Client ID & Verification - FAQs

A key component of client verification is that lawyers must obtain information from the "client" and record, with the applicable date, information about the source of “money” when there is a “financial transaction.” (See Rule 3-98 for the words in quotations.)

A lawyer should obtain from the client and record, with the applicable date, the following information about the source of “money” for the purposes of Rule 3-102(1)(a):

• the payer’s full name, occupation and contact information;
• the relationship of the payer to the client (the payer may be the client);
• the date on which the money was received by the lawyer from the payer;
• the economic activity or action that generated the money (e.g., bank loan, savings from salary, settlement funds);
• the form in which the money was received by the lawyer (e.g., cheque, bank draft);
• the full name and address of all financial institutions or other entities through which the payer processed or transmitted the money to the lawyer;
• any other information relevant to determining the source of money.

Understanding the source of “money” and its appropriateness is the crux of anti- money laundering. You have a positive duty to make enquiries about “financial transactions” that you facilitate. This may include obtaining supporting documents if there are suspicious circumstances. 

In the absence of suspicious circumstances, a lawyer may accept a client’s explanation regarding the economic activity or action that generated the client’s source of money (e.g., inheritance, savings from salary, life insurance proceeds) without obtaining copies of the documents to support the client’s explanation. 

Where there are suspicious circumstances, lawyers must make further inquiries and assess the risk of participating in a financial transaction for a "client."

The new Rule 3-110 requires that while a lawyer is retained in respect of a “financial transaction” (as defined in Rule 3-98), a lawyer must periodically monitor the professional business relationship with clients. Risk assessment includes periodically monitoring the client’s information about the source of money used in the financial transaction and assessing whether there is a risk that the lawyer may be assisting in or encouraging dishonesty, fraud, crime or other illegal conduct. Lawyers must keep a record, with applicable dates of measures taken to comply with the rule and the client information that has been obtained.

The frequency of periodic monitoring and what information should be recorded will depend on what is reasonable in each case. For example, if a lawyer acts for a local seller of their $500,000 condominium and the matter closes in three weeks, the monitoring rule may have limited or no applicability. The file from start to finish may have ended in less than one month. On the other hand, if a lawyer acts for a buyer of multiple properties over 20 months, the lawyer should make inquiries about the source of money for the various “financial transactions.” Rule 3-110 would apply and the lawyer would be expected to engage in periodic monitoring.

Lawyers are encouraged to contact a practice advisor for further guidance on what may be required in a particular matter (practiceadvice@lsbc.org or 604.443.5797).

There is no hard and fast threshold, and the need to obtain documents about a client’s source of money will depend on the circumstances. For example, if a dispute between two neighbours regarding a fence between their properties was settled for $10,500, a lawyer may feel no need to obtain supporting documents about the source of money from the client employed as a teacher who provides a $10,500 personal cheque for the settlement. The lawyer will already have asked the client for their explanation of the source of money and recorded the information for the purposes of Rule 3-102(1)(a). 

If, however, a new client with an occupation “bank employee” from outside of Canada who wants to wire funds from a foreign bank to the lawyer’s trust account to complete a purchase of a multi-million dollar residential property, will require enhanced due diligence on the part of the lawyer. The lawyer would be expected to make sufficient enquires about the client and the source of money and obtain supporting documents as well as entering into an agreement with an agent independent of the client to verify the client’s identity, and obtain satisfactory results before receiving the money. Lawyers will need to ensure compliance with the Code and Rules in assessing whether to obtain documents to substantiate the client’s information about the source of money.

At any time where a client’s explanation for the source of money is unusual or inconsistent with the lawyer’s experience, the lawyer would need to undertake enhanced due diligence, including getting supporting documents. A lawyer should consider if he or she is acting beyond their competence, seek advice, and consider not acting.

Lawyers are encouraged to contact a practice advisor for further guidance on what may be required in a particular matter (practiceadvice@lsbc.org or 604.443.5797).

