RegulationRequest for input: Client Identification Regulations
In December 2016, the Federation of Law Societies of Canada created the Anti-Money Laundering and Terrorist Financing Working Group (the Working Group) to review the “no cash” and client identification rules, which were initially adopted on a national basis in 2008. For your reference, the link to the current NSBS Regulations is http://nsbs.org/regulations-under-lpa under the Regulation tab on the Society’s website (client ID is found in Part 4).
The Working Group was created in response to a number of important developments on the anti-money laundering and counter-terrorist financing landscape. These include amendments to federal anti-money laundering and terrorist financing regulations, the mutual evaluation report of the Financial Action Task Force (“FATF”) on Canada’s anti-money laundering and terrorist financing regime, and the possibility of a renewed effort by the government to extend the federal regime to members of the legal profession.
The Working Group has completed its review of the Model Rules and the law society rules and regulations based on them, as well as related trust account rules. It has also carefully reviewed the report of the FATF’s Mutual Evaluation Report of Canada, released in September 2016. This review has led to the conclusion that amendments are required to ensure that the Model Rules remain as robust and effective as possible. Some of the specific amendments being proposed are as follows:
Highlights of recommendations for amendments to the current rules
“No Cash” rule
- specify that the exceptions to the cash limit apply only where the lawyer or law firm is providing legal services
- delete the exemption for cash received “from a peace officer, law enforcement agency or other agent of the Crown acting in his or her official capacity” because the exemption is seldom used and is of limited value but could be used to launder money or finance terrorism
- delete the exemption for cash received “pursuant to a court order, or to pay a fine or penalty” because it is similarly of limited value and may present a risk of money laundering and terrorist financing
- add definitions of four terms used in the rule: disbursements, expenses, financial institution, and professional fees
Client ID rule
- amend definitions of the Client Identification Rule, reflecting changes to the corresponding definitions in the federal regulations
- amend definition of “financial institution” to incorporate changes in the federal regulations (referred to there as “financial entity”), including the addition of references to a “financial services cooperative” and a “credit union central”
- amend definitions of “funds”, “public body” and “securities dealer” to maintain consistency with the government regulations
- add specific reference to the obligation on a lawyer to “know your client” in reg. 4.13.3
- delete the words “take reasonable steps to” from reg. 4.13.4 to match changes in the federal regulations
- amend the provisions of the Client Identification reg 4.13.7 to specify the documents and information that may be relied upon to verify an individual’s identity; these changes reflect extensive amendments to the federal regulation
- amend the rule to incorporate new provisions in the regulations on the verification of the identity of children
- create a requirement to obtain, rather than simply to make reasonable efforts to obtain, the names of all directors of an organization, and the names and addresses of the owners of the organization; tracking the changes to the federal regulations, the amended rule would also introduce a requirement to “take reasonable measures to confirm the accuracy of the information obtained
- amend reg 4.13.9 to require legal counsel to obtain information on beneficial owners of an organization; this change addresses a specific criticism of the law society anti-money laundering and terrorist financing rules that has been raised by the government and the FATF
- reduce the allowed time to 30 days for verification, which is in keeping with the federal regulations; this addresses concerns that a transaction could be completed before the expiration of the 60-day deadline for verification, thus undermining the purpose of the requirement
- add a new provision requiring ongoing monitoring of clients; such a requirement is included in the revised federal regulations
- add a reference to ongoing monitoring to the provision requiring a lawyer to withdraw from representation of the client if, once retained, the lawyer becomes aware that they would be assisting the client in fraud or other illegal conduct
Code of Professional Conduct
- add a new model rule and accompanying commentary:
1. All deposits or transfers into, and withdrawals or transfers from a trust account must be directly related to an underlying transaction or matter for which the lawyer or the lawyer’s law firm is providing legal services.
2. Money held in a trust account must be paid out as soon as practical upon the completion of the transaction or other matter.
 Even when the use of a trust account is related to the provision of legal services, the lawyer should consider whether it is appropriate in all the circumstances. Where, for example, a lawyer provides legal services in connection with a transaction that does not involve any escrow or trust conditions the deposit or transfer of money into and the withdrawal or transfer from the trust account may be mere banking services and so prohibited.
The Working Group has asked for law society feedback on the proposed amendments and new model rule from all law societies, and has requested written comments or suggestions by March 15, 2018.
The proposed amendments are in this consultation report from the Federation’s Working Group.
Please forward any questions or comments to Elaine Cumming, Professional Responsibility Counsel, at email@example.com by March 6, 2018.