Some AML specialists, let alone non-AML specialists and clients often mix up the notions of Source of Wealth and Source of Funds. These are two very typical questions to UBOs while setting up a company or opening a bank account: What is your source of wealth and what is your source of funds?
One has to understand that while one (source of wealth) often leads to the other (source of funds) these two are not the same thing. Far from that.
Source of wealth refers to the origin of the entire body of wealth or assets accumulated by the client. Typical scenarios would be: inheritance, employment, investments ownership of business or a combination of some of these. The information that the client should give here should be an indication as to the volume of wealth and provide a clear picture how it was obtained. In the modern realities it is no longer sufficient to say just – “wealth was obtained through investments”. A reasonable explanation should be given what type investments they were, for how long and how successfully the client was investing. AML officer should see a full clear picture how this particular individual became wealthy rather than getting fragmentated images- I had business, I had a job with high salary etc. The identification of source of wealth should be similar to an interview where an AML officer is curious and asking for more colorful details. He is inquisitive and asks “how”, “when”, “where”, “how much” and “what next” questions. Of course this brings along some challenges as not all the clients do want to speak in details about their past, or simply have no time for this. Or it could be that the client does not understand the importance of disclosing all this information. Then it is the role of an AML person or client facing officer to explain the vital role of this for the healthy future relationship with the client. The task of the AML person or client facing officer is to persuade to the busy client that SOW question is where basically a short Autobiography should be written. It takes time and effort but it should be just done once. And this is something that gives extra bit of confidence to the AML team in future should decisions regarding this client be taken.
Source of Funds refers to the origin of the particular funds or assets which are subject of the business relationship between the firm and the client and the transactions the firm is required to undertake on clients behalf. For example if a client sets up a new company, the firm responsible would need to understand where the initial capital will come from. The options are various here. The initial capital could come for example from a shareholder that holds an account in Dubai, or it could be transferred from another company as a business loan. Again, it is important to be investigative here and ask the client good old questions: “how”, “when”, “where” and “how much”.
Naturally, simple collection of information on SOW and SOF is not enough. The client could be crystal clear in his explanations and everything could look very realistic but AML specialist should always doubt until he or she has a sufficient proof. Next step to collecting information is verification of received information. AML professionals nowdays have a wide range of vehicles to get valid proof.
Starting from using Google search, Wikipedia info, commercial registers info and KYC search platforms, one can also ask for bank statements, income tax returns or investment portofolios info from the client. Of course the depth one goes into depends on the business to be undertaken, levels of risks for the firm as well as the risk coming form the client himself. For example if a client is a prominent PEP, the verification process should be very profound. Every client should be seen in context, and it is the role of an AML person to analyse this context and apply it to the situation.
And the last but not the least: proper record keeping is essential. Signatures of the client should be always obtained when he is declaring his SOW and SOF. Documents provided should be properly certified, all gathered information documented and recorded diligently.
And do remember that in our modern world every new business relationship with a client should start with a friendly but firm question: I don’t want to be curious but what is your source of wealth? )
Contributed by Anna Pritsker, Consultant.
