What Is a Source of Funds Declaration in Kenya?
Have you ever been asked by a bank to explain where your money came from? That’s essentially what a source of funds declaration is all about. In Kenya, these declarations have become increasingly common as financial institutions and regulatory bodies work harder to combat money laundering and terrorist financing.
A source of funds declaration is a document that explains how you acquired the money you’re using for a particular transaction. Whether you’re making a large deposit, purchasing property, or investing a substantial amount, you might need to provide this declaration to prove your funds were obtained legally.
The declaration typically comes in two forms in Kenya: a standard declaration form provided by the institution requesting it, or a more formal affidavit of source of funds (sometimes called an affidavit of source of income), which is a sworn statement made before a Commissioner for Oaths.
Why Are Source of Funds Declarations Required?
You might wonder why these declarations have become such a common requirement. Here’s why they matter:
Anti-Money Laundering Compliance
Kenya has strengthened its anti-money laundering framework significantly in recent years. The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) requires financial institutions and certain businesses to verify the source of substantial funds involved in transactions.
Preventing Terrorism Financing
With global concerns about terrorism financing, proving the legitimate source of funds helps authorities prevent money from being channeled to harmful activities.
Protecting Kenya’s Financial System
By ensuring money flowing through the system comes from legitimate sources, these declarations help maintain the integrity of Kenya’s financial sector and its reputation internationally.
Tax Compliance Verification
These declarations indirectly help authorities verify that individuals are properly reporting their income and paying appropriate taxes.
“The growing emphasis on source of funds declarations reflects Kenya’s commitment to maintaining a clean financial system,” explains John Mwangi, a compliance officer at a leading Kenyan bank. “It’s not about making things difficult for customers, but about protecting everyone from financial crimes.”
When Is an Affidavit of Source of Funds Required?
While a simple declaration form might suffice for some transactions, certain situations call for the more formal affidavit of source of funds. You’ll likely need this sworn document in these situations:
Large Cash Transactions
If you’re depositing or withdrawing a large sum of cash (typically over KSh 1 million), banks may request an affidavit.
Property Purchases
When buying property, especially if you’re paying a significant portion in cash, lawyers and banks often require this documentation.
Investment Funding
Making substantial investments might trigger the need for an affidavit, particularly if the funds come from overseas.
Business Capital Verification
When starting a business with significant capital, you may need to declare the source of these funds.
High-Value Asset Purchases
Buying luxury items, vehicles, or other high-value assets might require proof of funds.
Jane, a real estate agent in Nairobi, shares: “Almost all my clients purchasing property worth over KSh 10 million are now asked to provide some form of source of funds documentation. It’s become standard practice in the industry.”
What’s Included in a Source of Funds Affidavit in Kenya?
A properly prepared affidavit of source of funds should include:
Personal Identification Details
Your full name, ID number, PIN, and current address.
Clear Statement of the Funds’ Origin
A detailed explanation of how you acquired the money – whether through employment, business profits, sale of assets, inheritance, or other legitimate means.
Supporting Evidence References
Mention of the supporting documents you’re attaching to verify your claims (bank statements, salary slips, business accounts, etc.).
Transaction Details
Information about the transaction for which the declaration is being made.
Declaration of Truth
A statement confirming that all information provided is truthful and accurate.
Commissioner for Oaths Verification
The affidavit must be signed in the presence of a Commissioner for Oaths, who will stamp and sign it to give it legal weight.
How to Prepare an Affidavit of Source of Income in Kenya
If you need to prepare an affidavit of source of funds or income, follow these steps:
1. Gather Your Supporting Documentation
Before drafting the affidavit, collect all documents that support your explanation of where the funds came from. These might include:
- Employment contracts and pay slips
- Bank statements showing regular income
- Business financial statements
- Sale agreements for property or assets
- Tax returns and certificates
- Loan agreements
- Gift declarations or inheritance documents
2. Draft the Affidavit
You can work with a lawyer to draft the affidavit, or prepare it yourself following the standard format. Make sure to include all relevant details about your identity, the funds in question, and their source.
3. Visit a Commissioner for Oaths
Take your draft and supporting documents to a Commissioner for Oaths, who can typically be found at law firms, courts, or legal aid centers throughout Kenya. The Commissioner will:
- Verify your identity
- Have you swear or affirm that the information is true
- Witness your signature
- Stamp and sign the document
4. Submit the Affidavit
Provide the completed affidavit to the institution that requested it, along with any supporting documentation they require.
“The process is actually straightforward,” says David, who recently purchased a home in Karen. “I was worried about getting the affidavit done, but my lawyer helped me prepare it, and the whole process took less than a day.”
Common Questions About Source of Funds Declarations in Kenya
Are Source of Funds Declarations the Same as Proof of Income?
Not exactly. Proof of income typically shows your regular earnings, while a source of funds declaration explains where specific money came from, which might include one-time events like an inheritance or asset sale.
Who Can Request These Declarations?
In Kenya, these can be requested by:
- Banks and financial institutions
- Real estate agencies and property lawyers
- Investment companies
- Car dealerships for high-value purchases
- Government agencies for certain transactions
What If My Funds Come from Multiple Sources?
Your affidavit should list all sources that contributed to the funds in question, with approximate amounts from each source.
Can I Refuse to Provide a Source of Funds Declaration?
You can refuse, but the institution may then decline to process your transaction. Financial institutions have both the right and obligation to verify the source of substantial funds under Kenyan law.
Best Practices for Source of Funds Declarations
To make the process as smooth as possible:
Keep Good Financial Records
Maintain organized records of major financial transactions, including receipts, contracts, and bank statements.
Be Transparent
Provide complete and truthful information. Attempting to hide details may raise suspicions and create more problems.
Prepare in Advance
If you know you’ll be making a large transaction, prepare your documentation beforehand to avoid delays.
Seek Professional Guidance
For complex situations or large amounts, consider consulting with a financial advisor or lawyer who understands the requirements in Kenya.
Conclusion: Embracing Financial Transparency
While source of funds declarations and affidavits might seem like bureaucratic hurdles, they serve an important purpose in Kenya’s financial ecosystem. By embracing these requirements and understanding their importance, you’re not just complying with the law – you’re helping to build a stronger, more transparent financial system that benefits everyone.
Whether you’re buying your dream home, investing in a business, or making any significant financial transaction, being prepared to declare and document your funds’ origins will make the process smoother and help protect Kenya’s financial system from abuse.
Remember, financial transparency isn’t just about compliance – it’s about contributing to a financial system that works fairly and safely for all Kenyans.
Contact Information: Muthii Associates Phone: 0722432638 Email: muthiiassociates@gmail.com
