Offshore Company Solutions: Business Bank Account Suspension Risk Management

The set-up of an offshore company is a means in itself offering many legal solutions to its owners.   You might object and say that even if the business is registered on a remote island it cannot escape all challenges and risks in today’s small world. This is true. Therefore, the business toolkit needs to include proactive approaches to avoid, mitigate offset possible issues.

Let us discuss today your offshore company’s banking solutions. In particular, we shall focus on what can help you avoid, mitigate and offset the risks of the business bank account suspension. 

The risks of this sort are posed to any company today, whether it is incorporated abroad or locally. 

This article will equip you with useful preventive measures. 

But if your offshore company has already faced this adverse situation you will understand the possible reasons and what can be done to resolve it as soon as possible.

Why can a bank freeze an offshore company account?

First, it is important to understand why banks have to be more meticulous when onboarding new customers, overly attentive to clients’ operations, and more resolute when facing some uncommon situations. 

These reasons stem from the international pressure from FATF on the national governments to conduct joint efforts to combat any chance of money laundering and the financing of terrorism and proliferation. In their turn, authorities enforce stricter AML/CFT rules and compliance requirements for financial institutions.  So the banks do not want to put their reputation and licenses at risk. Their Compliance departments scrutinize applicants’ portfolios and monitor customer’s transactions on a daily basis looking for unusual and suspicious operations. This trend has grown globally, and we all just have to accept it and act accordingly.  

What may alarm the bank? 

The following examples of the client’s suspicious behavior may NOT necessarily flag the threat. They might as well be qualified as mere negligence, unawareness, or anything other than a criminal offense. However, to prevent adverse consequences, clients should better avoid the following situations.

• The bank transaction is confusing or questionable (does not correspond to the classification codes of economic activity/types of statutory activities stated in the corporate documents submitted to the bank when opening the account).
• There are contradictions in the payment order and supporting documents.
• The purpose of the payment is not clearly stated and such a transaction is repeated more than once.
• The payment is not economically justified.
• The payment amount exceeds the established thresholds of financial monitoring (most often for large payment orders, additional approval by the Financial Monitoring Department, Operations Manager is required).
• The offshore company makes regular money transfers in favor of individuals or withdraws large sums from the current account.
• Transfers from the account are made on the day the money is credited.
• The company refuses to provide documents to confirm the legality of the transaction, or the documents presented raise doubts among bank employees.
• The customer is particularly concerned about the confidentiality and disclosure of the transaction.
• The company has not informed the bank about the changes in the main corporate documents (changes in the Charter, legal address, shareholders, company name).
• The company has not re-identified its credentials or refuses to re-identify.
• The legal address of the company is not valid and cannot be verified.
• The company evades mandatory taxes.
• The company cooperates with contractors that are blacklisted or sanctioned.
• Other situations calling for an additional explanation by the client.

The above-mentioned list of alerting situations is no exhaustive. It covers only the most frequent and obvious situations that alert the Bank Compliance to reject the transaction and even freeze the bank account.

What solutions can be recommended to offset the offshore company’s business bank account suspension?

At the time of rejecting/canceling the financial transaction, the bank has the right to ask the owner of the company several questions and request extra documents to clarify the situation. The compliance officers’ goal is to minimize the chance of a suspicious transaction and to be sure the client is not a wrongdoer. 

The immediate offshore company solution 

It is extremely important to provide all the requested documents and explanations as soon as possible, before the deadline set by the bank.  By doing so you will help the bank verify and confirm the legality of the company and the transaction. 

If the client refuses to provide the papers or comments, the bank will instantly refuse to reactivate the account and will blacklist the offshore company.

Foreign companies, particularly offshore entities, should conduct their activities very carefully, check contractors and partners most thoroughly, monitor the correctness of filled-out forms and issued documents, have the basic documents, transcripts, and their copes available (just in case the compliance officers send an urgent request for updated information and papers). The client needs to pay all due taxes on time,  and compile financial and accounting reports and submit relevant statements.

Following the tightening of AML/CFT procedures, foreign banks have become more suspicious of companies incorporated in offshore jurisdictions. 

Banking institutions are growing overly cautious and quite frequently may annoy honest entrepreneurs by blocking their access to funds, disrupting transactions, and hampering financial activity. Their intentions are good, but company owners often complain that such measures obstruct their business.

Also, in some situations, it is easier for a foreign bank to terminate relations with an offshore company acting (in their opinion) suspiciously. Banks would rather do so than perform an independent assessment of the activities of the company, check its documentation and partnerships. 

Therefore, to protect your offshore company against the sudden suspension of a bank account, we recommend opening several corporate accounts at once.

Why do we recommend every offshore company several or at least one backup bank account?

Availability of two, three, or four foreign bank accounts allows offshore companies to conduct commercial activities without interrupting foreign currency transactions. We recommend opening ‘backup’ corporate bank accounts not only with conventional banks but also with payment systems. This is because having several financial instruments opened with different banking and non-banking institutions will guarantee the company owner the following advantages:

• protect the business from a sudden account suspension
• choose between different fees and dues charged by banks for transactions
• expand the functionality and the list of financial transactions
• use more foreign currencies
• diversify corporate assets competently
• make a good investment
• reduce currency risks
• expand the partner network and enhance trust
• perform transactions with cryptocurrency without fear of a sudden account freeze.

To learn more about the options available for opening offshore bank accounts in the year 2021, you are welcome to take advantage of a free consultation from Offshore Pro Group experts. To appoint a FREE one-on-one session, please submit the fillable online booking form.