New Balkans Law Office’s experienced AML and compliance team has recently conducted an in-depth analysis of the Bulgarian Prevention of Money Laundering Act 2018 (PMLA). The Act places duties on financial institutions to conduct due diligence on customers. In turn, customers like you are under a duty to describe and evidence your source of funds (SOF) and/or source of wealth (SOW) for certain transactions. If your money comes from cryptocurrency profits, this can often be difficult to demonstrate.

Our firm has devised a comprehensive strategy to prepare SOF/SOW declarations for crypto profits. There are a few documents we help our clients prepare:

  1. Certification  from the cryptocurrency platform 

Since the value of crypto often fluctuates greatly, you have to declare your assets themselves, instead of your profits, to make a SOF/SOW declaration.

An official letter or similar document from the crypto platform should suffice to demonstrate ownership of the assets, as long as the following information is contained: 

The start date of your membership with the platform;

Your membership identification number (if applicable);

References to your personal details, such as your full name and date of birth; 

References to the type of assets held and their amount as of the date of the letter

2. Certifying assets held in cold wallets 

Storing assets in cold wallets might prove to be more complicated and complex for AML purposes since the owner of the assets is harder to identify. 

A “cold” wallet is a cryptocurrency wallet which securely stores private crypto keys offline, usually on a physical device. Unlike “hot” wallets, which are connected to the internet, cold wallets are hardware devices that can keep data offline. This means that there’s no platform to issue ownership certification.

In order to demonstrate ownership over assets held in cold wallets, the name of the owner should be identifiable from either a print-out or a screenshot of the asset portfolio.

Overall, proving the source of funds or wealth from crypto asset profits can be challenging, but by keeping detailed records, using reputable exchanges or wallets, seeking legal advice, providing supporting documentation, and potentially using an auditor, you can demonstrate the legitimacy of your earnings.

You can read more publications from the New Balkans Law Office at the links below.