Where to open an account for an offshore company?

In which countries may bank accounts be opened for offshore companies and individuals?

The geographic location is one of the most important features of any bank and is one of the components of the bank’s reputation. Usually, the location of the bank is a matter of prime interest for customers wishing to open an account. However, your choice of bank should not be dictated by the country’s reputation alone, or by the fact that your foreign partners are located in that country. This may cause you to make the wrong decision and you will have to work with a bank that does not meet your requirements. You may have to deal with an inadequately high cost of banking services and prejudices against the jurisdiction where your company has been incorporated. You may also find that the approach of the bank’s employees in regard to the client’s needs may also differ from that in your own country.

The geographical location of a bank should of course be taken into account. Nevertheless, the first and most important criterion that you should bear in mind is the correct functioning of your account and the appropriate specialisation of the bank.

What does a bank reputation depend on?

Reputation is always a relevant feature for any bank. As a rule, people tend to open accounts in reputable banks with a high credit rating. It is not uncommon for foreign partners of a company to request that the company’s account for a particular transaction be opened at a bank with a high rating.

The reputation of a bank is a combination of several criteria. First of all, it is the bank’s history, or how long the bank has been in existence. For instance, some Baltic banks were only established towards the end of the last century, whereas the majority of Swiss banks date back as far as 200 years or more. Secondly, the reputation of a bank may, to a certain extent, be measured against the number of its employees. The largest bank of Switzerland and its branches, scattered all over the world, employ more than forty thousand people. At the same time, an American bank located in Seattle employs no more that 24 employees, who speak no less than 18 (!) languages.

The number of branches opened worldwide is another significant component of a bank’s reputation. However, a bank with numerous branches is not always the most client-oriented bank. One of the largest English banks has over 500 branches established worldwide and operates under the motto “Your local bank”. In practice, though, the bank is very reluctant to open accounts with clients from certain jurisdictions and this service is by no means available in all of its foreign branches.

Reliability of banks

The reliability of a bank means the ability to fulfill its obligations to its customers by a certain date. There are many features involved in the concept of reliability. The first mark of reliability is the year in which the bank was established. It is hardly likely for a bank with 300 years of history to be declared bankrupt.

Strange though it may seem, the collapse of established banks may actually serve as an impulse to their renovation and development. An example of this is the sensational affair of Britain’s Barings Bank, which was brought down through Japanese Yen speculations of one of the bank’s managers in Singapore. The employee’s error cost Barings $1,400,000,000, which was twice as much as the bank’s own capital. In view of such losses, bankruptcy was inevitable. However, Barings was soon bought by a large Dutch banking group and is now known as ING Barings.

It may be mentioned in passing, that clients of Barings Bank included Queen Elizabeth II and Prince Charles, so one thing we know is that the client base is still one of the most important constituents of any bank’s activities. If it is an established financial institution, it will not be allowed to just ‘drop dead’, whatever debts it might have. Most probably a failed bank will be bought out by another large bank. The change of ownership will not affect the customers’ interests, except in cases where there is a change in the banking policy. For instance, the bank may cease to open accounts for a particular category of customers (coming from a certain jurisdiction, for instance). This has been the case in the history of some American banks.

To some extent, the reliability of the bank may be checked against the country where it is located. European and North American banks may be regarded as 100% reliable, whilst for banks in other countries this rate will be substantially lower. Another important criterion is the amount of compensation paid by the bank in case of bankruptcy under the state deposit insurance scheme. In the USA the amount payable is about $100,000, whereas in Great Britain there is no fixed ceiling amount and the sum of payment is determined on the basis of the amount of money in the account.

What is a bank specialisation?

Each bank specialises in its own line of business. Some banks may focus on capital preservation and augmentation; others conduct a large number of transactions. Correspondingly, all banks may be divided into two categories: savings banks and settlement banks. However, there are banks, which do not stick to a particular specialisation and do settlements and fund management at the same time. This is the case at banks of the Baltic countries and Cyprus for example.

What is the difference between a current account and a savings (investment) account?

The above classification of banks is based upon the differentiation of the types of accounts those banks offer. Current accounts are meant for transfer transactions. There are no restrictions to the right of the account holder to dispose of funds and to conduct any transactions not prohibited by law, provided that they submit a copy of the contract to the bank if a single payment exceeds a certain pre-set amount or is unusual for that particular client.

