Foreward by Andrew Chilvers
For companies and individuals looking to move into new jurisdictions for business opportunities, setting up a bank account is a crucial part of the process. But this is never as straightforward as it seems.
In all countries, banks are obliged to crack down on fraud and any potential financial scullduggery. As a result, they tend to be very risk averse. Regardless of where a business establishes an office in the world, local banks will generally have the newly arrived expatriates jumping through various hoops, pulling their hair out in frustration.
The new arrival will need the relevant paperwork, including personal identity papers, a personal and business address, personal references and other numerous documents. And that’s just the beginning.
Every jurisdiction has its own banks and banking rules, which are often complex and bureaucratic. Consequently, seeking advice from local legal and financial experts before setting up a bank account is imperative if a company is it get the right account for its particular business objectives. This is why it’s so important to use local advisers who are experts in the jurisdiction to provide information about the local banking rules.
What is the general risk appetite of banks in your jurisdiction and how does that affect setting up a new business bank account?
The risk appetite of banks in the US that affects setting up a new business bank account is framed around the Bank Secrecy Act’s Anti-Money Laundering (AML) Customer Identification Program (CIP) and Customer Due Diligence (CDD) rules.
The CIP rule requires institutions to verify the identity of their customers, while the CDD rule requires institutions to identify and verify the identities of beneficial owners of legal entity customers. The CDD rule also requires institutions to establish procedures to understand the nature and purpose of customer accounts for the purpose of forming a customer risk profile, and monitor accounts for suspicious activity and changes in customer information, including beneficial ownership information. The rules are intended to facilitate the prevention, detection, and prosecution of international money laundering and the financing of terrorism.
Banks that fail to get it right have been fined heavily. In 2013, JP Morgan agreed to a combined collection amount of $2.05 billion by failing to detect and adequately report suspicious transactions arising out of Bernard Madoff’s fraudulent investment scheme. This places a heavy burden on banks to have the required programs in place, reviewed by management regularly and enforced, sometimes at the risk of losing potential or existing customers.
The required programs can vary from bank to bank to allow banks to select verification methods that are reasonable and practicable. When prescribing minimum standards for AML programs flexibility is given to the extent to which the requirements imposed are commensurate with the size, location, and activities of the bank. The rule recognises this fact and, therefore, allows banks to employ such verification methods as would be suitable for a given firm to form a reasonable belief that it knows the true identities of its customers.
How accommodating are banks in your jurisdiction for opening a business and personal bank account?
In the US, you will find some banks that will work with international customers and some banks that will not. Banks that have branches in other countries are the most likely banks to allow a nonresident individual and/or business to open an account. The vetting procedures may vary from state to state, bank to bank, sometimes even between branches. All banks will follow their bank’s CIP. In order to get to know the customer. Prior to opening an account, banks will require:
• Date of birth, for an individual;
• Address, which shall be:
– For an individual, a residential or business street address;
– For an individual who does not have a residential or business street address or the residential or business street address of next of kin or of another contact individual; or
– For a person other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office, or other physical location; and
• Identification number, which shall be:
– For a US person, a taxpayer identification number; or
– For a non-US person, one or more of the following: A taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.
It does not take that much time to open a bank account if you have the proper documents in most cases. A person new to the area, a nonresident individual or a nonresident entity without a US person as a signer on the account will most likely take longer. Most US persons can open an account online within minutes.
Most nonresident individuals and nonresident businesses will need to visit the bank in order to open an account. As part of the bank’s CIP, the bank will check your identity. Many financial institutions also check a consumer reporting database to assess banking habits. If a person or an entity does not have a financial footprint or has a bad banking history a bank could reject the application. Yet for those to which that does not apply, with the proper documents, an account can be opened the same day. Although, it can take 7-10 days to get all the documents and/or debit cards.
Should you join an internationally reputable or established bank rather than a local bank?
Generally, it is easier to set up a bank account with a bank that has international branches for nonresident individuals and nonresident entities. These banks are used to working with international customers. In addition, these banks are more familiar with currencies of the world while local banks have less experience. Additionally, it’s important to consider other factors in making a decision to open an account with a local bank or an international bank. I had a client recently that expressed frustration with a local bank that knew nothing about imports or dealing with currencies. His US customer’s check was mishandled. As a result, my client’s goods were never released, potentially costing my client $100,000. My client, not the bank, had to do the investigative work to find out what happened and to correct it.
Consider seeking out a US-based multinational bank that has branches in the resident country. Open an account with them before leaving for the US. This provides international applicants with the opportunity to build up a business relationship with the bank which should simplify applying for an account at one of its branches in US. In closing, be prepared, know what your needs are and the bank’s capabilities.