It will depend on the circumstances, including the size of the loan and whether there is a loan agreement. If the loan is large, there is little or no paperwork and no security, that would engage suspicious circumstances. The source of money for the lender would be a relevant question. However, even if not asking for anti-money laundering purposes, it may be prudent for a lawyer to know the name of the shareholder who loaned the money to the corporation. 

Note that if a client is a public company (a “reporting issuer” as defined in Rule 3-98), Rule 3-102(1)(a) does not apply. An exemption is provided in Rule 3-101(a)(iii)). 

Lawyers may decide to use whatever forms they want with their clients, and such forms may be very useful. A signed declaration on file will not always mean that a lawyer has met the requirements in every circumstance under the Code and Rules. Lawyers are required to apply their professional judgment to assess risks regarding client identification and verification, financial transactions and the source of money, and to ensure that they have taken adequate steps to address those risks.

For practical purposes, lawyers will need to obtain and record information about the source of money closer to the beginning of the retainer as part of the client identification and verification process as it is a key component to anti-money laundering and to prevent engagement in any activity that assists in or encourages any dishonesty, crime or fraud.

A lawyer may use an agent to obtain the information required under Rule 3-102 (Requirement to verify client identity) on the lawyer’s behalf when the “client” (as defined in Rule 3-98) is inside or outside of Canada (Rule 3-104). The lawyer and the agent must have an agreement or arrangement in writing that complies with the rule. A sample agent agreement, effective January 1, 2020 is on the website.

The former guarantor and commissioner provisions to verify a client’ s identity inside of Canada under subrules (2) to (4) have been rescinded with the result that a lawyer may use an agent inside of Canada as well as outside of Canada.

Yes, a lawyer may use an agent to obtain the information required under Rule 3-102 (Requirement to verify client identity) on the lawyer’s behalf when the “client” (as defined in Rule 3-98) is inside or outside of Canada (Rule 3-104). 

The guarantor and commissioner provisions to verify a client’s identity inside of Canada under subrules (2) to (4) have been rescinded with the result that a lawyer may use an agent inside of Canada too.

Subrule (7) was added to Rule 3-104, effective January 1, 2020, permitting lawyers to rely on an agent’s previous verification of an individual client in the following circumstances:

3-104(7) A lawyer may rely on an agent’s previous verification of an individual client if the agent was, at the time of the verification,

(a) acting in the agent’s own capacity, whether or not the agent was acting under this rule, or

(b) acting as an agent under an agreement or arrangement in writing entered into with another lawyer required under this division [Part 3 – Division 11] to verify the identity of a client.

You must have an agreement or arrangement with the agent in writing if you wish to rely on an agent’s previous verification of an individual. In follow-up, the verification information must match what the individual client provided to you when you obtained their basic identification information. You must satisfy yourself that the information is valid (authentic and unaltered) and current (not expired) and that the agent verified the individual’s identity through a permitted method (e.g. government-issued photo identification). If, for example, the agent used an expired driver’s licence to verify the individual’s identity, this is not acceptable. Note the date that you receive the agent’s confirmation of verification, as this relates to whether the information is recent and the timing within which verification must take place with respect to the “financial transaction” (Rule 3-105).

Yes, a lawyer must use an agent if the client is not present in Canada and is not physically present before the lawyer. The lawyer must have an agreement or arrangement in writing with the agent for that purpose that complies with Rule 3-104.However, a lawyer may be able to physically meet with a client outside of Canada before the “financial transaction” takes place and, in such case, may not require an agent.  Also, take note that the responsibilities of a lawyer to verify a client’s identity may be fulfilled by the lawyer’s firm, including members or employees of the firm wherever located (Rule 3-99(3)). An individual from the lawyer’s firm may be in a position to verify the client’s identity outside of Canada and if that is the case, the lawyer would not require an agent.    