A savings account is a ‘money-box’ account meant for accumulating funds. The number of transactions on this type of account should be minimal, from three to twenty transactions per month, depending on the conditions set by a particular bank.

A company that is to be used as a transaction instrument obviously requires a current account and for a company that is to be used to accumulate investments a savings account should be used.

What is a numbered account?

In some banks it is possible to open a numbered account: the account details show neither the company’s name (if a corporate account is being opened), nor the owner’s name (for a personal account), the only available information is a row of numbers. However, this does not mean that the bank does not know its client. Whenever you open any (!) account, you have to give the name of the beneficial owner and submit a copy of their passport.

Numbered accounts were first introduced in Switzerland. Despite the fact that the account is attributed to a certain beneficial owner, his or her identity is kept absolutely secret, known to certain officers of the bank only. One more advantage of numbered accounts is that they guarantee full confidentiality of bank transfers. When funds are transferred from one account to another, the only information available to the receiving bank will be the number of the account. However, the policy of some European banks is to refuse working with numbered accounts, so the amount transferred from a numbered account may be returned to the sending bank.

You should nevertheless bear in mind that numbered accounts are regulated by the same rules as any other accounts. Under certain conditions, banks may have to disclose confidential information (if money laundering is suspected, for example). In our opinion, the use of numbered accounts is not very practical nowadays and there are very few banks that still offer numbered account services.

A ‘numbered’ account does not mean an anonymous account. Unfortunately, people are still confused about anonymous accounts. It used to be so that some banks would open accounts via the Internet, simply on the basis of passport copies submitted by clients. It sometimes happened that a bank received a passport copy of one person and the account was then managed by a completely different person who remained anonymous.

The situation has, of course, changed completely now and all banks have abandoned the practice of remote account opening. Bank officers and professional intermediaries involved in account opening procedures are required to certify the authenticity of passport copies in the presence of passport holders.

Which bank is best suited to opening an account for an offshore company?

Right from the beginning it must be said that there is no such thing as an ideal account, just as there are no ideal banks, or ideal clients. That is why it would be worthwhile to look for a bank, at which you may open an account most suited to your needs.

If you need an account for your company’s business the chances are that there will be frequent transactions on the account. Therefore, in the first instance, you should choose a bank where the number of transactions, either inward or outward, is not limited.

When choosing a bank, you should also take into consideration the following: Where will the account opening procedure take place? Are there any requirements for initial deposit and the so called ‘minimum balance’ on the account? Does the bank work with so called ‘soft currencies’, like, say, the rouble? Do you think the bank’s rates and tariffs are acceptable? Will you have to submit any reference letters, and how complicated is the whole account opening procedure in general?

Should I open a corporate account or a personal account under my name?

It is widely known that banks refuse to open personal accounts for business purposes as you should clearly distinguish between business and personal finances. However, you may always transfer the profit, distributed by the company, to your personal account, provided that you are the beneficial owner of that company.

Technically speaking, there is nothing complicated in transferring funds from business checking accounts into personal checking accounts. Theoretically speaking, some problems may be faced by a sending bank or a recipient bank if there is any suspect activity. In this case questions may be asked concerning the source of funds. Credit and financial institutions are required by law to detect and prevent money laundering activities therefore they have to ask these types of questions. Transactions on a personal account are not supposed to show any signs of continued business activity and banks keep a very watchful eye on this.

Personal accounts are usually opened in Switzerland, Austria or Luxembourg, and those accounts are normally accumulative or investment accounts. To ‘gain access’ to one of these banks you will need a minimum account balance of 50,000 – 500,000 mln. US dollars (depending on the requirements of the particular bank). It is also assumed that this minimum balance will eventually increase.

Sometimes, a business account may be used as a personal account. This might be the case if you acquire and register immovable property not under your name, but under the name of a foreign company under your control.

Turnover requirements

It is common practice for banks to set particular requirements that potential clients must meet. When opening an account, bank officers may ask a customer to fulfill requirements that are not written anywhere in banking documents. This may be, for instance, the amount of the initial deposit, the monthly account balance or the annual turnover.

By way of example we may mention the requirements set by a well-known Austrian bank, which works with large accounts only. This settlement bank requires that the annual turnover on the account be 10,000,000 US dollars. It is not in fact necessary to meet the announced turnover requirement within the first year; this issue is discussed with each particular customer on an individual basis when the account is opened. Also, customers with a $10,000,000 turnover may be treated on a special basis, offered discounted money transfer rates etc.

