Avoiding participation in money laundering and terrorist financing is rooted in knowing your clients: their identity, their financial dealing in relation to retainers, and any risks arising from the professional relationship.

When providing any legal service, lawyers are obliged under the Rules to identify a client by obtaining the client’s name, address, phone numbers, and occupation. Lawyers must identify client organizations by obtaining the organization’s contact information, as well as information about the individual that instructs the lawyer on the organization’s behalf, and the nature of the client’s business.

Verification

More detailed verification of a client’s identity is required in the event the lawyer is engaged in, or gives instructions in respect of, the receipt, payment or transfer of funds on the client’s behalf. As part of this process, lawyers must obtain information about the source of the funds being transferred.

When working with corporate clients, lawyers must take additional steps to determine ownership and control of the corporation and assess the accuracy of that information. For clients that are corporations, societies or unregistered organizations, the lawyer must verify the identity of the person who instructs on behalf of the organization.

If a lawyer is unable to verify identity, the Rule requires the lawyer to exercise diligence in determining and assessing potential risks associated with the client’s transaction.

Lawyers can use one of the following three methods to verify an individual client:

1. government-issued photo identification method;
2. credit file method; or
3. dual process method which allows the lawyer to refer to information from two different, reliable and independent sources that contain:
   • the individual’s name and address;
   • the individual’s name and date of birth; or
   • the individual’s name and confirmation they have a deposit account, credit card or other loan with a financial institution.

When obtaining photo identification from a client, the lawyer or agent is required to meet personally with the client and obtain a copy of the identification. Skype meetings are not permitted.

The dual process method allows verification using sources such as banks, utility service providers, cell phone providers, and government agencies, to name a few.

Lawyers can also use an agent to verify the identity of an individual, including circumstances where the individual is not in Canada. The agent should provide the same information the lawyer would have gathered to verify the client’s identity.

The Model Rules do not specify who can act as an agent, so lawyers should ensure agents are reputable and must have a written agreement in place.

Check our tools and templates page for resources to help you meet the identification and verification requirements.

Exemptions to the Identification and Verification Rules

Not all client relationships are captured under this rule. For example:

• in-house and corporate counsel are exempt as they only provide legal services to their employers.
• lawyers who provide legal services through a duty counsel program are exempt, except when giving instructions for receiving, paying or transferring funds.
• lawyers who act as an agent for another legal professional or when a matter is referred by another lawyer – provided the other lawyer has complied with the identification and verification requirements.

Other exemptions apply when funds are from certain sources. For example, when funds are:

• transferred from the trust account of one lawyer to another;
• paid to a financial institution, public body or reporting issuer;
• sent by electronic file transfer of funds (EFT); or
• paid or received to pay a fine, penalty or bail or for professional fees.

Refer to the Guidance document for more detailed information.

Identifying Beneficial Ownership

Lawyers are required to make reasonable efforts to obtain information about the beneficial owners of an organization and about the control and structure of the organization. Identifying beneficial ownership is important in order to remove anonymity and identify the actual individuals behind a transaction.

What is a beneficial owner?
Beneficial owners are the actual individuals who are the trustees or known beneficiaries and settlors of a trust, or those who directly or indirectly control 25% or more of an organization, such as a corporation, trust or partnership.

Collection and confirmation of beneficial ownership information is an important step in client identification and ensuring that lawyers are not assisting illegal transactions. You may obtain information establishing the organization’s structure or beneficial ownership from the organization, either verbally or in written form.Concealing beneficial ownership information of accounts, businesses and transactions is a technique used in money laundering and terrorist financing schemes.

Refer to the Guidance document for more detailed information.

Ongoing Monitoring of Clients & Record Keeping

Lawyers must monitor all client relationships, to assess if information about the client’s activities and source of funds is consistent with the purpose of the retainer. Lawyers must maintain a record of the results of their inquiries.

The purpose of monitoring is to assess if there is a risk that the client is engaged in fraud or other illegal conduct. Lawyers are obliged not to participate in, or facilitate, money laundering or terrorist financing. If a lawyer discovers the client is engaged in illegal conduct, the lawyer is obliged to withdraw from representing the client.

Refer to the Guidance document for more detailed information.