Why Do You Want to Know Where the Money Comes From?
In order to comply with the Money Laundering Regulations 2007 a solicitor must look into each transaction to ensure that the circumstances are consistent with their knowledge of the transaction. This means that a solicitor needs to get to know their client. As a law firm we must take adequate measures to establish the source of the funds which are being paid to us so that we can be confident that we are not being used to launder the proceeds of crime.
We will ask how the client has the funds to purchase a property, i.e. from the sale of a house, inheritance, savings, sale of shares or a lottery win!
To establish this, we may ask for a copy of the client’s bank statements showing the accumulation of funds in their account. Depending on the circumstances, we may need further explanation of how these came about.
Just because the funds are showing in a bank account does not mean that the money is “clean”! It has been known for a bank to report suspicious activity and for the bank to be given authority to send the funds to an account so that the funds can be tracked.
If a client is obtaining money from a third party, that person will need to provide us with their identification documents and bank statements as well. The source of the funds will also need to be declared to the mortgage lender if the client is obtaining a mortgage.
If we cannot establish where the client’s funds have come from, or we have a suspicion that the funds might not be legitimate, under the Proceeds of Crime Act 2002 we may have to report the matter to the authorities for a decision as to whether or not we may proceed with the transaction.
There are three phases of money laundering:
The first phase is called placement. This is when a criminal places illegal funds into the financial system. Criminals have been known to target law firms by instructing them to buy a property using the proceeds of crime. This is part of the second phase which is layering - when the criminal passes the funds through a series of transactions to obscure the source of the funds. The final phase is integration - when the funds have been passed through the banking system enough to hide the source of the funds so that they appear to be legitimate because the trail has gone cold.
So when a solicitor asks for your bank statements and/or other proof of how you obtained your funds, please be ready to provide all your necessary information.