Initial deposit requirements

An initial deposit is the amount of money which must be deposited on a newly opened account for its activation. In the majority of savings banks, the amount of the initial deposit is equal to the minimum account balance. Swiss banks may sometimes have their own procedure for depositing these amounts. Thus, according to the conditions of UBS Bank, “our ideal client is a client who deposits USD 300,000 within two months and USD 1,000,000 within two years from the date of opening of the account”.

Checking banks require far less initial deposit, usually no more than 5000 US dollars or Euros. Moreover, some banks allow you to use the initial deposit for your future transactions (a well-known Danish bank, for instance), although other banks do not provide such an opportunity (the Seychelles branch of a major English bank).

Minimum balance requirements

Banks which open accounts for business transactions may allow a zero balance on the account. However, there are some banks which require that there be a certain amount on corporate accounts at any given time (the amount may vary from bank to bank). If the account balance falls below a certain limit, banks may charge additional commission for maintenance of the account. In extreme circumstances, the customer will be notified that the account may be closed.

Swiss banks require that the minimum balance on the account be USD 300,000 – 1,000,000; Austrian banks set the minimum balance at Euro 100,000 – 500,000. Some savings banks introduced ‘soft’ minimum balances, the lowest amount of which was USD 17,000 announced by one of the Danish banks.

Banks which specialise in settlement or a combination of settlement and savings services do not have minimum balance requirements. Therefore, there is no minimum balance required at Baltic and Cyprus banks and in many Hong Kong banks. On the other hand, there is a bank in Lichtenstein which opens settlement accounts and requires a minimum balance to be kept on the account.

It is interesting to know that there are also some savings banks that do not have minimum balance requirements. We know a bank in Switzerland that does not require a minimum balance to be kept on the account; they do, however, charge USD 2,500 per year for account servicing.

Can I spend the minimum balance money?

Each bank sets its own particular conditions under which you may spend the minimum balance on your account. It should be mentioned once again that a minimum balance is often a part of the initial deposit.

Normally, you may spend part of the initial deposit; however, a certain amount is to be ‘blocked’ on the account. This is common practice with many settlement and savings banks. For instance, the Liechtenstein bank we have already mentioned requires Euro 2500 for the minimum balance, while the initial deposit with that bank amounts to Euro 5000.

Some banks do not allow the minimum balance to be spent; otherwise they will block the account. However, there are banks that allow the minimum balance to be spent, on the condition that they charge additional fees for the servicing of your account, for example.

As for the minimum balance requirements set by savings banks, this is usually equal to the amount of the initial deposit. Those banks’ policies may allow that a pre-set amount is reached within a certain period of time, 1 to 3 years, perhaps. However, once the required amount has been deposited in full, it becomes impossible to reduce it from then on.

The final option is to arrange a one-off reduction of the minimum balance with the bank for a certain period of time. If you urgently need a large sum of money you may discuss this option with the bank’s officers, provided you are able to assure them that the profit received will be deposited on your account in due course.

What are non-standard banking products?

To be able to perform certain transactions or in the course of the company’s day-to-day activities, you may sometimes require additional banking products alongside your active current account. It may be a merchant account, a broker’s account, irrevocable deposit, escrow account etc. You may use the products of this type offered by the bank in which your corporate account is opened, or by another credit institution. Having made up your mind as to which product you need, you should find out if the service can be provided and whether the bank you choose offers such a service.

There are banks which offer the possibility to use non-standard services as soon as the account is opened. For instance, a standard services pack of a well-known Danish bank, provided to you at the opening of an account, includes a booklet regarding letters of credit.

Generally speaking, each bank specialising in non-standard products offers its own assortment of such services and sets its own corresponding fees. You should bear in mind, however, that the fee will be higher than in some other banks which have the required services included in their standard pack.

What currencies are available?

Banks offer accounts in different currencies. They are usually Dollar accounts or Euro accounts, but it is also possible to open accounts in pounds sterling, Swiss francs or other currencies.

The procedure is as follows: your bank opens one multicurrency account or several accounts, each with their own number for a particular currency and, of course, you can always send a payment order for transfer of funds in a currency different from the currency of your account. In this case payment will be made subject to the internal exchange rate at the date of payment.

Types of plastic cards issued by banks

Credit cards are offered to the clients of almost any bank, though the terms and conditions of issue will be different. You may receive your card as soon as the account is opened, after having completed the relevant application form during an interview with the bank’s officer, or you may get the card at a later stage if it is to be issued under special conditions. There are Swiss banks which will not issue credit cards unless there is an amount exceeding, say, USD 300,000 deposited on the client’s account.

