In a world where financial crimes of all flavours are threatening to go endemic, effective Enhanced Due Diligence (EDD), especially in the form of Source of Wealth (SoW) checks, is more than just regulatory box-checking — it’s a strategic imperative when initial screening flags an entity as suspicious.
Whether it is a casino evaluating the antecedents of a high roller or a private bank onboarding a new client, SoW reports enable organizations to truly understand who their customers are and how they gained their wealth, and protect themselves from fraud, reputational damage, and legal penalties.
Historically, the leverage of these reports has been limited due to high costs and long delivery times – both constraints that are becoming part of history with the onset of new technologies. More on that later.
What Is SoW— And Why It Matters
SoW is the set of processes used to verify and validate the source(s) of wealth of an individual. This includes identifying how that wealth was generated, assessing their level of risk, and monitoring their activity. SoW reports provide clues such as excessive complexity of corporate structures or the frequent appearance of tax havens in an individual or entity’s financial profile, thereby giving the organization hard data to work with and make important decisions on how to engage with the individual or entity.
In essence, Source of Wealth assessments act as a bulwark against money laundering, which typically unfolds in three stages:
- Placement – introducing illicit funds into the financial system;
- Layering – disguising their origins through complex transactions; and
- Integration – reintroducing the cleaned funds into the legitimate economy.
A comprehensive SoW report classifies wealth and its manifestations in six buckets —
- Private holdings
- Immovable assets
- Cash earnings
- Liquid investments
- Familial wealth
- Philanthropic activities
The fundamental idea is to ensure that the individual is not laundering money and has not gained his wealth through illicit activities such as drug trafficking, etc. When done well, SoW checks prevent serious financial and regulatory consequences. When done poorly, the cost can be significant both from a financial as well as reputational perspective.
Common Challenges in Delivering Strong SoW
Putting SoW into practice often comes with hurdles:
- Data gaps and quality issues: If a customer has “hidden” his wealth in tax havens, or available information is incomplete, outdated, or not well-structured, it limits the ability to do thorough checks.
- Outmoded or inadequate technology: Manual processes are slow, error-prone, and resource-intensive. Reports can take too long whilst wealthy clients are waiting to be onboarded; this has a deleterious impact on customer satisfaction. Fortunately, new age technology such as RZOLUT’s SoW Agent Jin have automated much of the process and reduced the delivery time to minutes rather than weeks.
- Complex and changing regulation: Regulations vary across jurisdictions and change frequently. Staying current, comprehending differing laws in different jurisdictions, and adapting to new requirements pose constant challenges. Staff training and appropriate tech flexibility are two important issues to consider on this front.
- Resource constraints: Limited budgets or staff can slow down or weaken compliance functions. Compliance or risk teams often juggle demands emanating from ever-increasing regulatory complexity. Not just more talent but also more technology is needed to get this right.
The Key to Effective SoW and an Associated EDD Framework
Whether focused on Source of Wealth or in a wider context, it needs to be comprehensive, process-led and characterized by multiple levels and dimensions of checks.
- Screening – Start by screening customers using reliable data from world-class, proven providers. Screening needs to be against global sanctions, watchlists, and other relevant risk databases; in the context of SoW, screening for political exposure (PEP Checks) is an important dimension as well. Early detection of potential red flags is crucial so that there is enough time to investigate and sift out the “bad guys.”
- Identity Verification – Verifying identities accurately, for both individuals and organizations, helps prevent fraud. Fortunately, governments across the world have made this task progressively easier with national identity cards, corporate identification numbers, unique tax IDs and the like.
- Media Presence – With practically every newspaper now available digitally, it is possible to get a fix on the target’s presence in the media. Checking for Adverse Media provides an important additional investigative dimension on the subject.
- Legal Matters – Checking for legal entanglements and cases of the subject can help unearth important information about the risk associated with subject. Are they implicated in any cases involving financial malfeasance, for example?
- Financial Picture – What do the finances of the subject look like? The enquiry can range from cash earnings to real estate assets to financial holdings. Corporate structures are unearthed to provide an accurate financial map. Of course, tax havens and offshore structures can act as significant impediments in developing this view.
Finally, one must keep in mind that this process is not a one-time exercise. Ongoing monitoring for adverse media, sanctions and other lists must be enabled through the technology platform. And always remember, the platform is only as good as the data that powers it: choose a strong data provider with proven credentials.
In Conclusion
Historically, the delivery time and costs that SoW reports imposed meant that they were deployed sparingly and in exceptional circumstances. An AI-powered, human-supervised EDD paradigm has emerged now, dramatically cutting delivery times and radically reducing costs. When you combine good data, suitable technology, and experienced oversight, you greatly improve not only your compliance posture but your resilience against financial crime.
The opportunity for all institutions, casinos and gaming companies among others is to embrace tech-driven platforms that can help them reduce risk at a totally new level of confidence while keeping regulators on side.