November 8, 2013

Know your obligations before accepting cash

November 8, 2013

The Law Society has consistently recognized that the legal profession must take steps to prevent money laundering and, since 2004, has had a rule limiting the amount of cash that lawyers may accept.

Under Law Society Rule 3-51.1 (the “no-cash rule”) lawyers are generally precluded from accepting an aggregate amount of $7,500 or more in cash with respect to any one client matter or transaction. There are, however, very limited circumstances under which a lawyer can accept cash in excess of that amount. These exceptions are set out in subrules (2) and (3.1) and include instances where a lawyer receives the cash from a law enforcement agency; pursuant to a court order; or for professional fees (including a retainer), disbursements, expenses or bail.

Some lawyers have expressed uncertainty about how the exceptions ought to be applied and what constitutes acceptance of $7,500 or more in cash with respect to any one client matter. The following Q&As may help when considering whether, and in what circumstances, you can accept or deal with cash.

Was the cash tendered for a specific purpose?

When accepting cash for fees, disbursements, expenses or bail, it would be prudent to:

(1) turn your mind to the purpose for which you are receiving the cash, and document the circumstances and any client instructions;

(2) ensure that the amount received for a retainer is commensurate with the services to be provided (i.e., don’t let a client stash a $50,000 retainer with you for a $5,000 matter);

(3) ensure that you have appropriate file systems in place so that, if you received the cash for a retainer but the client later retains new counsel or your retainer is otherwise terminated, you do not inadvertently forward the retainer funds to new counsel or return them to the client by way of a trust cheque, instead of cash, unless the rule permits you to do so; and

(4) ensure that you have appropriate accounting systems in place to document and track the cash transactions, in particular when you deposit a mix of cash and non-cash funds into trust that could lead to difficulty in monitoring use.

Was the cash tendered incrementally?

The no-cash rule applies even when cash is received incrementally, so it is important to track receipt of cash in aggregate. It is prudent to track totals of cash received on any particular matter to make sure you do not find yourself over the acceptable limit.

Lawyers are obligated to record all cash payments (to general or trust) and cash withdrawals (from trust) in a cash receipt book of duplicate receipts that identifies specific information (Law Society Rule 3-61.1). Each receipt must be signed by the lawyer who receives or pays out the cash or an individual authorized by that lawyer to sign the receipt on the lawyer’s behalf, and by the person from whom the cash is received or paid out. Duplicate receipts are kept by the practice and the original given to the payer.

If the cash was received pursuant to a court order, what does the order say in this regard?

In Burgess (Re), 2011 LSBC 03, the hearing panel made clear that, in order to qualify for the court order exception in subrule (2)(b), the terms of the order must specifically provide for a cash payment. It is not enough that an order cover the movement or payment of funds.

Ultimately, if you need, or choose, to deal with cash, you should be prudent. It is a best practice to document the permissible reason for accepting the cash and later ensure that it is used for this reason. Be sure to track the cash in and out and ensure that, if it is received pursuant to one of the exemptions, the exemption actually applies.

Failing to know your obligations with respect to the receipt of cash, or not understanding them, is not a shield to disciplinary action. For more information, read the following articles on the Law Society website: If you have questions, contact a practice advisor.

Cash transactions and records, Practice Watch, Benchers’ Bulletin, Winter 2014 (p.12)

Don’t be taken advantage of by dishonest clients – ethical guidelines and rules, Practice Watch, Benchers’ Bulletin, Summer 2011

Changes to cash transaction rule, Practice Watch, Benchers’ Bulletin, Winter 2009

No cash rule — rent and real estate conveyances, Practice Watch, Benchers’ Bulletin, October 2008

Receiving or accepting cash – is it worth it?, Practice Watch, Benchers’ Bulletin, July 2008

Cautions on cash and new scams, Practice Watch, Benchers’ Bulletin, May 2008

Know the rules for handling cash, Practice Watch, Benchers’ Bulletin, October 2007

Lawyers not to accept $7,500 or more in cash trust deposits, Benchers’ Bulletin, July-August 2005

Lawyers restricted from accepting $10,000 or more in cash, Benchers’ Bulletin, April-May 2005

Benchers pass rule to fight money laundering, Benchers’ Bulletin, May-June 2004