Frequently Asked Questions about Client Identification and Verification

There have been several significant changes to the client identification and verification requirements, including, for example, providing new methods to verify identity, modifying the verification requirements for organizations, removing certain exemptions to verification, and imposing new source of funds and monitoring requirements. For an overview of these changes, consult the Law Society’s At-A-Glance: Anti-Money Laundering and Terrorist Financing Amendments.

The new requirements come into force on January 1, 2022. This means, that licensees who are retained to provide legal services on or after January 1, 2022 must identify and verify the identity of their client in accordance with the new requirements.

No. For that matter, you complied with the requirements in effect at the time. The new requirements come into effect on January 1, 2022. However, as part of your existing professional obligations to know your client, understand the nature of the client’s retainer, and avoid assisting in or encouraging fraud or illegal conduct, you should have already been looking for red flags, and making inquiries of your client about financial transactions, if any, particularly if red flags were present.

If the referring licensee or lawyer has already identified and verified the identity of the client in accordance with the current requirements in By-Law 7.1, you do not have to do so again. However, if the licensee identified and verified the identity of the client in accordance with the prior requirements, you must comply with the current requirements.
 
Note that if you choose to rely on identification and verification conducted by another licensee or lawyer under the current requirements, you should confirm that the information is still current and accurate and obtain from the licensee or lawyer copies of the documents, data, and information used for the identification and verification.
 
While you may rely on the licensee or lawyer’s previous verification, if the matter is ongoing, you are required to periodically monitor the professional relationship with the client for the purposes of assessing whether there is a risk that you may be assisting or encouraging fraud or other illegal conduct. For more information on your monitoring obligations, see the Monitoring section below.

You must identify any individual or organization who has retained you to provide legal services. If your client is acting for or representing a third party, you must obtain identification information about the third party.
 
If the client or third party is an organization, you must also identify each individual that is authorized to give instructions on behalf of the organization with respect to the matter for which you are retained. If you are also engaged in or giving instructions in respect of the receipt, payment, or transfer of funds, you must identify the directors and beneficial owners of the organization.

Subject to limited exemptions, you must identify your client or third party whenever you are retained to provide legal services. Identification can be done in conjunction with your firm’s conflicts check.

Yes, the identification requirements may be fulfilled by any employee in your firm or another licensee who is practising law or providing legal services through your firm, provided that
 

• the employee or other licensee are acting on your behalf
• the information obtained complies with the identification requirements, and
• a dated record of the identification information is made and retained in accordance with the record keeping requirements.

While an employee or another licensee in your firm are permitted to identify a client or third party on your behalf, you remain ultimately responsible for ensuring the identification requirements have been met.

If your client is a financial institution, a public body, or a reporting issuer, you are required to obtain the following identification information:
 

• the client’s full name
• the client’s business address and telephone number, and
• the name, position and contact information of each individual who is authorized to provide instructions on behalf of the financial institution, public body or reporting issuer.

Examples of incorporation or business identification numbers include:
 

• Ontario Business Corporation Numbers (for information on how to search an Ontario Corporation Number click here).
• Canadian Business Corporation Numbers (Federal Corporation numbers can be searched here).
• Canada Revenue Agency Numbers (e.g., GST/HST numbers; note, to confirm the GST/HST number of a business, licensees should consult the Canada Revenue Agency website).
• European Common Union Value Added Tax (“VAT”) (for information on how to search EU Corporation Numbers click here).

Yes, you must record all identification information you obtain, including the date on which it was obtained. For more information, review the Record Keeping section below.

A third party is an individual or organization who instructs another individual or organization to conduct an activity or financial transaction on their behalf. When determining whether a third party is giving instructions, it is not about who benefits from the activity or financial transaction, or who is carrying out the activity or financial transaction, but rather who gives the instructions to handle or conduct the activity or financial transaction.
 
You should ask questions to determine if someone other than the client is pulling the strings. If you determine that the individual or organization who engages you is acting on someone else's instructions, that someone else is a third party for the purposes of the identification and verification requirements.  

While not required, you should take reasonable measures to determine if a third party is involved and if they are authorized to instruct you on behalf of the client or if the client is acting for or representing a third party in respect of the matter for which you are retained.

If the person paying your legal fees is a third party and not the client, you should record and document the following:
 

• the reason that the client is not paying
• the payor’s full name, address, and occupation
• the payor’s relationship to the client
• an explanation for the source of funds, and
• to whom the funds should be returned, if required.

           
You should also ensure that the payor is not under the impression that you will protect their interests or share confidential information about the matter with them without the client’s consent. It is also critical that the payor understands that you act exclusively in the interests of the client and, as a result, take instructions only from the client. To mitigate risk, consider sending a non-engagement letter to the payor that confirms the above information.

