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Demystifying Source of Funds & Source of Wealth Checks
- Amy Bell
- Jun 23
- 4 min read
If there’s one part of the AML regime that prompts the most questions, it’s this:
“How far do we need to go with source of funds and source of wealth?”
It’s a fair question. Guidance is often vague. Clients can be reluctant. And without a clear line to follow, lawyers are left trying to balance risk, reasonableness, and regulatory expectations, without alienating the client in the process.
So I wanted to unpack what’s really required, and how you can take a pragmatic, proportionate approach.
First, Know the Difference
It starts with definitions. These two terms (source of funds and source of wealth) are often used interchangeably, but they’re not the same:
Source of Funds (SoF)
Where the money being used in the transaction is coming from. A specific account, investment, or loan.
Source of Wealth (SoW)
How the client came to have that money in the first place. Their job, business interests, inheritance, etc.
Both are important for AML purposes, but the level of evidence you need depends on the risk.
Why This Matters in Legal Practice
In law, especially conveyancing and private client work, the amounts involved can be
significant. Understanding where the money is coming from isn’t just about ticking a box. It’s about:
Spotting red flags (like large cash deposits or last-minute funder changes)
Identifying high-risk clients (PEPs, overseas companies, trust structures)
Demonstrating that you’ve considered whether the transaction could involve criminal property
If you can’t explain (and prove) how a client has the money they’re using, you could be enabling money laundering, unwittingly or not.
Real-World Lessons: The £40,000 Mistake
Let’s bring this to life with a real example.
A young couple bought their first house with help from a gifted deposit, £40,000 from the girlfriend’s parents. Perfectly common.
The firm didn’t ask for source of funds documentation. No red flags raised.
Later, it emerged that the money had been handed over in cash by the girlfriend’s brother, who happens to be an armed robber. The parents paid the stolen cash into their bank account, then transferred it to their daughter to use for the house purchase.
When the police caught up with him, he confessed. The entire family went to prison for money laundering, including the boyfriend, who knew the source of the money.
What happened to the law firm? At the time, nothing. But under today's standards, the firm would likely face regulatory scrutiny and possible disciplinary action.
The lesson? If they’d asked to see six months’ bank statements from the parents, they would have spotted the large, unexplained cash deposit, and had the opportunity to ask questions.
So, how far do you go with your checks?
Practical Framework for AML Checks
Here’s a practical framework you can apply:
Start with Risk
The higher the risk, the more evidence you need. A PEP, a client from a high-risk third country, or an opaque trust structure will require more scrutiny than an Australian-based salaried individual buying their own home.
Follow the Money
Ask yourself the following: where is the money now, and where has it been?
For gifted deposits, that might mean:
Six months of statements from the recipient
Six months of statements from the person giving the gift (showing where they got the money)
If there’s a lump sum that’s just appeared, that’s a red flag. If it’s slowly built up through savings or salary, you’re likely fine.
Ask the Right Questions
Don’t just accept “it’s my savings” at face value. Ask the following questions:
How was the money accumulated?
Over what time period?
From what income source or investment?
And crucially, does that explanation make sense? If you were asked by the regulator to evidence your sense around the answers would you feel at peace?!
If someone is saving $7,500 every month on a modest salary, you’d want to understand how.
In one case, the answer was that the client lived at home and had minimal outgoings. That’s fine, but it needs to be recorded.
Be Proportionate
This doesn’t mean asking every client for a dossier of documents. But if something doesn’t add up, or they resist providing basic information, you may need to reconsider your risk assessment.
And remember, banks may have also asked questions, but you can’t rely on them. The AML regime expects each professional involved in a transaction to take responsibility.
What Counts as Evidence?
There’s no fixed list and so it depends on context. We know that common forms of evidence include:
Bank statements
Payslips or employment contracts
Company accounts or tax returns
Sale agreements from previous transactions
Trust deeds (in the case of family trusts)
For corporate clients, you might rely on publicly available accounts or credit reports. For high-net-worth individuals, open-source information might be enough.
The key is to document your decision-making; why you felt the explanation was sufficient, and what you reviewed.
My Final Thought is to Build Flexibility Into Your Policy
It’s tempting to try and write a single rule, but anti-money laundering simply isn’t like that. It’s about professional judgement, applied consistently, and recorded properly.
So yes, six months of bank statements is a sensible default. But also build in the ability to adjust based on risk and context.
Because ultimately, source of funds and wealth checks aren’t about being difficult. They’re about making sure you’re not the one holding the bag when something goes wrong.
Thanks for reading and don’t forget to keep your eyes peeled for our NEWSLETTER with legislative updates, helpful tips and free training courses.
