Table of Contents
Source of funds is the origin of the specific money moving in one transaction or into one account. Source of wealth is how the customer built their total net worth over the years. They are separate questions with separate evidence. A firm can be satisfied with your source of funds and still reject your source of wealth.
The two questions catch different problems. A clean transfer from a named account tells you the money arrived from that account. It says nothing about how the account holder got rich.
Both questions usually arrive together during enhanced due diligence. The trigger is a risk rating, a politically exposed person flag, a high value payment, or a profile that does not match the money moving through it. The FATF Recommendations set the baseline. Recommendation 10 covers customer due diligence, and the politically exposed person recommendation requires reasonable measures to establish both source of wealth and source of funds.
What source of funds means in practice
Source of funds answers a narrow question. Where did this particular money come from, and what activity generated it?
A complete answer has three parts. Analysts often get one or two and stop.
- The generating activity. Salary, a property sale, a dividend, a loan drawdown, a court settlement.
- The accumulation point. Which account or wallet held the money before it moved, and for how long.
- The transfer path. Which bank sent it, through which correspondent, to which account, on which date.
Part three gets skipped most often, and it is the part that surfaces layering. Money that leaves a salary account, sits in a third party account for nine days, then arrives from another jurisdiction is a different risk from the same money wired directly. The amount matches. The path does not.
Evidence should be recent. Most firms ask for statements covering the three to six months before the transaction, plus the document proving the generating event. A payslip alone is weak. A payslip with the matching credit line on a statement is strong.
What source of wealth means in practice
Source of wealth asks how the customer accumulated everything they own. It covers a working life rather than a single payment. The output is a narrative with numbers attached, and it needs to be roughly plausible rather than exact.
Plausibility is the real test. If a customer declares a net worth well above what their stated career could have produced, the file has a gap. The gap does not prove wrongdoing. It does mean you keep asking until the arithmetic works or the relationship ends.
A usable picture covers four things. The main earning engine, whether a career, a business or an inheritance. The period over which the wealth built. Any single large event that changed it, such as a company sale. And the current shape of the assets across cash, property, securities and business interests.
You will rarely document all of it. Regulators generally expect reasonable measures proportionate to risk, not a forensic audit. The file should show which parts you verified with documents and which parts you accepted on the customer’s statement, and why that split was defensible.
Which customers get asked for each
Standard risk customers usually give source of funds only, and often only at the point of a large or unusual transaction. Source of wealth is an enhanced due diligence measure. It attaches to a smaller group.
- Politically exposed persons, their family members and close associates.
- Customers in a high risk jurisdiction, or with a controlling interest held there.
- Customers whose ownership runs through several layers of holding companies or a trust.
- Anyone whose transaction activity does not match the profile they gave at onboarding.
- Customers acquired through residence or citizenship by investment schemes, which the EU anti money laundering framework treats as higher risk.
- Cash intensive businesses, and sectors the firm’s own risk assessment rates as high.
No universal monetary threshold switches source of wealth on. Firms set trigger levels in their own risk assessment, and supervisors test whether those levels were applied consistently. A written trigger table beats analyst judgement. If two analysts treat the same payment differently, the policy is the problem.
Documents that satisfy each question
The same underlying event often produces different paperwork depending on which question you are answering. Source of funds evidence proves a movement. Source of wealth evidence proves an accumulation.
| Origin of the money | Typical source of funds evidence | Typical source of wealth evidence |
|---|---|---|
| Employment income | Recent payslips plus the bank statement showing the matching credits | Employment contract, several years of tax returns, pension or bonus statements |
| Business profits | Dividend voucher, corporate bank statement showing the payment out | Audited accounts across several years, shareholding register, company registry extract |
| Sale of a business | Completion statement, solicitor client account letter, settlement confirmation | Share purchase agreement, valuation report, tax clearance on the disposal |
| Sale of property | Signed sale deed, completion statement, conveyancer letter | Title deed history, original purchase contract, mortgage redemption statement |
| Inheritance | Executor or solicitor letter confirming the distribution and amount | Grant of probate, the will, estate accounts, evidence of the deceased’s own wealth |
| Gift | Signed donor declaration, proof of the transfer between the two accounts | Documents covering the donor’s own source of wealth, and any gift tax filing |
| Investment returns | Contract note, broker settlement advice, fund redemption confirmation | Portfolio statements over a run of years, custodian confirmation of holdings |
| Loan or credit | Loan agreement, drawdown advice, lender statement | Evidence of the assets securing the loan and the capacity to repay it |
| Crypto asset proceeds | Exchange withdrawal record, on chain transaction reference, fiat off ramp receipt | Full trading history, records of the original fiat purchases, wallet ownership proof |
Worked examples of acceptable evidence
Salaried employee funding a property purchase
The deposit comes from savings built over eight years. Take six months of savings account statements, twelve months on the current account that fed it, and the employment contract. Trace the largest credits back to payroll. Any lump sum payroll does not explain becomes its own source of funds question.
