Anti-money laundering: knowing a client’s source of wealth
26 February 2020: understanding their source of wealth can be a key component of client due diligence for certain high-risk clients. Sophie Wales, Director, Technical Strategy, Tax, Ethics & Law Group, explains what is involved.
Requirements to establish a client’s source of wealth are mandatory if they are a politically exposed person, are established in a high-risk third country (ie, non-EU country), or if their money relates to any transaction connected to a party established in a high-risk third country.
Even when the money laundering regulations do not require you to establish a client’s source of wealth, depending on the risk you may decide this is appropriate. In particular, if you conclude that enhanced due diligence should be carried out on a client, you may wish to take steps to understand their source of wealth as part of the checks.
What does source of wealth mean?
The Consultative Committee of Accountancy Bodies guidance defines source of wealth as “the origin of the subject’s total assets”. It refers to the activity or situation that has generated the individual’s total wealth, such as family wealth, inheritance or the sale of an asset.
What do you need to do to establish and verify source of wealth?
You should gather information to identify how the wealth was acquired. The information may also give an indication of the volume of wealth the client would reasonably be expected to have.
Once you have established the source of wealth, you then need to consider what further work is needed to verify that information. Adequate measures to verify the source of wealth of an individual client will vary according to the risks associated with that client.
To find out more about understanding your client’s source of wealth, please read the ICAEW member content know-how anti-money laundering factsheet from the Business Law Department, Source of Wealth.