Busting

the myths
Source of funds &
Source of wealth
 Source of funds / Source of wealth

A fundamental element of client due diligence (CDD)

is understanding the nature, background, and
circumstances of the client - which includes their
financial situation. This knowledge lets you assess if
the legal services provided to the client are in
Get the facts
keeping with your understanding of that background
and circumstances.
There is perhaps no other issue that vexes people in
The extent to which you should obtain and review compliance more than the SoF/SoW check. Yes, it’s a
your client’s financial position is dependent upon the critical part of CDD but who wants to talk to clients
risk profile of the client or matter. In enhanced due about their money? Fee earners don't, neither do
diligence (EDD) situations this requirement is, of lawyers and compliance officers not only don’t want
course, more stringent. to but often don’t have the access to do it. And then
there are the myriad of myths surrounding these
The financial circumstances of a client are broadly checks. Are bank statements enough? How much
categorised into two elements: source of funds (SoF) effort do you need to put into getting the
and source of wealth (SoW). A firm must scrutinise information? When do you need to kill the deal?
transactions on a case-by-case basis, to understand
what the source of funds is for transactions that are At The Law Society’s Anti-money laundering and
undertaken on behalf of a client. financial crime conference 2023, this issue was
tackled by representatives from a number of leading
SoW assessment seeks to identify how a customer firms. We developed this myth-busting guide based
accumulated their wealth and SoF information upon their knowledge, insights and experience in the
provides an understanding of how and for what field. There are many people in the legal sector facing
purpose an account is going to be funded. These challenges with their source of funds and source of
assessments enable firms to recognise any risks and wealth check. If you want to get clarity on this
note any inconsistencies, which should be addressed element of the CDD process, understand what is
and then either mitigated or escalated for further important - and what isn’t - and challenge what you
review. thought you knew about SoF/SoW checks, read on.

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 Myth: SoF/SoW is just a list of documents.
In a word, no. Of course, you need to see a bank statement but a SoF/SoW check is about
getting the story. It's about understanding how your client managed to accumulate their money.
As noted above, lawyers don't like to talk about money with their clients, but they need to have
the conversation and that is the challenge. Some of the conversations will be easy but some
won't.

Often you will have a difficult client who does not want to provide information. It’s important at
that moment to consider: it’s in their interest to provide this information, so why aren't they
providing it?

Myth: There are a clear set of rules to

follow in each SoF/SoW check.
These investigations are not “fact specific.” Every case could be slightly different which means
there isn’t a specific set of rules. But the goal is always the same, whether it’s a corporate or
an individual client: To achieve a level of comfort. Some of that can be achieved with Legal
Sector Affinity Group (LSAG) guidance but what will make you most comfortable is your
knowledge of the client.

Myth: The compliance team should be

doing all the checks.
The notion that the compliance team should be doing the checks is very popular - especially
among fee earners and lawyers. But they are the ones who most often know the client and can
most effectively gather the information. This makes it a collective effort. Law firms need to
adopt a holistic approach to Sof/SoW checks.

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 Myth: A lot of documents will ensure
you did a thorough SoF/SoW check.
Be careful what you ask for: You need to go through all those papers - and know what you’re
looking for. A barrage of documents without an explanation is not helpful. Don’t let it be a tick
box experience that provides you with a misguided sense of comfort.

And do you actually need all the information you're asking for? At times, for medium and low
risk clients the answer could be no.

Myth: Most lawyers and fee earners

care about the SoF/SoW check.
They really don't. Most of them think this is the compliance team's job. And then you're telling
them they have to have an uncomfortable conversation with their clients. But you can talk
them through it. There's a lot of engagement with the lawyers and fee earners to make sure
they understand what you are trying to achieve. And it’s important to demonstrate to them
that it’s also in the client’s interest to provide this information.

Myth: Compliance teams can do CDD

completely on their own.
Compliance teams can do the vast majority of CDD but they can’t do SoF/SoW checks on their
own. Fee earners and lawyers need to understand that they need to help the compliance
teams get the story.

Lawyers and fee earners extract information naturally, just by building a relationship. It’s
informal but they build a pretty good picture. There's a wealth of information stored in their
heads that doesn't make it into the files. Compliance teams can empower their fee earners and
reframe how they think about the information they get.

