Kraken Requests Proof of Source of Funds (POSOF) for Deposits and Withdrawals

If Kraken requires you to provide proof of source of financial funds, it is worth reading through the following information. It is one of the largest exchanges where Bitcoin and other cryptocurrencies can be traded – worldwide. Now Kraken requires you to provide a proof of source of funds.

It is therefore not surprising that Kraken, as a recognized crypto exchange, wants to comply with legal requirements. This includes asking users for a proof of source of funds in order to prevent money laundering.

Unlike exchanges in Germany or Austria, which also require proof of funds, Kraken is guided by US legislation. The proof of source of funds process at Kraken is sometimes completely different from that of trading platforms based in Germany and Austria.

Proof of Source of Funds on Kraken Often via Detailed KYC

Kraken and other U.S. exchanges where Bitcoin and cryptocurrencies can be traded conduct an extensive KYC protocol on users. KYC means “know your customer.”

The KYC process at Kraken does not only include the identification and verification of account holders. Beyond this mere identification, US crypto exchanges require further information.

It is known that both Kraken and Bittrex ask users about their assets and income during the account creation process. Such verification requirements are also regularly requested after the account has been created.

Kraken Doesn’t Always Impose the Burden of Proof on Users

Kraken specifically asks users what income they receive. Here, a distinction is often made between “under 100,000 USD” and “above 100,000 USD”. This refers to whether the account holder has an annual income of less than or more than 100,000 USD.

When specifying “above 100,000 USD“, Kraken assumes that it may not be necessary to fulfill specific verification requirements. The logic behind this is that anyone who earns over 100,000 USD per year will probably have saved up quite a bit.

If “under 100,000 USD” is specified, individual proofs of the origin of funds could be requested. The logic behind this is that anyone earning under 100,000 USD per year, for example 25,000 USD, will at least not be able to save up several tens of thousands of euros per year “just like that”.

Kraken thus sets a certain limit on the annual income of users, to which different consequences are attached in each case.

Proof of Source of Funds for Individual Transactions on Kraken

Important to know: anyone who provides false information in the KYC process at Kraken can expect to have their account blocked. Kraken should cooperate closely with quite a few banks and be able to expose completely false information as such.

It should also be assumed that this asset data will sooner or later be forwarded to the tax offices responsible in Germany. If the tax office learns that you have provided information on Kraken that does not match your tax return, inquiries and a tax audit are likely to be inevitable.

Nevertheless, with regard to individual asset movements on Kraken, there may be a question about the proof of source of financial resources. In such a case, you will be actively prompted by Kraken Support and will receive an email to this effect.

Here, a distinction must be made between the proof of source of funds requirement for cash deposits and the proof of source of wealth with respect to cryptocurrency deposits on Kraken.

Should you only deposit cash on Kraken, proof of source of funds could be required by Kraken here. The limit for this is not disclosed by Kraken. It is therefore unclear from when such a proof of source of funds requirement takes effect. With regard to individual proofs to be provided, the information we have published under “Evidence” applies.

What Applies to Crypto Transactions on Kraken?

If you deposit cryptocurrencies such as Bitcoin or other Coins on Kraken, the source of the funds may be inquired on the part of Kraken regarding these transactions. In the case of cryptocurrencies, this is particularly sensitive, as the blockchain may well provide trading platforms like Kraken with information about the source of the coins.

Those who wish to trade with “tainted coins“, i.e. coins of dubious source, are likely to face difficulties in proving the origin of funds. Also, trading with these tainted coins may lead to regulatory inquiries – i.e. law enforcement agencies or tax investigators could be called into action.

Account Management For Third Parties is Usually Not Allowed on Kraken and Other Exchanges!

Reputable exchanges where Bitcoin and other cryptocurrencies can be traded usually do not allow third party account management. This means that you can actually use your account only for yourself.

Why do we bring this up? It is not uncommon for the case to occur when “friends” transfer coins among themselves from one Kraken account to another in order to sell coins there for whatever reason.

Kraken and other crypto exchanges view such transactions critically. This is because it is obvious that the actual seller is to be disguised. Such asset movements without giving reasons and without proof of source of funds can therefore lead to account suspension and “frozen assets“.

Difficulties With Proof of Source of Funds on Kraken

For affected persons who have to provide proof of source of financial resources on Kraken, the US legal situation applies. Therefore, it is not possible to refer to our explanations in the FAQ regarding the legal situation.

Kraken support, which investigates and processes suspicious transactions, communicates in English, as experience has shown. This also leads to further obstacles in being able to comply with the obligation to provide evidence in an uncomplicated manner.

In the event of a legal dispute with Kraken, such as a rejection of your proof of funds, or even in the event of an account freeze, you should seek legal counsel who can argue in English and based on U.S. law.

Proactively Offer the Proof of Source of Funds?

In principle, it is possible to offer the Kraken support already proofs of source of funds before the request for proof. This makes sense, especially for higher value assets, and can result in not suddenly having to prove the source of financial funds to Kraken.

If you decide to be proactive in providing proof of funds source, it is best to provide the proof of source of wealth in a detailed form. To do this, Kraken should be offered the opportunity to submit various pieces of evidence that comprehensively disclose your entire asset situation and the “history of your money“.