There are certain requirements to be met before cards are issued, related to insurance coverage, cash withdrawal amounts, card issue and cancellation charges etc. There are also payment limits, when the client is not able to pay by card if the purchase price exceeds the limit set by the bank.

An experienced customer who is not a resident of the country where he or she has an account may be quite surprised to find out how different the card issuance requirements may be in comparison to those in their own country. The thing is that when a card is issued to a non–native customer, the bank will include in its price the costs of execution of judgment in case of an overdraft on the account due to the client’s irresponsible behavior. It may turn out to be quite expensive to conduct an international search for a stray client (especially in non–EU countries) and to have the court’s orders duly enforced. This is why a non-resident customer has to have a considerable amount blocked on its card as an insurance coverage.

The amount of insurance coverage is usually proportionate to the spending limit, which may prove to be quite considerable (usually Euro 10,000 – 20,000). This proportion is 1:1.5 in American banks and 1:5 in Austrian banks. It is easy to calculate the amount, which will be blocked in the account.

Still, it is not as bad as it seems, because there are different types of cards. Instead of Visa or MasterCard you may receive Visa Electron or Cirrus Maestro. With those cards you can only spend as much as you have on your card account. Electron or Cirrus Maestro are often linked to your current account, so the funds on the account may not be blocked. However, there are some limitations when using these cards. For instance, there may be a daily spending limit, or some online stores may refuse to accept payment using these cards.

However, in a highly competitive financial market environment, Western banks tend to soften their requirements in order to meet the expectations of non-resident customers. Banks reduce their card maintenance rates, lower their requirements for cards issuance and sometimes offer non-standard banking products: for example, your card may have your own individual design. How would you like to see your little doggy’s face beaming at you from your banking card?

Charges on investment transactions

Investment transactions mean investing in different financial instruments, such as shares, bonds, derivatives, commodities, interbank loans and commercial loans. When opening an investment account the bank employee will ask you to fill in a questionnaire or answer a number of specific questions. This will enable them to advise you on investment schemes returns, thus helping to set up the best type of account for your needs.

Subject to the customer’s investment strategy, there are two main types of account management. Type one: the customer transfers his or her assets under the bank’s fiduciary management. In this case the customer signs an asset management mandate and all the investment decisions are made by the bank. If this type of management is applied, the customer hardly makes any transactions. The management fee varies from 1 to 5 % of the investment amount.

Type two: the client retains the right to carry out investment transactions. Fees charged by the banks on such transactions are more or less the same and depend on the amount of funds, the currency of the transaction, the investment period, the type of the instrument and the credit rating of a security issuer.

Account management charges amount to 0.15% – 0.25%, depending on the sum of the deposited funds (the greater the sum is the less the charges will be). When you deposit CHF 5,000,000 with a Swiss bank, the management charges will be 25% of that amount, and where the amount placed by you exceeds CHF 20,000,000, the charges may decrease to 0.15%. In case of precious metal or coin investing, the charges will be at 0.20% – 0.25%, regardless of the amount of the investment. In any case, the minimum charge will be USD 1.

There are some exceptions however. If the funds are invested in the securities issued by the bank itself or by that bank’s group, then you will probably not be charged account management fees.

The total transaction fee will start at USD 5 or 0.10% of the amount of transaction. The amount of the fee largely depends on the type of financial instrument and where the transaction takes place. If the transaction involves traditional investment products, such as shares, and is within the same country, the transaction fee will be 0.2% — 1.1% of the amount of the transaction (again, the larger the amount of transaction, the smaller the fee). Otherwise the fee may be up to 2.2%, depending on the amount of transaction, the financial instrument and the country of transaction.

The cost of the transaction may also depend on the currency of the account and its profitability level. If the currency of the account differs from the main currency of the bank, the conversion will increase the fee, besides, the more ‘popular’ the currency is, the higher the fee.

To round it all off, we should also mention that banks biased to current account servicing sometimes encourage customers to open investment accounts with them. So, when you choose a bank to open an investment account, the attractiveness of the rates should not be the only criterion for your choice. In the first instance, you should consider the effectiveness of the bank’s strategy and its investment portfolio management tactics.

Who can operate corporate accounts?

Corporate accounts can be opened, operated and closed by duly authorised persons only. Such persons are, in the first instance, the company’s director, and, secondly, the company’s Attorney, that is, the holder of the power of attorney with the power to open and close accounts included therein.

