Opening a bank account and dealing with the compliance of banks has become the biggest challenge in internationalization.
Suppliers of infrastructure (e.g. electricity, water, telecom) usually are obliged by law to enter into a contract with every person or company who is willing to accept the general conditions and to pay the fees. However, although a bank account is a necessary infrastructure for companies as well for private persons, most governments do not impose such an obligation on banks.
National governments and international bodies grant banking licenses and regulate the sector. They decide on anti – money laundering legislation, they install financial regulators and reporting procedures for suspicious transactions. The official setup of many national regulators follows democratic principles (separation of legislation, execution and jurisdiction), but they can exercise a de facto power that can only be found in dictatorships.
For regulated professions, the acceptance of assets can be seen as a criminal offence if the person cannot prove that standard compliance was performed systematically and in the specific case. Consequently, it is understandable that management and employees focus on compliance to avoid risk.
To succeed in this environment, the following steps are important:
1. Know how banks are regulated:
Financial market authorities publish on their websites the legel framework in their countries. It is reasonable to know the national minimum compliance requirements and to prepare the documentation before approaching a regulated financial institution.
- Financial institutions have to define additional requirements for cases where the first risk assessment shows a higher risk. It is not bad to ask for these requirements and to prepare the documentation, too.
- Portfolio- management is a core competence of banks. It is used to divide credit portfolios into categories and to monitor them periodically. Banks also use the concept of portfolio management also in the area of anti-money laundering and they define risk classes. Current appetite for risk depends on their current portfolio and on the kind of applications of other clients. . Sometimes it is possible to get informal information about the situation.
2. Know the internal processes regarding anti-money laundering:
- Most financial institutions have an internal seminar once a year. The presentation has an aggressive style and calls for unconditional action. Often, a later inspection by the internal compliance department is announced.
- Back in the office, the department head worries and asks the employees to make sure that all formalities are met. They start to check all their files.
- Then the employees contact clients and ask them to update their information and to provide additional documentation for some normal and for some extraordinary payments.
- If the institution is in addition subject to an inspection by financial market authorities or if some critical cases appeared, management and employees are under pressure, and in such situations, they are quickly open to recommendations from the compliance department to end some relationships.
- When the inspections are over, daily business comes into the focus of interest. Before the end of the reporting period, management shifts the focus on profitability and they realize that the bank needs some new customers.
3. Prepare documents that you need anyway:
- Identification documents
- Passport or ID (original or notarized with apostille)
- Proof of address (utility bill)
- Bank reference (in countries with UK- system)
- In case of a company: extract from the commercial register, articles of association (notarizes, apostille, sometimes translated)
- Customer profile:
- Information about the customer including manager, shareholder and beneficial owner (CV, education, actual activities, source of funds)
- Information about the company: purpose, regions of payments, main existing customers, main existing suppliers, balance sheets, former bank account statements
- Information about planned activities of a new company: purpose, size and main regions of incoming and outgoing payments
- Estimation of the results of risk assessment
- Regular update of information
- Documentation for all payments larger than the scope that was mentioned in the customer profile
- Whatever is submitted, the compliance departments will check the files and ask for some additional information. They need to collect evidence that compliance is done carefully.
4. Make sure payments fit to the common pattern in the industry:
- Note that compliance departments use software developed by forensic accounting firms.
- Example: Usually consultants ask for prepayment and send frequently small invoices. Consultants know that small invoices are paid quickly and increase the client´s commitment, and they create a permanent cash flow to finance expenses (sometimes, there is a big bonus at the end, too). Banks have many consultants as clients and they see their payment pattern. If the payment stream of a consulting project does not fit to the usual pattern, there will automatically be an internal discussion.
- Consider: the administration costs of an additional invoice plus payment are less than the price for a starter in a restaurant, but the costs of to find a new bank are quite high.
5. Diversify: is one bank account really sufficient?
- Open a second bank account in another country, eventually a third one
- Use them both so there is history
- If you have profitable trade, divide incoming and outgoing payments to two accounts, it can help to keep total transactions confidential: the banker who sees the payments to customers may not be able to see sources and prices of your purchases.
(updated June 2018)