Establishing the source of funds and the source of wealth is not merely a regulatory requirement, but a key instrument in preventing financial crime. After covering the theoretical framework in our previous article, this time we focus on the practical aspects: how to collect information, what to request, and how to document it effectively.
Client Approach – Asking the Right Questions
The first step is engaging in a dialogue with the client. Well-structured questions at the beginning can save hours of additional document requests and clarification. Moreover, these questions lay the foundation for further verification—if an answer cannot be validated against public sources, it serves as an early warning sign of potential risk.
Sample questions during onboarding or periodic review:
• What are your primary sources of income?
• Do you own any assets abroad, and where are they located?
• Have you recently sold any property, crypto assets, or businesses?
• Have you received any gifts, inheritances, or other unusual cash inflows?
• Have you held a senior position in the public or private sector?
It’s essential to avoid template-based questionnaires without adapting them to the specific client. For instance, the questions for a Politically Exposed Person (PEP) should differ significantly from those for a student with a bank loan.
Checklists by Client Type and Assets
This section presents real client typologies and what documents they typically provide to support the declared source of funds and wealth.
- Individuals – Employees and Freelancers
Documentation:
• Payslips and employment contracts;
• Bank statements showing salary payments;
• Service contracts;
• Tax declarations (annual reports submitted to the revenue agency).
Example:
A client is a graphic designer with income from Upwork.
Verification: Payoneer statements, Upwork profile with project history, annual tax return showing reported income.
- Business Owners
Documentation:
• Financial reports (balance sheet, P&L, turnover statements);
• Tax documents;
• Trade register extracts or equivalent documents;
• Dividend records, director remuneration, or company share sales.
Example:
The client owns an IT company and invests in real estate.
Verification: Payments from the company to a personal account, property purchase agreement, tax report on declared income.
- Crypto Investors
Documentation:
• Trading history from crypto exchanges (Coinbase, Binance, etc.);
• Wallet screenshots and transaction hashes (TxIDs);
• Platform verification records (e.g., Binance KYC);
• Fiat off-ramp statements to traditional bank accounts.
Example:
Client claims to have sold crypto assets worth EUR 200,000.
Verification: Binance trade history, verified wallet, source-of-funds transaction history, bank transfer into personal account.
- Inheritances and Gifts
Documentation:
• Notarial deeds for inherited property;
• Wills or court decisions related to inheritance distribution;
• Gift contracts;
• Bank transfers or asset transfer certificates.
Example:
Client inherited an apartment and sold it.
Verification: Notarial deed, purchase-sale agreement, buyer’s bank transfer, asset declaration.
Case Studies from Practice
Case 1: Property Sale in Spain
Context: A Bulgarian national sells an apartment in Málaga and transfers EUR 350,000 to a personal account in Bulgaria.
Submitted documents:
• Notarial deed of ownership;
• Notarized sale agreement;
• Registry certificate from the Spanish land registry;
• Tax return from Spain for the reported income.
AML team actions:
• Review consistency between the declared amount and the notarized sale price;
• Verify timeline: when the payment was received, when the agreement was signed, and when the bank transfer was executed;
• Request bank statement confirming the buyer’s incoming transfer;
• Check Spanish tax declaration—whether the property was registered, reported, and subject to applicable taxes;
• Create an internal case file with justification of source of funds and economic logic.
Conclusion: The source of funds is clear and documented. If no discrepancies are found, it can be accepted as verified.
Case 2: Crypto Assets with Unverifiable Origin
Context: A new client declares profit from DeFi yield farming. No documentation is provided. The wallet address shows multiple incoming transactions from unknown addresses, with no KYC or use of centralized exchanges.
AML team actions:
• Request wallet history via blockchain explorer to attempt transaction tracing;
• Check for the use of mixers or anonymizing services;
• Request proof of wallet ownership (e.g., message signing);
• Ask client to provide exports from platforms used, if any;
• Compare transactions against blacklists or sanctions lists;
• If a reliable and documented source cannot be established, escalate the case to the MLRO.
Conclusion: Lack of transparency and failure to meet source-of-funds requirements results in rejection of the business relationship. If necessary, the client is reported as suspicious.
Case 3: PEP with Offshore Structure
Context: The client is a PEP from the Middle East with a company registered in the British Virgin Islands. They have significant investments in crypto and real estate.
Submitted documents:
• UBO declaration;
• Detailed economic biography with income sources over the past 10 years;
• Financial reports from the BVI company;
• Media and public data (e.g., Forbes, Bloomberg).
AML team actions:
• Identify UBO and verify PEP status (via public registers, internal watchlists, or commercial databases);
• Analyze wealth accumulation history—when and how investments were made, and whether there is any link to public funds or risky government contracts;
• Assess the authenticity of BVI documents and whether they reflect real commercial activity;
• Cross-reference the sources of wealth with public records such as media coverage, interviews, or official filings;
• Request additional declarations of interests and holdings in other jurisdictions.
Conclusion: If the source of wealth is well-documented, economically sound, and shows no signs of corruption, the client may be accepted under high-risk monitoring with periodic reviews (e.g., every 3–6 months).
AML Team Best Practices
• Be clear and specific when requesting documents from clients.
• Build internal matrices for acceptable evidence based on income or asset type.
• Do not hesitate to decline a client if explanations are unsupported or unverifiable.
• Collaborate closely with front-office teams to maintain consistent communication.
• Provide regular training using real case studies from practice.
How Compliance Navi Can Support You
At Compliance Navi, we help businesses build effective procedures for verifying the source of funds and wealth. Whether you serve international clients, PEPs, or work with digital assets, we can support you through:
• Development of internal SoF/SoW procedures and policies;
• Creation of adaptive questionnaires, sample templates, and checklists;
• Delivery of training and practical workshops on high-risk scenarios;
• Assistance in analyzing complex client files and case escalations;
• Preparation for regulatory audits and reporting.
Contact us – we’ll help you turn regulatory expectations into operational excellence.
