Lawyers acting on wills, estates, or small property deals in rural Manitoba do not usually run into many problems with money laundering or terrorist financing.
“If my mother comes in and asks me to do a financial transaction, I’m going to have to ask her for ID,” says Barney Christianson, a partner with Christianson Christianson Jones Law Corp. in Portage la Prairie, Man. He is grappling with the practical implications of new law society “know your client rules” and also advising other lawyers and law firms on how to deal with them.
Law firms large and small must all now comply with a new set of rules requiring them to record identifying information about all clients and, in certain circumstances, verify the identity of parties involved in financial transactions. The rules, drawn up by law societies in every jurisdiction in Canada, are all based on a model set of rules formulated by the Federation of Law Societies of Canada. They are designed to ensure the legal profession meets the goals of federal anti-money laundering and terrorist financing policies, while remaining exempt from legislation that would compromise solicitor-client privilege.
Few lawyers question the value of measures to ensure they do not inadvertently help fraudsters or terrorists, but some are worried about what they have to do to comply, how much work is involved, and how much of it is really necessary. As Christianson puts it, there is “a sense of dread over the complexity of it.”
“There are concerns around how the rules will operate,” says Ron Skolrood, a partner with the Vancouver office of Lawson Lundell LLP, and a member of a Canadian Bar Association committee that supported the federation’s model rules as an alternative to government regulation. “It will take some time for small-firm lawyers and large-firm lawyers to sort out what’s necessary, in terms of their own internal systems, to comply.”
For some firms and some practice areas, the new rules do not present much of a challenge. For example, Karon Bales, a partner at Toronto-based Bales Beall LLP, says she didn’t have to change much since she doesn’t often act for corporations and her family law and estate-planning practice doesn’t ever involve releasing money on behalf of clients. All she needs to do, therefore, is ensure that her firm records names, addresses, and other such basic information.
In fact, the rules can be helpful, she says, for dealing with the occasional client who wants to do business only by e-mail and is reluctant to provide a physical address. “I don’t feel comfortable doing that and now I can say, ‘I can’t act for you if you don’t give me your address and phone number because the law society won’t let me.’”
Karen Bell, a lawyer and consultant who has advised Bales and other lawyers on how to comply with the new rules, notes that it makes good business sense to keep basic contact information on clients — one reason being that you may want to track them down if they don’t pay their fees.
Nevertheless, John Esvelt, director of risk management at Fraser Milner Casgrain LLP, notes that there are privacy law issues involved in maintaining records, even of basic contact information about clients. Privacy laws require that such information be kept securely and only as long as it’s needed. He says the best way to do this is to keep it in a secure electronic file building in the capacity to track who has accessed the information and when, as well as a procedure for destroying the information when the client is no longer using the firm.
While this is no problem for a large or mid-sized firm with its own information technology staff, Christianson points out that it may present difficulties for a sole practitioner “who now has to do this in addition to working on the file, doing the bookkeeping, and getting the mail to the post office by five o’clock.”
Where things get really complicated, however, is in verifying the identity of clients or other parties to transactions, particularly if they are located outside the country. To begin with, there could be logistical difficulties in actually obtaining documents to verify the identity of officers of private corporations. Then there is the question of precisely what kind of verification is required, from whom, and in what circumstances.
In this regard, Esvelt notes that law societies have been amending the rules to address various challenges as they have been identified by law firms, but one result of this is that some of the language in the rules are different from one jurisdiction to the next so that a national firm must study the rules of each law society and look for the highest common denominator.
Jacqueline Shinfield, a partner at the Toronto office of Blake Cassels & Graydon LLP, describes a multi-phase process whereby she and her firm prepared for the new rules. It began with the preparation of a huge internal memo on all that is involved in the new rules. Then a checklist was drawn up to ensure compliance with regard to trust accounts. A letter was drafted to send to agents outside of Canada who may be asked to verify people’s identity on behalf of the firm. Forms were prepared for attestation of identity, for electronic funds transfers, and for new file openings. An accounting procedure was put in place for storing information. Educational seminars were held for lawyers and staff at the firm. A bulletin was sent to clients describing the changes and what information would now be required from them.
Again, none of this necessarily presents a huge challenge for a large national firm, but Christianson says lawyers in rural Manitoba are wondering how they should handle verification problems that could arise when acting for members of an immigrant family participating in a property deal with relatives in Asia or Europe.
He suggests the best approach for small firms is not to prepare forms, policies, and procedures in advance to cover every possible eventuality, but to “do it on a file-by-file basis.” This way, he says, you can evolve a checklist based on the actual situations you encounter in your work and find out whether problems and challenges that you originally anticipated with the new rules “really exist or are part of our imagination.”
Freelance journalist and business writer Kevin Marron can be reached at firstname.lastname@example.org