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 Myth: You don’t need to document
every detail.
Wrong! Record keeping is critical and it’s all relevant - even if you know a client for just a short
amount of time. Remember, law enforcement is about building a picture. Sometimes, it comes
down to the conversations or thinking about behaviours. Instil in your lawyers and fee earners
that they are storytellers. Sometimes even attendance notes can fill in the missing points in the
story.

Often all the information is in the summaries but that doesn’t make it to the risk assessments.
Include a rationale box in your onboarding process to complete your story.

Myth: You can’t charge clients for

money laundering checks.
More firms are doing that and SoF/SoW checks can be incorporated into that.

Myth: SoF/SoW checks are all worth

the time and money invested.
Here is where you might want to stop and think. Certain cases might not be worth the time and
costs. It depends on the circumstances. And some clients might say, I’ve never been challenged
on this before. In those cases, don't start with this is what I need. Start with, what's the story
here? It's risk based - and they might not be worth the risk.

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 Myth: You need to ask the same
questions with each new matter.
If it's the same source of funds, you don't need to ask every time.

Myth: Funds from another regulated

law firm don’t need to be checked.
If you receive funds from another regulated law firm, you can factor that into the risk but if it
doesn’t appear to be legitimate, you need to take a step back. If you have suspicions, you
need to make an assessment.You're putting your reputation in the hands of another law firm.
If you know nothing about them and their work, you might want to ask more questions. But if
you don't get a good answer or any answer, you need to decide what to do. Your client might
say, why did you ask the question? They’re a regulated law firm? You might be killing a deal
but these are imo+portant questions.

Often all the information is in the summaries but that doesn’t make it to the risk assessments.
Include a rationale box in your onboarding process to complete your story.

Myth: SoF/SoW checks are easy with

large, listed companies.
As if. You have to look at the type of listed company and the transaction. Then you have to
decide what checks to do. A listed company in a country where there is a lot of corruption can
be complicated but you need these details. As always, the checks need to be risk-based.

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 Myth: It’s only in the law firm’s interests
to do an effective SoF/SoW check.
will ask questions about the other side in a deal before moving ahead with the deal. It’s likely
we will start to see more of that. If there's something concerning you about a deal, look at it
from your client’s perspective. You need to act in the best interests of your client. It's not just
your own interests involved.

Myth: SoF/SoW checks should adhere

to the same standards in
non-regulated environments.
A non-regulated environment has greater risks involved that doesn't just involve money
laundering or financial crime. There are strategic lawsuits against public participation
(SLAPPs) that could be involved. It’s important to take a risk-based approach.

Myth: In an audit by the Solicitors

Regulation Authority (SRA) you don’t
have to worry too much.
Most of you know that’s not true. If you meet with the SRA team, you are going to need to be
able to tell them every step of your investigation, including why you decided to stop at the
point you did. Keep records, take a risk-based approach and remember that the level of
investigation in these checks needs to be balanced with what your firm is getting out of it.

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 VinciWorks’ AML client onboarding solution
Omnitrack, VinciWorks’ AML client
onboarding solution enhances both the
risk assessment and document collection
aspects of client onboarding. Our template
workflows adapt to the specific risks posed
by each client, based on factors such as
jurisdiction, type of entity and industry. This
allows you to make informed choices about
each client using the risk-based approach.
Our comprehensive workflows incorporate
industry-specific guidance such as LSAG for
law firms.

The flexibility of Omnitrack lets you choose

the default workflow most appropriate
to your business. The workflow can be
customised to suit your own areas of practice
and risk scoring system. Our team will guide
you through every step of the process.

AML training suite — Relevant training for all staff

VinciWorks strives to make its AML training
more than simply a tick-box exercise. Our
courses are packed with realistic scenarios,
real-life case studies and every customisation
option you can think of. We have everything
from in-depth induction training to refresher
courses and five minute knowledge checks.
Whichever industry, jurisdiction or job role
you work in, a course can instantly be built
just for your staff.

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AML Audit
Our partners at Compliance Office have
the expertise needed to help you conduct
an independent, tech-enhanced AML
audit, in accordance with the latest Legal
Sector Affinity Group (LSAG) guidance.
Their team keeps their pulse on the latest
AML requirements and your audit will be
completed by former practising solicitors
with many years of experience in law firm
regulation, often former SRA staff.

Contact Us
www.vinciworks.com
enquiries@vinciworks.com
+44 (0) 208 815 9308