Suitable Evidence for Source of Funds
The obligation to provide evidence for source of funds initially means great uncertainty for many of those affected. This is particularly due to the fact that conventional bank customers and private investors have never been confronted with the request for proof of the origin of funds.
Those affected therefore rightly ask themselves whether the question about the source of their financial resources is legitimate at all. Immediately afterwards, there is uncertainty as to which documents/receipts or similar can be used to prove the source of the funds. We will clarify the possibilities for you.
Create Legally Sound Evidence for Source of Funds!
Here you can find out what evidence you need or must create regarding the source of your funds. Remember, you are not required to disclose all of your assets.
First, take a look at our “What to Do” section to help you understand the source of funds proof process as a whole and assess whether you need to prove the source of your funds, and if so, to what extent.
Generally, the following evidence can be produced to prove the source of funds:
- bank statements
- pay slips
- tax assessment notices and tax returns (from the tax office)
- gift contracts
- rental income
- realized gains from stocks, ETFs, Bitcoin and other cryptocurrencies
- sales of precious metals such as gold or silver
- statement of your fixed expenses along with savings rate
- real estate sales
- witness statements
Assume that the bank or exchange where you trade Bitcoin and cryptocurrencies may doubt the above evidence on your part.
Overall Impression is Decisive for Proof of Source of Funds!
It is important to understand that the mere listing and transmission of endless evidence does not provide proof of the source of wealth. A bureaucratic compilation of various pieces of evidence is not all that matters.
What matters most is the overall impression. What do we mean by this?
The bank or stock exchange inquiring about the source of your funds wants to understand the extent to which you may be suspected of money laundering. This suspicion may arise due to the provisions of the Money Laundering Act (“Geldwäschegesetz“, GwG).
The aim is therefore, on the one hand, to produce the correct evidence for further use and, on the other hand, to explain overall why your movements of assets are not conspicuous.
Examples of Circumstances That Influence the Overall Impression
In order to do this, the bank or stock exchange must be able to form an overall impression of the customer. Therefore, present your financial situation as a whole so that the bank or stock exchange can calmly file the suspicion of money laundering as unfounded.
Example 1: You have no income, no incoming payments on your account and suddenly receive a higher amount of Euros paid out by a crypto exchange. Here, the first overall impression for your bank is that you are conspicuous. After all, you have no income and no incoming payments, so it is at least unusual if you receive a higher sum of money “out of the blue”.
Example 2: You have a regular, higher income and have already moved larger sums of money in your accounts in the past. Now you receive a large sum of money from a cryptocurrency exchange. Based on your other “healthy” account movements, it is immediately clear to your bank that you are not a “risky person”, because the large amount of money received is consistent with your income situation and your previous account movements.
So the proof of funds is not about a “bureaucratic” presentation of your situation, but it is the person and their story that counts. This can be very beneficial in some cases, but detrimental in others.
Salary Statement is Suitable Evidence for Source of Funds?
Often, the bank or exchange where you have traded Bitcoin and other cryptocurrencies will ask for your pay stubs. This is to ensure that you have a regular income, which at least suggests that you could legitimately own higher sums of money.
However, merely submitting a pay stub is not incontrovertible proof of assets. This is because your pay stub does not indicate, for example, what savings rate you meet each month.
Also, the fact that you may not be drawing a salary at the present time is not per se suspicious. There is no obligation to have a salary relationship. If you have no income, you are not automatically suspicious. Unfortunately, banks and stock exchanges sometimes see things differently.
From a data protection perspective, submitting a pay stub as proof of the source of funds is problematic. This is because your payslip not only records your income, but also, for example, your health insurance, tax bracket and other personal data that has nothing to do with the source of the funds.
Such proof via pay stub, while quick to create, is sometimes not purposeful or too sprawling. Banks and exchanges where Bitcoin and other cryptocurrencies are traded have no legitimate interest in this further information that can be seen in the payroll. Therefore, create evidence that on the one hand shows the source of the funds, and on the other hand sufficiently protects your privacy.
Tax Return as Evidence for legitimate Source of Funds?
Banks and cryptocurrency exchanges like to demand the submission of the last tax return and/or the last tax assessment. Allegedly, this is supposed to show the source of the funds.
However, this is not the case!
The tax return and the tax assessment are highly personal data. Tax offices are not without reason very strictly set up data protection-legally and treat these tax data of the persons concerned extremely confidentially. It therefore seems excessive when banks and stock exchanges want to “collect” this tax data.
As a rule, your tax return and the tax assessment notice do not reveal the source of your assets. Only for the overall impression, the submission of such tax data as proof of the origin of funds can be useful. But even then, how much data do you want to provide to your bank and stock exchange? We explain how and for how long these are stored there in our FAQ.
And even more interesting is the question of what actually happens to this tax data. Does the bank and the exchange then store this data forever? Who has access to these data sets? Do you hereby create the end of your privacy?
We generally advise against submitting your tax return or your tax assessment as a proof of source of funds or creating one in this regard.
Create Order Settlements From Share Sales to Provide Proof?
If you have already realized profits from the sale of shares, the relevant order settlements are useful evidence of the source of your funds.
The order statements will be provided to you by your online broker. Create a tabular arrangement from your order statements of the last years. The order settlement shows at what time you bought and sold a share, as well as what profit was realized.
The order statements also show that the capital gains tax has already been paid.
Order slips are suitable for use as evidence for proving the source of funds. This is because there are no other highly personal data records about you on the order slips. We therefore consider it useful to submit the order confirmation as evidence of the existing assets.
Witness Statements Possible as Proof of Source of Funds?
There are case constellations in which the persons concerned cannot provide any or only little real evidence to prove the source of the funds. There may be various reasons for this.
In such cases, it makes sense to think of witness testimony as evidence. After all, you probably have trusted people in your circle of family and friends who know about your asset movements.
These family members and friends can serve as witnesses. In court, a witness statement is admissible evidence and is taken seriously. Such reliable testimony can also be cited out of court against banks and stock exchanges.
Witnesses can not only provide information regarding an individual asset movement, but can also describe your personal asset history from their own perspective. A witness statement is a weighty instrument to be able to prove the source of wealth in difficult cases.
We Support You in the Preparation of Proof of Source of Funds!
If you need support in preparing the proof of source of funds, you can contact us.
We will be happy to take a look at your individual case. Together with you, we will arrange your asset history, collect and prepare the necessary evidence and support the further correspondence with your bank and your stock exchange.
After all, if you are innocent, a general suspicion of money laundering, such as the proof of source of funds unfortunately imposed by the German legislator, should not unduly burden your life.