BLOG: Identifying sources of wealth is critical when it comes to AML
Thirdfort’s Harriet Holmes says identifying someone’s source of wealth is a critical when agents and lawyers are helping clients buy or sell a property.
Over the past few weeks a number of politicians – like Nigel Farage (main picture) – have claimed they have been denied bank accounts because they are a politically exposed person under AML rules.
Whatever the merits of each individual case, the wider furore over this issue shows the balancing act anti-money laundering (AML) regulated businesses such as banks, estate agents and property lawyers must strike.
Identifying someone’s source of wealth is a critical, if challenging, part of the due diligence process when agents and lawyers are helping clients buy or sell a property.
These issues don’t just relate to those that are ‘wealthy’.
Every individual possesses a unique financial profile regardless of their socioeconomic status.
SEVERAL QUESTIONS
In identifying sources of wealth, property professionals need to answer several questions. Why and how does the individual have the overall amount of assets they do and how did they accumulate those assets? Ultimately, does it make sense?
The purpose of gathering information about a client’s source of wealth is not to determine their net worth.
Instead, it’s to better understand the activities that have contributed to that wealth and to assess potential risks associated with these activities.
Examples of sources of wealth include family and generational wealth such as inheritance, gifts, divorce settlements, and pensions.
It also includes income, revenue, and business activities such as salary, bonus, commission, and dividends. Last, it includes investment activities such as buying and selling real estate and stocks and shares.
COMPREHENSIVE ANALYSIS
Property professionals must undertake a comprehensive analysis of their client’s personal and professional background, financial statements and tax returns, and public records and reputation.
First, an individual’s background can help professionals ascertain their level of education and career, which can provide insight into sources of income.
However, professionals should note that an individual’s background does not always accurately reflect their current sources of income.
For instance, an individual may have changed careers, invested in a new business venture or received a large inheritance.
TAX RETURNS
Next, property professionals should assess financial statements and tax returns.
These documents can provide a comprehensive overview of an individual’s income and assets, including salaries, bonuses, dividends, and capital gains.
By analysing financial statements and tax returns over time, agents and lawyers can build a picture and determine whether an individual’s income is steady, fluctuating, or derived from one-off sources.
Finally, professionals should examine public records and an individual’s reputation. Documents and data such as legal filings, credit score and media coverage are a good starting point.
By examining these factors, agents and lawyers can gain insight into an individual’s income sources and determine whether they are legitimate or potentially fraudulent.
Harriet Holmes is AML services manager at risk management platform Thirdfort.
I agree that this should be done. BUT – why do solicitors leave it until all the other legal work is done, then start looking into the source of funds? Surely this should be the first thing that’s done and they should advise all parties that it’s happening alongside searches, LPE1 forms, contract packs and enquiries? EVERY transaction where source of funds are required that I have dealt with, the solicitor/conveyancer/admin team have never fully engaged in the process until the contracts are ready for signature. It just wastes so much time and money for everyone else. However, of course the solicitor gets paid anyway even if the SoF causes a transaction failing problem.