Richard Ashby 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?
All of New Zealand’s (NZ) financial institutions, including the major trading banks (Westpac, BNZ, ANZ, ASB, Kiwibank), are now governed by strict antimoney laundering rules (AML), which require customer due diligence (CDD) procedures to have been completed pre a new bank account being activated, and then on-going monitoring and reporting of suspicious transactions once the account is fully functional.
With the stringent requirements of the AML legislation now in place (recently extended to govern lawyers, accountants and real estate agents who are taking on new clients as well), it would have been reasonable to expect that once the CDD processes had been completed by the bank they would be indifferent as to whether the customer was offshore or onshore.
However, it has become clear in recent times, that all of the major trading banks at least, and no doubt the majority of the lesser known banks as well (due to the increased reporting obligations that have also been imposed on them), appear to shudder and try to hide in their burrows as soon as you mention that your offshore client wishes to open a new bank account.
The appetite for any risk is minimal (a position no doubt encouraged by the Reserve Bank of NZ’s recent enforcement action against several of the major banks for inadequate internal controls). This is reduced even further if the client is looking to trade in NZ via their offshore entity as opposed to establishing a NZ-based structure, or worse, the client wishes to use an alternative trading structure such as a limited partnership, as opposed to the more vanilla company structure.
Most of the NZ banks also have a so called “black-listed jurisdictions” list, those countries with whom they simply will not deal with (or at least not without heavy involvement from their internal fraud investigative teams). Mention Iraq or some of the old Soviet states for example, even if the client is not directly situated in those jurisdictions, and the bank is likely to become extremely nervous.
How accommodating are banks in your jurisdiction for opening a business and personal bank account?
Most of the major trading banks offer both business and personal bank account options to those based offshore.
The account opening procedures are similar across the banks. Most will allow you to apply online prior to your arrival in NZ, and will issue you with account details to the extent that you can commence the deposit of funds into the NZ bank account via telegraphic transfer, also pre-arrival.
These accounts will have an inactive status, however, until you, or an appropriately authorised representative of the account holder (if it is a company business account for example), visits the bank physically, and provides the requisite proof of identity (POI) documents. Once the bank is satisfied with the POI documents, the bank account will be activated (then fully functional and able to be managed from offshore in most cases if necessary). If the bank account is not activated within a 12-month period, then the bank will return any deposited funds and shut it down.
The requisite POI documents are fairly identical across all major trading banks, no doubt because all these financial institutions are following the AML legislative requirements and the CDD guidance in that respect.
Whether the bank account is a personal or business one does not usually in itself increase the level of POI documentation. Instead, it is the type of customer that will dictate POI requirements. For example, an individual customer will usually only need to provide their passport, plus some proof of their residential address, whether that be in respect of the country where they have just come from (or still reside), or the NZ residential address they will be staying at.
POI for a company account, however, will require a copy of the company’s certificate of incorporation (NZ or overseas), director’s details (plus a passport photo), details of any individual who has de-facto control over the company, details of any shareholder who holds a greater than 25% ownership interest in the company, and finally local tax identification numbers (TIN’s) for all of these parties, or a declaration as to why a TIN cannot be provided.
Should you join an internationally reputable or established bank rather than a local bank?
Due to NZ’s strict regulatory regime for its registered financial institutions, in terms of both Reserve Bank of NZ oversight and requirements to comply with NZ AML legislation, it makes little difference if you open a NZ bank account with an internationally reputable or established bank, or with a local bank that has no international affiliates.
It more likely therefore comes down to the profile of your client, their directive in terms of a desired banking relationship, particularly if there are likely to be multiple cross-border banking transactions between group members. This consequently may be better facilitated via having the same bank used in multiple jurisdictions.
From my own experience, using a bank that has cross-jurisdictional branches does not necessarily translate into greater ease in opening a new NZ bank account for your offshore client. I had one example recently where even though most of NZ’s major trading banks as I previously stated are Australian owned, the NZ and Australian branches were not interested in talking to each other to assist our client with opening a new NZ account because he already had a trading history with the Australian parent.
Presently the Reserve Bank of NZ lists 26 registered banks in NZ. Of these, only 5 would be considered “local”, and would probably not be considered as a viable NZ banking option by offshore clients. So I would suggest that the vetting procedures will be similar regardless of which international bank you choose (although some may be restricted to only dealing with those who have an account already in the parent’s home jurisdiction).