Misconceptions about anti-money laundering could result in non-compliance
Harriet Holmes, AML Services Manager, risk management platform Thirdfort has provided this guidance exclusively for the benefit of EYE readers.
Estate agents and property lawyers have a critical role in anti-money laundering (AML) compliance, and they must have a clear understanding of Source of Funds (SOF) and Source of Wealth (SOW) concepts.
However, misconceptions surrounding SOF and SOW in the property profession could result in non-compliance and reputational risks.
So, what are the top six misconceptions?
One: SOF and SOW are the same
One of the most common misconceptions is that SOF and SOW are the same. However, SOF refers to the origin of the funds a client wishes to use to fund the specific transaction, while SOW refers to the origin of a customer’s overall wealth. Understanding the difference between these concepts is critical in AML compliance.
Property professionals must verify SOF and SOW during client onboarding and ongoing due diligence.
Two: Proof of funds vs source of funds
Estate agents seek to obtain proof of funds. However, this is not the same as the source of funds. The two are very different things at different stages of the transaction. Proof of funds is evidence that someone has the money to purchase a property. Source of funds is evidence of the origin of money used to fund the specific transaction.
Three: only large transactions require SOF and SOW verification
Another common misconception is that SOF and SOW verification is only necessary for large transactions. However, this is not true. Transactions of any size can be used for money laundering or terrorist financing. Therefore, property professionals must apply a risk-based approach and verify the SOF and SOW for all transactions, regardless of the amount.
Four: clients are not responsible for providing SOF and SOW information
Clients may believe it is the property professional’s responsibility to determine the SOF and SOW for their transactions. However, clients must provide accurate and complete information about the origin of their funds and wealth. Professional advisors must obtain and verify this information on a risk-based approach.
Five: SOF and SOW verification is a one-time process
Some professionals may believe SOF and SOW verification is a one-time process. However, agents and lawyers must conduct ongoing due diligence on their clients to ensure their source of funds and wealth remains legitimate. That’s why we’ve developed a new source of funds tool to make it easy for agents and lawyers to gather and analyse the information to corroborate their clients’ funds.
Six: the UK Bank account myth
One of the most common misconceptions about SOF is that having a UK bank account is sufficient evidence of a legitimate SOF. This myth is not accurate. A UK bank account does not provide any information about the origin of the funds. Professionals cannot rely on a UK bank account as evidence of legitimate SOF.
Source of Funds and Source of Wealth are unique concepts. Professionals must verify both during the onboarding process and throughout the transaction.
As misconceptions around SOF and SOW can lead to non-compliance and reputational risks, estate agents and law firms must educate their employees and clients on the importance of SOF and SOW and ensure that all transactions are appropriately vetted and verified.