In the good old days it was easy to open a bank account – select your bank, turn up at a branch with your passport, proof of address and suitable reference letter, and an account would have been opened for you the same day or next. Unfortunately, all that is now history. Banks, like reformed sinners, are determined to learn from their past mistakes and now choose their clients carefully. They will even shut down accounts if extensive due diligence procedures are not followed. Compliance, once a back-office function, is now firmly in charge of commercial banking policy and practice.
The global financial crisis of 2007 – 2008 has been widely blamed on the banks and their willingness to give credit and cheap loans to people who could not, once interest rates increased, be able to service their debts and repay their loans. At the same time, the role of major banks in money laundering activities and the financing of terrorism has come to prominence, with leading institutions such as HSBC, BNP Paribas and Standard Chartered just a few of the banks who have been convicted of such crimes, and had sanctions running into billions of dollars levied on them for their misdemeanours.
As a result banks have become highly risk averse and unwilling to lend money to clients without intense scrutiny beforehand as to the purpose and terms of the loan, and without strict repayment terms being applied. Existing customer accounts are closely monitored and, in some cases, can be shut down without adequate warning, or explanation. And new account procedures have been tightened to the extent that KYC (Know Your Client) policies have become so stringent that they represent a serious barrier to entry for some banking customers.
There is a strong argument to suggest that banks have now forsaken one of their fundamental purposes – to be a facilitator of global trade and commerce – in favour of a role more akin to that of an international policeman, regarding all clients with inherent suspicion, ready to penalise them at the first sign of impropriety.
Regrettable as this may be, however, this is now the new economic reality and needs to be accepted, if not embraced.
This is not to say that it is impossible to open a bank account; just be prepared to answer a lot of questions and provide substantially more documentation than once would have been the case.
For an individual customer, as a bare minimum, a bank will require a copy of your ID or passport, a recent utility bill in your name and at your address (not less than 3 months’ old), and a reference letter from a suitably qualified person – such as accountant or lawyer. They may also require you to disclose information about your income, employment and personal circumstances – age, marital status, dependents etc. Be prepared to give them all they ask.
In case of a corporate account, all the company registration documents – Certificate of Incorporation, Memorandum & Articles of Association, List of Directors and Secretary, and proof of Registered Office Address – will be required. If the company is part of a structure, then you will need to present the equivalent documents for all the companies in that structure.
From the bank’s viewpoint, one of their paramount objectives is to be able to identify and verify the Ultimate Beneficial Owner (UBO) behind any company or group. It is vital that this is disclosed, along with all their personal information (passport/ID, address, profession etc.). If, for any reason, you do not want to disclose the UBO, then you can forget any hopes of opening a bank account at all.
Providing the requisite documentation is only one part of the account opening process, however. The bank will need to have a very clear idea of the nature of your business and with whom you are likely to trade – customers and suppliers.
For example, if your business involves gambling, casinos, alcohol, tobacco or the arms industries, you may find it hard to get any recognised commercial bank to open an account for you. Equally, if your activities are regulated and you do not hold an appropriate licence (or your licence has been issued by a non-European jurisdiction or body), you are likely to have difficulty finding a banking partner.
The same goes for the geographical nature of your trading parties. There are some countries which are on the proscribed list for most banks and will automatically disqualify you from holding a bank account with them. These include any country which is subject to international sanctions. or associated with terrorism, civil strife or perceived criminal activity. It is probably best to check with the bank first to see if any of your trading partners fall into one of these categories; if so, consider replacing them.
For any financing activity, the bank will need to know the source of funds and the nature of the company’s financing arrangements. Equally, loans between unrelated parties should be avoided. A bank would always expect a loan transaction to be made either at arm’s length on commercial terms, or to be made amongst parties trading within the same group or under the same beneficial owner. Money lent to friends, associates or family members will always arouse suspicion.
For substantive loans, the bank may well ask to review the loan agreements, including purpose, repayment terms, interest rate charged and security.
Equally, for major transactions, the bank may ask to see contracts, invoices or bills of lading to verify their validity. In the case of services, make sure these are fully described on any invoice, and avoid generic terms such as consulting, advertising or referral fees.
Promissory notes should be avoided. These have been extensively used for money laundering activities in the past, and, therefore, have been classified as high risk investments by many Central banks.
Above all, be ready to advise your bank of any major change in your company’s activities – if, for example, you begin trading with a new partner, expand into a new territory or open another line of business. Failure to do so could lead them to place your account (s) under review, and lead to a lot more scrutiny of your activities.
For all the money that they spend on expensive advertising, banks are a lot more difficult to do business with now, than they were in the past. Undoubtedly they are subject to much greater regulatory pressures now – something that, many would say, they brought on themselves. Their response has been to emphasise compliance at the expense of the commercial imperative.
This is the new reality – the tail is wagging the dog. So, if you want to open a bank account with a commercial bank – unless you have and want to main high credit balances you can forget the private banks – get all your documentation in order, make sure there is nothing in your activities that will sound any alarm bells, and be prepared to answer all the questions that will be thrown at you.