Verifying the identity of a client means actually looking at the documents, data, and information you must obtain under By-Law 7.1 to confirm that your client and any third party are who or what they say they are.

No. There are certain situations where you do not need to verify the identity of your client or third party even though you are retained to provide legal services that involve you engaging in or giving instructions in respect of the receipt, payment, or transfer of funds. These situations are summarized in the Law Society’s Client Identification and Verification Flowchart, and are limited to certain licensees, clients, or funds. Licensees should consult Sections 22(2) – (4) of By-Law 7.1 for a complete list of exemptions to the verification requirements. 

Funds is a defined term in By-Law 7.1. It means cash, currency, securities, negotiable instruments, and other financial instruments that indicate a person’s title or interest in them. Given this broad definition, there are many situations in which you may be required to verify the identity of a client or third party, including situations where you do not have control of the funds but are directing how those funds should be paid, received, or transferred.
 
For example, unless an exemption applies, you would be required to comply with the verification requirements where you
 

• give instructions on behalf of a client to transfer shares stocks, debentures, bonds, or other securities or financial instruments, regardless of whether monies are being paid for the securities or transfer
• receive a bank draft or certified cheque from a third party for monies owing to your client
• pay or provide instructions to the other side’s lawyer on behalf of your client for fees relating to an agreement of purchase and sale
• transfer or direct the transfer of monies on behalf of your client pursuant to the terms of a separation agreement

 In every situation, you must exercise your judgment in determining whether the legal services you are providing include engaging in or giving instructions in respect of the receipt, payment, or transfer of funds. If you are unsure of whether the verification requirements apply, contact the Law Society’s Practice Management Helpline for guidance.  

For an individual client or third party, or individuals authorized to instruct on behalf of an organizational client or third party, you must verify the identity of the individual immediately after first engaging in or giving instructions in respect of the receipt, payment, or transfer of funds.

For an organizational client or third party, you must verify the identity of the organization within 30 days after first engaging in or giving instructions in respect of the receipt, payment, or transfer of funds. As a best practice, however, you should verify identity before or when you first engage in such activity.
 

You are permitted to verify the identity of an individual using one of the following methods:
 

• Government-issued photo identification
• Credit file method
• Dual process method
• By retaining an agent to verify the individual’s identity

See the below questions for information on how to verify identity using the government-issued photo identification, credit file, or dual process methods. For information on using an agent, see the Law Society’s Using an Agent for Verification of Identity resource. Licensees should note that there are different verification requirements for individuals younger than 15 years of age (see the question “How do I verify the identity of a minor?”, below) and organizations.

All documents and records used to verify identity must be authentic, valid, and current and all other information used must be valid and current. You must also maintain a dated record of the information obtained and retain copies of all documents or records used. To comply with these Record Keeping requirements, consider using the Law Society’s Client Verification Form (Individual) (.docx).

Where you are required to verify the identity of an individual, you must also comply with the source of funds and monitoring requirements.

To verify identity using the government-issued photo identification method you must view a valid, original, and current government-issued photo identification document containing the individual’s name and photograph. Photo identification documents issued by any municipal government are not acceptable. Note that privacy laws in Ontario prohibit you from collecting, recording, using, or making a note of an individual’s health card number for identification or verification purposes. For more information, visit the Information and Privacy Commissioner of Ontario’s website.

For a list of acceptable government-issued documents that can be used to verify identity, see the Law Society’s Examples of Government Issued Photo Identification.

You must view the government-issued photo identification document in the presence of the individual you are verifying to ensure that the name and photograph match. You must also keep a dated record of your compliance with these requirements. To assist you in this regard, consider using the Law Society’s Client Verification Form (Individual) (docx).

To verify identity using the dual process method you must obtain any two of the following pieces of information from two different reliable sources:
 

• information from a reliable source that contains the individual’s name and address
• information from a reliable source that contains the individual’s name and date of birth
• information containing the individual’s name that confirms they have a deposit account or credit card or other loan account with a financial institution.

 
The information may be found in documents from a reliable source or may be information that the reliable source is able to provide. In all cases, the documents must be originals that are authentic, valid, and current, and the information used must be valid and current. Photocopies, faxes, and electronic images are not acceptable.
 
The individual does not need to be physically in your presence at the time you verify their identity using the dual process method.

A reliable source is an originator or issuer of information that is well known and considered reputable. For the purposes of the verification requirements, the reliable sources cannot be the individual whose identity you are verifying, you as the licensee, or an individual acting on your behalf (i.e., an agent). For a list of reliable sources of information and documents that can be used to verify identity using the dual process method, see the Law Society’s Examples of Reliable Sources of Information.

