Law Times

LAW TIMES / MAY 5, 2008 NEWS Keep strict tabs on clients under new rules Money laundering and terrorist financing targeted BY ROBERT TODD Law Times new rules aimed at cracking down on money laundering and terror- ist financing take effect. "It has the purpose of help- ing get rid of money laundering and being taken advantage of as a dupe, but it's also going to be use- ful for protecting counsel against being defrauded," says Ontario Bar Association past president James Morton. "If you're being careful already . . . you won't have to do anything very differently under these rules." The Law Society of Upper O ntario lawyers will be forced to keep strict tabs on their clients when Canada's Convocation passed a motion April 24 amending its bylaw dealing with operational obligations and responsibilities. Starting Oct. 31, lawyers in the province will have to follow a set of procedures to identify a client when "retained to provide her or his professional services," for new and existing clients. Under the new regulations, law- yers by financial institutions, public companies, public bodies, or other lawyers' trust accounts are exempt from that requirement. If lawyers suspect their work for clients will aid fraudulent or criminal activity, they must stop that work or halt their representation of the client. Lawyers must, for law society enforcement purposes, keep re- cords of any information or docu- ments they relied on to identify and verify the identity of clients. Law society Bencher Bob Aar- on, who voted against the new rules, told Convocation the regula- tions were too vague and suggested they could lead to an influx of dis- ciplinary cases or a loss of clients for many lawyers. "We're about to step into a huge quagmire with this," said Aaron. Bencher Clayton Ruby, who yers will have to obtain a client's full name, home address, home phone number, occupation, and, if appli- cable, business address and business telephone number. When dealing with organizations, lawyers will have to get incorporation numbers and place of issue of that number; details on the organization's activi- ties — unless the organization is a financial institution, public body, or non-private company; and the name, position, and contact infor- mation of any individuals autho- rized to give instructions on the matter being dealt with. When a lawyer "engages in or gives instructions in respect of the receiving, paying or transferring of funds," they must also follow a set of identity verification require- ments "using what the licensee reasonably considers to be reliable, independent source documents, data, or information," reads the bylaw. However, funds paid to law- presented the report as chairman of the professional regulation com- mittee, said the regulations uphold the independence of the bar. "Let's see how this works," he said, adding that the mea- sures could be tweaked in the future, if needed. help lawyers implement the new measures, and will issue audits before turning to disciplinary proceedings, said Ruby. "Let's get this going, because it's Law society advisors will 'If you're being careful already . . . you won't have to do anything very differently under these rules,' says James Morton. lawyers, especially sole practitio- ners and those in small firms, a while to adjust to a new layer of administration. It could also be awkward for lawyers in small towns to ask for iden- tification from clients they've known for decades on both a personal and professional level. "Certainly overall, we think it's for the benefit of the public, and that's really what counts," says Johnston. The regulations, which also part of a larger issue," he said. Morton says only in rare cir- cumstances could the rules be burdensome; for example, when lawyers are retained by individu- als without a permanent address, such as refugees or homeless individuals. "Obviously rules have to be enforced with a purposeful ap- proach," he says. "My sense is the law society would do that; it wouldn't take an implausible in- terpretation of the pending rule." Mike Johnston, a Brockville lawyer and member of the County and District Law Presidents' Asso- ciation executive, says the organiza- tion supports the new rules. But he says it will take some Insurance Our goal?… Your Financial Security! Interested in premium savings, superior protection, and prompt, personal attention for ALL of your Family and Business insurance needs? 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Court of Appeal decision affirming a lower court's interim injunction freeing lawyers from conforming to the provisions, pending a full hearing on the case. The appeal court found the legislation to be "an unprecedent- ed intrusion into the traditional solicitor-client relationship," ac- cording to the report. The Supreme Court of Canada DD LT RX3RDB-06 Frntr ad 4/24/08 12:06 PM Page 1 turned down a government appli- cation to stay the order, similar ver- sions of which were granted across Canada. A constitutional challenge to the legislation has been ad- journed, and in 2006 the act was amended to exempt lawyers from the reporting obligation. Further amendments to the act that detail how lawyers and other professionals must identify and verify the identity of clients come into force in December. The professional regulation committee's report states "National implementation of the model rule on client identification and verification will demonstrate that responsible self-governance by the law societies makes federal regulation of the legal profession on this subject unnecessary." The "know your client" re- that, PAGE 5 quirements are the second set of measures taken by the law so- ciety to crack down on money laundering. A "no cash rule" was introduced in 1995 requiring lawyers to refuse payments from clients of $7,500 or more. "Prudent lawyers and para- legals already follow these pro- cedures," said law society Trea- surer Gavin MacKenzie in a release. "By codifying them in a bylaw, we are ensuring that Ontario's legal profession is at the forefront of the fight against money laundering and other criminal activities." 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