Source of Wealth

Source of wealth (SoW) is the origin of a customer's entire body of assets: the activities that generated their overall net worth, such as founding and selling a company, a professional career, an inheritance, investment returns or the sale of property. Financial institutions establish a customer's source of wealth, and support it with evidence, so they can judge whether the customer's assets and expected activity are consistent with a legitimate history.

The concept is separate from source of funds (SoF), which describes where the specific money in a given transaction or account deposit came from. A customer's source of funds for a single transfer might be the proceeds of a property sale; the source of wealth explains how the customer came to own the property and their other assets in the first place.

The Financial Action Task Force (FATF) requires financial institutions to take reasonable measures to establish the source of wealth and the source of funds of customers and beneficial owners identified as foreign politically exposed persons (PEPs), and of domestic PEPs where the relationship is higher risk. National laws build on this. In the European Union, the anti-money laundering directives require source-of-wealth checks for PEPs and in other enhanced due diligence situations; in the United Kingdom, the Money Laundering Regulations 2017 make it part of enhanced due diligence; and in the United States, the Bank Secrecy Act regulations require private banking accounts for senior foreign political figures to be subject to enhanced scrutiny that includes the origin of funds.

Source of wealth checks are not usually part of standard customer due diligence. Under a risk-based approach, they are applied where the risk justifies the effort, including:

• PEPs, their family members and close associates.
• Private banking and wealth management clients, and a family office acting for wealthy families.
• Customers from high-risk jurisdictions or with complex ownership structures involving trusts or companies in an offshore financial centre.
• Customers whose expected activity is large relative to their profile, or whose transactions trigger alerts.
• Holders of large crypto-asset balances, where the origin of early holdings may be difficult to trace.

A credible source-of-wealth assessment combines a narrative from the customer with independent corroboration. The narrative should cover how the wealth was built, over what period and in which jurisdictions. Typical supporting evidence includes:

• Company sale agreements, audited accounts or shareholder records for business wealth.
• Grant of probate, wills or estate documents for inheritances.
• Employment contracts, tax returns and payslips for earned wealth.
• Property sale contracts, investment statements and records of dividends.
• Reliable public sources, such as company registries and reputable press, reviewed alongside adverse media screening.

The level of evidence should be proportionate. A firm is expected to establish that the explanation is plausible and consistent with what it knows, not to audit the customer's entire life.

A prospective private banking client wishes to deposit US$8 million. The source of funds is a single transfer from a law firm's client account representing proceeds from the sale of a company. The source of wealth is the client's 20-year career building that company, supported by the sale agreement, historical accounts showing the company's growth and registry records confirming the client's shareholding. If the client is also a former government minister, the bank would add PEP-specific checks and senior management approval.

Supervisors frequently find that firms record only a single phrase, such as "business owner", without corroboration; confuse source of wealth with source of funds; accept customer statements without testing them; or fail to update the assessment as circumstances change. Unexplained wealth is a recognized indicator across all money-laundering stages, especially integration. Where a firm cannot form a satisfactory view, it may decline or exit the relationship and, where suspicion arises, file a suspicious activity report. Documentation typically forms part of the onboarding due diligence pack and is reviewed by the money laundering reporting officer in high-risk cases.