Why has my solicitor asked me to provide Source of Funds?
25 March 2022 by Andrew Morgan
The aim of this Blog is to provide you with a better understanding of why law firms complete ‘Source of Funds’ checks and request ‘Proof of Funds’ documentation.
Where does this all stem from?
Money Laundering has been a problem for many many years, but over more recent years the extent of the issue has become more apparent and the government have made significant steps to combat money laundering. In 2020 the Police estimated that an excess of £100 billion in illicit funds are laundered through the UK every year, it’s likely that most of this money originated from organised crime. Organised crime can take many forms, from cross border drug dealing to human slavery and even terrorism. To avoid detection, criminals need to ‘clean’ their money and make it look as if it was made legitimately, hence the term ‘Money Laundering’. To help them do this they will attempt to purchase assets and open businesses that can be used to launder proceeds of crime.
So why does this affect law firms?
Law firms are often involved in complex and expensive transactions, this can range from the purchase of a new home to the purchase of a multi-million pound commercial enterprise. To ensure the completion of these matters we are required to receive large sums of money on behalf of clients. This unfortunately means that law firms are a target for money laundering and can unknowingly facilitate money laundering if they do not complete the correct checks.
In the United Kingdom, one of the many things we have in place to prevent money laundering is ‘The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017’ and ‘Proceeds of Crime Act 2002’, this legislation governs what organisations, including law firms should be doing to prevent money laundering. All law firms are obligated to check the source of funds involved in a transaction, this is not only a regulatory obligation but also a moral obligation that we take very seriously.
What documentation might I be asked to provide?
Obtaining and checking source of funds documentation is one of the key steps to preventing money laundering, a solicitor has no way of truly knowing where their client’s funds originated from without seeing the evidence. There are some examples below of the documentation you may be asked to provide –
- Identification – You will likely be requested to provide two forms of identification, one for identity and one for address verification, for instance a Passport and Utility Bill.
- Funds derived from Savings – If you have saved your funds over time you may be asked to provide bank statements showing the accumulation of the funds.
- Funds from the sale of your house – You may be asked to provide the completion statement from the solicitor that dealt with the sale and bank statements showing receipt of the funds.
- Investments – If your funds are held in investments you may be asked to provide proof of the investment (annual Statements, investment portfolios etc.) and a bank statement showing the funds moving from your investments to your account.
- Miscellaneous Deposits (Lottery win, redundancy pay-out, inheritance etc.) – You may be asked to provide proof of the pay-out and bank statements showing the funds being paid into your account. For example if you won a large amount of money on the lottery you may be asked to provide proof of the winnings from the lottery provider and bank statements showing the funds being deposited into your account.
Please note – This list is not indicative of all law firms’ requirements. Each law firm will have their own policies and procedures in place and every client’s circumstances are different.
What happens if I do not provide the requested information?
Please bear in mind
We appreciate that being asked for evidence of where your funds have come from is never a pleasant thing and it can feel quite intrusive. If your solicitor has asked you to provide source of funds information or documentation please do not feel that they suspect you of money laundering or being involved in organised crime. This is a very common process and with your cooperation we can all help in the fight against organised crime and money laundering.
If you have any questions about this topic, please contact Andrew Morgan, Head of Training and Risk Management directly on 01206 217 585 or email [email protected] for more information.
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