A Guide to Successfully Passing an AML Check on Crypto Transactions

If you wake up in the European Union today and decide to open an account on a crypto exchange, or simply want to sell part of your cryptocurrency and transfer the money to your bank account, there is a high probability that you will very soon receive an email from the Compliance department. It will ask you to send documents and will pose questions such as:

• Where do these funds come from?
• How did you buy your first crypto?
• What is the origin of your wealth?
• Why is this amount significantly larger than your usual transactions?

To many people this looks like excessive bureaucracy. In fact, it is the normal regulatory environment. With the adoption of Regulation (EU) 2023/1114 (MiCA), Regulation (EU) 2023/1113 (the Travel Rule) and the anti-money laundering legislation in force (the AML Directives and the Bulgarian Measures Against Money Laundering Act), all financial institutions have a legal obligation to know their customer (KYC), to assess risk and, where necessary, to request evidence of the origin of funds.

This guide brings together the bureaucratic, logical, legal and economic sides of the process, to help you understand how AML analysts think and how to prepare your file so that the check goes quickly and smoothly.

1. How Does an AML Analyst Think? The Four-Fold Logic of the Check

Every document requested has one single purpose — to answer a specific question. For every transaction, the institution tries to establish four interconnected elements:

Question 1: Do the funds have a lawful economic origin?

• Economic logic: No one can invest or spend more money than they have actually earned or lawfully acquired. If you declare an annual income of BGN 30,000 and suddenly invest BGN 400,000, the question arises: where does the difference come from?
• Legal framework: The Bulgarian Measures Against Money Laundering Act and the European AML directives on customer due diligence.
• What is checked: The income-to-assets ratio, profession, declared turnover and historical earnings.
• Evidence: Employment contracts, tax returns, sale agreements, dividends, inheritances, etc.

Question 2: Is the entire path of the money traceable?

• Economic logic: The fewer "black boxes" there are in the financial flow, the lower the risk. The institution wants to trace a clear chain: Salary → Bank account → Crypto exchange → Purchase → Sale → Bank account.
• Legal framework: Regulation (EU) 2023/1113 (the Travel Rule).
• What is checked: Missing transfers, unknown wallets, the use of mixers, or transfers to high-risk countries.
• Evidence: Bank statements, CSV histories from exchanges, blockchain explorers.

Question 3: Does the operation itself make economic sense?

• Economic logic: What is examined is whether the behaviour looks normal. Selling a property and investing the money is logical. But receiving EUR 1,500 every day from hundreds of different people (e.g. in P2P trading) triggers red flags.
• What is checked: Frequency, size, countries, counterparties, movement patterns. The dwell time of the funds (if they come in and are sent out almost immediately) is also a serious risk indicator.

Question 4: Does everything match the customer's profile (KYC)?

• Economic logic: When opening an account you declare a profession, an expected turnover and a purpose of use. The algorithms constantly compare your current behaviour with what you initially declared.
• What is checked: A mismatch between a declared annual turnover of EUR 10,000 and actual transactions worth hundreds of thousands or millions.

2. The Big Difference: "Source of Funds" vs "Source of Wealth"

Under the Bulgarian Measures Against Money Laundering Act, in higher-risk cases the obliged entities must establish both concepts, which are often confused.

• Source of Funds (SoF): Answers the question: Where exactly do the funds coming in right now originate from? (e.g. the sale of a car, a bank loan, crypto trading). The institution traces the specific transaction.
• Source of Wealth (SoW): Answers the question: How have you accumulated your overall assets over the years? The full profile is examined: profession, business, investments, inheritances.

Example: If you deposit BGN 50,000, but your official income over the past months is BGN 10,000, the algorithm registers a discrepancy. You must prove the origin of the entire amount, even if the current operation is just a single one.

3. Preparing the File: An Unbroken Chain of Ownership

The most common mistake is sending only a single document (for example, only a notary deed). The reviewer builds a complete financial picture. Every missing link raises questions.

• Employment income: Employment contracts, addenda, employer certificates, annual tax returns, payroll records. The goal is for the documents to mathematically explain the accumulated funds.
• Savings: Merely claiming "I have been saving" is not enough. Bank statements covering several years are required, along with a demonstrated consistency between income and accumulated savings.
• Gifts and loans from family: Both the execution of the transaction (a contract, a bank transfer) and the lawful origin of the funds of the donor/lender themselves must be evidenced.
• Sale of property (real estate or a vehicle): Notary deeds for the acquisition and the sale (or vehicle sale contracts), bank statements showing the price received, taxes paid.
• Crypto income: The most scrutinised category. The entire life cycle of the investment must be traceable: CSV exports from the exchanges, the history of all trades, fiat deposits, withdrawals, wallet addresses and taxes paid (where due).

4. The Golden Rules for a Smooth Check

1. Be proactive: Do not wait for the institution to request the documents. If a large transfer is coming up, prepare the complete file and notify the bank or payment institution in advance.
2. Do not split transfers artificially: Deliberately breaking a large amount into multiple small transfers ("structuring" or "smurfing") in order to avoid checks is a classic money laundering indicator. This in itself leads to an in-depth review, the blocking of funds and the filing of a report.
3. Respond in detail and logically: When communicating with the Compliance department, describe the chronology clearly, explain the origin of the funds and attach all documents at once. Build a logical sequence into your explanation.

Conclusion

An AML check is not a tax audit — it is a risk management process. The core principle with crypto assets is a single one: every movement of funds must be traceable, logically explainable and supported by documents.

Once you understand the four pillars of the check — legal grounds, economic logic, risk assessment and tangible evidence — you stop being merely a subject of bureaucracy. You start thinking like an AML analyst and can organise your file in advance so that the process goes significantly faster and with fewer follow-up questions.