Business owner after selling the company
Source of funds is the completion statement and the solicitor’s letter confirming the sum paid. Source of wealth is the harder half. Ask for the share purchase agreement, the registry extract showing the shareholding before sale, and accounts for the trading years. Check the sale price against the accounts.
Inherited money from an overseas estate
The executor letter proves the distribution. It does not prove the estate was clean. Where the deceased was in a high risk jurisdiction, the file needs something on their wealth as well, typically the estate accounts or a probate valuation. Screen the estate, the executor and the paying institution. Adverse media on a deceased settlor is still a finding.
Gift from a family member
A gift shifts the whole enquiry onto the donor. A signed declaration naming the donor, the amount and the relationship is the start. You then need the donor’s source of wealth, at least in outline, and proof the money moved from the donor’s own account. Gifts routed through a third party account should be refused until the extra hop is explained.
Proceeds from crypto assets
Ask for the fiat entry point, not only the exit. A withdrawal receipt shows the money left the exchange. It says nothing about how the position was funded. Request the original purchase records, the exchange statement, and proof the wallet belongs to the customer. Evidence from an unregulated exchange is weaker.
Source of funds when the customer is a company
Most guidance on this topic is written around individuals. Corporate customers raise the same two questions in a different shape.
For a company, source of funds usually means trading receipts, a capital injection, a shareholder loan, a bank facility, or an investor round. Each has its own document. Trading receipts show up as customer invoices and a sales ledger. A capital injection needs the board resolution and the share allotment filing. A shareholder loan needs the loan agreement and evidence of where the shareholder got the money, which drags you straight back to an individual source of wealth enquiry.
Source of wealth for a company is really source of wealth for its beneficial owners. Ownership structures are where this gets slow. Sanctions rules in several jurisdictions aggregate indirect holdings, so a person under fifty percent at each layer can still control the entity in aggregate. The fifty percent ownership rule in sanctions screening is worth understanding before you accept an ownership chart at face value.
Where sanctions and denied party screening fit in
Most teams run document collection and screening as separate workstreams. They should run together. Every name in a source of funds file is worth screening.
- The donor of a gift, and any intermediary who held the money.
- The counterparty to a property or business sale.
- The employer named on the payslip.
- The remitting bank and, where visible, the correspondent.
- The executor, trustee or solicitor handling an estate.
- Directors and beneficial owners of any company in the chain.
You can run a denied party screening check on each of those names in minutes, and the result belongs in the same file as the documents. Trading firms have the same problem with counterparties, which is why sanctions screening during customer onboarding tends to be the control that catches what document review misses.
Screening also changes how you read the documents. A payment routed through a jurisdiction with no commercial reason to be involved is a known pattern among the red flags of sanctions evasion. Alone it proves nothing. Beside a vague explanation and a reluctant customer, it is enough to stop.
When the customer cannot produce the evidence
This happens more than the guidance admits. Old wealth predates digital records. Some jurisdictions produce no probate document. Cash economies produce no audited accounts. Declining the relationship is sometimes right and sometimes just lazy.
Work through three options before you exit the customer.
- Partial corroboration. Two weaker documents that agree with each other can be stronger than one strong document you cannot test. A tax filing and a bank statement that match is real evidence.
- Independent sources. Company registries, land registries, court records and credible press reporting can corroborate a story the customer cannot document themselves.
