What to Do in Case of a Request for Proof of Source of Funds?
Some people initially assume that the request for proof of source of funds is fraudulent. They fear that criminals are posing as their bank or broker and want to obtain sensitive information. After all, from a criminal’s point of view, it would be beneficial to gain insight into financial circumstances that would otherwise never be obtained.
The information on this website quickly shows that this is not the case. The requirement for proof of the source of your financial resources is playing an increasingly important role in everyday life. It stems from the increasingly stringent provisions of the German Money Laundering Act (“Geldwäschegesetz“, GwG) and other EU regulations to combat money laundering and terrorist financing (see our FAQ under “Legal basis“).
If those affected realize that the question of the source of their financial resources is real, there is initially perplexity. This is because, especially in Germany, citizens are not used to being asked questions about their assets. In this article, we therefore provide assistance on how to deal with the demand for proof of the origin of funds.
Your First Steps After a Request for Proof of Source of Funds
What to do?
First, it is important for you to understand why banks/brokers/exchanges are asking you for the source of your funds. Legal regulations keep banks and cryptocurrency exchanges asking for proof of source of funds when a certain limit is exceeded.
For your bank or exchange, this means one thing: additional work. This work should actually be done by authorities. However, anti-money laundering authorities are severely understaffed. That is why the legislator prescribes law enforcement via private institutions such as banks and stock exchanges.
In this respect, your bank or crypto exchange must now do the actual work of the state. Its purpose is to combat money laundering. However, neither banks nor exchanges are remunerated for the resulting efforts.
Banks and Stock Exchanges are Required by the State to Enforce!
This results in the following for you: The bank or cryptocurrency exchange must do this work without remuneration. In this respect, please do not see the bank or the exchange as “enemies”. There, the requirement from the proof of funds primarily means only additional uneconomic work.
What are the banks and exchanges doing there in the first place? For banks and stock exchanges, verifying the source of funds from customers is a burden. After all, these companies do not want to “bug” their customers. They much more want to offer a flawless service.
In the correspondence regarding the proof of source of wealth with the banks or exchanges, you should therefore find a solution that is as uncomplicated as possible. After all, an efficient completion of these proof obligations is not only in your interest, but also in the interest of your bank or exchange. You could even say that you are basically on the same side. Because the provision of such proofs of source of funds is the legislative will, and not the will of your bank or crypto exchange.
Step 1: Carefully Read Questions in the Letter of Demand of Proof of Source of Funds
You have received a letter from your bank or your exchange where you trade Bitcoin and other cryptocurrencies. They ask you in this letter to prove the source of your funds. What to do.
First of all, you need to read exactly what is being asked of you:
- What funds does the question about proof of source of funds refer to?
- To all funds, my cash, or only to certain transactions?
- Are you given a deadline to answer?
- Are there any consequences threatened if you do not comply with the request for proof of source of funds?
If anything is unclear, you can respond to the letter with questions first. After all, the question of the source of the funds is “uncharted territory” for affected persons. Asking questions and requesting more specifics are therefore legitimate. Both your bank and your crypto exchange will generally be grateful to be able to clear up any ambiguities by answering your questions. After all, these can also put a strain on the customer relationship.
Step 2: At the Latest Aafter Requesting Proof of Source of Funds, Bring Order Into Your Own Asset Movements
Do not immediately set off with a hasty response to your bank or your exchange where you trade Bitcoin and other cryptocurrencies! What to do comes from putting your own asset history in order.
Before you give out exact details and evidence about the source of your funds to your bank or your exchange, you should first arrange your transaction data for yourself.
You yourself should record your asset movements such as cash inflows, cash outflows, crypto transactions or asset transfers in a clear table. You do not share this data for the time being. The point is that you personally know exactly where which funds come from in your case. So for the time being, you pretend to ask yourself for proof of the source of funds. Convince yourself, so to speak, where your funds come from!
Once you have worked out and presented this data properly, you will have clarity about the source of your own funds. And only then you decide to what extent you give out which data to the bank or the stock exchange.
Step 3: Transmitting the Verification Documents
If you believe that the bank or exchange’s request is legitimate, you can submit the requested data accordingly. However, be prepared for the requesting entity to dispute your information.
Submit only what has been requested and no additional records. No one is obliging you to “fully disclose” all of your assets.
If, on the other hand, you believe that the bank and the exchange are exceeding their own authority and do not need to prove the source of the funds, you must refuse the request altogether. In this case, do not submit any data about your transaction movements. However, then be prepared for the bank or the exchange to possibly block your account.
So what to do?
You are not alone in this situation. There are thousands of people affected. Get professional support to solve the inconvenience with the proof of source of funds once and for all in a legally secure way.