The bank has requested documents regarding a payment: how to properly respond to a compliance inquiry?

An international payment may be delayed even when a company operates legally, has a properly executed contract, and fulfills all its obligations. The reason is a bank compliance check. A financial institution may request additional documentation to establish the economic substance of a transaction, verify its alignment with the client’s business activities, and assess potential risks. For a business, such a request often comes as a surprise—especially when timely payment is critical for settling accounts with counterparties or fulfilling contractual obligations.

The company’s primary objective is not merely to submit documents, but to provide a logical, well-substantiated explanation of the transaction. In this guide, we will examine how to properly structure a response to the bank, what documents might be required, and how the review of a specific payment differs from the verification of the source of funds. Why might a bank request documentation regarding a payment? Banks implement procedures for financial monitoring, anti-money laundering (AML), counter-terrorism financing (CTF), and compliance with sanctions.

As part of these procedures, a financial institution may scrutinize both new and routine client transactions.

Reasons for an additional request may include:

• a significant payment amount or an unusual volume of transactions;
• a transfer to a new counterparty;
• transactions involving high-risk jurisdictions or sectors;
• a discrepancy between the payment and the company’s stated business activities;
• a complex settlement structure or the involvement of intermediaries;
• the need to update information regarding the client and their business.

The mere fact that a compliance inquiry is made does not imply that a company is suspected of violating the law. However, an incomplete or inconsistent response may lead to further questions, payment delays, or a review of the banking relationship. The volume of documentation required depends on the specific transaction, the client’s profile, the jurisdiction, and the bank’s internal procedures.

What documents might be required to substantiate a payment? When reviewing a specific transaction, the bank seeks to establish its economic rationale and understand how it relates to the company’s actual business activities.

To this end, it is important to verify four key elements:

1. The Contract – the basis for the payment obligation: The contract identifies the parties to the transaction, the goods or services being provided, their value, and the terms of settlement. The bank may verify whether the subject matter of the contract aligns with the company’s business activities and whether the payment terms correspond to the actual transfer of funds.

2. The Invoice – the specific purpose of the payment: The invoice details the amount, currency, payment purpose, and the parties' banking/contact information. It must align with the terms of the contract. If the amount differs—due to partial payment, an advance payment, or additional services—this must be explained.

3. Proof of Performance – confirmation that the business transaction actually took place

Depending on the nature of the business, such proof may include acceptance certificates, reports on completed work, transport documents, delivery confirmations, evidence of the results of services provided, or relevant business correspondence. If payment is made in advance, the company can confirm the relevant contractual provision and explain when the obligations are expected to be fulfilled.

4. Payment Documents: Tracking the Flow of Funds

Payment orders, bank statements, and other supporting documents help identify the sender, the recipient, the amount, and the purpose of the transfer. It is important that all documents form a single, coherent picture of the transaction, rather than existing as separate, unrelated files.

Practical Example: Bank Verification of a Payment for Services

Consider a typical scenario: A British company enters into a contract with a European contractor for software development, with a total value of €90,000. The contract stipulates a 50% advance payment—amounting to €45,000. Once the payment is initiated, the bank requests documentation to verify its economic rationale.

How should the company prepare its response? First, it must provide the contract, which specifies the scope of services, the total cost, and the payment terms. Next, it should include an invoice for €45,000 that references the contract. Since this is an advance payment, the company should explain that the work is still in its initial stages and that the prepayment is explicitly provided for in the contract.

If available, the company may also include the technical specifications (terms of reference), an agreed-upon project implementation plan, or correspondence regarding the commencement of the collaboration. In this scenario, the logic of the transaction is as follows: a contract for 90,000 euros → a provision for a 50% prepayment → an invoice for 45,000 euros → a payment to the contractor. If the services have already been rendered, it is advisable to include proof of the actual outcome in the documentation package. The key is that the submitted materials must reflect the actual circumstances, rather than merely creating a formal impression that obligations have been fulfilled. One of the most common mistakes is assuming that a contract and an invoice automatically answer all of the bank's questions.

In reality, a compliance review may cover various aspects of financial activity. Regarding the review of a specific transaction (Transaction Review): in this case, the bank seeks to determine the purpose of the payment, the parties involved, and whether the transaction has a genuine economic basis transaction. Key supporting evidence may include contracts, invoices, documents confirming the fulfillment of obligations, and payment records.

