Examples of establishing source of funds and source of wealth with customers

These examples show how source of funds and source of wealth enquiries may operate in practice once a reporting entity identifies a trigger under its AML/CTF program or decides that further enquiries are appropriate as a risk control.  

These enquiries support day-to-day business decisions by helping assess and manage money laundering, terrorism financing and proliferation financing (ML/TF) risk. That is, the risk that a person or transaction may involve funds derived from, used for, or linked to criminal activity.

Note that these examples are generic in nature and not exhaustive. They do not replace the full guidance or the requirements that apply in specific circumstances. Learn more about enhanced customer due diligence.

For definitions and further detail, visit source of funds and source of wealth.

Bank: unusual international transfers

A regional bank provides everyday banking services, savings accounts and online international transfer facilities to retail customers across Australia.

Maria is a relationship officer who reviews transaction alerts and conducts ongoing customer due diligence (CDD) for the bank. A customer triggers an alert by the bank’s automated transaction monitoring system after receiving three international transfers from the same overseas sender over one week, totalling $95,000. The sender doesn't appear previously in the customer’s transaction history, is based in a country the bank rates as high risk for ML/TF, and the transfers are far larger than the customer’s normal activity.

Maria continues reviewing the customer’s profile and sees they are a 29-year-old retail employee who has held a personal transaction account with the bank for 4 years.

Based on the customer’s onboarding information, regular salary credits, routine expenses and several years of account history, Maria has a reasonable understanding of the customer’s expected activity.

What the bank observes

• The customer has no previous history of receiving international transfers or other large inbound payments.
• The overseas sender doesn't appear in the customer’s transaction history and no known relationship between the sender and the customer is apparent.
• The funds originate from a country the bank’s ML/TF risk assessment classifies as high risk.
• The size, frequency and pattern of the transfers don't align with the customer’s known occupation, expected income or previous account behaviour.

Why this triggers further enquiries

Here, further enquiries are triggered because the transaction pattern isn't typical for this customer’s established profile. The unexplained overseas sender, the high-risk jurisdiction as well as the size and number of transfers mean the activity cannot be readily explained by what the bank already knows about the customer.

Maria’s immediate concern is the source of the sender’s incoming funds. Maria will also need to understand the sender’s source of wealth because judging the validity of the payments depends on the sender’s financial capacity. If the first explanation and evidence provided do not satisfy the bank, Maria will need to request more information before deciding whether the explanation is reasonable.

How the bank responds

Maria reviews the customer’s know your customer (KYC) information, transaction history and account behaviour, and decides that enhanced customer due diligence (CDD) is required. Maria then contacts the customer to ask about the payments.

The customer says the money is a gift from an overseas relative who recently sold an investment property. Maria requests a signed gift declaration, the sender’s bank statements showing receipt and transfer of the funds, and documents confirming the property sale.

When the customer first produces only an unsigned note, Maria is not satisfied and requests further records before deciding whether the customer’s source of funds and the sender’s source of wealth have been reasonably established.

Decision

Given the high-risk foreign payments and the initially insufficient information, Maria reassesses the customer as a high ML/TF risk and escalates the matter to the bank’s AML/CTF compliance officer. As Maria still hasn’t received any required information to establish the source of funds and source of wealth of, she has formed a suspicion on reasonable grounds and submitted a suspicious matter report (SMR) to AUSTRAC. Maria knows it’s essential to report SMRs accurately and on time, so she doesn’t delay submitting the SMR. If the customer later returns with the information requested, then enhanced CDD can continue.

After 9 business days, the customer supplies the requested information. After reviewing the signed gift declaration, the sender’s bank statements and property sale documents, Maria is satisfied that the source of the customer’s funds can be reasonably established. As the customer’s explanation depends on the sender’s financial capacity, Maria also uses the supplied information to confirm the sender’s source of wealth. 

As part of their enhanced CDD measures, the bank collected and verified additional KYC information appropriate to the customer’s risk. This involves source of funds and source of wealth information, including the reason for the transfers. The bank also applies more detailed monitoring to the customer’s transactions and behaviour, moving forward.

Complying with its record keeping obligations, the bank documents all the customer due diligence steps taken, and why it is appropriate to continue the relationship and provide designated services with those additional controls in place.

