Client ID and Verification

August 6, 2024

This is an update to the Discipline Advisory originally issued on February 8, 2018.  

The Law Society Rules in Part 3, Division 11 (Rule 3-98 to 3-110) (the “CIV Rules”) require client identification, verification, source of money and monitoring procedures to be followed when providing legal services. Compliance with these rules is required whether or not suspicious circumstances are present.

The due diligence obligations set out in the CIV Rules reduce the risk of being used to facilitate dishonesty or illegal activity in the course of providing legal services. These rules, along with BC Code rule 3.2-7 (Dishonesty, fraud by client) and Rule 3-58.1 (Trust account only for legal services), are a key part of the Law Society’s efforts to combat money laundering and terrorist financing. 

A breach of the CIV Rules may result in disciplinary action, including the imposition of an administrative penalty under Part 4, Division 6. Citations have also been issued for breaches of the CIV Rules, resulting in findings of professional misconduct (see for example Law Society of BC v. Wilson, 2019 LSBC 25; Law Society of BC v. Huculak, 2022 LSBC 26; and Law Society of BC v. Guo, 2023 LSBC 28[1]).   

Identification and verification

Identification and verification are separate but related concepts. Law Society Rule 3-100, the client identification rule, requires a lawyer to collect basic identification information about a client upon being retained. There are different obligations for individuals and entities.

The obligation to verify a client’s identity applies when a lawyer provides legal services in respect of a “financial transaction”, which is broadly defined as when a lawyer receives, pays or transfers money on behalf of a client, or gives instructions on behalf of a client in respect of the receipt, payment or transfer of money. The requirements for verifying individuals and entities vary according to the type of transaction and entity.

The CIV rules use a number of defined terms, including “client”, “financial institution”, “financial transaction”, “money”, “organization”, “public body” and “reporting issuer”. Close attention to the definitions is important, as they are in some cases broader than the common usage.  For example, a “client” includes an individual instructing the lawyer on the client’s behalf.     

Source of money

Rule 3-102(1) requires information about the source of money to be obtained when providing legal services in respect to a financial transaction. The following information about the source of money should be obtained and recorded:

• 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; and
• any other information relevant to determining the source of money.

The source of money for a financial transaction may change over time and new information may need to be obtained.  

Monitoring and the duty to withdraw

Periodic monitoring of the professional business relationship with the client is required under Rule 3-110 when retained by a client in a financial transaction. Making inquiries in respect to the client’s activities, the source of money and the transactions will assist in assessing whether there is a risk that the legal services being provided are assisting in or encouraging dishonest or criminal conduct, including money laundering. Rule 3-109 requires a lawyer to withdraw from representation if the lawyer knows or ought to know that they are or would be assisting in a client’s fraud or other illegal conduct.  

Application and exemptions

The limited exemptions to parts of the CIV Rules are set out in Rules 3-99(2) and 3-101.  There are no blanket exemptions for entire practice areas, such as personal injury or criminal defence. There is no exemption for pro bono work that involves a financial transaction. Nor is there an exemption for clients who are family, friends or long-term acquaintances or business associates.

Before relying on an exemption, careful consideration should be given to ensure the exemption applies.   Each client and financial transaction must be considered separately; an exemption that applies to the receipt of money may not apply to the payment of money. Both the receipt and payment would need to be exempt for there to be an exemption to the requirement to verify the client’s identity and to obtain information about the source of money.  

If relying on an exemption to the CIV Rules, the relevant exemption and the basis for the determination that it applies to the client matter should be recorded in the file. Even if an exemption applies, be mindful of the duty to make reasonable inquiries, as set out in BC Code rule 3.2-7 and its commentaries. 

Record keeping and retention

The record keeping and retention obligations are central to the CIV Rules. Rule 3-107 requires a lawyer to retain a record of the information and any documents obtained for the purposes of client identification and verification, source of money inquiries, and the monitoring requirements.  The records and documents must be retained for the longer of the duration of the lawyer-client relationship or six years following the completion of the work for which the lawyer was retained.

Resources 

For more information, refer to the resources on the Client ID & Verification webpage  including Top 10 Tips, FAQs, checklists,  free webinars and more.  For confidential advice, contact Barbara Buchanan, KC, Practice Advisor, at 604.697.5816 or bbuchanan@lsbc.org.