Setting up a foreign bank account is often of vital importance to entrepreneurs working across the globe. However, despite the promises of many websites, the process may be not as quick and easy as you expected. You should at least be prepared for a stringent and complex verification procedure that involves evaluating your identity, background, and risk profile as banks want to know what their prospective clients are like. The procedure is officially known as due diligence, and there are very few novice clients who pass it easily. If you want to discover why due diligence is important for offshore account setup, please follow the link to the trusted portal.
You may say that there are a lot of offshore banking alternatives around, and all institutions seem to welcome new customers. However, the times when the banks competed for the customers are over.
Even a preliminary approval you can get from the financial institution is no longer a guarantee that you will be given the final go-ahead. The permission that is ultimately given to onboard you as a customer comes from the Compliance department of the respective financial institution which has to meticulously carry out every step of the due diligence and Know Your Customer (KYC) procedures. If they make sure you are a reliable customer and seem to be promising, you finally get access to all the bank’s services.
Due Diligence Under a Microscope
Due diligence is a mandatory check in the present-day world carried out by Financial Crime Compliance. All the important information about the potential client is collected and carefully analyzed to systematically identify whether onboarding the client may be associated with any risks. Here are examples of the factors that the financial institution examines during the procedure:
- Founders and partners that are in any way connected with the company
- The jurisdiction of the applicant’s incorporation
- The risk profile of the business sector in which the applicant’s company operates
- Any sanctions against the applicant, his/her relatives, and business partners
- Beneficiary’s identity
Overall screening of reliability is an essential part of the KYC standards that may vary from market to market and from country to country.
Importance of the Due Diligence Procedure in the Banking Industry
Banking institutions use due diligence procedures for various purposes:
- They prevent fraud (for instance, the offenses related to fake/stolen identities or personal data)
- They verify the customer’s identity
- They comply with the legal requirements of the jurisdictions or markets where they carry out their activities
Risk-Oriented Approach
This is an approach that banks are often required to use in accordance with international KYC standards. It means that potential clients with a higher risk profile are required to undergo more meticulous Due Diligence verification. The level selected for the analysis depends on the risk profile and the applicant’s relations with the banking institution.
Here are the risks that are typically prevented by means of due diligence:
- Violation of sanctions
- Fraud
- Terrorism financing
- Money laundering
Due Diligence for Each Customer
Due diligence is an ongoing process that seems to have no end. Customers who have fully operational bank accounts and financial ties undergo risk and activity analysis as well with a certain periodicity. This is an important practice as risk profiles may change considerably depending on the actions and activities of individuals and legal entities.
Banking institutions monitor and analyze client transactions as part of the detailed ongoing Customer Due Diligence process.
Due Diligence: Looking on the Bright Side
Here are the steps that form the basis of the banking due diligence procedure:
- Checking the initial source of funds deposited in the account
- Understanding how the account is/will be used
- Creating the expected account activity profile
- Establishing the structure of the customer’s ownership
- Recording the data about the account beneficial owners (if applicable)
- Checking the applicants’ identity using the Customer Identification Program (CIP)
Business Operations: The Influence of Due Diligence
Due diligence has its impact on other sides of the banking institution’s Anti-Money Laundering (AML) program which include Enhanced Due Diligence, Suspicious Activity Reports, and the investigation.
As the costs of regulatory compliance are increasing, the data received as a result of the Customer Due Diligence procedure becomes very important for account opening. If the information is inaccessible or missing, it may result in regulatory violations and refusal to open an account, ruining professional and business relations in the long term.
Notification Management and Investigation Strategies
The banking institution checks new and existing customers in order to reduce the number of alerts for them and detect profile activity.
If the due diligence conducted at the start shows a considerable number of expected transactions, the profile can be configured right from the start. Actions that look suspicious or unusual at first sight may not trigger any alerts. However, it is not enough to simply know the volume of transactions. The banks can set minimum and maximum values for transactions, so they need to know the expected values to set a reasonable range.
Opening an Account in EU Banks: Money Laundering Blacklist
The blacklist maintained by the European Commission contains all the countries that have weak systems of combating money laundering and terrorism financing. If a customer comes from a blacklisted country, the Commission recommends banking institutions analyze their data in a more meticulous way. Each country is evaluated in terms of control measures, legal framework, and threat level to prevent money laundering risks.
What can you do if you come from a blacklisted country? Well, there is a way out: you can use a different tax residency jurisdiction or a foreign residence permit to simplify opening an account with an EU bank.
Need help with opening a bank account abroad or simply more information to successfully pass all the checks? Click on the above link to read more or talk to an expert using the live chat. You can also book a no-fee session to get professional advice. We wish you a seamless banking experience!