by Barbara Buchanan, Practice Advisor
More on client ID and verification and “no cash”
How are you making out with the client identification and verification and “no cash” rules? I have spoken to many groups about the rules, most recently the Chilliwack District Bar Association in May; however, in most cases I speak to individual lawyers on a one-on-one confidential basis. Please give me a call if you have questions and I will be happy to assist you.
Rule implementation systems
You may have already implemented systems that take the new rules into consideration or are in the process of doing so. Some tools and procedures to help you implement the rules in your practice may include:
- Provide information about the rules to new and existing clients in retainer letters, on your firm website, and in mail inserts with your accounts.
- Inform your staff about the “no-cash” rules and what to do if a client unexpectedly shows up at the office with cash.
- Modify your file opening procedures to include a requirement to comply with the rules.
- Modify your trust accounting procedures to require confirmation of rule compliance before paying money out of trust.
- Use a client identification and verification rule checklist.
- Appoint someone in your firm to ensure that you, other members of your firm and relevant support staff keep up to date with Law Society rule changes.
- Designate a firm privacy officer who is responsible for ensuring that you and your firm comply with privacy legislation.
- Consider whether you need to make any changes to your current policies and procedures to safeguard the confidentiality of client information.
- Plan ahead to determine who can act as your agent to obtain the information required to verify the identity of clients in jurisdictions outside of Canada.
- Record any exemption from identification or verification upon which you rely by placing a memo in the client file.
- Implement a system whereby you can easily retrieve previously collected identity and verification information about your client.
- Create a list of online resources that may assist you in quickly locating helpful information related to the rules. (For example, to obtain information about Financial Action Task Force member countries, click on www.fatf-gafi.org).
Frequently asked questions
The FAQs are but one of the resources on the Law Society website to assist lawyers and law firms understand and follow the new client identification and verification rules. See the website for more Q and As and watch for updates. Below are some questions and answers I have recently provided:
Q. Does a lawyer only have to verify a client’s identity when money goes through his or her trust account?
A. You are required to verify a client’s identity in circumstances where you do not use your trust account as well as in circumstances where you do use it. For example, a “financial transaction” may exist in circumstances where you give instructions on behalf of a client in respect of the receipt, payment or transfer of “money” without the “money” being deposited into your account. To determine your obligations, you must consider the meaning of the defined terms “financial transaction” and “money” in Rule 3-91(1).
Q. If I provide pro bono summary legal advice to a client that does not involve a “financial transaction,” do I have to identify the client?
A. No. If you provide pro bono summary legal advice that does not involve a “financial transaction” (as defined in Rule 3-91(1)), you do not have to identify the client (Rule 3-92(2)).
Q. If I provide summary legal advice to a client that does not involve a “financial transaction” but I charge a fee for my services, do I have to identify the client?
A. Yes. Rule 3-92(2) does not provide an exemption. You must make reasonable efforts to identify the client (Rule 3-93(1)).
Q. If I provide pro bonosummary legal advice to a client that involves a “financial transaction,” do I have to identify the client?
A. Yes. Rule 3-92(2) does not provide an exemption. Rule 3-93(1) requires you to make reasonable efforts to identify the client. You must also take reasonable steps to verify the client’s identity unless there is an exemption that applies (Rules 3-94 and 3-95).
BC lawyers targeted in new fraud scheme — incorporation and small business loan
Be on the look-out for a new counterfeit cheque and bank draft scam that originally surfaced in Ontario, a variation of which has now shown up in BC. This scam involves incorporating a new company or companies and, shortly after, acting in relation to a small business loan.
While the details may vary, the scam works something like this. A new client retains a lawyer to incorporate one or more companies. The client may present a driver’s licence and other identification (all well-made fakes) and a working cellphone number. The residential and business addresses (fake) are the same.
A short time later, the client asks the lawyer to act with respect to a small business loan. The client shows the lawyer brochures and invoices related to equipment or inventory that he will purchase with the loan proceeds. The client wants the loan completed quickly, often just before a holiday when the lawyer may be rushed or short-staffed. He instructs the lawyer to send the proceeds to a third-party corporation, not the client’s new company. The only security is a promissory note or a general security agreement.
The lawyer receives the loan proceeds in the form of a well-made fake certified cheque or bank draft. The lawyer deposits the fake instrument into the law firm’s trust account. The lawyer writes a cheque or wires the funds to the third-party corporation, only later to find out that the certified cheque or bank draft was counterfeit.
For details on how to protect yourself, consult the Notice to the Profession issued May 14, 2009.
About to act for yourself? Think twice!
I have recently received a flurry of calls with respect to lawyers acting for themselves. I discourage this for some of the same reasons that I discourage lawyers from acting for family members, e.g. a loss of objectivity, acting outside of one’s area of expertise, and no insurance.
Keep in mind that the Professional Conduct Handbook rules apply to a lawyer acting on his or her own behalf and the lawyer must not engage in conduct that casts doubt on the lawyer’s professional integrity or competence, or reflects adversely on the integrity of the legal profession or the administration of justice. This may sound straightforward, but it becomes much more challenging if the lawyer has a personal interest in the matter at issue.
For example, a lawyer acting for him or herself may be tempted to communicate directly with the other party. If the other party is represented by counsel, the lawyer must not communicate with the other party regarding the matter, except through or with the consent of that party’s lawyer. Likewise, what might be treated as a simple and perhaps inadvertent misstatement by a lay party in court might, when made by a self-representing lawyer, be seen as running afoul of that lawyer’s ethical obligations to the court, and in the worst case might even attract disciplinary consequences.
For more information about the risks of acting for family and friends see the July 2005 Insurance Issues: Risk Management.
Health Care Costs Recovery Act impacts personal injury claims
The Law Society issued a Notice to the Profession on April 14, 2009 about the Health Care Costs Recovery Act, SBC 2008, c.27 and Health Care Costs Recovery Regulation (BC Regulation 397/2008) that came into force on April 1, 2009.
Since then, I have received telephone calls from lawyers wanting more information. According to the provincial government’s Third Party Liability web page, the Act “allows the Ministry of Health Services to recover all health care costs paid by government related to a beneficiary’s injury that was caused by the wrongful act of a third party.” There are obligations on plaintiffs, defendants and some insurers.
Be aware that the Act contains notice provisions that may affect settlements for personal injury or death, including those where a legal proceeding has not been filed or was filed prior to April 1, 2009. The notice requirements are in ss. 4, 5, 10, 12 and 13. Section 13(5) provides for a penalty for failing to give notice. Sections 4, 10, 12 and 13 require notice to be in a prescribed form. Links to PDF versions of the forms are on the government website. Section 24 sets out exclusions to the legislation (such as a wrongdoer’s use and operation of a motor vehicle where ICBC insures the defendants and personal injury claims covered by the Workers Compensation Act).
Lawyers can read the Health Care Costs Recovery Act and associated regulations online at bclaws.ca. For further information or assistance, contact Barbara Carmichael, Legal Services Branch, Ministry of the Attorney General at 250-356-8817 or Barbara.firstname.lastname@example.org.
Contact Practice Advisor Barbara Buchanan at 604-697-5816 or email@example.com for confidential advice or more information regarding any items in Practice Watch.