The verification requirements for minors depend on the age of the individual.
 
For individuals younger than 12 years old, you must verify the identity of the individual’s parent or guardian using the government-issued photo identification method, credit file method, or dual process method. You can also use an agent to verify the identity of the parent or guardian.  See the questions above for information on these methods of verification or consult the Law Society’s Client Identification and Verification Flowchart. For information on using an agent, see the Law Society’s Using an Agent for Verification of Identity resource.
 
For an individual 12 years or older, but younger than 15 years, you may verify identity by obtaining information from a reliable source that contains the name and address of the individual’s parent or guardian and confirming that the address of the parent or guardian matches the individual’s address. 
 
For individuals 15 years or older, you can verify identity using any of the available methods of verification for individuals as set out in By-Law 7.1. For more information see the question “How do I verify the identity of an individual?” above.

The verification requirements for an organization depend on the type of organization.
 
For an organization that is created or registered pursuant to legislative authority (e.g., a corporation or society), you must obtain written confirmation from a government registry of the organization’s existence, name, and address, as well as the names of the organization’s directors, if applicable. Such written confirmation may include, for example, a certificate of corporate status or a record filed annually under provincial securities legislation. 
 
If the organization is not registered in any government registry (e.g., a trust or partnership), you must obtain a record confirming the organization’s existence. This could include, for example, a copy of the organization’s constating documents or articles of association.
 
In all cases, the documents and records you rely on must be authentic, valid, and current. You are also required to maintain a dated record of the verification information you obtain and retain a copy of every document used to verify the identity of the organization. To assist you in this regard, consider using the Law Society’s Client Verification Form (Organization) (docx).
 
Note, where you are required to verify the identity of an organization, subject to an exemption, you must also
 

• verify the identity of each individual authorized to instruct the organization (see, “How do I verify the identity of an individual?”)
• comply with the source of funds and monitoring requirements
• obtain information about the directors, beneficial owners, control, and structure of the organization (for more information, see the question below).

You can obtain information establishing beneficial ownership and the ownership, control, and structure information from the organization directly, either verbally or in writing. For example, the organization can provide you with official documentation or advise you on the beneficial ownership which you can then document for record keeping purposes (for example, the Law Society’s Client Verification Form (Organization)(docx)). It is not sufficient to identify only the owners of an organization or those who control it; you must make reasonable efforts to identify both.
 
If you are relying on documents or records, it may be possible to rely on such documents or records to satisfy both the requirement to obtain information about beneficial ownership, and the ownership, control, and structure of the organization, and to confirm the accuracy of such information. In all cases, you must use your judgment to assess whether the documentation is appropriate. Where possible, official documents should be used to confirm beneficial ownership information. If no official document exists, consider having the client sign an attestation that includes the ownership, control, and structure information obtained.

No. You must verify the identity of a client or third party whenever you are engaged in or giving instructions in respect of a financial transaction regardless of the amount of funds being received, paid, or transferred.

If you are unable to obtain the information required about the directors and beneficial owners of the organization, or you are unable to confirm the accuracy of such information you must
 

• take reasonable measures to ascertain the identity of the most senior managing officer of the organization
• determine whether the client’s information in respect of their activities, source of funds, and instructions are consistent with the purpose of the retainer and the information obtained about the organization, and prepare a dated record of your determination, and
• assess the organizational client’s activities in the context of any risks that the financial transaction may be used to facilitate dishonest, fraudulent, criminal, or other illegal activity.

 
To assist you in identifying and assessing risks associated with the client, matter, or transaction, consider using the Law Society’s Worksheet: Red Flags of Fraud, Money Launder, Terrorist Financing, and Illegal Activity. You may also use the Law Society’s Client Verification Form (Organization) (.docx) to record the reasonable measures taken to ascertain identity and document your risk assessment.

To verify the identity of a client or third party that is a trust, you must obtain a copy of a record that confirms the existence of the trust as an organization. The type of record will vary depending on the nature of the trust. Examples of appropriate documentation may include a trust agreement or other documents establishing the trust, documents amending the trust, and documents identifying the trustees. You are also required to verify the identity of all individuals authorized to give instructions on behalf of the trust (see the question “How do I verify the identity of an individual?” above).
 
If you are required to verify the identity of an organization that is a trust, you must also comply with additional identification requirements. For more information on these requirements see the Law Society’s Client Identification and Verification Flowchart.

This exemption is only meant to cover a financial institution’s own funds, for example those advanced pursuant to a mortgage or loan agreement. Cheques, whether regular or certified, bank drafts, or other forms of payment that are provided by anyone other than from the financial institution directly on its own behalf, are not included in the exemption.

