenged the provisions affecting lawyers
- 2001-2002: Courts in numerous provinces side with the federation
- 2011: B.C. Supreme Court sides with federation
- 2013: B.C. Court of Appeal sides with federation
- 2015: Supreme Court of Canada unanimously ruled the legislation applicable to lawyers is unconstitutional