6.18 – Criminal Activity and the Duty to Withdraw

There are situations when you may be required to withdraw from acting for a client.

Duty to Withdraw – Time of Taking Information

As previously discussed, if you are retained by a client, you must always inquire about the source of funds, pursuant to Rule 1545(1)(a). The Rule requires you to inquire about the expected source and origins of the funds related to the legal services to be provided. This may be apparent from the information obtained from the client for the retainer.  In general, you should make sufficient inquiries to assess whether there is anything that suggests the proposed transaction is inconsistent with the client’s apparent means, and the circumstances of the transaction.

In making this assessment, depending on the circumstances, you may wish to consider questions such as:

• Is someone other than the client providing information about the source of funds?
• Is the disclosed source consistent with the knowledge about the client’s profile and activity?
• Is there anything unusual about the source of the funds in the context of the transaction?

Remember that Rule 1545(1)(a) also requires that you record, with the applicable date, information about the source of funds. For record-keeping purposes, you should also retain supporting documents that relate to how you determined the source of funds.

Watch out for red flags. Answers or lack of answers may cause you to be suspicious that your services are being misused. Where doubts persist, obtain and evaluate more detailed information from the client or consider not proceeding with the relationship or transaction. If you know or ought to know that you would be assisting the client in fraud or other illegal conduct, then you must withdraw. See Rule 1548(1). See also section 3.2-7 of the Code of Professional Conduct and associated commentary.

Duty to Withdraw – Ongoing Monitoring

During a retainer where you are required to verify a client, Rule 1549 requires you to periodically monitor your professional business relationship with the client to assess and record whether the client’s information and instructions are consistent with the purpose of the retainer, and whether there is a risk that you might be assisting in or encouraging fraud or other illegal conduct. You must be alert to new facts about a client’s activities, new information about source of funds, or unexpected client behaviour.

Further if, during the retainer, you know or ought to know at any time that you are assisting a client in fraud or other illegal conduct, you must withdraw. See Rule 1550. See also section 3.2-7 of the Code of Professional Conduct and associated commentary.