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Source of funds – Law Society guidance

We mentioned above the new Law Society practice note on signs of money laundering. A constant refrain for conveyancers – but one which should be heard more widely – is the importance for firms of considering source of funds and source of wealth.
 
Recent SRA research found that law firms are generally good at carrying out source of funds checks, but much weaker on source of wealth. Source of funds generally means ‘where is the client’s money now?’. Source of wealth seeks to establish where that money came from.
 
The practice note reminds firms that Regulation 28 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 requires firms to scrutinise transactions to make sure that they are consistent with the current knowledge of the client. Large amounts of cash or private funding, even if held in a bank account, may be a warning sign of money laundering.
 
Firms should consider how the client is able to have this amount of private funding and whether it is consistent with what is known about them. Firms may ask for documentary evidence to support their account, for example:
  • bank statements;
  • recently filed business accounts; and
  • documents confirming the source, such as a sale of a house or shares.
Where cash is involved, identifying the source of funds becomes more challenging. For example, a bank statement showing a large withdrawal might not refer to the cash that the firm is trying to identify. Conversely, a bank statement showing a large cash deposit does not provide information about its origin. In these situations, practitioners should ask:
  • Is this consistent with what I know about the client?
  • Does the information make me suspect there is criminal property involved?
Third-party funding
Third-party funding is a normal feature of many conveyancing transactions and other retainers. However, it can also be a way to layer criminal property. Firms should consider why the funds are coming from the third party:
  • Is it gift or a loan, and if so, what practical or legal consequences are there?
  • How can the third party afford to provide this money?
  • Have the funds come from someone else because the client is on the sanctions list and cannot access a bank account of their own?
If there is a third-party funder, the firm should consider the risk of money laundering and whether any money laundering checks should be carried out on them and source of funds. Source: www.lawsociety.org.uk.
 

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