What does it mean when some funding firm or commercial bank asks for "proof of funds"?
Proof of funds for funding firms are used to determine if you have any money before they lend to you. (determine risk of lending to you if you defaulted) If you came in with 10 million dollars, the firms will turn a blind eye to any money laundering regulations and just lend to you.
It means one has to provide documents to estabilsh the source of funds. This is to detect any money laundering. For example an salaried individual suddenly transacting for 1 Million, the bank would ask for proof of funds.
Its possible that the individual has his own funds because of inheretance or a handsome bonus received etc or a it could be he is helping route some illegal money that is not his.
There are regulations that state for what kind of transaction Proof of Funds are required.