One recent long-running case saw an Essex couple fighting over six inches of disputed land ownership for eleven years, with costs predicted to be as high as £60,000. The couple, Philip and Denise New, say they have had to remortgage their home to cover the costs after losing their case. The argument started after they
Source of Funds – What’s the big deal?
However, you now have a mountain of paperwork to complete and lots of questions in relation to the funds you will be using to facilitate your purchase. Suddenly your exciting property purchase seems far less fun and a rather daunting and laborious experience. You might be asking yourself why so many questions? For those who are more experienced when it comes to buying and selling property, you may be wondering why you have never been asked these questions in the past. In some cases, the mere fact you have been asked for such information may feel intrusive and you might be left feeling like a criminal when you have absolutely nothing to hide. So what is the big deal when it comes to source of funds?
Let’s start with the requirements of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the Regulations”). Under the Regulations, firms are required by law to know their clients. For many years solicitors have asked clients to attend the office with their identification documents and used that time to find out about them and their reasons for buying or selling a particular property. What people are less accustomed to are the questions around finances. Understandably, this may be alarming to some people who may feel uncomfortable about being asked to provide bank statements and other documentation to comply with the law.
The Regulations place great importance on scrutinising transactions to ensure that the work firms have been instructed to undertake is consistent with what they already know about a client. The way that most firms meet this obligation is by asking questions relating to a client’s source of funds and requesting a bank statement showing the funds in the account from which the client intends to pay the firm. However, the buck does not stop there and in order to fully satisfy their obligations under the Regulations, they must ask further questions around how those funds were saved and how they came to be in that account. To complicate matters, the Regulations do not specify how much information is needed and this will depend upon the money laundering risks involved. Unfortunately, property transactions present some of the highest risks for money laundering – hence all the questions.
The main aim of the Regulations is to prevent criminals from being able to use the proceeds of crime for legitimate means (i.e. purchasing a property which would contribute to cleaning dirty money). The legal profession has been identified to be at a high risk of being targeted by criminals for the purposes of money laundering. This is due to the services that firms provide, the level of trust that is placed in firms and their access to client accounts and money. Source of Funds and Source of Wealth checks assist firms in identifying clients who may pose those types of risk to the firm. This is no reflection on any given client but simply what we are now required to do by law.
Criminal activity ruins the lives of ordinary citizens both at home and abroad, from cash proceeds of drugs deals in the community channelled through small cash intensive businesses such as nail bars, car washes etc. to corrupt overseas individuals purchasing property in the UK. Source of Funds and Source of Wealth checks conducted by law firms helps to prevent this crime. By cooperating with the firm, you will be contributing too. Remember, firms do not ask for information in relation to funds because they are suspicious of you, they are simply trying to do their bit in stopping serious and targeted crime, thereby reducing damage in their local community.