Robert Hoberman participates in the IR Global Guide – A Jurisdictional Guide to Opening a Foreign Bank Account
Foreward by Andrew Chilvers
For companies and individuals looking to move into new jurisdictions for business opportunities, setting up a bank account is a crucial part of the process. But this is never as straightforward as it seems.
In all countries, banks are obliged to crack down on fraud and any potential financial scullduggery. As a result, they tend to be very risk averse. Regardless of where a business establishes an office in the world, local banks will generally have the newly arrived expatriates jumping through various hoops, pulling their hair out in frustration.
The new arrival will need the relevant paperwork, including personal identity papers, a personal and business address, personal references and other numerous documents. And that’s just the beginning.
Every jurisdiction has its own banks and banking rules, which are often complex and bureaucratic. Consequently, seeking advice from local legal and financial experts before setting up a bank account is imperative if a company is it get the right account for its particular business objectives. This is why it’s so important to use local advisers who are experts in the jurisdiction to provide information about the local banking rules.
What is the general risk appetite of banks in your jurisdiction and how does that affect setting up a new business bank account?
US banks are always calling us a soliciting business. They have sales channels that are constantly looking for new sources of business and personal relationships. US banks are subject to Know Your Customer (“KYC”) rules and as long as they get the information they need on the account owners and can verify that it is a legitimate entity, they are willing to open accounts.
• Different procedures for businesses depending on jurisdictions
– There are different procedures for Small Business Entities (“SBE”) than for large commercial entities. SBE’s are generally defined as doing less than $5 million in sales. SBE’s generally need to prove that they have authority to do business in the US and will have to provide copies of Articles of Incorporation, issuance of an Employer Identification Number (“EIN”), a copy of the ITIN for the responsible person as well as have an address in the US.
– Commercial entities with greater than $5 million in sales have an easier time opening an account. US banks generally do not require an Individual Taxpayer Identification Number (“ITIN”) of the responsible person, they do not need to have a US address. However, the bank will require copies of the documents of formation in their country. They do need to have some presence in the US (either an office or a responsible person).
– Companies formed in the US generally need to provide the bank a copy of the certificate of formation, issuance of the EIN and either a Social Security number or an ITIN of the person with signatory authority.
• Different procedures for personal accounts
– For personal accounts opened in a US bank, the bank will follow its KYC rules which generally mean that:
– Individuals must have a US address
– They need to be either a US citizen or a Green Card holder.
• Should an expatriate set up with a local bank or keep their salary offshore?
– There is no difference in the taxation of a US citizen if they deposit their foreign earnings in a US bank or a Foreign bank. However, if they open a bank account in a foreign country then they may be subject to the FINCEN reporting rules. Failure to comply with the annual information reporting (there is no tax due on the FINCEN reporting form) can trigger significant penalties and criminal charges.
How accommodating are banks in your jurisdiction for opening a business and personal bank account?
• How varied are banks’ vetting procedures?
– Most US banks have similar provisions; however, they can vary at different times and the speed at which they process the paperwork can vary significantly as well. It is important to select a bank that is set up to handle these types of requests in an efficient and expeditious manner.
• What documents need to be provided?
– Certificate of formation
– If a foreign entity, authorization to do business in the US
– Proof of a responsible person (either a US citizen or an ITIN holder)
– US address or US presence.
• How long does it typically take and what is the process?
– If you have all of the documents readily available, the process can take anywhere from 2 days to one month.
Should you join an internationally reputable or established bank rather than a local bank?
I would recommend that you use a large international bank. They have more resources, branches in other countries as well as affiliations with other foreign banks that can help you to facilitate transactions in more countries if the need arises.
However, if you know that you will only need to use the bank in the US, then it may make sense to open the account at a large regional bank that your advisor (accountant or someone else) has a relationship with so that you can get a more personalized experience and better service if a problem arises.
• Is it easier to set up a local bank account and what does that mean for your business?
– Having a bank account in the US will make it easier to receive payments from customers as well as make payments to vendors. Remember, a significant amount of commerce in the US is still transacted with checks.
• What would be clients’ perceptions if you set up a business account with a local bank?
– I would not use a local bank unless it was either an international bank or a large regional bank. In either case, I think that the client would be very satisfied with the choice.
• Are international banks’ vetting procedures more difficult than local banks?
– In the US, the vetting procedures are very similar due to the KYC rules imposed on the banks by the various laws that were put in place subsequent to the 9/11 attacks. The only difference that I would tell them to take into consideration is the service at a large regional bank is generally better than an international bank, but, an international bank will have more resources available to the client outside of the US.