The SRA has issued yet another anti-money laundering (AML) fine – this time hitting a firm with a £25,000 penalty for failures in its source of funds (SOF) and source of wealth (SOW) checks. While the fine itself isn’t especially headline-grabbing compared to some of the recent six-figure regulatory settlements, it’s worth digging into the case. Because what happened here sends an important message to every law firm: the era of leniency on SOF/SOW is well and truly over.
And if you’re still viewing CDD as something that happens just once at the start of a retainer – or something you can “mostly do” and be fine – then this is your wake-up call.
What did the firm do wrong?
According to the SRA’s published decision, the firm acted in relation to a property transaction involving a politically exposed person (PEP). That in itself is not a problem – lawyers are perfectly entitled to act for PEPs – but it brings additional due diligence obligations under the Money Laundering Regulations 2017.
Among other failings, the SRA found that:
- The firm did not obtain adequate evidence of source of wealth or source of funds;
- The enhanced due diligence process was deficient for a high-risk client;
- It failed to properly consider whether the client’s background gave rise to a heightened risk of money laundering.
What makes this case particularly interesting is that the conduct took place several years ago, before the SRA gained its unlimited fining powers for traditional law firms. If this misconduct had taken place today, the fine could have been significantly higher.
The firm did avoid being referred to the Solicitors Disciplinary Tribunal on this occasion, which might have led to an even more serious outcome, but only because it cooperated with the investigation and admitted the breach.
A trend is emerging
This firm joins a growing list of firms penalised for AML failings. We’ve increasingly seen fines for inadequate firm-wide risk assessments, out-of-date AML policies, poor training, and weak client due diligence processes. This decision adds a new dimension: poor historic SOF/SOW investigations are also in the regulator’s sights. It is unlikely that this particular outcome would have been as harsh in previous years.
Why SOF and SOW matter
There’s a reason source of funds and source of wealth are central to the AML regime. It’s not enough to verify identity and move on. Lawyers, especially those in transactional work, are gatekeepers to the financial system. That means understanding where the money is coming from, and how the client came to have it, is not a nice-to-have. It’s mandatory.
Here’s the difference in a nutshell:
- Source of funds is about the origin of the particular money used in a transaction. Is it from the sale of a property? A business? An inheritance?
- Source of wealth is about the client’s overall financial background. Are they a millionaire because they built a tech company, or because they inherited family money? Or is it less clear-cut?
These checks are especially important when dealing with high-risk clients like PEPs or clients from jurisdictions with a high risk of corruption or money laundering. The bigger the risk, the deeper your due diligence should go.
What should law firms do now?
While you can’t go back and change your AML policies and practices from five years ago, you can make sure they’re robust today. And with unlimited SRA fines now in force for breaches of AML rules, there’s a clear incentive to do so.
Firms should:
- Review and refresh their AML policies and procedures;
- Make sure all staff understand what SOF and SOW mean in practice – and how to evidence them;
- Avoid treating CDD as a one-off tick-box exercise at client onboarding;
- Implement appropriate triggers for ongoing monitoring throughout the transaction;
- Train staff on recognising risk indicators, especially for PEPs and overseas clients;
- Conduct file audits to ensure AML compliance isn’t just theoretical.
This isn’t about being risk-averse to the point of turning clients away unnecessarily. It’s about being able to demonstrate, if challenged, that you understood the risks, asked the right questions, and obtained the right evidence.
