Professional Responsibility and Fraud – Code of Professional Conduct

A starting point in the Code is section 3.2-7 (Dishonesty, fraud by client or others). 

Rule 3.2-7 of the Code states:

3.2-7 A lawyer must never:

(a) knowingly assist in or encourage any dishonesty, fraud, crime or illegal conduct;

(b) do or omit to do anything that the lawyer ought to know assists in or encourages any dishonesty, fraud, crime, or illegal conduct by a client or others; or

(c) instruct a client or others on how to violate the law and avoid punishment.

The commentary to that rule includes:

[1] A lawyer should be on guard against becoming the tool or dupe of an unscrupulous client, or of others, whether or not associated with the unscrupulous client.

[2] A lawyer should be alert to and avoid unwittingly becoming involved with a client or others engaged in criminal activities such as mortgage fraud or money laundering. Vigilance is required because the means for these, and other criminal activities, may be transactions for which lawyers commonly provide services such as: establishing, purchasing or selling business entities; arranging financing for the purchase or sale or operation of business entities; arranging financing for the purchase or sale of business assets; and purchasing and selling real estate.

[3] If a lawyer has suspicions or doubts about whether he or she might be assisting a client or others in dishonesty, fraud, crime or illegal conduct, the lawyer should make reasonable inquiries to obtain information about the client or others and, in the case of a client, about the subject matter and objectives of the retainer. These should include verifying who are the legal or beneficial owners of property and business entities, verifying who has the control of business entities, and clarifying the nature and purpose of a complex or unusual transaction where the purpose is not clear. The lawyer should make a record of the results of these inquiries.

Section 3.2-8 (Dishonesty, fraud when client an organization) applies too if the client is an organization. 

Do not fall into the trap of verifying identity in accordance with the Client Identification and Verification Rules but failing to make reasonable inquiries and recording them in the face of unusual or suspicious circumstances.  Rule 3.2-7 includes a duty on lawyers to refrain from any activity that the lawyer “ought to know” assists in a fraudulent enterprise. Where a lawyer is aware of suspicious circumstances, but refrains from asking questions, or where they become aware of circumstances that call for an explanation but decline to make an inquiry because they prefer to remain ignorant, it is wilful blindness: Law Society of Upper Canada v Michael Andrew Osborne, 2012 ONSSHP 57. 

The Commentary adds some examples of the types of activities about which you should be concerned, and which on their face may be evidence of involvement with a scam artist. As well, you should be wary of any client who is unfamiliar to you and begins to ask for representations about your insurance coverage. Be particularly alert if the contact involves a high degree of urgency, or whenever contact is initiated through methods which are more anonymous than face-to-face meetings e.g., email or texts. Look for circumstances that ought to raise suspicion or doubts that you might be assisting any dishonesty, crime, or fraud, including investment fraud, mortgage fraud, or money laundering. This is a low bar. One red flag could be enough to call for increased due diligence. Generally, the more red flags, the greater a lawyer’s duty to make reasonable inquiries. If you have doubts about the client or the subject matter of the retainer, obtain more information until you are satisfied that you can accept money in trust and that you can act in the circumstances. Make a record of the results of your inquiries and if you’re not satisfied with the results, withdraw. See Section 3.7-7 (Obligatory Withdrawal) of the Code, which requires a lawyer to withdraw if a client persists in instructing the lawyer to act contrary to professional ethics. 

The importance of compliance with these provisions cannot be overstated. Lawyers must be diligent in dealing with a client so as to not facilitate fraudulent behaviour and/or allow the client to use the law firm to legitimize their fraudulent activities: see Law Society of Saskatchewan v Migneault, 2017 SKLSS 7. 

In fact, it is conduct unbecoming for a lawyer, through recklessness, to assist a client to commit fraud: see Law Society of Saskatchewan v Scharfstein, 2020 SKLSS 5.

This is only a portion of Chapter 3 of the Code, and you should review all provisions for more guidance.