Verifying the identity of clients who DON’T have photo ID

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There are some clients who do NOT have valid government issued photo ID such as a driver’s license or passport – usually elderly clients selling the family home or their interest in the family business.

So, how do you verify the ID of someone who can’t flash you their government issued photo ID? You can use two pieces of information (‘trusted documents’) from a reliable source.

*This 2-piece method requires some advance planning because the two trusted documents must be original – not a photocopy or electronic image like a digital photograph, screen capture or scanned copy. Most clients will not be carrying these documents in their wallets and will need to be instructed to either bring them with them, deliver or snail mail them to you.

 

How does this 2 – pieces of information/trusted document method work?

What is a reliable source?

The two trusted documents have to come from a reliable source. Federal, provincial or municipal governments, crown corporations, utilities (hydro, gas, telecommunications companies) or financial institutions all qualify as a “reliable source.”

What information must the 2 trusted documents from the reliable sources include?

The trusted documents must include:

  1. the client’s name and address; or
  2. the client’s name and date of birth; or
  3. information that contains the client’s name or confirms they have a deposit account or credit card or other loan with a financial institution.


*Examples of acceptable trusted documents include:

  • CPP statement
  • vehicle registration
  • municipal property tax assessment
  • CRA issued communication including Notice of Assessment, GST Credit Statement, T4
  • utility bills
  • foreign travel visa
  • record of employment
  • government benefits statement
  • birth certificate
  • permanent resident card
  • citizenship certificate
  • marriage certificate
  • credit card statement
  • mortgage statement
  • bank statement
  • registered investment account statements (e.g. RRSP, TFSA or RRIF)
  • insurance documents (e.g. home, auto or life)*


Mix – don’t match

You must have two trusted documents from two different reliable sources. This means you can’t use the client’s October and November TD Visa statements. But you could use the October TD Visa statement and an October President’s Choice Financial Master Card statement. And in case you were wondering, the reliable source is the issuer of the information – like the financial institution or Hydro or MPI – not your client.


You need to see the original.

The two trusted documents must be original – not a photocopy or electronic image like a digital photograph, screen capture or scanned copy.

If your client gets their information from reliable sources electronically, they can show them to you on their mobile phone or they can log into their account at your office. You can look at the document the reliable source has emailed to them or see the statement on the reliable source’s mobile app or secure website, looking over the client’s shoulder. Now that you’ve seen the original, the client can then transmit that trusted document to you or you can take a screen shot or even a cellphone photo of it for your file.


Using information from a reliable source when you are not meeting with the client in person.

If you are not meeting with the client in person and the client has the two trusted documents in a hard copy original format, they can snail mail or deliver the original trusted documents to you so you can copy it and mail it back to them.

If the client receives trusted documents from a reliable source electronically, the client can try to email you the document received from the reliable source or to send you a link to the document on the issuer’s website or app. You may not be able to open those documents because access to them often requires your client’s log-in and password. If you can’t open the documents, you may have to arrange an in-person visit by you or through an agent. This might delay the required verification, so plan ahead.

 

For more information and additional practice resources on Client Verification and Anti-Money Laundering, visit The Law Society of Manitoba‘s Education Centre.

“How are you paying for that?”

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A message from the Audit Department

“How are you paying for that?”  It’s a question often heard when you are at a fast-food restaurant or standing at the check out at your favourite retailer.

Since 2020, it’s also a question every lawyer who is acting on a financial transaction must ask their client.

However, unlike restaurant or retail situations, it’s a much deeper question for lawyers, and sometimes confusing.

What it is

As per Law Society Rule 5-120(a), when engaged in or giving instructions in regard to a financial transaction on behalf of a client, lawyers must obtain and record, with the applicable date, information about the source of funds. Source of funds is the economic activity or action generating the funds and you need to document it for every financial transaction.  This applies to both individual and organizational clients, and requires the lawyer to inquire about the origin of the funds in cases where it is not apparent from the information obtained from the client for the retainer.  For example, if you are representing a client who is selling the home they have lived in for 20 years and purchasing a new one, use of the sale proceeds to purchase the new home is information that is readily apparent.  However, what if your client is instead buying their first home and when you ask about the source of funds, it turns out they are borrowing most of the cash to mortgage from a friend?

 

Where do you record it?  The source of funds is most often recorded within a firm’s client identification and verification system. This can be a separate system, integrated with the firm’s software platform, or in the client file.