Casino: large cash buy‑in with minimal play

A large metropolitan casino provides gaming, cash handling and cheque issuance services.

Priya is a customer service supervisor who reviews large cash transactions and unusual patron behaviour. She notices a long-standing customer (who usually spends about $600 over several hours) arrives with $50,000 in cash, plays briefly on one machine and then requests a casino cheque for the remaining $47,000.

What the casino observes

• A sudden and significant increase in transaction size compared with the customer’s usual gambling activity.
• A high-value cash buy-in followed by minimal play before requesting a casino cheque.
• Behaviour that is inconsistent with the customer’s usual pattern as a regular recreational patron.
• An apparent attempt to convert a large amount of cash into a casino cheque without a genuine level of gambling activity.

Why this triggers further enquiries

Here, further enquiries are triggered because this is a known customer and the transaction isn't consistent with this customer’s usual gambling behaviour. 

The large cash buy-in, minimal play and request for a casino cheque means the activity cannot be readily explained by the customer’s normal pattern as a recreational patron.

Priya’s immediate concern is the source of the cash used for the buy-in, as cash can be difficult to verify. 

How the casino responds

Priya reviews the customer’s prior visits and confirms that the behaviour is inconsistent with their usual pattern.

The customer says the cash comes from a recent vehicle sale and explains the limited play was due to regretting wasting their money when they lost a few games in a row, so they stopped playing. Priya requests documents matching the car sale, including a signed contract of sale and records showing the receipt and withdrawal of the funds.

As the transaction involves cash, Priya does not treat a withdrawal record alone as sufficient to establish the source of funds.

Decision

The customer initially provides only a screenshot of an online advertisement, which Priya doesn't accept as sufficient. After requesting further information, the customer provides a signed contract of sale and bank records consistent with the timing and amount of the buy-in. Priya is satisfied that the source of funds can be reasonably established.

Given the large cash buy-in, minimal play and cheque request, Priya escalates the matter to the AML/CTF compliance officer and reassesses the customer’s ML/TF risk.

As part of the casino’s record keeping obligations, it documents the trigger event, the enquiries made and the documents relied on, and continues monitoring the relationship through ongoing CDD. It also considers whether an SMR is required. In this case, the casino decides not to submit one, as the evidence reasonably establishes the customer’s source of funds and source of wealth, meaning no reasonable suspicion is formed.

Conveyancer: investor using a corporate entity and complex trust structure

A suburban conveyancing practice acts for individuals and entities purchasing residential and commercial property.

Pedro is handling the proposed purchase of a $650,000 residential investment property for a new client, who is the owner of a small business and states they are buying through their corporate entity connected to a trust structure.

As per the conveyancing practice’s AML/CTF program and initial CDD process, Pedro must request information from the client to understand who owns and controls the corporate entity and trust, how the purchase will be funded and whether the transaction is consistent with the customer profile presented. 

The client states the property needs renovations and wants to proceed quickly. They say they will renovate after settlement and do not need to inspect the property in person before moving forward. Various documents provided by the client show a complex entity and trust structure with multiple entities as beneficial owners.

During the transaction, the client also changes instructions several times within a short period. When Pedro reviews supporting documents, he notes that the business trust account shows very little trading activity and appears largely dormant.

What the conveyancer observes

• The purchase is for a residential investment property, but the client is using a corporate entity and a complex trust structure that was not clearly explained at the outset.
• The client wants to move unusually quickly and proceed without inspecting the property.
• The business trust account shows minimal activity.
• The client changes instructions multiple times over a short period without a clear commercial reason.

Why this triggers further enquiries

Here, further enquiries are triggered because this is a new client and the transaction cannot be easily understood by the information provided. 

The complex ownership and funding structure, the urgency, the repeated changes in instructions and the dormant account activity mean Pedro cannot reconcile the transaction with the customer profile presented.

Pedro’s immediate concern is the source of the purchase funds, but the structure and explanation also require Pedro to consider the source of wealth to assess whether the broader financial profile supports the transaction. If the first records do not satisfy him, Pedro will request more information before deciding whether the explanation is reasonable.

How the conveyancer responds

Pedro asks who is purchasing the property, why this structure is being used and where the purchase funds will come from.

