Sunday, September 27, 2020

Thy Client's Banker

A Hearing Panel of the British Columbia Law Society sustained charges alleging an attorney had allowed a client to improperly use her trust account

This case involves the receipt and disbursement of over ten million dollars of trust money on behalf of an existing client over a two-year period.  The issues involve what inquiries need to be made concerning the source of those deposits and what constitutes doing a “substantial amount of legal work in connection with the trust matter.”

The charges

Essentially the citation sets out two allegations:

1.      Between approximately May 20, 2015 and February 23, 2017, on behalf of her client PL, the Respondent  used or permitted the use of her firm’s trust accounts to receive approximately $10 million US and $1.27 million Canadian and disburse approximately the same amount in 15 separate deposits and 25 separate withdrawals or transfers , and failed to do any of the following in connection with these transactions:

(a)         provide any substantial legal services;

(b)        make reasonable inquiries about the circumstances of the transactions, including the subject matter and objectives of the retainer, the source of funds, the purpose of payment of the funds or the reason of the payment of the funds to or through the trust account; or

(c)         make a record of the results of any inquiries about the circumstances.

2.      Between approximately May 20, 2015 and June 15, 2015, the Respondent received funds into her firm’s trust accounts on behalf of her client PL but failed to record the source of funds in relation to one or more of the following transactions:

(a)        $500,000 US received on or about May 20, 2015;

(b)        $1,700,000 US received on or about June 10, 2105; and

(c)        $1,849,971.20 US received on or about June 15, 2015.

The duty

The requirement that a lawyer be vigilant about the use of the trust account is not new.  The Law Society put in evidence publications dating back as far as the late 1990’s warning lawyers against getting unknowingly involved in illegal activities such as money laundering, and warning against becoming, in effect, a banker for the client.  In 1999 a Notice to the Profession stated:

For any transaction in which you are involved … it is always sound to think through the issues:  Do you fully understand the transaction?  Are you satisfied the investment is legitimate? ...  Are you offering legal services and advice, and acting as a lawyer in the transaction? ...  If the answer is “no” to any of these questions, why are you involved?

Similarly a 2002 Benchers’ Bulletin stated:

If you receive a request from a client for services that seem to mean that you are being retained to be the client’s banker, or if you cannot precisely identify the legal services you are being retained to carry out, be vigilant to ensure that no person uses your trust account to deal with the proceeds of crime.

In essence, that is what was occurring in this case.  Of the 30 withdrawals from trust in issue in the citation, only four were transfers to other legal files where the Respondent was providing legal services.  These transfers were to complete transactions or pay a small account.  Other withdrawals were to the client or his related companies, to other law firms with respect to transactions with which the Respondent was not involved, to currency exchanges, or to other investment entities, again, where the Respondent was not providing legal services and was, in essence, being the banker. 

The panel sustained both charges

https://lawprofessors.typepad.com/legal_profession/2020/09/a-hearing-panel-of-the-british-columbia-law-society-this-case-involves-the-receipt-and-disbursement-of-over-ten-million-doll.html

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