No. Funds paid or received as a settlement, regardless of whether they were paid or received in the context of a proceeding are not exempt from the verification requirements. Accordingly, if you pay or receive settlement monies, you must verify the identity of your client. You must also comply with the source of funds requirement unless another exemption applies

No, unless the legal services you provide also require you to engage in or give instructions in respect of the receipt, payment, or transfer of those monies and the monies do not fall within one of the funds exemptions to client verification. For more information see the question “Does every financial transaction trigger the verification requirement?”  above.

It depends. If the verification you conducted complied with the current requirements and you believe that the information is accurate and current, you are not required to verify identity again. If the verification did not comply with the current requirements or you believe that the information may no longer be accurate or current, you must verify identity again.
 
Regardless of whether you are required to verify identity again, because you are engaged in or giving instructions in respect of the receipt, payment, or transfer of funds, you must ensure you obtain information about source of funds. In addition, if the matter is ongoing, you must periodically monitor the professional business relationship with the client throughout the retainer. For more information on your source of funds and monitoring obligations, see the Source of Funds and Monitoring sections below.     

Yes. In every case where you are engaged in or giving instructions in respect of the receipt, payment, or transfer of funds, you must verify the identity of each individual who is authorized to give you instructions on behalf of the organization in respect of the matter for which you have been retained. You may, however, be exempt from this requirement if you previously verified the identity of that individual and have no reason to believe the information or the accuracy of the information has changed.

You may rely on an agent to verify the identity of an individual at any time, regardless of whether the individual is physically present in Canada. However, you are not permitted to rely on an agent to verify the identity of an organization.  

Nothing in the by-law prohibits you from paying an agent to verify the identity of an individual. However, you should establish at the outset of your arrangement with the agent whether they will be charging for the service and if so, what the charge will be.
 
As you are required to enter into a written agreement (.docx) with the agent, you should include in that agreement information regarding the payment of any fees. If you agree to pay a fee to the agent, you must also comply with your professional obligation to disclose to the client all financial dealings relating to the retainer.

Yes. The fact that your client is a lawyer does not exempt you from the identification or verification requirements. Thus, unless another exemption applies or you can meet with your client, in this case, you must verify the identity of your client by
 

• using the credit file method or dual process method, or  
• using an agent to verify identity on your behalf.
   

For information on the credit file and dual process methods of verification, see the questions above or consult the Law Society’s Client Identification and Verification Flowchart; for information on using an agent, consult the Law Society’s Using an Agent for Verification of Identity resource.

If you are retained to provide legal services that involve a financial transaction and none of the exemptions to the client identification or verification requirements of By-Law 7.1 apply, you must obtain information from the client about the source of funds being received, paid, or transferred. 
 
Source of funds means the economic activity that generated the funds or the origin of the funds for the financial transaction.

You must also record this information and the date on which it was obtained.  The record must be maintained as required by By-Law 7.1. For more information see the Record Keeping section below.

While the by-law does not prescribe the timing for obtaining source of funds information, because the source of funds requirement is triggered when you engage in or give instructions in respect of the receipt, payment, or transfer of funds, you should obtain information from your client about the source of funds at the time you are verifying the client’s identity and within the prescribed time for complying with the verification requirements. The timing for verification of a client’s identity depends on whether the client is an individual or organization. For more information see the question, “When do I have to verify identity?”, above.

In many cases, yes. In the absence of inconsistencies or other red flags about the client or transaction, you may accept a client’s explanation about the economic activity or action that generated the client’s source of money. In such cases, you need not make further inquiries or obtain copies of source of funds documents.

However, at any time where a client’s explanation for the source of funds is unusual or inconsistent with what you know of the client or the retainer, you should ask more questions, consider obtaining documents from the client that support the client’s explanation of the source of funds, and assess the risk of participating in a financial transaction with the client.

The following is a non-exhaustive list of examples of documents that you may request from a client, depending on the client’s source of funds explanation:
 

• Employment pay statements or other proof of earnings
• Tax return
• Agreement of purchase and sale
• Bill of sale
• Loan agreement
• Court judgment
• Minutes of settlement
• Will or gift letter
• Life insurance pay out statement
• Lottery or gambling win documentation
• Share or asset purchase agreement
• Partnership agreement
• Capital raise or contribution documentation
• Debt instrument documentation

In this case, both you and the lawyer on the other side have source of funds obligations. As you are receiving the funds on behalf of your client, you must obtain and record information about the origin of the funds for the financial transaction. In the case of a real estate or loan transaction, it may be sufficient to indicate that the source of funds being received is from the purchaser/lender or their lawyer. At a minimum, the source of funds record should include the name and contact information of the individual or organization transferring the funds, and the date on which the funds were transferred.
 
