The Reluctant Source of Funds Explanation
A private bank in Country A onboards a new individual client, Mr. K, a 58-year-old retired civil engineer. His declared net worth is USD 4.2 million, but his stated occupation and pension would plausibly explain only about USD 1.5 million. He explains the gap as 'family inheritance and property sales' and declines to provide documents, saying the sales were in Country B years ago and records are lost. He wants to fund the account with a USD 900,000 transfer from a third-party company incorporated in Country C, which he describes as 'a family holding company.' The relationship manager notes Mr. K is polite, well-known locally, and has referred two other clients. The bank's risk appetite permits enhanced due diligence (EDD) with senior sign-off but prohibits accounts where source of funds cannot be established. The compliance officer is on leave; the RM asks you, the deputy, to approve onboarding today.
1. What should you do about onboarding and the third-party funding, and why?
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Do not approve onboarding today. Two independent red flags converge: (1) unexplained wealth gap of roughly USD 2.7 million against a plausible income profile, and (2) an incoming USD 900,000 payment from a third-party corporate entity in a different jurisdiction. The bank's own policy is decisive: EDD is permitted, but accounts where source of funds cannot be established are prohibited. 'Records are lost' is not an established source of funds. The correct path is to request documentary evidence for the inheritance and property sales (or a credible alternative explanation), and to obtain the corporate registry extract, ownership/beneficiary information, and the rationale for a company paying a personal account. Senior sign-off cannot cure a policy prohibition. The RM's relationship and the client's local standing are irrelevant to the funds question; referral pressure is not a risk mitigant. Defer, document the request, and escalate to the compliance officer on return.
2. The RM argues the client is low-risk because he is retired and locally known. How do you respond, and what is the risk rating rationale?
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Politeness, local reputation, and retirement status do not offset unexplained wealth or third-party corporate funding. Risk rating should be driven by identifiable factors: country risk (Country B and Country C), the unexplained wealth gap, the third-party payer, and the client's reluctance to document. That combination points to at least medium-high or high risk requiring EDD, not standard due diligence. The RM is conflating personal likeability with financial transparency. Document the disagreement, the basis for the rating, and the outstanding information requests. If the client cannot or will not provide evidence, the file should be declined or exited, not downgraded.