Banks and the problems of offshore entities

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The cause of banking problems

Anyone that has tried to open a corporate back account knows the procedure can be drawn out with many checks and the need for certified documents making things a little more difficult than a standard personal bank account. With governments around the world putting a magnifying glass to the banking system (for a variety of reasons, terrorism, tax evasion and money laundering), regulations and restrictions are steadily increasing.

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The effect of banking problems

The effect that this has on those who wish to open a corporate bank account, but who’s company is in a jurisdiction deemed to be a “tax haven” can be extremely detrimental.  In a large amount of cases regardless to the activities of the company, or the nationality of the beneficial owner, many mainstream banks will refuse to open a corporate bank account for a company with a registered address in a “tax haven”. This forces company owners to look for other options, which normally ends up with the owner having to risk his company and his money with some lesser know less desirable bank.

A lesson learnt

The back end of 2013 saw a small Caribbean bank freeze all accounts. For companies that had accounts with them this was very bad news. Imagine overnight your company’s liquidity was gone, your client’s payments were bouncing back, and payments to your suppliers were not getting through.  Unless your company had considerable funds in other accounts your business could have been doomed, even if you were smart enough to open a second corporate bank account, you still had quite a mess to sort out.

The solution

As we have seen over the last few years there is no such thing as a completely safe bank, however, there are steps you can take to lower the risk. As a general rule, the easier to open an account, the less safe this bank is, for example: if you are not requested to visit the bank in person for account opening and forms signing, the chances are that this is how it works for most, and if most are doing it that way it could indicate that the bank is desperate enough to lower their standards, which in turn would suggest a less stable bank. You would do well to avoid small island banks that you have never heard of, particularly if they are easily controlled by close by larger governments. Do your research: Who are they? How long have they been going? Have they had any issues in the past? Who controls them? A final peace of advice would be to diversify, spread your finances, and have a backup, in case option “A” fails for any reason. If a catastrophic failure happens you may not have time to react, be prepared.