The client says the deposit and settlement funds come from retained business income held through the trust structure, and that the wealth behind the transaction comes from property development and private investments accumulated over time.

Pedro continues the initial CDD process and requests company and trust documents, ultimate beneficial ownership information, bank statements, financial accounts, tax records and supporting evidence of prior property development or investment activity.

When the material provided does not satisfactorily explain the dormant account activity, Pedro requests further records before deciding whether the source of funds and source of wealth have been reasonably established.

Decision

The additional documents do not satisfactorily explain the dormant account activity, the repeated changes in instructions or how the structure funds the purchase. Pedro is not satisfied that the source of funds and source of wealth can be reasonably established.

Since the risk arises during initial CDD, Pedro escalates the matter internally and the practice applies enhanced CDD measures. This includes: 

• collecting and verifying additional KYC information
• obtaining further source of funds and source of wealth information
• taking additional steps to understand the ownership and financial position behind the structure.

As the conveyancing practice cannot satisfactorily establish the source of funds or source of wealth of the client and the risk sits outside of their risk appetite, it does not represent the client by providing the designated service. Pedro also submits an SMR after forming a suspicion on reasonable grounds.

To comply with its record keeping obligations, the conveyancing practice records the trigger events, the enquiries made, the evidence collected and the decisions made. 

Real estate: buyer using a third-party company and a large deposit

Sebastian works for a real estate buyer’s agency and is engaged by a new client as their buyer’s agent. The client provides limited instructions, indicates there is no effective budget limit and quickly offers $3.2 million for a property found through the buyer’s agents services. The offer is $700,000 above the asking price.

During initial CDD, Sebastian asks whether the client is acting on their own or for another person or entity, why the property is being acquired, how the purchase will be funded and who will ultimately benefit from the transaction and to provide relevant documents. 

The client says they are acting for their employer but does not clearly explain the purpose of the purchase, their authority to act, any beneficial owners or who controls the funds.

Sebastian begins enhanced CDD, but before he can address these issues with the client, a $1.6 million deposit is paid to the seller’s real estate agency trust account. When questioned on the funds for the deposit, the client disclosed that the funds were sent from a company account that had not been disclosed previously.

What the agency observes

• The client is new and there is limited information to establish their expected activity.
• The client offers substantially above the asking price without a clear commercial rationale.
• A large deposit is paid from an undisclosed company account.
• The roles, funding source and ultimate beneficiary of the transaction remain unclear.

Why this triggers further enquiries

Here, enhanced CDD is triggered during initial CDD because the transaction cannot be readily explained by the information initially provided.

The high offer, limited instructions, unclear authority and funding arrangement mean the agency cannot reconcile the transaction with the customer profile presented. The later deposit heightens those concerns.

These issues also require consideration of ownership, control, source of funds and source of wealth.

If the initial information isn't sufficient, Sebastian will request further supporting evidence before escalating the matter.

How the agency responds

Sebastian asks who the client is acting for, what authority they have to act, how the purchase will be funded and what relationship they have to the company providing the deposit. He also requests beneficial ownership documentation of the company.

The client says the company is assisting with the purchase and that the funds come from business income and although they provide some records of this, it still doesn’t clearly explain the authority to act, the company’s role, identification of beneficial owners or who ultimately benefits from the transaction.

Sebastian requests additional KYC information, beneficial ownership information, authority documents, bank statements and funding records. When the extra information provided does not adequately explain the arrangement, he escalates the matter internally in line with the agency’s AML/CTF policies.

Decision

The additional information does not satisfactorily explain the client’s authority to act, the company’s role or the source of the deposit funds. Sebastian is not satisfied that the source of funds can be reasonably established, and concerns about ownership, control and source of wealth remain.

The agency applies enhanced CDD measures according to its AML/CTF policies by collecting and verifying additional KYC information and making further enquiries about authority, ownership and funding.

As the agency assesses that the risks cannot be appropriately managed and mitigated, it does not proceed with providing the designated service.

The real estate agency records the trigger events, enquiries, enhanced CDD measures and decisions to comply with its record keeping obligations. Sebastian also submits an SMR after forming a suspicion on reasonable grounds.