If, however, the source of funds is not coming directly from the purchaser/lender or their lawyer, or there are red flags associated with the source of funds (e.g., it is high value transaction that does not require financing), you may need to make follow-up inquiries and obtain supporting documentation. In all cases, you should maintain and retain a record of your source of fund inquiries in accordance with your record keeping obligations.

If the person paying your legal fees and/or disbursements is not your client, you should record the following information:

• the reason that the client is not paying
• the payor’s full name, address, occupation, and relationship to the client, and
• an explanation for the source of funds

You should also ensure that the payor of the funds is not under the impression that you will protect their interests or share confidential information about the matter with them without the client’s consent. It is also critical that the payor understands that you act exclusively in the interests of the client and, as a result, take instruction only from the client. To mitigate risk, consider sending a non-engagement letter to the payor that confirms the above information with the payor.

During an ongoing retainer involving a financial transaction, you must periodically

• determine whether the information obtained about your client’s activities, the source of funds used in the transaction, and the instructions in the financial transaction are consistent with the purpose of the retainer and the information about the client; and
• assess whether there is a risk that you may be assisting in or encouraging fraud or other illegal conduct.

 

You must also record the measures taken to comply with the monitoring requirements, the date on which the measures were taken, and the information obtained. The record must be maintained as required by By-Law 7.1. To assist you in complying with these obligations, consider using the Law Society’s Sample Monitoring Record (.docx).

Yes, if the matter is ongoing. The monitoring requirement is not tied to the requirement to verify the identity of your client. In other words, whenever you are engaged in or giving instructions in respect of the receipt, payment, or transfer of funds you must periodically monitor the professional relationship with your client irrespective of whether you are required to verify the client’s identity or obtain source of funds information. However, while periodic monitoring is required, where an exemption to verification applies, the degree and frequency of monitoring will be limited. For example, it may not involve obtaining, reviewing, and confirming the source of funds.

As part of existing obligations to know their clients, understand the nature of their retainers, and avoid assisting in or encouraging illegal conduct, licensees already look for red flags or other concerns that may present problems during the retainers. This is monitoring their professional relationship with clients and the activities for which they have been retained.

The Rules, Paralegal Rules, and Paralegal Guidelines have reflected these requirements for some time. See, for example, Rules 3.2-7 to 3.2-8 of the Rules, Rules 3.02(4) to (6) of the Paralegal Rules, and Guideline 7, ss. 4 to 7 of the Paralegal Guidelines.

Only the specific requirement to engage in monitoring is new.

• In general
  • Review the red flags or risk factors for money laundering, terrorist financing, and other illegal activity, and keep up to date on developments, including recent frauds

    The Law Society’s Worksheet Red Flags of Money Laundering, Terrorist Financing, and Other Illegal Activity Worksheet and Risk Assessment Case Studies provide a general overview of these topics.

    For more detailed information about practice area specific red flags and risks, see the Federation of Law Societies of Canada’s Risk Advisories for the Legal Profession (December 2019).

    To keep current on the latest frauds, review LawPRO®’s Avoid a Claim, Fraud Warnings and/or subscribe to receive fraud warnings by email.

• For each matter that involves a financial transaction
  • Assess whether there are red flags present and conduct a risk assessment for the matter
    At the outset of and throughout a retainer, you should consider whether there are red flags present and conduct a risk assessment based on the nature of your practice, the level of risk associated with the client, and the level of risk associated with the matter:
    
    A. What is the level of risk of your practice?
    
    Consider whether you provide legal services that are susceptible to being used for money laundering, such as
     

    • Purchase and sale of real estate
    • Establishing, purchasing, and selling business entities
    • Arranging for financing for the purchase and sale of or operation of business entitles or assets, or
    • Enforcing contracts involving transfers of funds between entities.

    
    Although this list is not exhaustive, legal services susceptible to being used for money laundering may require increased monitoring of the professional relationship to ensure that you are not being used for an improper purpose.
    
    B. What is the level of risk related to this client? 
    
    Consider asking yourself, for example:
     

    • Is the client excessively secretive or obstructive?
    • Is the client a politically exposed person?
    • Are you able to establish the beneficial owners of the client?
    • Is the client in a country that presents a high risk for money laundering?
    • Did you meet the client face-to-face?
    • Is the client a regulated person or entity?
    • What is the business structure of the client?
    • Is your client acting on behalf of someone else?
    • If a client is geographically far away from your office, why is this client retaining you?

