Recent case highlights importance of source of wealth investigation
Last week the NCA published news of a mother and her two UK-based sons agreeing to hand over their London properties worth more than £1.6 million, in response to a NCA civil recovery claim that linked their purchases with suspected money laundering.
Within the details of the case are some key reminders of the type of red flags that should encourage enhance due diligence for Conveyancers when looking at source of funds and source of wealth.
First up cash deposits. The NCA press release talks about the mother cleaning money for an Albanian drugs gang and the analysed accounts showing multiple cash deposits into a UK account. In the LSAG Money Laundering guidance there are 28 separate mentions of the phrase ‘cash’ with a common theme of the message being that cash represents greater risk and where appropriate enhanced due diligence should be applied and that you should establish the source of the cash. In practice cash deposits are not easy to spot, it can be extremely challenging to identify and determine cash deposits from a physical bank statement. Think about the length of statements these days and the frequency of transactions and it’s not difficult to see how this might get missed if there’s 30 or 40 pages or images of screenshots.
Open Banking technology goes some way to help identify cash deposits in UK Bank Accounts. With all the major UK Banks excluding The Co-Op (end of 2021) and Metro with open banking connections, a one source of financial truth is one step closer for Conveyancers. Open Banking can identify and highlight these from the data received with expression permission of the end user. It’s important to get the education piece right to clients if you want to use the technology but the beauty of open banking is a lot of that is already embedded into the ever-improving end client journey.
Secondly this story highlights the dangers of Chinese underground banking, otherwise known as Daigou. As a provider of a source of funds solution one of the questions I commonly get asked is what can we do to help with people buying with money from overseas? The short answer: sadly, is not a lot. I suspect in the next few years as Brexit irons itself out EU accounts will be more accessible. However, the real risk comes from money laundering hotspots or red flag countries where un-regulation is rife. LSAG guidelines state that you must apply EDD measures in any business relationship with a person established in a high risk third country or in any transaction where either party is established in a high risk third country. Currently 24 countries currently sit on this list with many having strong UK connections. For any conveyancer, decrypting and understanding a foreign bank statement can be a step into the unknown. Adapting and using a specific a source of wealth questionnaire to help with EDD and digging deeper can help unravel some of the complications. How do you manage your EDD for clients buying with overseas funds?
Open Banking has a significant role to play in reducing the risk of money laundering both today and moving forwards but let’s not forget the importance of people and processes aligned with this. This multi-faceted risk-based approach needs to be layered from the top down and agile enough to move with the regulations and to take advantage of the technology advancements. Stories like the one published last week goes to show there’s still some way to go in the fight against the baddies.
Tom Lyes is Head of Legal at Armalytix