Proof of Source of Funds For Cash Deposited in Your Bank Account?
To anticipate the answer for once: Yes, they are allowed to do so. For a detailed description of when these regulations apply, see the link above. However, for a rough understanding of the issue of proof of source of funds for cash, more detailed information is required, which we provide on this page.
The reason for this new situation is the recent amendments to the German Money Laundering Act (“Geldwäschegesetz”, GwG) and the latest application and interpretation notes on the GwG issued by the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht“, BaFin). We have compiled the most important legal principles for you in our FAQ.
The aim of the stricter regulations is to combat money laundering and terrorist financing more effectively. From now on, many of those affected see themselves under general suspicion in certain situations. There is uncertainty in the (legally secure) handling of demands for proof of the origin of funds. This applies in particular to the hitherto careless handling of cash.
When Do I Have to Prove the Source of Funds For Cash Money?
Things get exciting when it comes to the requirements for demanding proof of source of funds in connection with cash. Most people hearing about the new regulations for the first time ask themselves the question.
“Can anyone at whom I want to pay with cash now ask me about the source of the money?”
No, even the toughest such regulations to date do not extend that far. You are not obligated to provide information about the source of your cash to just anyone. The relevant laws and guidelines regulate very precisely who may, or rather must, ask you questions and when.
And it is precisely the question of who must ask whom for proof and when that is where the relevance for your everyday life arises. This is because anti-money laundering regulations have greatly increased in intensity. Providing proof of the source of funds can turn out to be not only a nuisance, but even an inconvenience. However, this largely depends on your very specific habits.
Know Important Limits for Proof of Source of Funds for Cash!
In Germany, the contents of the current anti-money laundering regulations have applied to everyone since August 9, 2021. With regard to cash, these regulations are of particular importance to you in the following two everyday situations:
- You want to deposit cash above the limit of EUR 10,000 into your checking account at your bank.
- You wish to purchase precious metals worth more than EUR 2,500 from a bank that is not your principal bank.
In both constellations, your respective contractual partner (here: the bank or the precious metal dealer) will ask you from now on to prove the source of your cash. This is to ensure that your cash does not originate from profits made through serious criminal acts and is now being “laundered” by being brought into the economic cycle. You can find out which documents are suitable for proof on our page on possible evidence.
In concrete terms, this means that in the above constellations you will be asked at the bank counter about the source of your money. If you cannot provide the proof (e.g. because you were not prepared and simply did not have it with you), the transaction will be rejected! You will then not be able to deposit the cash into your account. Or the precious metals you want will not be sold to you.
As laudable as the goal of combating money laundering is – because, as taxpayers, it ultimately benefits all of us! -, the associated intrusions into the privacy of the persons concerned are considerable. This is already shown by the above case constellations. In Germany in particular, the average citizen appreciates the privacy that cash actually provides.
When It Comes to Cash, Don’t Just Think of Bills and Coins!
Proof of source of wealth for cash can also become relevant in other constellations. Particularly in the case of cryptocurrency exchanges, accounts are increasingly being blocked on suspicion, so that customers are temporarily or permanently denied access to their assets.
Admittedly, you do not act on a crypto exchange with cash in the strict sense. Nevertheless, when buying and selling cryptocurrencies like Bitcoin there is an exchange between normal money in the sense of legal tender and a cryptocurrency.
Therefore, crypto exchanges are a prime example of the future everyday relevance of proof of means for (cash) money.
Circumventing the Proof of Origin of Funds by “Clever Tricks”?
Given the above-mentioned rigid limits of EUR 10,000 and EUR 2,500, resourceful individuals quickly come up with supposedly good ideas for circumventing the proof of source of funds. In particular, many people think of denominating amounts in order to avoid reaching the limits in the first place.
We expressly advise against this, because bodies must report you if the suspicion of evasion arises!
We advise against such circumvention ideas for good reasons. On the one hand, any intentional circumvention of legal regulations per se is not advisable and may have criminal consequences.
On the other hand, the legislator, BaFin and also the authorities requiring proof of source of funds have always been concerned with combating these circumvention measures as well.
The classic cases of circumvention also have certain designations among the supervisory authorities:
Structuring, for example, is understood to be the artificial breaking up of an asset into smaller parts in order to circumvent limits. This means, for example, that you deposit 11x 1,000 EUR at the ATM instead of giving up 11,000 EUR for deposit at the bank counter.
Smurfing is an extended form of structuring, in which the asset is not only divided into smaller parts, but distributed among different people.
The heavily software-based monitoring tools (especially at banks) are designed to detect patterns of evasion attempts. Deployed analysis software, for example at ATMs with deposit functions, filters deposit and withdrawal movements for anomalies based on predefined and constantly adapting criteria.
We therefore strongly recommend complying with the applicable regulations on the provision of proof of origin of funds!
What’s the Problem With Proving the Source of Your Cash Money?
The obligation to present proof of the source of assets is often perceived as alienating by those affected. This has to do, above all, with the seriousness of the encroachment on personal rights. It is an encroachment on everyone’s right to privacy. Even if this intrusion is justified by law, many of those affected still feel uncomfortable about the disclosure of asset-related facts. This can be illustrated with the following simple
Example: Sandra lives in a small town. One day she inherits EUR 450,000 from her grandmother. For Sandra’s grandmother, “only cash was true”, so Sandra inherits only cash. She wants to “start small” with the investment and decides to buy two ounces of gold for about 3,400 EUR. Behind the counter of the precious metal dealer, she is surprised to meet Stefan, and Steffi is working at the counter next door. The town is small and they all know each other through mutual friends.
Stefan points out to Sandra that, due to new laws, he needs proof of source of funds for Sandra’s cash from a purchase price of EUR 2,500. Sandra could now present the will, as proof. But that is much too private for Sandra. She does not want distant acquaintances to know about this substantial inheritance. She has no good feeling if too many people in her environment know that she has “something to get”. Sandra refuses to submit. Stefan is not allowed to sell her the gold.
This small example is only one of countless imaginable variants in which internal but also external conflicts can arise when providing proof of the source of the funds.