Yes, a sample agent agreement, effective January 1, 2020 is on the website.

Lawyers will often enter into a written agreement or arrangement with another lawyer to verify a client’s identity; however, using a lawyer is not a requirement. You may know a suitable notary, accountant or other professional. If the client is outside of Canada, some embassies or consulates have been known to occasionally provide verification of identity services.  If you do not know a suitable lawyer, accountant or notary, check with the regulator for the profession in the jurisdiction where the client is located to ensure that you are dealing with a legitimate professional (you can compare contact information, status, etc.)

The agent should be someone who is reputable, who takes the verification of client identity seriously, and who will carry out the required work diligently and within your time limit.

Be aware that a new client who is a criminal could try to persuade you to use a certain agent of their choice. Be very wary as a phony agent could be part of the criminal’s scheme. The agent should be independent of the client. The agent is your agent, not the client’s agent. 

Remember that you are required to have an agreement of arrangement in writing to verify the client’s identity that is in compliance with Rule 3-104. A sample agreement is on the website.

Rule 3-110 requires lawyers to periodically monitor their professional business relationship with a client while retained in respect of a financial transaction. This includes long-standing clients.

Lawyers must periodically assess whether the information that they have obtained about their client, the client’s information about their activities, the source of “money” (defined in Rule 3-98) used in the financial transaction and the client’s instructions are consistent with the purpose of the retainer.

Risk assessment includes periodically monitoring the client’s information about the source of money used in the financial transaction and assessing whether there is a risk that the lawyer may be assisting in or encouraging dishonesty, fraud, crime or other illegal conduct (also see Rule 3-109 and Code of Professional Conduct rules 3.2-7 and 3.2-8).

Lawyers must keep a record, with the applicable dates of the measures they have taken to comply with the rule and the client information that they have obtained. The record must be retained for the period required in Rule 3-107.

The frequency of monitoring and what information should be recorded will depend on what is reasonable in each case. For example, if a lawyer acts for a local seller of their $500,000 condominium and the matter closes in three weeks, the monitoring rule may have limited or no applicability. The lawyer would have assessed the risks of acting at the outset of the retainer and during the course of the short file. The file from start to finish may have ended in less than one month. On the other hand, if a lawyer acts for a buyer of multiple properties over 20 months, the lawyer should periodically monitor the file and make inquiries about the source of “money” for the various financial transactions. Lawyers are required to apply their professional judgment to assess risks in any given circumstance.

Lawyers are encouraged to contact a practice advisor for further guidance on what may be required in a particular matter (practiceadvice@lsbc.org or 604.443.5797).

Yes, there are many resources on the Client ID & Verification web page. They include Risk Assessment Case Studies for the Legal Profession, Risk Advisories for the Legal Profession, and Discipline Advisories regarding country/geographic risk, securities fraud: micro-cap stocks, private lending and lawyers are gatekeepers. 

Lawyers are encouraged to contact a practice advisor for further guidance on assessing risk for a particular matter (practiceadvice@lsbc.org or 604.443.5797).

The client identification and verification rules apply the same as they would when retained to provide legal services to any individual (Rule 3-99). Lawyer clients are not treated differently. Your responsibilities may be fulfilled by your firm, including members or employees of the firm wherever located. However, you remain responsible for meeting the requirements. 

A law firm is an “organization” (as defined in Rule 3-98). The client identification and verification rules apply the same as they would when retained to provide legal services to any organization. Remember that in addition to applying the rules to the organization itself, you must also apply them to the individual instructing you on behalf of the law firm.

Let’s use a scenario. For example, a lawyer in Kamloops acts for a client in respect to a financial transaction. That lawyer asks you to attend a matter in Victoria next week regarding the transaction because the lawyer cannot attend in Victoria that day. The lawyer tells you that he or she has identified and verified the client’s identity and obtained information about the source of money for the transaction. The Kamloops lawyer is not a member or employee of your firm.  

