Anti-Money Laundering

Client ID & Verification
Receipt of Cash Workbook

Introduction

As Canadian and international concerns over money laundering and terrorism financing have grown, Canadian law societies have tightened rules on the receipt of cash by lawyers as well as client identification and verification.  Rule amendments effective January 1, 2020 bring the rules applicable to lawyers in line with those that apply to other Canadian businesses that handle funds and are subject to the Financial Transactions and Reports Analysis Centre (FINTRAC).

There have been a few significant changes.  We urge every lawyer to read the newly revised Law Society Rules see Division 12 – Client and Identification and Verification and the changes to Division 4 – Financial Accountability.

The Law Society has prepared a series of detailed worksheets and some more simplified checklists, annotated to the new rules, which will assist you in determining how the rules apply to each file.  On some files, you may only need to identify the client; on other files verification is required. Some client matters may be exempt from verification or identification requirements.   Similarly, on some matters you may accept cash and on other matters you may not.  You can download the worksheet(s) which apply to your client matter and proceed step-by-step through the process.

Once you are comfortable with the amended rules, you may want to develop your own checklists.  We recommend, however, that you use a checklist on every file so that you can satisfy the Law Society auditors that you have complied with the rules.  Rule 5-56 and 5-131 have always provided that the failure to comply with any of the rules without reasonable excuse may constitute professional misconduct.  However, all Canadian law societies have made a commitment to audit and vigorously enforce compliance with the anti-money laundering rules.

Watch a free webinar about the new Anti-Money Laundering Rules

How to Use the Worksheets and Checklists

Client Identification and Verification

When it comes to the new anti-money laundering rules, there are two categories of files.  We have included worksheets that should help you determine which category your file falls into.

The first type is an IDENTIFICATION FILE – where you must identify your client by collecting the basic “business card” information – name, address, occupation – information that you are probably already collecting so that you can communicate with your clients.

The second category of file is a VERIFICATION FILE – where you must verify your client’s identity.  Verification is required on any file where you provide legal services in respect of a financial transaction.  Financial transaction is defined to mean “the receipt, payment or transfer of money on behalf of a client or giving instructions on behalf of a client in respect of the receipt, payment or transfer of money.”

Verification requires certain steps if your client is an individual and different steps where your client is an organization and, in the case of an organization, the steps vary depending upon the nature of the organization. We have included worksheets that set out the steps required for each kind of client.

There are a few scenarios where, because of the nature of the file or the nature of the client, there is an exemption from having to verify the identity of the client.  We have a worksheet to help you determine whether a particular file is exempt from those requirements.

There also may be circumstances where the nature of the retainer changes which may require you to verify the client’s identity when you previously only identified the client.

While you can still retain the services of an agent to verify the identity of a client, you can no longer rely upon a guarantor to verify an individual’s identity.  These materials contain a sample agreement with an agent which sets out the manner by which the agent must verify the client’s identity.

One important change to the new rules is that the payment of settlement funds in litigation files, even if they are pursuant to an Order of the Court or a Tribunal, is no longer exempt from the requirement that you verify the identity of the client.

1) Checklist For Every File

2) Exempt From Identification Checklist

3) Exempt From Verification Checklist

Identification Files

4) Client Is An Individual

5) Client Is A Financial Institution, Public Authority, Etc

6) Client Is An Organization

Verification Files

7) Client Is An Individual

8) Client Is An Organization Registered In Government

9) Client Is An Organization Not Registered In Government

10) Client Is A Trust

11) Verification Where The Client Is Not Physically Present & Sample Agent Agreement

12) Client Verification Record Keeping and Retention Checklist

Receipt of Cash

While you can accept cash that does not exceed an aggregate amount of $7500 either from a client or a third party on any one client matter, there are specific record keeping requirements when that cash is received.

Unless the matter falls within a narrow list of exemptions, cash cannot be received, either from a client or a third party, in an aggregate amount above $7500 on a client matter.

The Society has prepared a checklist that will take you through specific record keeping requirements when that cash is received and help you determine whether or not you can accept cash on a particular matter or whether you should direct the payor to attend upon a bank, deposit the cash and return to you with a bank draft.

13) Receipt of Cash Checklist

Additional Resources

For additional guidance on how to comply with the anti-money laundering rules and to avoid becoming the tool or dupe of an unscrupulous client, you can reference:

Watch a free webinar about the new Anti-Money Laundering Rules

Guidance for the Legal Profession, prepared by the Federation of Law Societies

Guidance for a Risk Based Approach for Legal Professionals, prepared by The Financial Action Task Force.