 

The purpose of this requirement is to assess whether there is anything that suggests the proposed transaction is inconsistent with the client’s apparent means or the circumstances of the transaction. To satisfy themselves that the funds are not the proceeds of crime, lawyers may need to question the client, consider whether someone other than the client provided the funds, request supporting documents and/or conduct their own search. Lawyers also should retain supporting documents to show how they arrived at this determination.

Remember – when it comes to anti-money laundering, lawyers are gatekeepers.  The source of funds is just one piece of the puzzle when it comes to your client’s profile.  It is to be used together with other due diligence requirements such as verifying your client’s identity as well as the totality of the information in the matter in order to assess your client relationship.  Any red flags must be addressed before you can continue to act.

What it’s not

It’s also important to know what the source of funds isn’t, as there are several terms that seem similar but have different meanings, which can cause confusion.

Source of Funds is not Form of Receipt “Form of receipt” is the way in which you received the money.  Did your client bring in a bank draft or send the money by wire transfer?  This information is the form of receipt, and must be recorded in your firm’s accounting records for money received in your trust account (in accordance the requirements for a book of original entry in Rule 5-41) or general account (Rule 5-48(1)(a)).

Source of Funds is not Receipt Payor “Receipt payor” closely resembles “source of funds” and can be easily confused.  A “receipt payor” is the person or entity paying.  In every instance that money is received, you need to ask and record whose money it is, even where you do not need to record the source of funds (such as payments for retainers or fees and disbursements).  Consider these examples:

  1. Your client is purchasing a home and bank ABC is providing mortgage funds for the purchase:
  • When your client provides cash to mortgage, “receipt payor” is your client.
  • When the bank provides mortgage proceeds, “receipt payor” is bank ABC.
  • There are two sources of funds. One source is a bank loan from bank ABC and the other (cash to mortgage) – should be answered by your own assessment and inquiring of the client– is it consistent with the client’s means?
  1. You have been retained to defend your client on criminal charges:
    • If your client provides a retainer, “receipt payor” is your client.
    • If your client’s sister provides a retainer, “receipt payor” is your client’s sister. You must record both names “sister name for client name”
    • Because it is a retainer, you do not need to record the source of funds.

Like “form of receipt”, receipt payor is a concept for your accounting records, to be recorded in your book of original entry (for your trust or general account) and your client trust ledger.

If you have support staff or other members of the firm not familiar with the file who are responsible to receive payments from clients, communication is key.  All staff handling receipts must be familiar with these concepts and requirements.  If, based on your meeting with your client, you are a expecting a bank draft with your client’s name on it as the draft purchaser yet instead receive a wire transfer from a foreign bank, this must be flagged by your staff for your attention.

In summary, remember that the source of funds is the economic activity or action generating the funds, and that you need to document it for every financial transaction.  Examples include savings from salary, insurance proceeds, inheritance or bank loan.

 

Unsure what might be red flags for suspicious sources of funds?  In the resource material entitled “Risk Assessment Case Studies for the Legal Profession”, found both on the Federation’s website as well as in the Anti-Money Laundering section of the Law Society of Manitoba’s Education Centre, you will find various scenarios which demonstrate the red flags that should cause you to be on the alert for potential money-laundering and the due diligence you can undertake.

 

Financial transaction?  You need to know the source of funds.

Ask it.  Document it.  Request more information if there are inconsistencies.  Satisfy yourself before you proceed.

 

EACH AND EVERY TIME SOMEONE GIVES YOU TRUST MONEY you must know and record:

  1. Which way did someone provide funds to you? (form of receipt)
  2. Whose money is it? (receipt payor)

And…. If it’s a financial transaction:

  1. What economic activity or action generated the funds? (source of funds)

Don’t Be a Dupe

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Don’t become the dupe of an unscrupulous fraudster or money launderer.

 

It’s time to take the anti-money laundering rules seriously. Verification of the identity of clients participating in financial transactions is all about fraud and crime prevention. There have been some big claims in Canada arising out of fraud where ‘the client’ was not who they said they were, resulting in significant losses to innocent persons. Strict adherence to the anti-money laundering rules might have prevented those losses.

 

If your approach to verification got a bit casual during COVID, tighten up. Law Society auditors are checking to confirm compliance.

 

Before COVID – Verifying photo ID in person only

Before COVID, we met with clients in person, inspected their government-issued photo ID – usually a driver’s license or passport – and copied that ID to verify the client’s identity on financial transactions.

 

During COVID – Verifying photo ID on Zoom

During the COVID pandemic, meeting with clients in person wasn’t safe. Also, new provincial regulations allowed us to witness certain documents, including land titles forms, remotely by video conference. We only saw client’s government-issued photo ID on the screen, not in person, but because of COVID, the application of the anti-money laundering rules was not strictly enforced.