In this situation, the other lawyer for whom you would act as agent is your client. The client identification and verification rules apply the same as they would when retained to provide legal services to any individual. In addition, the Kamloops lawyer’s client is also your “client” (as defined in Rule 3-98). If another BC lawyer or an “interjurisdictional lawyer” (member of a governing body who is authorized to practise law in another Canadian jurisdiction) has complied with Rules 3-100 to 3-106 or the equivalent provisions of another Canadian jurisdiction, and they have retained the information and documents, you do not have to identify and verify the client’s identity again when acting in respect of a “financial transaction” unless you have reason to believe that the information, or its accuracy, has changed (Rules 3-99(2.1)(a), 3-100(2), 3-105(2), 3-106(2)).

Obtain confirmation from the other BC lawyer or “interjurisdictional lawyer” (as defined in Rule 3-98) to satisfy yourself that he or she has complied with the rule requirements. In addition, obtain copies of the information and documents (Rule 3-107). If you cannot obtain copies, then identify and verify the client’s identity in accordance with the rules.

If you act as agent for a lawyer who is not a BC lawyer or an “interjurisdictional lawyer,” you will need to apply the client identification and verification rules to the foreign lawyer and to that lawyer’s client. For example, if you act for a Seattle lawyer for a Seattle individual, if there is a “financial transaction,” you would enter into an agreement or arrangement in writing with an agent to verify the clients’ identity. See “Using an agent to verify identity.”

If another BC lawyer or an “interjurisdictional lawyer” (member of a governing body who is authorized to practise law in another Canadian jurisdiction) has complied with Rules 3-100 to 3-106 or the equivalent provisions of another Canadian jurisdiction, and they have retained the information and documents, you do not have to identify and verify the client’s identity again when acting in respect of a “financial transaction” (as defined in Rule 3-98) unless you have reason to believe that the information, or its accuracy, has changed (Rules 3-99(2.1)(b), 3-100(2), 3-105(2), 3-106(2)).

Obtain confirmation from the referring lawyer to satisfy yourself that the lawyer has complied with the rule requirements. In addition, obtain copies of the information and documents from the referring lawyer (Rule 3-107). If you cannot obtain copies, then identify and verify the client’s identity in accordance with the rules.

Keep in mind that if you are acting for an organization, and the instructing individual changes, you must identify the new instructing individual and verify that individual’s identity if there is a “financial transaction” (as defined in Rule 3-98). Also note that Rule 3-110 (Monitoring) applies.

Yes, you are responsible to obtain information about the source of money for a financial transaction as you would for any client. See the FAQs above about obtaining information about the source of money. Also note that Rule 3-110 (Monitoring) applies.

A “financial transaction” can occur without “money” flowing through your trust account (the words in quotes are broadly defined in Rule 3-98). Carefully consider whether you are giving instructions on behalf of your client in respect of the receipt, payment or transfer of “money” even if you do not handle the money. If so, you are required to identify the client, verify your client’s identity, and obtain and record, with the applicable date, information about the source of money in respect of the financial transaction and keep records. As there is an increased risk of illegal activity associated with private lending, be on guard for red flags and ask enough questions and obtain satisfactory answers to manage the risk. See the Discipline Advisory on private lending.

If the private lender is your client or if your client is borrowing from a private lender, it should be part of your due diligence to inquire whether the lender is a registered mortgage broker.  The definition of “mortgage broker” is widely defined in section 1 of the Mortgage Brokers Act. 

