Determine the customer’s source of funds

Determine the customer’s source of funds

Among the topics covered at the recent European ACAMS conference in London, knowing how to determine the customer’s source of funds was considered as the most sensitive issue by the various speakers.

A quick survey of the room revealed that 76% of the participants put this issue at the top of the list.

76% of voters considered difficult to determine the origin of customer funds

Two different situations have to be considered: the situation at the beginning and during the relationship.

Determine the source of funds when entering into a relationship

This is the most delicate situation. The client has indicated his intention to establish a business relationship with us; in such a case, what manager will be picky? Everybody is happy to have a new client.

I discussed the issue of identification of the ultimate beneficial owner in my previous post. Specifically, this issue being resolved, we have to look closer. And therefore address the question of the origin of the fortune of the future client.

Many professionals are reluctant to openly discuss the issue. I think this is a mistake and that we must first educate the client, explain the existing legal provisions and affirm our desire to remain in compliance with the law. Underline that this strict compliance with the law is a proof of quality of our teams and the services offered to the client. I often use the example of the apple cart: no bad apples in the basket to prevent the rot infecting the whole basket. So no “bad customer” for us …

If the client is not receptive to these ideas, I think it is necessary to strongly pay attention and to clearly reaffirm our commitment to our principles, even consider not to continue entering into a relationship. Education and firmness.

Once the client has been educated, there is a simple approach that seems essential to me: request a CV. This makes it possible to trace the career of the client and to better target the search for information as to the origin of the funds.

  • Has the client had an entrepreneurial career? Requesting the balance sheets of previous years of his companies from the official bodies will enlighten us;
  • Did the client sell his company? He could deliver us a copy of the deed of transfer. The new online news search function of IBAKUS®KYC can help us as well;
  • Did the client inherit or receive part of his patrimony as a donation? A copy of proof of inheritance or donation can be sent to us.
Determine the source of funds during the relationship

Once the relationship has been formalised, we can expect a good level of trust to be established. This level of confidence implies that the client has understood that he must keep us regularly informed of the transactions he operates.

In case we act as the fiduciary, it is essential to be very well documented about the operation before proceeding to implementation. No justification = no operation.

In case we have to act a posteriori, for instance when we act as account-holding accountants, the fact that the suspicious transaction has already been done does not change our position. The regular receipt of supporting documents is a requirement for the proper fulfilment of the mission.

It may happen that some, generally sensible, operations are “forgotten” by the client. In this case, you have to get used to restart the conversation with the client while creating a manual task in IBAKUS®TASKS in order not to lose sight of the issue. The 3rd follow-up must be firm and precise while giving a deadline for response. If no information has been received after this deadline, and if significant amounts are involved, you have to seriously consider submitting a report of suspicion to the Financial Intelligence Unit which you depend on.

This would be the CRF for the Grand Duchy of Luxembourg, Tracfin for France, or the CTIF / CFI for Belgium.

Many professionals are reluctant about this approach. I think that this is certainly an understandable position but nevertheless quite misplaced:

  • the report of suspicion is a procedure clearly mentioned in the legal texts which cannot be avoided;
  • neglecting this approach exposes the professional at risk of being considered an accomplice of an offence, and to be exposed to severe sanctions;
  • morally speaking, even if one may have the impression of ” betraying ” the trust of the client, one must rather consider that it is not acceptable to participate, even passively, in an offence.

Again, in this situation, spending time to educate the client is a positive attitude. Explain that documenting the litigious operation will avoid serious troubles and that even if we must investigate his “little secrets”, our ethics require us the strictest secrecy and the most neutral of neutralities.

After all, he is still free to use his money … legally …