Source-of-wealth diligence is much more challenging today than it was even a few years ago. Regulators are urging financial institutions to go deeper with their verification processes —without offering detailed guidance — while also stepping up enforcement actions and the consequences for missteps. According to the U.S. Government Accountability Office, BSA/AML fines totaled $5.2 billion between 2009 and 2015. 

At the same time, the realities of our globalized economy put intense pressure on compliance and legal officers. The competitive landscape creates an urgency to clear potential clients as quickly as possible, and mergers and acquisitions might bring in hundreds — even thousands — of existing relationships that must be reviewed and verified.

Yet trying to expedite the diligence process can heighten a company’s exposure to risk and potential damages. The costs of not performing proper diligence can include:

  • immediate fines that can run into the hundreds of millions of dollars

  • court-ordered monitorships and associated maintenance costs and legal fees

  • damage to a firm’s reputation and brand

  • distraction of senior employees, who must focus on crisis management rather than business matters

  • in some cases, personal liability for compliance officers.

Organizations can no longer afford an ad hoc approach to source-of-wealth analysis. To separate problematic relationships from solid business opportunities, companies must conduct diligence properly for every client and potential client. Consistently performing diligence thoroughly requires a cultural commitment — executed through time-tested processes, cutting edge tools, thoughtful protocols and experienced judgment.

What does this commitment look like in practice? Here are some of the keys to conducting source-of-wealth diligence to the high standards that regulators demand and your business deserves:

1. Start with the right resources

Source-of-wealth diligence should draw on a comprehensive set of data sources, including established name and address verification systems, Politically-Exposed-Persons (PEP) databases, government sanctions and watch list screening tools, and targeted media searches in both English and local languages. But these are just the first lines of inquiry. Today, searches also should include emerging resources such as social media account review, which can uncover lifestyle choices or business interests that provide additional insights into the ways subjects have obtained their wealth.

2. Use technology wisely

Automated database searches have streamlined the diligence process, helping compliance and legal teams sort through mountains of raw data. But technology doesn’t replace the essential role of human intelligence in analyzing that information. For example, no artificial intelligence program yet can reliably determine whether individuals with the same name and other identifiers are indeed the same person.

Technology alone can’t perform source-of-wealth verification. Instead, think of technology as a set of tools to make data-gathering more efficient, freeing up time to conduct enhanced diligence and deeper investigations.

3. Apply professional experience and judgment

No research process is complete without a team of experienced analysts who can bear down on the results and make smart judgments about how to proceed. Each review has several key inflection points that require senior professionals to make careful decisions.

For example, you need to know at the outset which individuals require enhanced diligence resulting from unique sector- or industry-related risks. These concerns may be apparent when an individual is associated with inherently risky businesses, such as mining in Africa. But what about sectors with less obvious risks — like the U.S. technology industry?

That’s not the first place you’d think would require deeper investigation. But consider that there typically won’t be much information available about a tech startup with a new management team. In these cases, you might take the extra step of researching the management team’s track records to look for past issues of concern, such as prior bankruptcies, litigation or even criminal activity. Such problems might not turn up often — but you don’t want to miss red flags simply because you didn’t look deep enough.

Good researchers also can determine when to dig deeper into PEP searches for connections that aren’t obvious, such as distant relatives or relations through marriage. And every PEP is unique, so gauging the risk each one represents requires good judgment. For example, you might encounter a prospective private banking client who happens to be distantly related to a PEP — a potential red flag. The necessary avenue of subsequent source-of-wealth research may differ for a person with an extensive, verifiable professional history compared with someone who is just starting out or about whom there are very limited professional background details. Regardless of background, thorough analysis of anyone directly or indirectly associated with a PEP is vital.

This kind of critical thinking is essential to determine when to escalate an investigation, and when it’s safe to stop investigating.

4. Mind the gaps

A process that combines technology with human intelligence and on-the-ground resources also can reveal gaps in data, and fill them in.

Consider criminal records searches: No single database covers all possible jurisdictions. Some courts don’t have online or public records — and even those that do may not have comprehensive holdings — so it’s essential to know those locations well and to have resources on the ground who can visit local courthouses.

5. Maintain an ongoing effort

The best diligence efforts are proactive, not reactive. Addressing problems before they happen requires ongoing monitoring of client activity, news sources and other databases. It also demands a process for ensuring that the right people in the company receive key information about changes and gaps uncovered by this monitoring effort.

Each of these elements helps fulfill a cultural commitment to managing source-of-wealth risk. It takes time and effort to do the job right. But those costs are dwarfed by the expense, distraction and other problems that can ensue when companies don’t devote the necessary resources to source-of-wealth diligence. Your organization’s compliance efforts are only as good as your last report — so it’s essential to ensure that every one is as solid and thorough as it can be.


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