Source of Funds and Source of Wealth: What Israeli Banks Require

Two questions that sound alike

Source of funds is the origin of the specific money involved: this payment, this deposit, this transfer. It is answered by the transaction behind the money — a sale, a distribution, a loan, a salary — and by the account the money came from.

Source of wealth is the origin of the client's overall wealth: how it was built up over time. It is answered by a history rather than by a document — years of professional income, the sale of a business, an inheritance, investments held and realised, property bought and sold.

A single payment can satisfy the first question and leave the second untouched. A client who documents the sale contract behind an incoming payment has shown where the money came from immediately; the bank may still ask how the asset that was sold came to be owned in the first place.

Why banks ask

Israeli banks operate under anti-money-laundering (AML) rules — the obligations imposed on financial institutions to prevent criminal proceeds moving through the banking system — and know-your-customer (KYC) rules, which require them to identify a client and understand the activity behind an account. Establishing where money comes from is how those obligations are met in practice.

The questions are asked at account opening, when a payment does not match the existing file, and during periodic reviews of existing clients. The same file answers all three occasions, which is why it is worth assembling once and properly.

They are also asked of companies, not only of individuals. Where the client is a company, source of funds concerns the money entering the company's account and the commercial activity that produced it, while the wealth question moves up the ownership chain to the individuals who ultimately own or control it — the ultimate beneficial owners. A corporate applicant that has documented its own trading history has answered half of what will be asked; the other half concerns the people behind it.

It is worth being clear about what the exercise is not. The bank is not auditing the client and is not asking for a valuation of everything the client owns. It is asking to be able to account for the money it is being asked to hold or to move, in a way that it can show to its own regulator.

What an answer looks like

An answer has three properties. It is documented: each assertion is supported by something a third party issued — a contract, a resolution, a statement, a tax filing, a court instrument. It is continuous: the documents connect to each other, and money can be followed from where it was generated to where it now sits, without a step that has to be taken on trust. And it is consistent: the amounts, dates and parties in the documents agree with each other and with what the client has told the bank.

A short covering explanation that sets out the sequence in plain language and refers to the exhibits behind it is worth more than a thick file without one. The person reading it inside the bank is not familiar with the client's business and should not have to reconstruct it.

Common origins and what supports them

• Business ownership. Corporate documents establishing ownership, financial statements, and the resolutions behind distributions actually paid.
• Sale of a business or of shares. The sale agreement, evidence of completion, and the account statement showing the proceeds arriving.
• Employment and professional income. Contracts, payslips, and tax filings over a period long enough to account for the wealth claimed.
• Real estate. Purchase and sale contracts, closing statements, and evidence of how the original purchase was financed.
• Inheritance and gifts. The grant, will or equivalent instrument, documents identifying the estate assets, and — for a gift — identification of the donor and evidence of how the donor came to hold the money.
• Investments. Custody or brokerage statements over time, showing what was contributed and what accrued.

Where files come apart

Certain patterns cause difficulty. Wealth described as accumulated over decades but supported only by recent statements. Cash that entered the banking system without a record of what generated it. Companies in the ownership chain that cannot be documented, or whose records are unavailable in the jurisdiction that holds them. Transfers routed through an intermediary — a relative, a friend, a company — with nothing to explain why that party was involved. Amounts that do not reconcile with the income or the transaction they are said to derive from.

None of these is automatically an obstacle, but each has to be addressed explicitly. A gap that the client explains at the outset is a question answered. The same gap discovered by a compliance officer is a question reopened, together with everything around it.

Where documents genuinely no longer exist

Old transactions, closed institutions and jurisdictions with short retention periods produce real gaps that no amount of effort will close. In that situation the answer is not to pass over the gap in silence. It is to say what the transaction was, why the primary document is unavailable, and what secondary evidence exists instead — tax filings, correspondence, records of a subsequent transaction that presupposes the first. Whether that is sufficient is for the bank to decide, and it decides better on an explanation than on an absence.

How the firm works on this

We establish what the bank is actually asking in a given file, identify the evidence available and the gaps in it, obtain what can be obtained, and present the result as a documented chronology a compliance officer can follow. We prepare the covering explanation, arrange legalisation and translation where documents come from abroad, coordinate with foreign banks, accountants and lawyers who hold parts of the history, and answer the bank's follow-up questions. We do not promise how a bank will decide.