    
    If there are elevated risks that are associated with the client, you may want to ask additional questions to satisfy yourself that you are being retained for a legitimate purpose.
    
    C. What is the level of risk of this matter?
    
    Consider asking yourself, for example:
     

    • Is the transaction based in a high-risk country?
    • Is the transaction unusually complex or unusually large for the parties or transaction?
    • Is there an unusual pattern of transactions?
    • Is there an apparent legal or economic purpose for the transaction?
    • If a client is retaining you for a matter that is out of your practice area, why are they doing so?

    
    Note: The above lists for practice, client, and matter risk assessment are illustrative, not exhaustive.
     
  • Determine the appropriate nature, degree, and frequency of monitoring for the client and matter
    Based on your risk assessment of your practice, the client, and the subject matter of the retainer, decide how frequently to do a check in with the client.  Periodic monitoring is required, but the nature, degree, and frequency of monitoring will depend on what is reasonable in each case.
     
    Generally, you must check in occasionally with clients with whom you have longer-term relationships. Clients identified as posing a low risk will require less frequent monitoring, whereas those in your high-risk category will require that you take enhanced measures, which include conducting more frequent monitoring activities. If the professional relationship is short-term in nature, the monitoring requirement may not be triggered.
     
    For example:
     

    • If you act for the buyer of multiple properties over 20 months, you must make periodic inquiries about the source of funds for each transaction and should check in with the client.
    • If you act for the seller of their $500,000 condominium and the sale closes in three weeks, the monitoring requirement may have limited or no applicability.
  • Monitor the relationship based on red flags and risk, and record the information

    The Law Society has created a Sample Monitoring Record (.docx) to assist licensees in complying with this requirement.

  • Remain alert to new red flags or risk factors that emerge at any time throughout your retainer, engage in increased monitoring, if necessary; and record the steps taken
    If your periodic monitoring reveals changes or heightened risk, monitoring may include:
     

    • Obtaining updated information about the client (e.g., occupation, assets)
    • Collecting information about the source of funds or the source of wealth of your client
    • Asking about the reason for intended or conducted transactions
    • Gathering additional documents, data, or information or taking additional steps to verify the documents obtained
    • Flagging certain activities that appear to deviate from expectations
    • Reviewing client transactions relevant to the legal work for which you are retained against your usual processes and procedures for similar matters

The Practice Management Helpline is available to assist. Contact the Helpline at practicehelpline@lso.ca or 416-947-3315 or 1-800-668-7380 and select the Helpline option.
 
If you are a lawyer who suspects that you are being targeted by a client in a fraud or your client may be attempting to use you to launder money or for another illegal purpose, consider contacting LawPRO®’s Avoid a Claim for direction. Similarly, paralegals should consider contacting their insurers.
 

Yes. Unless an exemption applies, you are required to retain
 

• a record of all identification and verification information you or your agent obtained
• a record of the source of funds information you obtained
• a record of the measures taken to comply with the monitoring requirement, and
• copies of all documents you or your agent used to verify the identity of your client.

 
If you are required to verify the identity of an organization, you must also retain a dated record of the measures taken to confirm the accuracy of the additional identification information that you are required to obtain about the directors and beneficial owners of the organization.
 
For assistance with complying with the above record keeping obligations, consider using the Law Society’s file forms.

Yes, documents, records, and information obtained for the purposes of complying with the client identification and verification requirements may be kept in a machine-readable or electronic form, if a paper copy can be readily produced from it. In all cases, you must ensure that the documents and information you obtain as part of the identification and verification process are properly stored and safeguarded. 

There is no requirement under the by-law that you document or make a record of any exemption(s) to the identification or verification requirements you are relying on. However, as a best practice, you should make a note somewhere in the client file identifying the exemption you are relying on and explaining how you determined the exemption applies.

This type of behaviour should raise suspicions that your client may be trying to get you to assist them with something illegal or dishonest. You have an obligation to ensure that you are not participating in, or facilitating any dishonesty, fraud, crime or illegal conduct by a client or any other person. Accordingly, in situations where your client is being evasive, you should make reasonable inquiries of the client to determine if there are any risks or concerns of illegal conduct before agreeing to act or continuing to act for the client. If you know or ought to know that you would be assisting the client in fraud or other illegal conduct, you must refuse to act for the client in the matter and withdraw from representation in accordance with your professional obligations.
 
If your client is unable to provide the identification or verification information because it does not exist, you should record these facts as part of the identification and verification process and exercise your own judgment in assessing risk and determining your withdrawal obligations in the circumstances. For assistance in making this determination, consider contacting the Law Society’s Practice Management Helpline.

