Now that it is particularly difficult to look to the future globally, domestic companies increasingly prefer to place money with safer or more favorable financial institutions abroad. Though the legislation of many countries allows opening bank accounts abroad, businesses often face different complications.
Our experts offer their analysis of the 12 most likely issues associated with international banking. More importantly, they provide advice on how to avoid or mitigate them from the very start.
#1 Challenge: Unfavorable Information about the Ultimate Beneficiaries and the Company
The process of opening an account abroad involves the mandatory due diligence and screening of all stakeholders of the applicant company. Besides the legal documents, the financial institution verifies publicly available information about the legal entity’s reputation by referring to publications and posts in mass media and social networks. If it reveals dubious or straightforwardly adverse facts or assertions blaming the company, the final beneficiaries, or its previous or current stakeholders of dingy conduct, the bank may decide to reject the application.
To prevent such a complication, we recommend avoiding association or cooperation with shady types and murky projects.
If the conflicting information is inevitable, we recommend that you should not hide it. Instead, be ready to offer a logical explanation to the financial institution. If necessary, be prepared to confirm and explain (by documents or verbally) any disadvantageous or vague issues.
#2 Challenge: the Slow Procedure
The procedure for opening an account abroad follows the standard rules of consideration of the clients’ profile. On the other hand, due diligence may take longer than usual in some situations.
Reasons for the delay in the bankers’ decision:
- Incomplete/incorrect package of documents. A frequent mistake is to submit an incomplete questionnaire or forms with some mandatory fields not filled out. As a result, it is impossible to draw a complete profile of the client;
- Late submission of feedback to the inquiries. The faster you answer the request and provide the necessary information, the sooner the bank will open an account for you. If it receives your answer in two months, the bankers may just decide you are disinterested, and hence refuse service to you.
- Amendments in the internal regulations or change of the legal framework. The adoption of new rules may make it impossible for the financial institution to open new bank accounts during the transition period.
- Too many applications. A similar situation has recently occurred with financial institutions in the UK, due to the large number of clients wishing to open a corporate account, so the largest and most popular of them had to temporarily reject applications.
- Late transfer of the required minimum deposit
- National holidays
- Vacations or a sudden illness of the bank staff members.
We recommend that you should provide your fast response to any request for information from the financial institution, and keep in touch with the contact employees.
#3 Challenge: Repeat Screening of the Legal Entity
The reason for the repeat screening of the company may be the change of the company’s address, contact telephone number, and/or postal address, or the replacement of the CEO, or signatory. In this situation, there will be one recommendation – to contact the manager in advance and fill in a new questionnaire. You should remember that many foreign financial institutions s charge some fee for entering amendments into the client’s data.
#4 Challenge: Balance Withdrawal in case of the Bank Account Closure
The sudden closure of a foreign account is a rather common issue. The possible options for withdrawal of funds from an account are defined by each bank independently. Most often the balance is transferred to an alternative corporate account, in rare cases – to the personal account of the business owner. We advise you to hold a second alternative account to which your corporate funds could be forwarded as a contingency measure so that you could immediately react to such an unexpected situation.
#5 Challenge: Need for an Additional Account Manager
Many financial institutions offer the service of joint corporate account management. In this case, due diligence will be mandatory for all the account holders-to-be.
#6 Challenge: Your Bank Requests a Document Explaining the Origin of the Large Incoming Payment
Many customers somehow believe that compliance control at a financial institution abroad applies only to the period of opening an account, however, this is a big misconception. The compliance control can check the transaction on the account at any time and if there is a suspicion, request a document confirming the legality of the transaction.
Recommendation: You should closely monitor the account transactions, the correctness of the payment purpose, do not exceed the limits set by the bank on crediting funds.
#7 Challenge: Unidentified Payments
The risk of having an unidentified payment suspended is quite common. The reasons for a suspended transfer or transaction may be as follows:
- Incorrect purpose of the money transfer. One should remember that the payment needs to have a clear purpose, i.e. the statement of what the payment is for, the number, and the date of the contract.
- Incompliance of the payment purpose with the originally stated purpose of opening an account
- Incorrect payment reference
- Transaction cancellation by a correspondent bank due to the unusual nature of the transaction
- Withdrawal of the payment order by its sender
Recommendation: Before sending a payment, be sure to consult with the manager, specify the nuances of the future transaction.
#8 Challenge: Overdraft Due to the Write-Off of Non-Standard Fees
A negative balance on the corporate account may arise as a result of the following:
- tariff policy changes
- growth of the currency conversion fee, if the currency of payment differs and an interbank transaction was additionally executed for this purpose
- the payment was shipped to a high-risk jurisdiction
- the correspondent bank classified the payment as suspicious and conducted an additional investigation.
In case of a negative balance due to a write-off of the non-standard commission, we recommend you to check the current tariffs and contact the manager of the bank for clarification.
In rare cases, a non-standard write-off may be caused by a technical bank failure.
#9 Challenge: Blocked/Closed Foreign Account.
The reason for the sudden security hold (blocking) of foreign accounts may be:
- dubious transactions
- irrelevance to the company’s economic purposes
- lack of supporting documentation for specific payments
- late filing of documents, late submission of replies
- cooperation with unscrupulous counterparties/partners from blacklisted countries
- negative recommendations from the correspondent bank
- shady relations with persons qualified as the high-risk type
- unreliable or questionable information/documentation submitted to the bank.
To prevent the closure/blocking of your current account abroad, we recommend you to react promptly to the bank’s messages by e-mail or via chat in the mobile application.
#10 Challenge: Refusal to Open a Account
The procedure of opening a foreign account includes the client clearance subject to the KYC, AML international rules, and requirements. The detailed information on compliance control is given in FATF recommendations.
Reasons for refusing to open an account are not usually communicated to the client, but most often they are refused in the following cases:
- Irrelevant work experience of business owners (i.e., their lack of the necessary skills or competence in the declared activity)
- some negative information about the company, owners, contractors
- misrepresented/incomplete information
- reluctance to fully disclose the company structure
- forgery of corporate/personal documents
- the company’s activity in two or three different types of business fields that have nothing in common with each other
- absence of a license (in case the company develops business in the fields that require compulsory licensing).
If the application fails, it is important to analyze and understand the reason.
Very often the refusal happens because of the submission of the incomplete questionnaire, incorrectly certified documents, or the forms filled out in black pen (black ink is not allowed, because it looks like a scanned copy of a document).
#11 Challenge: PEPs Identified in the Company
Financial institutions are particularly cautious of the PEP (politically exposed person) types and their associates. Often such persons are on sanctions lists. Failure to properly detect such clients could result in operational and reputational risks for a financial institution. That is why they are so meticulous during the due diligence inspections.
#12 Challenge: Litigation
If at the moment of opening a bank account the client is involved in any legal proceeding, the bank has the right to refuse to serve such a client. It may also be the case when the court proceedings have been closed.
How to Improve the Chances of Opening a Bank Account Abroad?
It is important to be transparent and open at the initial stage of cooperation. Such an approach will prove that you are a reliable client interested in long-term and trustworthy cooperation. It will be appreciated by any foreign financial institution.
To improve the chances of your successful screening for compliance plus to reduce the possible risks when applying for a corporate account with a foreign account, we recommend you to contact Offshore Pro Group. Please write your request for fee-based expert support in opening a bank account abroad.
Would you like to start with the free expert advice on how to select a foreign bank and account that would be right for you? Just send us your questions to the e-mail address mentioned at the top of the page.
02 December 2020 