AML and counter-terrorist financing—source of funds
AML and counter-terrorist financing—source of funds

The following Practice Compliance guidance note provides comprehensive and up to date legal information covering:

  • AML and counter-terrorist financing—source of funds
  • Source of funds v source of wealth
  • Obligations
  • How to establish and evaluate source of funds/wealth
  • Assessing client/matter risk
  • Source of funds red flags
  • Common misconceptions
  • What if I am not happy with the explanation/documents (or lack of documents) provided?

Source of funds and wealth was a key focus of the SRA’s Preventing Money Laundering and Financing of Terrorism thematic review, published in March 2018. Its findings include that:

  1. most firms understood the distinction between funds and wealth and it was pleased to see the depth of the fee earner’s investigations

  2. 10% of firms had difficulties separating the concepts of source of funds and source of wealth, and did not distinguish them

  3. 70% of firms use a client declaration as evidence of source of funds, while 28% obtained bank statements and a fifth had no real procedure at all

The thematic review calls on firms to consider:

  1. what is the difference between source of funds and source of wealth?

  2. does each file record in writing where/who funds are from and how they were originally created?

  3. do fee earners understand the client, the transaction and the funds—if not, how do they continue to monitor and assess this information during the lifetime of the transaction?

See further, Practice Note: Money Laundering Regulations 2017—good practice for preventing money laundering and financing of terrorism.

This Practice Note sets out key obligations in relation to source of funds and wealth and the difference between funds and wealth. It explains how to establish and evaluate source of funds and wealth and then how to mitigate related risk. It also covers