• 96. I am maintaining corporate share registers for uncertificated securities or other evidence of ownership and title. Do I have to verify the identity of my client?
  It depends. If you are engaged in or giving instructions in respect of the receipt, transfer, or payment of those shares then, unless an exemption applies, you must verify the identity of your client. This would include, for example, preparing a document that directs how those shares are to be received, paid, or transferred. 
  
  If you are not, then you do not need to verify the client’s identity.
  
  Note that licensees must keep a record of all negotiable or valuable property (other than money) that they receive that is to be held in trust for clients. For more information, see Part V of By-Law 9.
• 97. I have been retained by a group of individuals engaged in a joint venture. I have determined that there is a financial transaction that is not exempted under the by-law. Do I have to verify the identity of all of the parties to the joint venture?
  Yes. By definition, a joint venture is a collection of organizations or individuals that have joined together for some common purpose. In such a case, each of the parties to the joint venture would be a client.
• 98. My client has come to me for tax advice in connection with some investments. Is this a situation in which I must verify my client’s identity?
  No. The verification requirements are triggered only when you are engaged in or giving instructions in respect of the receipt, payment, or transfer of funds. If you are only providing legal advice about a financial matter, you do not need to verify the identity of your client unless you will also be engaged in or giving instructions about the movement of funds.
• 99. I am acting for a client in a commercial transaction. I have prepared the necessary documentation to complete the transaction, but the closing funds will not be flowing through my trust account as my client will be paying these directly to the other side in accordance with the agreement and closing documentation. Is this a situation in which I must verify my client’s identity?
  Yes, unless an exemption applies. The verification requirements apply whenever you engage in or give instructions in respect of the receipt, payment, or transfer of funds. Although the funds are not passing through your trust account in this transaction, you are providing instructions with respect to the transfer of funds when you direct (e.g., the other side’s lawyer, the bank, etc.) how the funds will flow to complete the transaction. This may include the preparation of documents containing such instructions.
• 100. My client, a private corporation, has retained me with respect to a financial transaction which will involve the issuance or transfer of shares. Am I required to verify the identity of my client?
  Yes, unless an exemption applies. You are required to verify the identity of your client whenever you are engaged in or giving instructions in respect of the receipt, payment, or transfer of funds. Funds is a defined term in the by-law and includes securities and negotiable instruments.
  
  When a lawyer prepares share certificates or share transfers, regardless of whether monies are being paid for the shares or share transfer, the lawyer is engaged in the receipt, payment, or transfer of funds. Accordingly, in this situation, unless an exemption applies, you are required to verify
   

  • the identity of the private corporation client
  • any third party that the client is acting for or representing, and
  • each individual who is authorized to provide you with instructions on behalf of the corporation.
• 101. I did the legal work to incorporate a business and am now acting for that business on another matter. May I rely on documents already in my possession to verify the client’s identity or must I rely on documents from a government registry?
  As long as the documents are authentic, valid, and current, and qualify as written confirmation from a government registry as to the existence of the corporation, relying on documents in your possession is fine. The documents referred to in the by-law are examples of independent, reliable source documents, but the list is not exhaustive. As you incorporated the business, you likely have a copy of the certificate of incorporation, which is an acceptable source.

• 103. I have been retained by an individual to prepare a will. I have received a retainer but am not handling any other funds. Am I required to identify and verify the identity of my client?
  In these circumstances, you must identify your client, but you are not required to verify the client’s identity. Funds paid or received for disbursements or fees billed or to be billed to a client for legal services rendered are exempt from the verification requirements, including the source of funds requirement.
• 104. I have been retained by an estate trustee to administer an estate. Am I required to verify the identity of the beneficiaries of the estate when I pay out funds to the beneficiaries?
  No. Although you are engaged in the transfer of funds, this transfer triggers the requirement to verify the identity of your client, the estate trustee, and any third party that your client is acting for or representing. In this scenario, because the beneficiaries are not your client, your client is not acting for or representing the beneficiaries, and the beneficiaries are not able to instruct or direct your client, you are not required to verify the identity of the beneficiaries.
   
  However, there may be situations in which a beneficiary is instructing your client, for example with respect to litigation over the settlement of an estate. In this case, unless an exemption applies, you would be required to identify and verify the identity of the beneficiary as a third party.
• 105. Are beneficiaries to an estate considered third parties within the meaning of the by-law?
  No, the beneficiaries are not considered to be third parties unless they are instructing you or your client. The fact that an individual or organization might benefit from or be affected by the actions of the client does not by itself trigger the obligation to identify them or verify their identities.
• 106. I am acting for a living trust that makes ongoing disbursements to the beneficiaries of the trust. Am I required to identify and verify the identity of the beneficiaries of the trust?
  You are only required to verify the identity of your client and any third party that your client is acting for or representing. If your client is an organization and you are retained to provide legal services relating to a financial transaction, you must make reasonable efforts to obtain, and if obtained, to record with the applicable date,
   

  • the names and addresses of all trustees and all known beneficiaries and settlors of the trust, and
  • information establishing the ownership, control, and structure of the trust.

