Employment Income
Verify salary/wage income through contracts, payslips, or employer letters. AUSTRAC red flag: income inconsistent with declared occupation or lifestyle.
Source of Funds
Source of Funds Checks for Accountants
How accountants should verify source of funds under AUSTRAC Tranche 2 requirements. Learn documentation requirements, red flags, and best practices for SOF verification in accounting engagements.
Key Information
How Accountants Should Verify Source of Funds Under Tranche 2
Source of Funds (SOF) verification is a critical component of Customer Due Diligence for accountants under Australia's AML/CTF regime. When you provide designated services from 1 July 2026, you must understand where your clients' funds originate.
AUSTRAC Risk Assessment: Accountants
AUSTRAC's Money Laundering National Risk Assessment 2024 found services provided by accountants pose a high money laundering risk in Australia. Your expertise can be used to give the impression of respectability and legitimacy to criminal activities.
Common money laundering processes involve criminals creating distance between themselves and criminal profits using:
- Business structures and trusts
- Third parties and intermediaries
- Your professional services for legitimacy
You may not be aware you are helping criminals - which is why SOF verification is essential.
Why Source of Funds Matters
As an accountant, you understand your clients' business activities, income sources, and financial profiles. This knowledge makes you a crucial gatekeeper in identifying potential money laundering.
SOF verification helps you:
- Identify funds inconsistent with your client's known circumstances
- Detect potential proceeds of crime entering the financial system
- Protect yourself from unwitting involvement in money laundering
- Demonstrate your AML/CTF compliance to AUSTRAC
AUSTRAC Red Flags: Source of Funds
According to AUSTRAC's official guidance, watch for these SOF indicators:
- High-value assets with no clear funding source
- Funds inconsistent with client's financial standing, usual activities, or employment
- Transactions exceeding projected activity at the start of your relationship
- Won't identify source of wealth or provides false/misleading information
- Frequent overseas transfers that don't match client profile
- Companies with unknown equity source or equity difficult to value
- Back-to-back transactions with rapidly increasing values
AUSTRAC Red Flags: Client Behaviour
- Avoids face-to-face meetings
- Obstructive or secretive in dealings
- Appears nervous or defensive when questioned
- Doesn't understand their business sector
- Has unusual knowledge of AML/CTF requirements
- Prepared to pay higher fees without clear reasons
- Uses aliases or name variations between transactions
- Multiple bank accounts with no clear purpose
AUSTRAC Red Flags: Complex Arrangements
- Requests complex business structures to hide beneficial ownership
- Requests large volumes of companies to be created
- Wholesale company/trust creations at one time
- Transfers between subsidiaries with no apparent reason
- Use of shell or shelf companies to distance from funds
- Consolidated deposits later transferred overseas
Documentation Requirements
Obtain and retain evidence of fund sources appropriate to the risk level. Retain all SOF documentation for at least 7 years as part of your CDD records.
Key Requirements
Business Profits
Review business financials, tax returns, and bank statements. Red flag: business with little/no trading generating large profits.
Asset Sales
Obtain sale contracts, settlement statements, or transfer documentation. Red flag: back-to-back transactions with rapidly increasing values.
Inheritance/Gifts
Request probate documents, estate correspondence, or statutory declarations. Red flag: large gifts from unrelated parties.
Investment Returns
Verify through broker statements, dividend notices, or fund distributions. Red flag: funds don't match declared investment portfolio.
Complex Structures
Scrutinise funds from trusts, companies, or offshore entities. Red flag: complex ownership hiding beneficial owners.
Frequently asked questions
When must accountants verify source of funds?
Source of funds verification is part of CDD required when providing designated services from 1 July 2026. According to AUSTRAC, you should understand where funds originate for: trust account deposits, company contributions, entity structuring, asset purchases. SOF checks become more important for higher-risk clients or when transactions exceed expected activity.
What documentation supports source of funds?
AUSTRAC accepts various documentation depending on fund source: Employment - payslips, contracts, tax returns; Business - financial statements, BAS, bank statements showing consistent trading; Property sales - contracts, settlement statements; Investments - broker statements, dividend notices; Inheritances - probate documents, executor letters. Document your inquiries and retain for 7 years.
What AUSTRAC SOF red flags should accountants watch for?
Key AUSTRAC indicators include: high-value assets with no clear funding source, funds/transactions inconsistent with client's financial standing or employment, client won't identify wealth source or provides misleading information, companies set up with unknown or hard-to-value equity sources, back-to-back property transactions with rapidly increasing values, funds from high-risk jurisdictions.
What are the client behaviour red flags per AUSTRAC?
AUSTRAC identifies these suspicious behaviours: avoids face-to-face meetings, obstructive or secretive in dealings, defensive when questioned, doesn't understand their business sector, ends relationship after you request more information, has unusual knowledge of AML/CTF requirements, prepared to pay higher fees without clear reasons, uses aliases or name variations between transactions.
How do complex arrangements raise ML/TF concerns?
AUSTRAC warns that clients may use complex structures to hide beneficial ownership. Red flags include: requests for complex business structures, large volumes of company/trust creations at once (wholesale sales), use of shell or shelf companies to distance from funds, transfers between similarly controlled subsidiaries without apparent reason, consolidated deposits later transferred overseas.
Streamline Source of Funds Verification
ARCaml provides integrated SOF verification tools for accounting practices. Document fund sources, flag inconsistencies, and maintain audit-ready records for AUSTRAC compliance.