Benchers amend client identification and verification rules
December 15, 2008
On November 14, the Benchers adopted new client identification and verification rules (Rules 3-91 to 3-102) based on the Federation of Law Societies of Canada’s Model Rule. On December 12, the Benchers amended Rules 3-91 to 3-95, Rule 3-97 and Rule 3-102, based on revisions to the Model Rule. Law Society Rules 3-91 to 3-102 (including the December amendments), will take effect December 31, 2008.
The Law Society of BC rules, which were developed by the Act and Rules Subcommittee of the Executive Committee of the Benchers, are consistent with the Federation Model Rule. The rules are designed to codify the steps prudent lawyers take in the normal course to identify their clients. After circulating draft rules to Law Society members in July, the Act and Rules Subcommittee recommended several changes, which were adopted by the Benchers in November and December, including:
- Duty counsel for non-profits and lawyers providing pro bono summary advice are excluded from the rules, provided that the circumstances do not involve a "financial transaction" (a defined term);
- In-house counsel are not subject to the rules when acting in the course of their employment;
- If a lawyer has completed the identification and verification requirements and refers the client to another lawyer, further client identification and verification will not be required by the second lawyer;
- The responsibilities of a lawyer may be fulfilled by the lawyer's firm, including members or employees of the firm conducting business in another Canadian jurisdiction;
- The principle of reasonable efforts has been extended to client identification as well as verification;
- The exemption from verification requirements when a lawyer “pays money to another lawyer in trust, on the direction of the client” was deleted because it could result in the source of funds not being verified;
- An exemption for electronic funds transfers will apply, provided the transfer is conducted at both ends by financial institutions in Canada or other Financial Action Task Force countries and neither the sender nor the beneficial receiver of the funds handle or transfer the funds;
- The defined term “reporting issuer” has replaced the term and definition of “public company”;
- Verification requirements will not apply if the client is a “financial institution”, “public authority” or “reporting issuer”.
Online program tracks continuing professional development
Members are asked to read the rules carefully, paying close attention to the definitions — terms such as "client," "financial transaction", “interjurisdictional lawyer” and "reporting issuer" may not be consistent with common usage.
The text of the rules as adopted by the Benchers in November and amended in December is available for viewing on the Law Society website (lawsociety.bc.ca). The client identification and verification checklist and the frequently asked questions resource document will be updated to include the rule amendments made on December 12, 2008. The free online course held on December 11, 2008 will be available on the Law Society website by the end of this week. For further information about the new rules contact Barbara Buchanan, Practice Advisor, Conduct & Ethics at 604-697-5816 or email@example.com
The online program to track lawyers’ continuing professional development will be available on the Law Society’s website on December 22nd. Members will be able to easily record and report their professional development online and receive individual progress reports periodically throughout the year.
This online resource also provides lawyers with access to a listing of approved courses and non-traditional educational activities. The Law Society will continually expand the courses offered. Lawyers are invited to submit online requests for approval of courses and educational activities not already listed for CPD.
Effective January 1, 2009, all practising lawyers will be required to complete no fewer than 12 hours a year of continuing professional development in approved educational activities. Frequently-asked questions about the CPD program will also be available on December 22nd at www.lawsociety.bc.ca. For additional information, please contact Member Services at firstname.lastname@example.org.
Attention real estate practitioners: A variation on the bad cheque scam
As you know, many scams are making the rounds and some of them involve fraudulent certified cheques and bank drafts in the real estate context. The Law Society has learned about a new variation of real estate scam that was attempted in another province. The basic scheme works similar to this:
- Residential property is for sale by the registered owner and a realtor is involved.
- A Canadian lawyer is contacted by telephone to act for a purchaser.
- The purchaser is from outside of Canada.
- The lawyer meets in person with an individual acting on the purchaser’s behalf (e.g. a relative with a power of attorney).
- The lawyer receives a certified cheque for the purchase amount.
- The lawyer deposits the cheque into trust.
- The relative advises the lawyer that the purchaser has passed away and the relative requests that lawyer to quickly return the funds (e.g. by wire transfer).
- The lawyer transfers the funds to the relative before learning that the certified cheque is fraudulent.
How can you protect yourself?
This scenario should make you suspicious. When you are suspicious, trust your judgment. Do not pay out hastily when it’s not necessary. Just because a client is anxious to get their money does not mean that the pay-out must be right away. Contact your bank to verify a cheque’s authenticity and to confirm that the funds have cleared. This reduces the risk, but may not eliminate the risk completely.
As of December 31, 2008, lawyers are required to comply with the new client identification and verification rules. When a lawyer provides legal services in respect of a financial transaction (as defined in Rule 3-91), including a non-face-to-face transaction, the lawyer must take reasonable steps to verify the identity of the client using what the lawyer reasonably considers to be reliable, independent source documents, data or information. “Client” (as defined in Rule 3-91) includes another party that a lawyer’s client represents or on whose behalf the client otherwise acts in relation to obtaining legal services from the lawyer.
The lawyer must verify the identity of both the attorney and the principal/donor. Since the principal is not in Canada, the lawyer must use an agent to verify the individual’s identity. The lawyer must enter into a written agreement or arrangement with the agent to obtain the required information and attest to the individual’s identity (Rule 3-97).
Taking the above steps will give you some protection but there is more that you can do to protect yourself. See the Law Society’s website for more tips and information on counterfeit scams, and stay tuned for updates in Practice Watch. A list of Law Society publications on these scams is available on the website at Regulation & Insurance/Risk Management/Fraud prevention.
If you think that you have been contacted by a fraudster or would like to discuss how to apply the client identification and verification rules, you are welcome to contact Barbara Buchanan, Practice Advisor, Conduct & Ethics, at 604 697 5816 or email@example.com.