Source of funds and source of wealth: Essential element of Customer Due Diligence

Money laundering is about concealing the origin of illegal funds and making them appear as if they were earned through legitimate sources. Once the criminal proceeds are integrated into the financial system, it becomes challenging to trace the original illegal source or the owner of the funds. To mitigate this risk, the UAE AML regulations mandate that regulated organizations – Financial Institutions, DNFBPs, and VASPs– obtain information about the source of funds and wealth and establish its legitimacy in case of high-risk customers or where ML/FT suspicion is observed.

Understanding the source of funds and the customer’s wealth brings transparency to the transactions. These details help the regulated organization determine the customer’s financial profile, which sets a base for monitoring the transaction and immediately identifies any unusual transaction inconsistent with the customer’s financial capacity.

It also helps determine the nature and source of the customer’s wealth, which is pertinent to understanding if the customer’s activities are directly or indirectly associated with any criminal activities or organization.

Establishing the legitimacy of the high-risk customer’s source of funds and wealth enhances the quality and effectiveness of the organization’s AML framework to mitigate the ML/FT risks.

With this visual depiction, let us understand the significance of the source of funds and wealth as part of AML’s efforts.

AML UAE is one of the leading AML Consultancy Service Providers in the UAE, assisting clients with tailoring the AML/CFT policies and procedures, implementing the robust AML framework, drafting the comprehensive Customer Due Diligence procedures, including Enhanced Due Diligence measures, imparting AML Training to the Compliance Officer and team, etc.