Verification of the Source of Funds (SoF): In this context, the bank seeks to establish the origin of the funds the company is using for a specific transaction. For instance, a company might pay for a contractor’s services using revenue from clients, raised investments, a loan, or proceeds from the sale of assets.

To verify this, the bank may request:

• contracts and invoices based on which the company generated revenue;
• bank statements confirming the receipt of funds;
• financial statements;
• loan agreements or investment documentation;
• documents related to the sale of assets.

It should be noted that a bank statement alone is not always sufficient proof of the source of funds. While it confirms that money was received, the bank may require further verification regarding the specific economic activity that generated those funds. There is also a separate concept known as "Source of Wealth" (SoW)—the origin of an entity’s or individual’s total accumulated wealth or capital. This type of verification may apply, for example, to a company’s beneficial owners and involve an analysis of business earnings, investments, inheritances, or other sources of capital accumulation. In short, while a contract with a contractor explains what the company is paying for, it does not necessarily prove where the company obtained the funds to make that payment.

How should one properly prepare a response to a compliance inquiry? The best approach is to compile a structured package of documents accompanied by a brief explanatory note. We recommend taking a few steps before submitting your response.

1. Carefully analyze the bank’s inquiry: Determine exactly what the financial institution is reviewing: a specific payment, the source of funds, a counterparty, or the company’s overall business activities. This helps avoid a situation where a business submits a large volume of documents but fails to address the core question.

2. Ensure consistency across documents: Company names, payment details, amounts, currencies, dates, and payment purposes must align with the actual circumstances. If discrepancies exist—for instance, due to partial payment or a change in payment details—these should be explained and, if possible, supported by documentation.

3. The letter should briefly outline:

• the parties involved in the transaction;
• the goods or services that are the subject of the agreement;
• the reason for the payment;
• how the payment amount relates to the terms of the contract;
• the documents being submitted as supporting evidence.

4. For complex transactions, it is advisable to provide a separate explanation regarding the role of intermediaries or third parties, or the specifics of the settlement structure.

5. Submit documents in a clear, organized format: materials should be arranged logically so that the bank can easily cross-reference the contract, invoice, proof of fulfillment, and the flow of funds. If a specific document is missing, explain why and, if possible, provide alternative evidence.

Adhere to deadlines and maintain communication if the bank has set a deadline for your response, it is crucial to meet it. If you require more time to gather the necessary documents, it is advisable to inform the bank in advance. Confidential materials should be transmitted via secure channels agreed upon with the bank. The greatest risk arises not only from missing documents but also from discrepancies between the documents and the actual circumstances of the transaction.

For example, a company might submit an invoice for consulting services but be unable to explain exactly what work was performed. Alternatively, a contract may be concluded with one legal entity, while funds are transferred to another without any documentary justification.

Issues may also arise if a company:

• provides inconsistent explanations for a single transaction;
• submits only a portion of the requested documents without any accompanying explanation;
• cannot substantiate the economic rationale for a payment;
• confuses the substantiation of a transaction with the verification of the source of funds;
• attempts to retroactively create documents that do not correspond to actual events.

If a specific document is missing, it is better to provide an honest explanation for its absence rather than submitting inaccurate materials. At the same time, even a complete and properly prepared set of documents does not guarantee that a payment will be processed automatically. Depending on the results of the review and applicable legislation, the bank may request additional information, place the transaction on hold, or refuse to execute it.

How can Antwort Law assist with a bank compliance review? A compliance inquiry from a bank is not merely a matter of having the right documents; it also requires providing a legally sound explanation of the business transaction, confirming its economic substance, and—if necessary—substantiating the source of funds.

Antwort Law’s attorneys can help you:

• analyze the bank’s inquiry and determine the scope of the review;
• compile the necessary set of documents; verify the consistency of contracts, invoices, and payment confirmations;
• prepare a legally sound cover letter;
• explain the transaction structure and the source of funds;
• facilitate communication with the bank should any further questions arise.

Has your bank requested documentation regarding an international payment or proof of the source of funds? Contact Antwort Law! We will help you prepare a coherent, well-documented response and minimize the risk of any misunderstandings!

Lidia Ivanova

International lawyer
Antwort Law