It goes without saying that the bank will keep all the relevant data pertaining to that signatory on the account, copies of his or her passport and signed bank forms. Each time the signatory is replaced, the customer is obliged to notify the bank accordingly, in compliance with the procedure stipulated by the bank.

How to operate an account

There are several types of remote account management. Bankers of Switzerland, Lichtenstein and Luxembourg use the ‘personal’ approach: the banker gets to know the client during their first meeting and afterwards takes the client’s instructions over the telephone. With this method, the client is identified by the code word in the first instance and subsequently by voice, or by other characteristic features known to the banker.

Additionally, many banks use other means of client identification: encoding of instructions, facsimile communications using code tables, other codifying means. Some banks, in Switzerland for example, ask the client to give a phone call to confirm the instructions given via fax.

Nowadays, however, the overall majority of customers prefer to operate their accounts via electronic means of communications. Online banking allows customers to make international payments online through various ‘bank–customer’ systems. Some banks allow their customers to log into the bank’s web page and then redirect them to the customers’ private pages where they may make payments. Other banks offer customers special software which may be bought and installed on the customer’s computer, so that the customer is able to operate their account from their own PC.

E-mails are sometimes accepted by banks for submission of copies of the agreements on transactions.

Can you monitor your corporate account online?

Yes. Nowadays, e-banking is a widely spread service that enables you to quickly receive account information online and monitor the activities on your account. You may, at your own convenience, check the balance on your account and make and send any payments without any fax or phone communications with the bank.

Even Swiss banks, which treat e-banking with great prudence, have tried to meet their customers’ expectations by allowing them to use e-banking, in a restricted version. Their system works in ‘view only’ mode, that is, the client may monitor activities in the account, but is not able to perform transactions.

Internet banking and information security

It is common knowledge that the banking sector spends the greatest amount of money on information security. Due to the fact that many clients prefer to operate their accounts online, it is vital that banks ensure the maximum reliability of their information security systems.

Banks normally generate several levels of protection for information transferred via Internet banking systems. Firstly, all communications between the users of the system and the bank travel via a secure connection. Communicated data will only be available to the recipient if they have a special deciphering device. Without the decipherer, the recipient will not be able to ‘read’ the information received.

Secondly, Internet banking can only be accessed upon entry of the user ID, password, and an authorisation PIN code as a supplementary security feature.

The above information should be known to the account signatory only, and banks take extraordinary security measures when communicating this information to the customer. For example, the envelopes with the user number and password are never sent out or kept together; they are passed from hand to hand against a notice of receipt signed by the account signatory in person.
Thirdly, the system may deny the access to Internet banking if wrong authorisation data (i.e. PIN, password or user number) has been entered repeatedly. Passwords are also usually deactivated when access is denied, so the client will only be able to gain access to Internet banking when the bank issues new passwords.

Many banks, at the customer’s request, send notices of transactions made via Internet banking to a registered e-mail address.

It is not uncommon for customers to be provided with a special device (digipass or token), which generates random numbers every 20-40 seconds. The numbers are inserted in the online form when a payment transaction is made. The bank then reads and deciphers the number upon the transfer of funds. In this way it is possible to establish that an order to debit the account was in fact made by the authorised person.

You should bear in mind, however, that it is virtually impossible to create a 100% hacker-proof system, which is why there are still certain risks associated with bank security.

How to retain confidentiality while operating an account?

The information supplied to the bank is protected under the bank’s secrecy regulations. In particular, the bank has to limit the access of any third parties to the information concerned. Bank employees are liable for the disclosure of the customer data known to them. However, even though banks do pay attention to account operation security issues, there is still a possibility of information disclosure due to incompetence or negligence of bank employees. Such things are not routine or common practice, but they do happen nevertheless.

Sometimes banks, by force of habit, may refer to the introducer, who introduced the customer to the bank when the account was opened. This may happen when the bank needs documentary proof of payment and the account holder is unavailable for some reason and does not respond to calls or e-mails. To avoid this, you should notify the bank every time you change your phone number, e-mail address etc.

Neither should you take for granted strict confidentiality declarations by banks, as in most countries, financial institutions are held liable for failure to report a crime. They may also be held liable for informing customers regarding such ‘reports’. If a bank suspects a customer is involved in illegal activities, it completes and sends out a special report to inform the relevant authorities of its suspicions.