Wednesday, 14 March 2018

Is a source of funds check a complete waste of time?


A controversial question, but one I must raise given information received today from Lloyds Banking Group to the effect that it is not their policy to pass on bank details of the person transferring funds into a client account, without the consent of the transferor. It seems that depending on the type of transfer only the sort code of the transferor’s bank is captured and made available. This is not the case on all transfers however.


The consequence of this apparent data protection issue, is that without this information it is impossible to carry out a full and complete source of funds check, and to fully comply with obligations imposed by anti-money laundering and counter terrorism legislation.


Take the following example.


Client A provides Solicitor Firm B with bank statements and other documents to enable source of wealth and source of funds to be undertaken.  These checks are made and details of the account or accounts from which funds are to be transferred are recorded by Solicitor Firm B.  Client A then makes the transfer of funds into Solicitor Firm B’s client account. How is it possible for Solicitor Firm B to complete with its regulatory and statutory obligations and complete the source of funds check when Solicitor Firm B’s bankers refuse to provide details of the transferor’s account? A client with criminal intentions could have provided Solicitor Firm B the bank statements from a legitimate account only to later use an account holding criminal tainted funds for the transfer. 


This example demonstrates in my view a massive hole in anti-money laundering and counter terrorism measures and makes a complete mockery of the hard work that many of us are undertaking to assist the enforcement agencies with their fight against crime.


I know Lloyds is looking into this, and has referred the concern to the SRA and their legal department to seek urgent guidance. It will be interesting to see what comes of this referral when it is clear that there a legal obligation placed on a bank to obtain details of the account from which a transfer is to be made. The question whether this information should be passed onto a regulated body to discharge a legal obligation to adhere to anti-money and anti-money laundering and counter terrorism legislation is less clear.


In the meantime, the absence of joined up writing on this aspect of effective detection will leave the whole of the legal and other sectors covered by the legislation completely exposed.  I have asked Lloyds if this now means it is safe to assume that if the money is coming through the UK banking system the risk of money laundering and terrorism funding is low. I suggest this as the situation currently stands only the Bank knows from where the money has originated.  I have also asked whether a warranty to that effect can be given! I am not, needless to say, expecting a positive reply! 


David Pett - Solicitor

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