Source of Funds (SOF) and Source of Wealth (SOW)
Source of Funds (SOF) and Source of Wealth (SOW) are two crucial components of due diligence processes in financial and legal contexts:
Source of Funds (SOF):
- Definition: Source of Funds refers to the origin or provenance of the financial resources used for a specific transaction, investment, or acquisition.
- Purpose: It is used to verify that the funds being used are legitimate, legal, and not associated with any criminal activities, such as money laundering or terrorist financing.
- Example: In a real estate transaction, the buyer may need to demonstrate the source of the funds used for the purchase to ensure they were obtained legally.
Source of Wealth (SOW):
- Definition: Source of Wealth pertains to the underlying means or activities by which an individual or entity has accumulated their total wealth over time.
- Purpose: It is employed to understand the legitimate origins of a person’s wealth, helping to identify any potential financial irregularities or illegal activities.
- Example: If an individual possesses substantial wealth, a Source of Wealth analysis would involve investigating how they earned or acquired that wealth, whether through business ventures, investments, inheritance, or other legitimate means.
While Source of Funds focuses on the specific financial resources used for a transaction, Source of Wealth delves into the broader picture of how an individual or entity amassed their overall wealth. Both concepts are essential in ensuring financial transparency, compliance with legal regulations, and preventing financial crimes like money laundering.
