By Richieson GYENI-BOATENG
There is this joke among the youth which goes like “when I was poor, no one bothered to care about the source of my poverty but immediately I became rich, everyone wants to know the source of my riches”. Growing up, anytime I brought someone’s toy home, my granny would be like, “Where and who gave you this toy” and she would make sure I returned it to the owner the following day. This, I believe, forms the basis of Source of Funds (SoF) and Source of Wealth (SoW) assessment.
We live in a world where now and then someone emerges as the richest man or woman without knowing anything about that person. This issue becomes more intriguing in this part of the world, Ghana, where people emerge frequently from nowhere as having a lot of money and/ or properties and doing a lot of philanthropy things. We hail these people and sing their praise without asking the right and necessary questions about their source of wealth. This is because most people don’t even know what SoW and SoF are, let alone know how to confirm and verify same, even though these words are used frequently by staff of Accountable Institutions.
Knowing your customer (KYC) and performing customer due diligence (CDD) procedures are essential components in the fight against money laundering and terrorist financing. These help provide businesses with the information needed to make accurate anti-money laundering (AML) risk assessments and comply with AML reporting requirements.
Collecting and verifying customer identities are the foundation of proper KYC and CDD principles. However, financial institutions and other businesses subject to AML regulations may have to dig deeper into some customers’ financial histories to accurately assess risk. These financial histories help to understand, assess and verify the SoW and SoF of customers.
Let me throw light on the meaning of SoW and SoF and how to confirm and verify same. The importance and benefits of performing SoW and SoF assessments will be touched on as well.
SoF and SoW overlap at times. For instance, a person’s SoF and SoW could both be attributed to employment income. But the key difference is the depth of the investigation and whether you are interested in the money being used or in the individual making the purchase.
The Source of wealth is the origin of all the money a person has accumulated over their lifetime. Essentially, it analyzes the activities that have contributed toward the individual’s total wealth. Simply put, the total fortune an individual has acquired legitimately over the period. SoW considers the total funds collected over the years. In establishing the SoW, financial institutions must ascertain why the client has the assets they have stated and how they came to accumulate them. Examples of SoW include Inheritance, Investments, Business ownership interests, Employment income, Real Estate etc.
Source of funds on the other hand refers to the funds being used to fund a specific transaction at hand. For example where the person got the money from to deposit into his bank account. That is, how and where the person got the money from for a particular transaction or business relationship? Examples of SoF include personal savings, pension releases, sale of something, inheritances, gifts etc. Many people think once the money is coming from another bank account, that is the source of the funds. It should be noted that, in establishing the source of funds, financial institutions, especially must seek to understand not only where funds came from (in terms of the account from which they were transferred) but the activity that was involved in generating those funds.
SoW and SoF are fundamental ideas in the context of Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures and help in the first again money laundering. Financial Institutions are mandated by law to assess and verify the SoF and SoW of their customers (especially high-risk customers) as stated at the account opening and or transaction stage. Establishing where the money came from can ensure that businesses are not inadvertently laundering money and/or funding terrorism through their daily operations. Knowing the SoW and SoF will help identify and report suspicious transactions.
Knowing the SoW and SoF of customers helps in marketing the financial institution’s products and services. The financial institution will know the customer well to cross-sell other products and/ or services to the customer.
Also knowing and verifying the SoW and SoF of your customers can help protect the firm’s business and its reputation by avoiding illicit activities. Staff members will have a clearer picture of the risk profile of the customer and help the firm investigate and report any suspicious activity and make well-informed decisions.
It is not only important to know the SoF and SoW of your customers but also very necessary to have a mechanism for verifying them. When a customer tells you his or her source of funds is the sale of something, there should be evidence of that to verify to determine the legitimacy of it. Most of the time, the SoF checks are triggered after a customer’s transactions meet a pre-determined threshold and/or risk profile is determined to be high risk. It must be noted that for Politically Exposed Persons (PEPs) or Financial Exposed Persons (FEPs), it is mandatory for their SoF and SoW to be assessed and verified when onboarding them as customers and for every transaction that is performed on the account(s). When it comes to customers’ SoW, the firm especially financial institution need to verify whether the customer’s accumulated wealth comes from legitimate sources. Analyzing the SoW is essential for finding hidden assets, unreported income, or assets obtained illegally. When assessing a person’s SOW, factors like business ownership, real estate holdings, investments, and inheritances are taken into account. The documents to be obtained to verify the SoW will be dependent on the type of wealth accumulated. Examples below:
- Inheritance: details about the deceased; tax or legal documents that show the transfer of family funds, including dates and amounts.
- Business ownership: a description of the business and its industry; income statements or other sales documents; ownership structure
- Employment: a description of the job and employer; a recent pay stub; annual salary or tax information; other documentation that provides proof of employment income.
Most of these documents can easily be authenticated from the appropriate government authorities if the financial institution doubts its genuineness.
In as much as we all enjoy our privacy and don’t want people to poke their noses into our affairs, it is better and proper to disclose our sources of funds and wealth when asked if we don’t have anything to hide. Trying to be defensive about it raises a lot of suspicions which can get you into trouble. Asking for your SoF and SoW is part of the KYC procedures we all do in trying to build a relationship with others.
Would you mind doing me a favor? Share this article with someone to create awareness about the source of fund and wealth and how important they are to the KYC processes.
If you require further information on this article, please contact Richieson @ [email protected].
