?Sea of red flags? ignored as offshore cash was allowed to float through trust account
IAN MULGREW
The Vancouver Sun
A Law Society of B.C. disciplinary panel has found a West Vancouver lawyer guilty of professional misconduct for washing $26 million through his trust account.
In the face of an overheated real estate market and public concerns about foreign capital last year, the society cited Donald Gurney over his involvement in four questionable three-year-old transactions.
The panel found he ignored a “sea of red flags” and allowed $25,845,489.87 of offshore cash to float through his trust account between May and November 2013.
He charged a 10th of one per cent of the amount, given “the risk involved.” But the panel did not find Gurney a credible witness, particularly when it came to what he knew and the calculation of his fees.
“He was evasive in that he would not answer questions put to him and was self-serving with regard to his knowledge of the law society accounting rules,” it said.
Gurney made no inquiries regarding who the lenders were, the source of the funds or the client’s use of the money from the dodgy transactions that occurred under a score of “suspicious circumstances,” the society said.
With the veneer of legitimacy he provided, that cash was beyond the usual purview of the authorities and could have been used for any purpose, including to finance crime or even terrorism.
“For a lawyer to ignore the flags that raise a reasonable suspicion and to make minimal inquiries beyond dealing with client verification and the asking of pro forma questions in the circumstances of this case leads to the inexorable conclusion that (Gurney) has committed professional misconduct,” the panel concluded in its 33-page decision.
Phil Riddell, the chair from Port Coquitlam, and Gillian Dougans, a lawyer from Kelowna, added: “This is a case in which (Gurney) has shown a gross culpable neglect to his duties to make reasonable inquiries, and we also find that (Gurney) used his trust account in the absence of providing legal services.”
A second hearing, not yet scheduled, will determine the appropriate sanction.
A disappointed Gurney said Thursday he is reviewing the decision and considering an appeal.
“We are satisfied from our inquiries that there was no impropriety or illegality associated with these transactions,” he said in a three-page statement that questioned whether the expectations of the panel were realistic.
Gurney’s lawyer Paul Jaffe said: “For the purpose of demonstrating a strong response to an industry that, it seems, involves considerable money laundering, the LSBC has gone after my client — a lawyer who, with over 49 years at the bar, who had, until now, an excellent reputation without a single disciplinary matter over his entire career — but who, according to the LSBC, failed to investigate the representations of his client — truthful ones, as it turns out — and even though this particular client has no history of any criminal, regulatory, taxation, civil, investigatory and/or any other kind of proceedings.”
The panel said the offshore funds were converted into bank drafts and Gurney knew little about the borrower, the purpose of the loans, the lenders, their businesses, their principles or the relationships.
It added that Gurney should have more closely investigated the transactions and established “why companies in Nevis/Marshall Islands/Belize would lend a total of $26 million to a newly incorporated B.C. company with, as far as he knew, no assets and no plans.”
Gurney acted for C Inc. — formed in December 2012 and whose sole shareholder as of May 1, 2013 was someone identified only as IJ — the borrower in four line-of-credit agreements.
The agreements were all unsecured, one page in length and were remarkably similar, except for the parties, the loan value and the choice of forum in the jurisdictional clause.
Gurney described his role as facilitating the receipt and disbursement of loan advances and converting the funds from U.S. to Canadian dollars.
The first transaction, involving G Capital, saw the funds deposited and Gurney issue a statement of account, purchase a bank draft payable to C Inc. and issue a trust cheque to himself to satisfy his account before he was even retained by C Inc.
The panel said there was no professional need for Gurney to be involved in the transactions that came to light during a compliance audit, a regulatory oversight check the society makes on law firms roughly every six years.
He also had no background in securities law or offshore banking. Gurney’s practice included some commercial real-estate work, conveyancing and a smattering of foreclosures.
He has an active commercial lending practice acting for mortgagors and mortgagees, the panel noted, including three mortgage investment corporations that are winding up after having had $30 million to $35 million to loan out to the private sector at their peak.
The law society maintained at the January hearing it was of fundamental importance that lawyers ensured their trust accounts and solicitor-client privilege were not misused.
Because they are exempt from the usual money-laundering laws, the legal watchdog maintained lawyers exercised a gatekeeper function and must properly scrutinize trust-account transactions.
The panel agreed: “Prior to the lawyer becoming involved in a transaction, if there is a reasonable suspicion that the transaction may involve illegal activities in Canada or abroad the lawyer has a duty to make reasonable inquires … one would have to ignore the sea of red flags that were raised by these transactions.”
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