 

After COVID – Verifying photo ID in person or using an alternate method

Now that COVID is behind us, holding up photo ID on a video call to verify identity is not safe enough. Going forward, if you are acting on a financial transaction, the identity of your client must be verified using an alternate method, and not by a grainy screenshot.

 

BUT I WON’T BE MEETING THIS CLIENT IN PERSON!!!!!

 

In a new world of Teams, Zoom and other video conferencing, you may not be meeting every client in person. However, there are ways to reliably verify the identity of someone you only meet on screen.

 

Alternative ways to verify ID when you don’t meet in person

 

  1. You or someone else in your office or the previous lawyer on the file has previously verified the Client’s ID in person.

 

  1. An agent verifies ID for you. Send off an Agent Agreement to the client’s real estate agent or banker or accountant or other responsible person who can do the verification for you. (Draft yourself a nice go-to precedent based on this sample agreement)

 

  1. *New* – Use a DIACC-certified software service that can confirm the authenticity of government photo ID and match the result to the image or video of the client. [Check out the directory of certified software on the DIACC website.] Some title insurers are also offering authentication as an additional service, partnering with certified providers. The service is available whether or not you are also placing a title insurance policy. If your client has an email address, a smart phone and valid photo ID, this is a simple and quick process and costs around $15-30.

 

  1. The credit check method, seldom used by lawyers, but still an option.

 

  1. Use two trusted pieces of information from a reliable source.

 

This method requires some advance planning because the two trusted pieces of information must be original – not a photocopy or electronic image like a digital photograph, screen capture or scanned copy. It works well for clients who do not have any valid government-issued photo ID but takes time and advance planning.

Examples of reliable source documents include: Canada Pension Plan (CPP) statement, property tax assessment, vehicle registration, Canada Revenue Agency notice of assessment, utility bill (e.g. electricity, water, telecommunications), record of employment, registered investment account statements (e.g. RRSP, TFSA or RRIF), government benefits statement, insurance documents (e.g. home, auto or life), birth certificate, permanent resident card, citizenship certificate, marriage certificate, mortgage statement, bank statement, and credit card statement.

The client can try to email you the document received from the reliable source or to send you a link to the document on the issuer’s website. You may not be able to open those documents because access to them often requires your client’s log in and password, so you will need to plan ahead. You may need to have the information snail mailed to you.

 

You can still witness documents related to a financial transaction remotely using Zoom, Teams or other video conferencing platforms but you cannot VERIFY the identification of the client remotely by looking at the client’s government issued photo ID on your screen. You will have to take one of these additional steps to verify ID. And don’t forget to ask the source of the funds (link to Kathy article in this months communiqe)

 

For more information on the anti-money laundering rules, check out the Anti-Money Laundering page on the Law Society of Manitoba’s Education Centre or take in the Federation of Law Societies’ new on-line Anti-Money Laundering education package and get CPD points (free!).

Do You Witness Financial Transaction Documents Remotely?

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Photo ID can no longer be verified by Video conference/Zoom/Teams

 

After January 1, 2024, verification of client ID by video conference will no longer be acceptable.

 

You can still witness documents related to a financial transaction remotely using Zoom, Teams or other video conferencing platforms but you cannot VERIFY the identification of the client remotely by looking at the client’s government issued photo ID on your screen.

 

The real impact of the change will be for lawyers who use the regulations on remote execution of land titles documents as those are financial transactions where client ID must be verified. So, you are going to need to do some planning if you won’t be seeing the client and their ID in person.

 

Other Methods to verify ID where there is no in person meeting

 

There are other options to verify Identity of the client when documents relating to a financial transaction are executed remotely:

 

  1. Previous verification of the ID of the client in person by you or someone else in your office.

 

  1. Verification of the ID of the client by an agent. Send off an agent agreement (sample agreement) to their real estate agent or banker or accountant or other responsible person who can do the verification for you.

 

  1. The credit check method.

 

  1. Use two trusted pieces of information from a reliable source.

 

  1. New – use a DIACC certified software service that can confirm the authenticity of government photo ID and match the result to the image or video of the client. (see DIACC website. A directory of certified software services suitable for use by lawyers will be available on the DIACC website shortly).

 

For more information on the anti-money laundering rules check out the Anti-Money Laundering page on the Law Society of Manitoba’s Education Centre https://educationcentre.lawsociety.mb.ca/practice-resources/professional-responsibilities/anti-money-laundering/ ,or  take in the Federation of Law Societies’ new on-line Anti Money Laundering education package and get CPD points (free!).