When Your Client is not Human: Verifying the Identity of an Entity

Sometimes, your ‘client’ is not a human being. Instead, you are acting for an organization, a corporation, a trust or another type of entity. If you are acting for an entity on a financial transaction, you still need to verify your client’s identity because fraudsters, criminals and money launderers will use corporations and other entities, made up or real, to dupe you.

That is why when you are acting for an entity, you must verify the identity of that entity. The verification process required depends on the type of entity.

Breaking it Down by Type of Entity

Financial Institution

If your client is a Financial Institution (as defined by Law Society Rule 5-116), including a bank, credit union or trust company, you don’t need to verify the entity’s identity, nor the identity of the instructing human being.

Public Bodies

If your client is a Public Body, which includes a government entity (federal, provincial, territorial or municipal), a hospital authority or an organization incorporated under an Act of Canada or of a province or territory for a public purpose, you do not need to verify the Public Body entity’s identity, nor the identity of the instructing human being.

Publicly Traded or Reporting Issuer Entities

If your client is a corporation whose shares are publicly traded on the stock exchange or is an organization which is a reporting issuer under Canadian securities law, you do not need to verify the entity’s identity, nor the identity of the instructing human being.

Corporations and other Similar Registered Entities

If your client is a corporation or another entity like a limited partnership, co-op or limited liability partnership etc. that is registered with a government registry (e.g. The Companies Office), here’s how you verify the entity’s identity:

1. First, verify the identity of the human being giving you instructions on behalf to the entity, just the way you would if that human was your client. The Law Society Education Centre has helpful reference material on Client ID Verification.
2. Confirm that the entity exists and is registered. This is easy. Order a Certificate of Corporate Status from the Government registry. In Manitoba, that would be through The Companies Office Online Services.
3. Obtain and record the names of all directors of the entity. These should be in the annual return and minute book.
4. Make reasonable efforts to obtain the names and addresses of all persons who own, directly or indirectly, 25% or more of the organization or of the shares of the organization – basically what would be in the Corporation’s own Register of Individuals with Significant Control.
5. Make reasonable efforts to obtain and record information establishing the ownership, control and structure of the organization.
6. Keep a record of your searches and inquiries.

Trusts, Partnerships and other Non-Registered Entities

If your client is a trust, a partnership or other organization that is not registered with a government registry, you can’t do a search. Here is what you must do to verify the non-registered entity’s identity:

1. First, verify the identity of the human being giving you instructions on behalf of the entity. Remember, the Law Society Education Centre has helpful reference material on Client ID Verification.
2. When your client is a trust, make reasonable efforts to obtain the names and addresses of all trustees, all known beneficiaries and the settlors of the trust. Because trusts generally are not registered anywhere, you will have to obtain this information from the trust documents with assistance from the instructing human and the trust’s professional advisors.
3. When your client is another type of non-registered entity, the organization’s identity must be verified by reviewing a copy of the organization’s constating documents, like the partnership agreement, articles of association, or any other similar record that confirms its existence as an organization.
4. Keep a record of the documents you reviewed and your inquiries.

Timing: The verification of the entity should be completed not later than 30 days after you have been retained and instructed on a financial transaction.

Note: If you have verified the identity of an entity once, you do not have to verify the entity’s identity again in future financial transactions unless you have reason to believe the information has changed.

Alternative Measures

Sometimes, despite your best efforts, you are not able to obtain or confirm the accuracy of the information you need to verify the identity of an entity. In those rare cases, here is what you can do:

1. Take reasonable measures to ascertain the identity of the most senior managing officer of the organization.
2. Think about whether:
   1. the information the client has given you about its activities;
   2. what the client has told you about the source of funds, and
   3. the client’s instructions on the transaction are consistent with both the purpose of this retainer and what you know about the client.
3. Assess whether there is a risk that you may be assisting in or encouraging fraud or other illegal conduct.
4. Keep a record of the results of your determination and assessment.
5. Complete the verification not later than 30 days after receiving the instructions on the financial transaction.

And don’t forget! On every financial transaction, you must ask the client the source of the funds. And, if you obtain information that causes you to believe you would be assisting a client in fraud or other illegal conduct, you must withdraw from representing that client.

An entity may be just a legal construct with criminals, money launderers and fraudsters behind it. Whether you are dealing with an individual or an entity, you must verify identity. When you’re verifying the identity of an entity, search the relevant registry and/or the relevant documents, confirm who directs the entity and has the power to make decisions, and find out who the shareholders or stakeholders are so you can see who might benefit from the transaction.

Don’t be duped by criminals, money launderers and fraudsters. Verify the identity of the entity.

Don’t forget to check out the Anti-Money Laundering Resources on the Law Society website. Also available is a 15-minute Online Learning Byte offering a quick refresher (and CPD hours) for lawyers and law firm staff.

For more information visit the Anti-Money Laundering Resource Library: