Offshore Bank Compliance: General Requirements and Recommendations

The information presented in this article will be of interest to those who wish to open a foreign/offshore bank account, buy/register a business abroad, and properly diversify their personal/corporate assets. What is “Compliance” and what do you need to know about it? This article will explain.

KYC and AML: Is There a Difference?

Regardless of your country of residence, KYC and AML policies are applied by every banking institution. However, not everyone fully understands the difference between these two aspects of risk management in banking. Anti-Money Laundering (AML) policies are more about the “big picture” whereas KYC is about individual clients.

KYC and AML

AML compliance protocols are used by banks worldwide to enhance protection against criminal intrusion, money laundering and terrorist financing. KYC is an important part of AML – especially for banks, payment systems, financial and credit institutions.

The KYC policy is a regulatory process during which a banking organization must understand the customer’s identity, assess their credentials, and assign a degree of risk before allowing them to use a particular service.

With KYC, foreign banks are able to better understand the peculiarities of their customers and their financial transactions. All these collected data allow effective risk mitigation, and high quality management of the banking portfolio.

Why Do Foreign Banks Apply Compliance Control?

In today’s digital economy, all banking institutions and companies involved in financial transactions must comply with regulatory requirements set out by their national governments (for example, the European Union’s 5th Anti-Money Laundering Directive) as well as international bodies such as the United Nations.

Meeting compliance requirements implies absolute control and legality of banking transactions. The application of certain procedures ensures that all transactions performed on behalf of high-risk individuals, politically exposed persons and persons associated with them are handled properly and do not pose operational or reputational risks to the banking institution, customers, and partners.

If rules and policies aimed at combating money laundering are not applied, the banking institution is fined or its license to conduct financial operations is revoked.

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Banks that apply KYC and AML policies, as well as Due Diligence, provide certainty that the customer can trust the financial institution in carrying out their international operations without losing customer’s capital, assets or violating the integrity of their businesses. Thus, compliance control allows foreign banks to perform the following:

  • Reduce fraud
  • Increase confidence in the financial institution
  • Comply with international policies, regulations, requirements
  • Avoid significant fines and/or license revocation
  • Enhance security

The Customer identification procedure at the foreign bank may appear at first glance to be a rather complicated process. It also affects the decision to be made regarding acceptance or otherwise of your application. And if a customer understands the way compliance control is organized when opening an account abroad, their chances for a positive decision increase.

How Do I Undergo the Offshore Bank’s Compliance Procedure?

Customer identification procedure at a foreign bank requires the customer to pay attention to detail. In order to verify the customer’s profile, the foreign bank compliance officer will request the following information::

  • Detailed information on the individual/legal entity
  • Documents confirming the origin of cash or monetary instruments
  • Phone numbers, email, office address, list of employees working for the company
  • Financial statements, bank statements
  • Documents confirming regular payment of obligatory taxes
  • Documentary proof of payments related to the core business operations
  • List of business partners, counterparties, with a detailed description of what the future business relations will look like (where, what, in what quantities is bought, sold, in what currency, what is the projected turnover on the account)

If a customer uses such a service as legal (expert) support for opening an account overseas, the bank has the right to request a Letter of Introduction from the company representing this customer’s interests. This Letter of Introduction should contain detailed information about the client, their company, their type of business, and information on the business operations. 

The Letter of Introduction is a kind of biography – with the help of which the compliance officer has an opportunity to build up a profile of the potential customer, to understand how serious they are about working with this bank.

For What Reasons Might My Account Opening Application Be Rejected by the Bank?

The most common reasons for rejection, according to compliance officers,  are lack of clear business objectives of the customer, the vague character of the future bank transactions, and lack of their economic purpose in the country where the bank account is planned to be opened.

If your company has two or three core types of business that are unrelated, the application for opening a foreign bank account may also get rejected. Companies with complex corporate structure and unclear details of operation get immediately rejected by foreign banks.

We had a case in our practice where a software company got rejected after applying for opening a corporate account. The bank’s Compliance Department refused it on the grounds that it was difficult for the bank to understand the nature of their product. This means that no one is immune from rejection. However, using the Pre-Approval Procedure you can reduce the application processing time and get pre-approvals from pre-selected financial institutions. We will be happy to assist you in that.

Summary

No one can guarantee a 100% successful and fast passing of the compliance control for opening an account with a foreign bank. But it is possible to increase your chances for a positive decision by means of a competent and thought-through approach to the compliance control procedure. Openness and readiness to respond will be an excellent foundation for the future fruitful and trustful cooperation with the bank, in certain cases along with the documentary proof of the purity of your intent when opening an account.

If you wish to save time, make the right choice of jurisdiction, and find a foreign bank that understands the nature of your business and mindset, as well as open an overseas bank account swiftly and safely, please do not hesitate to use free consultation by the Offshore Pro Group experts. Our experience and understanding of international banking will reduce the paperwork routine to a simple procedure.

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