Source of Funds and AML in Georgia: A Bank Documentation Guide

"Source of funds" is often used as a general banking phrase, but in Georgia it sits within a broader statutory customer due diligence and AML/CFT framework.

The legislation does not prescribe one universal document pack for every customer. The bank's request depends on the customer, activity, transactions and risk assessment.

What the law requires a bank to understand

Article 21¹ of the Law on Commercial Bank Activities requires a commercial bank, in its relationship with a customer and when verifying a transaction, to know the customer's:

• identity;
• activity; and
• money-laundering and terrorism-financing risk.

The same law allows banks to require additional information.

The AML/CFT law separately requires an accountable person to identify and verify the customer and beneficial owner, establish the purpose and intended nature of the business relationship, understand the client's activity and expected transaction profile, and monitor the relationship.

Where necessary, that monitoring includes the origin of the client's property and monetary funds.

Source of funds and source of wealth are not identical questions

A source-of-funds question usually concerns the origin of money involved in a particular account, transaction or expected flow.

Depending on the risk and facts, the bank may also need a broader explanation of the customer's assets or wealth.

The exact distinction and evidence requested should be taken from the bank's actual compliance request rather than assumed from a generic internet checklist.

Documents that may help explain a lawful money trail

Depending on the source, useful evidence can include:

• employment agreements and salary statements;
• business contracts, invoices and company records;
• bank statements showing the path of funds;
• tax returns or tax-payment records;
• dividend or shareholder documents;
• property sale agreements;
• inheritance documents;
• loan agreements;
• investment or brokerage records; and
• virtual-asset exchange or wallet records where relevant.

This is an illustrative list, not a rule that every applicant must provide every document.

Consistency matters because monitoring is ongoing

The AML law requires ongoing monitoring of the business relationship and transactions against what the institution knows about the customer, the customer's activity and risk.

A source-of-funds file is therefore stronger when the documents consistently explain:

• who earned or owned the money;
• how it was earned or acquired;
• how it moved to the current account;
• why the transaction is taking place; and
• why the activity is consistent with the customer's stated profile.

Where there is an apparent mismatch, it is usually better to explain it directly with evidence than to rely on a vague description.

Beneficial ownership matters for company accounts

For company-linked banking, the institution must identify and take reasonable steps to verify the beneficial owner.

A founder or shareholder may therefore need to explain both the company's activity and the relationship between the person, the entity and the funds.

Complex ownership structures can require additional supporting documents.

Higher-risk relationships can require more

The AML law provides for enhanced measures in higher-risk situations, including reasonable measures to determine the origin of a client's property and financial resources and intensified monitoring.

The fact that additional documents are requested does not, by itself, establish wrongdoing. It may reflect the institution's legal risk-based obligations.

Can a bank refuse an account?

Georgian law gives commercial banks significant discretion in customer relationships and expressly permits them to request additional information.

A customer should therefore not assume that submitting a particular checklist creates a right to account opening or guarantees that no follow-up questions will be asked.

Preparing a defensible file

A practical sequence is:

1. identify the specific funds or expected flows the bank needs to understand;
2. state the lawful source in plain language;
3. build the documentary chain from origin to current account;
4. identify the beneficial owner and business activity where a company is involved;
5. reconcile material inconsistencies before submission; and
6. respond to the bank's actual questions rather than supplying irrelevant volume.

For a source-of-funds or bank-compliance review, see Banking & Financial Services or contact TK Counsel.