Red Flags From Panama
The British Columbia Law Society Review Division agreed with a hearing panel’s decision to impose a three-month suspension for questionable use of an escrow account
The hearing panel found that there were a number of “red flags” that should have lead the Respondent to make inquiries as to the source of the funds being received, which included: no contracts related to the purported transactions were provided; the Respondent did not know PL’s uncle or any details about his financial means; the funds came from a variety of sources at a variety of intervals without explanation; the value of the gift was originally described as $3 million to $4 million, but grew to over $10 million; PL asked that the first deposit be immediately paid to him personally; no explanation was given to the Respondent for the further $3.5 million being deposited into trust; no explanation was given for why substantial funds were being deposited into a non-interest bearing trust account; and the source of some of the funds was Panama, which at the time was the subject of the “Panama Papers” media coverage and which should have highlighted a linkage between Panama and potential money laundering. Further, the hearing panel found that it was evidence of the questionable nature of the transactions that inquiries of PL about the source of the funds were only made after the Royal Bank made its own inquiries.
The duty to inquire regarding the source of the deposits
The commentary to rule 3.2-7 at the time made it clear that where no substantial legal services were being performed with respect to a matter, a duty to inquire existed.
It is clear that for many of the transactions in question, the Respondent provided no services other than the use of the trust account. As set out in Gurney, when coupled with suspicious circumstances around the funds, it gives rise to an objective duty to make inquiries into the source of the funds.
There were numerous red flags with respect to the source of the funds including the lack of documentation related to many of the transactions, the Respondent’s lack of knowledge of the uncle from any source other than PL and the disparate locations and accounts the funds were sent from.
We find the hearing panel was correct in that there was a duty on the Respondent to make inquiries into the source of the funds that flowed through the KALC trust account. The steps that the Respondent took to inquire into the source of the funds were inadequate. In many instances, no inquiries were made and where they were made, they consisted only of inquiries of PL directly or of a generic email address provided by PL.
Applying Gurney, it is clear that the Respondent was involved in suspicious transactions where no substantial legal services were being provided and that she did not take steps to satisfy herself, on an objective standard, that the transactions were legitimate.
We note that it is not necessary to make a finding of “wilful blindness” in this matter in order to establish that professional misconduct occurred. It is sufficient to establish that the Respondent’s actions constituted a marked departure from the standard expected of lawyers when she failed to inquire into the source of funds being deposited into the KALC trust account.
In this case, we find that the Respondent’s failure to make those inquiries constituted gross culpable neglect of her duties and therefore find that the hearing panel was correct in finding that the Respondent’s actions with respect to Allegation 1 constituted professional misconduct.
Sanction
the hearing panel was correct in imposing a three-month suspension in the circumstances.
(Mike Frisch)