"mortgage broker" means a person who does any of the following:

(a) carries on a business of lending money secured in whole or in part by mortgages, whether the money is the mortgage broker's own or that of another person;

(b) holds himself or herself out as, or by an advertisement, notice or sign indicates that he or she is, a mortgage broker;

(c) carries on a business of buying and selling mortgages or agreements for sale;

(d) in any one year, receives an amount of $1 000 or more in fees or other consideration, excluding legal fees for arranging mortgages for other persons;

(e) during any one year, lends money on the security of 10 or more mortgages;

(f) carries on a business of collecting money secured by mortgages;

Section 11 of the Act sets out some exemptions to the registration provisions. Sections 21 to 22 deal with offences and penalties including the offences of failing to register as a mortgage broker or submortgage broker. See the BC Financial Services Authority website for more information about mortgage brokers including listed registrants, consumer alerts about mortgage broker activity, example scenarios to assist in determining is a person is “arranging mortgages”, and the mortgage broker registration process. Also, it is anticipated that the government will be making changes to the Mortgage Brokers Act, so be sure to check for updates to the legislation.

The purchaser is not your “client” (as defined in Rule 3-98). You have no general obligation under Rule 3-102 to verify the purchaser’s identity or to ask the purchaser questions about their source of money for the deposit and conveyance. However, if there is something suspicious about your client, the purchaser or the transaction, you should increase your level of inquiry until comfortable with receiving the money and acting on the transaction or if that is not possible, decline to act (see BC Code rules 3.2-7 to 3.2-8 and 3.7.7, Law Society Rule 3-109 and the “Source of money” FAQs on this web page). The Risk Assessment Case Studies for the Legal Profession (February 2020) and the Risk Advisories for the Legal Profession (December 2019) both provide guidance and examples regarding red flags in real estate transactions.

Before accepting the purchaser’s deposit in trust, you should have a copy of the signed contract of purchase and sale for the strata unit. Consider that if the sale transaction does not complete and the money must be returned to the purchaser, you will need sufficient information about the purchaser to return the deposit to the correct person. If the contract of purchase and sale does not contain sufficient information, you may be in a position to get more details directly from the purchaser at the time of the proposed deposit, from your developer client, its real estate broker or real estate sales representative. If the purchaser is unrepresented at the time that you receive the deposit, make it clear that you are acting exclusively in the interests of your client, the developer. Urge the purchaser to obtain their own representation. See BC Code rule 7.2-9.

Although lawyers do not have reporting obligations to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), your developer client may have obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its Regulations to keep records for certain financial transactions, for client verification and to fulfill other detailed requirements - including reporting to FINTRAC, aimed at preventing money laundering and terrorist financing. It would be prudent to know if your client is aware of the requirements. Also, if the purchaser’s deposit was provided through a real estate broker and sales representative acting as an agent for the purchase and sale of real estate, registered and licensed to do so by the province, these professionals also have obligations under the Act. FINTRAC provides guidance for real estate developers, brokers and sales representatives on its website.

Law Society Rules 3-98 to 3-110 (Part 3 – Division 11 – Client Identification and Verification) apply to lawyers who are retained by clients to provide legal services (Rule 3-99(1)).These rules generally do not apply to lawyers who act as neutral mediators of disputes for parties to a mediation. Accordingly, you are not required to identify or verify the identity of the parties or their lawyers for the purposes of Division 11. This assumes that you are not engaged in the “practice of law” as defined in section 1 of the Legal Profession Act (e.g. you are not providing legal advice, you are not negotiating on one party’s behalf, and you are not drawing a document for use in a proceeding). If you provide legal advice or perform any of the acts that are included in the definition of the “practice of law” during the course of a mediation, you would be required to comply with Division 11.  However, note the BC Code rule 3.4-3 regarding conflicts. Rule 3.4-3 and commentary [1] provide that a lawyer must not represent opposing parties in a dispute, even with consent.

Lawyers who provide mediation, arbitration and parenting coordination services may deposit their retainers for these services to their lawyer trust accounts (see Rules 3-58.1 and 3-60(4)). Lawyers also have the option of using their general account or another form of account to hold these types of retainers. If you open an account for mediation deposits, you should make it clear to your financial institution that the account is not a lawyer’s trust account regulated by the Law Society. You may wish to obtain tax advice as to the form of account that you will use.