- Risk limitation. Accept the relationship with a lower transaction ceiling, tighter monitoring rules, and a shorter review cycle, and record why.
If none of that works, decline or exit. Where the failure to explain is itself suspicious, the exit does not remove the reporting obligation, and in most jurisdictions you must avoid telling the customer that a report has been made.
Writing a file note that holds up to review
An examiner reads the note before the attachments. Most rejected files fail here, not on the documents. The note should be short and specific.
- One sentence stating the customer’s declared source of wealth.
- The arithmetic, in round figures, showing the declared wealth is plausible for that career or business.
- The specific funds in question, with the amount, the date and the sending account.
- A list of what each attached document proves, rather than just a list of file names.
- What you could not verify, and the reason.
- The screening results for every name in the chain, with dates.
- The decision, the person who made it, and the review date.
Version control matters too. A file holding three versions of the same statement, with no note on which was accepted, is an audit finding. The principles behind a defensible audit trail apply to due diligence files as much as to screening logs. Retention periods vary by jurisdiction, so check what your regulator sets.
Key takeaways
- Source of funds covers the money in one transaction. Source of wealth covers the customer’s entire accumulated net worth.
- A complete source of funds answer names the generating activity, the account that held the money, and the path it travelled.
- Source of wealth is an enhanced due diligence measure, applied to politically exposed persons, high risk jurisdictions, complex ownership and profile mismatches.
- The FATF Recommendations require reasonable measures to establish both for politically exposed person relationships, proportionate to the assessed risk.
- Gifts and inheritances move the enquiry onto a third party, so the donor or the estate needs its own evidence.
- Every name that appears in a source of funds file, including donors, employers and paying banks, should be screened against sanctions and denied party lists.
- Where documents cannot exist, partial corroboration plus limits on the relationship is a defensible alternative to an automatic exit, if you write down the reasoning.
Frequently asked questions
Can source of funds and source of wealth be the same answer?
They overlap often, especially for salaried customers. If someone has held one job for twenty years and pays from their salary account, employment income answers both. The evidence still differs. Source of funds needs recent payslips and statements. Source of wealth needs the longer record, such as several years of tax returns.
How far back should source of wealth go?
Far enough to explain the current net worth. For a salaried customer that might be a decade of earnings. Where the wealth came from one event, such as a company sale, the enquiry focuses on that event and the years before it. The international standards fix no lookback period. Risk and plausibility set the depth.
Is a bank statement enough on its own?
Rarely. A statement proves the money was in an account. It does not prove what generated it. Pair the statement with the document evidencing the underlying event, such as a payslip, a contract note or a completion statement. The strongest files show the same amount on two independent documents from two different parties.
What happens if a customer refuses to provide source of funds evidence?
You cannot complete due diligence, so the relationship should not proceed as normal. Most regimes require the firm to decline the transaction or terminate the relationship where due diligence cannot be completed. Consider whether the refusal itself is grounds for a suspicious activity report. Do not explain to the customer that a report is being considered.
Do these checks apply to businesses as well as individuals?
Yes. For a corporate customer, source of funds covers trading receipts, capital injections, shareholder loans and credit facilities. Source of wealth pushes through to the beneficial owners behind the company. Ownership charts need checking against registry records, because control can sit with someone who is not visible on the first layer.
Who has to do source of wealth checks?
Regulated financial institutions do, and so do many non financial businesses. Law firms, accountants, estate agents, casinos, company formation agents and dealers in high value goods sit inside anti money laundering regimes in most major jurisdictions. Exporters face a parallel duty on the trade side, where the obligation is to screen parties rather than trace wealth.
How do source of funds checks relate to sanctions screening?
They answer different questions and support each other. Screening tells you whether a name is on a restricted list. Source of funds tells you whether the money makes sense. A name can be clean and the money still be suspicious, and a perfectly documented payment can come from a listed party. Both checks belong in the same file.
Screening is the fastest part of this work to fix. Globalior’s free screening tool covers the major consolidated lists, and you can run a free denied party screening check on a donor, a counterparty or a corporate shareholder before you accept their paperwork. If you want to talk through how screening should sit inside your onboarding and review process, get in touch with the Globalior team.