   
  If the beneficiaries of the trust are also your clients in this matter or if the beneficiaries are authorized to instruct you on behalf of your client, then you must also identify and verify their identity.
   
  In this example, you should also be aware of your professional obligations prohibiting the use of a trust account for purposes that are not directly related to the legal services you are providing. Where you are making ongoing disbursements to beneficiaries, you are prohibited from holding the funds in your trust account unless you are providing legal services related to the disbursements.
   

• 108. I am acting for a developer of a new condominium project and am holding in trust the monies paid as deposits by the purchasers of the condominium units. I am not acting for the purchasers. Do I have to verify the identity of the purchasers?
  No, provided that the purchasers are not your clients and they are not instructing or authorized to instruct you on behalf of your client in respect of the matter for which you have been retained. If the purchasers are your clients or if they are instructing or in a position to instruct your client, then you must verify their identity unless an exemption applies.
• 109. I am acting for a lender and collecting mortgage payments from the borrower on her behalf. Do I have to identify or verify the identity of the borrower?
  No. You are only obliged to verify the identity of your client, any third party that your client is acting for or representing, and if the lender is an organization, each individual who is authorized to instruct on behalf of the lender organization.
• 110. I act for a purchaser and a lender bank in a real estate transaction. I received funds to close the transaction as follows: a portion of the funds by certified cheque or bank draft from the purchaser; and a portion of the funds (the mortgage proceeds) from the lender by bank draft. Whose identity must I verify?
  As the real estate transaction requires you to engage in or give instructions in respect of the receipt, payment, or transfer of purchase funds, you are required to verify the identity of your clients, unless an exemption applies. In this case, however, assuming the lender bank is a financial institution as defined in the by-law, you would be exempt from verifying the identity of the client or obtaining information about the source of funds. You would, however, still be required to verify the identity of your purchaser client unless another exemption applied.
• 111. I am acting for the vendor in a real estate transaction. I will be receiving the proceeds of the sale from the trust account of the purchaser’s lawyer and, after paying off the outstanding mortgage, will be giving my client a cheque drawn on my trust account for the balance. Do I have to verify my client’s identity?
  Yes. The payment to your client is a financial transaction that triggers the verification requirements. Although there is an exemption from verification with respect to the funds you received from the trust account of another Canadian lawyer, you are acting as a financial intermediary when you provide funds to your client.
• 112. If I am acting for a purchaser in a real estate transaction, am I required to verify the identity of the purchaser when I pay out funds to close the transaction?
  If you have previously verified the identity of the purchaser under the current requirements, for example when you received closing funds, and have no reason to believe the information or the accuracy of the information has changed, then you are not required to verify the identity of the purchaser again.
   
  If, however, you have not previously verified the identity of the purchaser under the current requirements (because, for example, an exemption applied when you received the closing funds), then you would have to verify the identity of the purchaser, unless another exemption applies. If the purchaser is an individual, verification must be done immediately after paying out the closing funds; if the purchaser is an organization, within 30 days after payment is made.
• 113. If I am acting for a vendor in a real estate transaction, am I required to verify the identity of the vendor when I receive closing funds?
  Yes, unless an exemption applies. For example, if funds are received by electronic funds transfer from the purchaser’s lawyer’s trust account, a funds exemption applies, and you would not be required to verify the identity of your vendor client with respect to this transaction.
• 114. I act for a lender regarding a syndicated mortgage, whose identity do I verify?
  A syndicated mortgage means a mortgage having more than one investor. These mortgages are sometimes held in trust by a lawyer or by one of the individual investors in trust for the remaining investors.
   
  If you act for an investor trustee of a syndicated mortgage, you must identify and verify the identity of the trustee and the remaining investor participants if they are your clients or if the client is acting for or representing them.
• 115. I am acting on behalf of a Condominium Corporation and I have received instructions from the property manager to collect arrears of common expenses and to register a Notice of Lien. I subsequently received payment from the owner of the unit. I have determined that no exemption to the verification requirements apply. Whose identity do I need to verify in these circumstances?
  You must verify the identity of your client, the Condominium Corporation. Because your client is an organization, you must also verify the identity of the property manager and any other individual authorized to give you instructions on behalf of the Condominium Corporation in respect of the matter for which you have been retained.