PREPARATION OF OFFICIAL EXPLANATIONS (LETTER OF EXPLANATION) FOR A BANK OR BROKER IF THE SOURCE OF FUNDS IS UNUSUAL OR MULTI-LAYERED ✅ LEGAL PRACTICE ✅ SERVICES

Lawyer's actions:

Examining the essence of the request from the bank/broker
Analysing the source of funds and transaction history
Verifying available supporting documents
Determining the legal nature of each stage of the receipt of funds
Clarifying the purpose of the payment and the desired LoE format

Lawyer's actions:

Formulation of a clear and legally precise structure of the letter
Integration of supporting documents into the text (with references)
Translation of the letter into English (if necessary)
Coordination of wording in accordance with AML risks
Provision of a draft for approval by the client

Lawyer's actions:

Providing the client with instructions on submitting the LoE
Clarifying additional requirements if the bank makes a repeat request
Supplementing/editing the letter at the bank's request
Legal support for negotiations with the financial authority (on behalf of the client)
Protecting the client's interests during internal bank audits

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Preparation of official explanations (Letter of Explanation) for a bank or broker if the source of funds is unusual or multi-layered

A Letter of Explanation (LoE) is a written explanation submitted by a client at the request of a bank or broker if the source of funds raises questions due to its complexity, atypicality or multi-layered nature. Such a letter helps to avoid transaction blocking, refusal of service or even reputational risks.

In the United Kingdom and other jurisdictions, financial institutions are required to verify the origin of funds in accordance with AML (anti-money laundering) regulations. That is why preparing a LoE is not a formality, but a real protection for your business or assets.

Typical situations when an official explanation for a bank or broker is required

Banks or brokers may request a LoE if a transaction appears ‘non-standard’ or insufficiently confirmed according to general patterns. Before doing so, they often send an official request for additional information.

The main cases when LoE is required:

Transfer of funds from third countries without a clear explanation of the connection.
Sale of assets registered to relatives or through trusts.
Receipt of a large sum as a gift/inheritance from abroad.
Income from cryptocurrencies, NFTs or other digital assets.
Payments related to complex corporate structures or CFCs.
Dividends from businesses outside the UK that have not been taxed.

LoE allows you to officially explain the logic behind the movement of funds, provide legal grounds and submit supporting documents.

Contents of a Letter of Explanation: what information should be included in a LoE

Before preparing an explanation, our lawyers analyse the nature of the transaction, the legality of the source of funds and the specifics of your case. The letter should be concise, clear and formal, in line with the bank's expectations.

Typical content of a Letter of Explanation:

Source of funds — for example, salary, dividends, sale of real estate, inheritance, investment income, cryptocurrency or debt repayment.
Chronology of the movement of funds — when, in what amount and from what source the funds were received, including intermediate accounts or jurisdictions.
References to documents — accompanying documents with a specific list: contract, bank statement, tax return, etc. This makes it easy to identify the evidence supporting the statements.
Justification of the purpose of the transaction — for example, replenishment of an investment account, purchase of an asset, transfer to a company, opening a business.
Contact details of the client or representative — in case the bank has additional questions or requires clarification.

After consultation with a lawyer, the letter is adapted to the requirements of a specific bank or broker — taking into account the language, tone, technical requirements for submission and attachments. In some cases, we also prepare a parallel translation or a cover letter on behalf of the law firm to confirm the accuracy of the information provided.

Why you should seek legal assistance when preparing a Letter of Explanation

Banks and financial institutions may refuse to accept funds or refer the case to compliance control if the Letter of Explanation is drafted informally, inconsistently, and with legally ambiguous wording.

A lawyer provides:

Verification of all documents mentioned in the letter.
Coordination with the requirements of a specific bank.
Protection against legal risks or allegations of AML violations.
Support in communication in case of further inquiries.

This is especially relevant for transactions from abroad, cryptocurrency transactions, investments through intermediaries, or family transfers.

Advantages of working with a consultant

Compliance with AML and FATF recommendations

Experience in preparing Letters of Explanation for banks in the UK, EU, and USA

Full support: from analysis to letter

Consultations in various languages: Ukrainian, English, Polish

Frequently asked questions about preparing a Letter of Explanation for banks or brokers

Question

Can I write a Letter of Explanation on your own?

Answer

Yes, but without a legal approach, there is a high probability that the bank will request a revision or reject the letter.

Question

Do banks accept Letters of Explanation from lawyers?

Answer

Yes, on the contrary — often it is a letter written by a specialist that inspires more confidence and reduces the chances of rejection.

Question

Do I need a translation of the Letter of Explanation?

Answer

Yes, if the letter explaining the source of funds is submitted to a foreign bank, it must be written in English and certified.

Question

Do I need to provide a Letter of Explanation if I have all the documents?

Answer

Yes. Even if you have a complete set of documents, banks or brokers often require a structured explanation from the client or lawyer to better understand the connection between the source of funds and the purpose of the transaction.

Conclusion

An explanatory letter for a bank is not just a formality, but a legal tool to protect your funds. Regardless of where the money comes from — business, inheritance or crypto assets — an official explanation allows you to pass checks without unnecessary delays. Consultant's lawyers will prepare a competent LoE taking into account your circumstances, bank requirements and international standards. If the source of your funds does not fit into the ‘typical scheme’, we will find arguments to explain it.