Ontario’s largest lawyer advocacy group, which advocates for more than 16,000 of the province’s lawyers, judges, law professors and students, also says lawyers may not have all the resources they need to comply with the model rules to prevent money laundering. The proposed changes appear to be modelled after regulations for banks and financial institutions, the association says.
The proposed changes could make it harder for marginalized groups, including people living in remote communities, people with disabilities, the elderly and children, to access legal services, says Quinn Ross, president of the OBA.
“Our concern isn’t about making the lawyer’s life more difficult, but whether the proposed rules will impair our duties with respect to access to justice and ensuring we are not facilitating nefarious acts on behalf of bad actors,” says Ross.
The federation sent out proposed changes to its model client identification and verification rule and its model no-cash rule for consultation last October, the federation’s consultation paper says. This was the first time the rules had been reviewed since the client identification and verification rule was adopted in 2008 and the no-cash rule was adopted in 2004, the paper says.
The amendments to the no-cash rule mainly clarify that lawyers cannot receive more than $7,500 in cash.
But the proposed amendments to the client identification and verification rule are causing concerns. The amendments require lawyers to verify the identity of clients face to face. The current rules don’t require this.
Not everyone can meet with lawyers in person, says Ross.
“It becomes an access-to-justice problem,” says Ross. The association would like to see ways to identify clients remotely through technology, such as videoconferencing, electronic signatures or real-time transferring of documents, he says.
“These are all tools that are available and should be used given the type of the retainer and the context,” says Ross.
Currently, if a client is in Canada but can’t meet with a lawyer in person, they can confirm their identity by having a professional, such as a doctor, lawyer, engineer, accountant or school principal, sign a document confirming the client’s identity.
The proposed changes also say clients need to verify their identity with government-issued photo identification or a credit report.
Not everyone who needs a lawyer has access to government-issued identification, says Omar Ha-Redeye, a lawyer with Fleet Street Law, a legal incubator in Toronto that often deals with people who struggle to access the justice system. Newcomers to Canada could have a particularly hard time obtaining it, he says.
These requirements could also negatively impact people already involved in the criminal justice system, he says.
“Some of these clients don’t have a driver’s licence and may not have official documentation of any sort whatsoever,” says Ha-Redeye, “especially if you’re dealing with socially vulnerable individuals, especially people who are homeless or pushed to the margins of society.”
A lawyer may agree to represent an individual they haven’t met on an impaired driving charge, and then find out at the courthouse that they don’t have the appropriate identification. Asking for an adjournment until the client produces the proper documents could be a burden on the legal system, says Ha-Redeye.
“There’s a little bit of spectrum here, and I don’t think the rules allow for enough of an independent assessment of what the risk might be,” he says.
Requirements should be different for someone who needs to show up for a court appearance and someone who is involved in complex transactions involving thousands of dollars, Ha-Redeye says.
“The appropriate way to deal with this is to provide latitude for the lawyer,” he says. “It’s all about taking reasonable steps.”
The current rules say lawyers must take “reasonable” steps to verify a client’s identity. The proposed amendments remove the word “reasonable.” This is to make the federation’s model rule consistent with federal legislation, the federation’s consultation report says.
The proposed amendments say a client cannot give their lawyer a credit report to verify their identity. Lawyers must obtain the report, but doing so is “costly and the result isn’t necessarily robust,” says Darcia Senft, chairwoman of the Canadian Bar Association’s ethics subcommittee, who provided a submission to the federation on the changes. “While banks may have infrastructures in place to get credit information, that’s not the case for law firms.”
Much of the proposed changes in the model rules come from changes to federal legislation, the federation’s report says. Lawyers are exempt from the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, but they still follow the regulations of the law societies, says Senft, who is also the director of policy and ethics of the Law Society of Manitoba. Law societies’ regulations provide a “parallel regime” to federal law, she says.
Amendments to federal laws are often changed after consulting with financial institutions such as banks, she says, but “lawyers don’t operate like big banks.”
The CBA is proposing lawyers be allowed to hire an agent to get the credit report for them, says Senft.
The federation’s report also says a client’s identity can be verified by two separate reliable sources that have their name and address or name and date of birth, the proposed changes say. Electronic images of documents are not acceptable; the federation’s consultation paper also says information from social media cannot be used. If the dual verification method is being used, a client does not need to be present with the lawyer, the report says.
Lawyers are also concerned about the proposed requirement that lawyers monitor their clients’ financial transactions on an ongoing basis, says Ross.
“With a bank account, it makes sense,” he says. “You’ve got an ongoing relationship with the client — the transactions carry on for a number of years. Lawyers are often retained for a single transaction and have neither the authority nor the practical ability to monitor the clients once the transaction is complete.”
“Banks have developed an anti-money-laundering culture because their awareness is higher,” says Mora Johnson, principal of Compass Consulting International Ltd. in Ottawa, who specializes in anti-corruption. Banks have databases that show if a client is a high-risk individual, she says. It would be good if lawyers have access to something similar, she adds.
The model no-cash rule, which prevents lawyers from receiving cash in amounts greater than $7,500, has been very helpful in protecting lawyers from money laundering, she says.
Rules are important because lawyers are vulnerable to unknowingly getting involved in money laundering, she says.
“Money laundering is an extremely difficult crime to detect, investigate and prosecute and then lawyers present a bit of a double whammy,” she says. “They’re at high risk of money laundering if they perform financial services through their trust accounts, and then solicitor-client privilege creates a net of secrecy that makes detection and investigation more difficult. It’s clear that lawyers need to be part of the anti-money-laundering solution. The issue is: What’s the best way of doing that?”
The proposed amendments also say lawyers need to determine the identity of an organization’s owners and directors. But determining beneficiary ownership for complex corporations is almost impossible, says Ross. Provincial and federal laws don’t allow for the creation of a registry that shows corporate ownership, he says.
“In the absence of federal and provincial rules regarding transparency of private company beneficial ownership, any rules about guarding against money laundering for lawyers still have limited effect,” says Senft. “That’s not casting blame on the drafters of these proposed amendments. That’s not something we can control.”
The federation plans to release its final proposed amendments in the next few weeks, Sheila MacPherson, president of the Federation of Law Societies of Canada, wrote in an email to Law Times. They will go before the federation’s council for approval in October, she said.
The federation is also developing comprehensive materials to help lawyers understand their obligations about preventing money laundering, she said.