You apply for banking service to an offshore bank and the bank manager starts asking your multiple personal questions, which irritates you. You begin wondering if there are banks that do not ask too many questions. If this is what you are looking for, we have some recommendations for you! You can try setting up a bank account in Libya or Cuba, for example. Nigeria and maybe Mozambique would be two more options to consider. But your best choice would probably be North Korea.

Putting sarcasm aside, we must say that there are no banks today that would ask no questions. Why is that so? The first thing that you have to realize is that banks have not started asking multiple questions on their own initiative. For decades (and in some cases even for centuries), the reputation and the wealth of a number of European banks was based on unshakable principles of banking information confidentiality. In particular, the oldest private Swiss banks such as Pictet&Cie (founded in 1805), Lombard Odier Darier Hentsch&Cie (founded in 1796), Bordier&Cie (founded in 1844), Sarasin&Cie (founded in 1841), Mirabaud&Cie (founded in 1819), Wegelin&Cie (founded in 1741) used to offer ironclad protection of their clients’ information. The same can be said about such banks in Northern Italy as Banca C. Steinhauslin SpA (founded in 1868), Meliorbanca (founded in 1927), Banca Cesare Ponti SpA (founded in 1871). Banks in Benelux such as Trinkaus&Burkhardt KGaA (founded in 1785, currently part of HSBC group), Bank Ten Cate&Cie NV (founded in 1881), Kooger Doodenbos (founded in 1741, currently part of ING group), as well as some English banks such as Nichols, Baker and Crane (founded in 1777, currently part of HSBC group) also used to serve the purpose of confidentiality protection very well. Not anymore.

Reasons for loss of banking information confidentiality

You have to agree that the banks had to have a very serious reason to give up their trumps. And the reason was the launch of an international campaign against money laundering. Why are money laundering practices so dangerous? Partly, because they contribute to tax evasion but most importantly, because laundered money can be used for financing terrorists. This is something that the international community cannot put up with.

Over the last two decades, international cooperation in the sphere of combating money laundering and terrorism financing has reached a new level. One of the consequences of this cooperation was the incorporation of due diligence requirements as well as Know-Your-Client (KYC) requirements into national legislations of almost all countries of the world.

Therefore, today banks are legally obliged to ask prospective clients many personal questions to make certain that they are taking a reliable and law-abiding customer onboard. Moreover, they will continue asking questions even if you manage to scrape through the account opening stage and start using your bank account for making money transfers. For instance, if you make an unusual or suspicious transaction, the bank manager is going to ask you questions that pertain to the transaction.

FATF

Actually, the AML/ CTF campaign started before the 9/11 terrorist attack. FATF (Financial Action Task Force) was created in 1989. It is an intergovernmental organization that aims to develop standards for combating money laundering and terrorism financing at both the national and international levels. The organization is the primary force in the battle against these evils.

The first step was made in 1990 when 40 FATF recommendations were published. They were later amended in 1996 and 2003. In 2004, 9 new recommendations were added to the list. FATF has 34 member states including all the well-developed western countries, Russia, China, and several Arab countries. Thus, it is a powerful political force that can lobby its interests in any part of the world. The result of the organization’s effort has been the passage of new legislative acts that ensure common standards in fighting money laundering and terrorism financing.

As of today, the 49 FATF recommendations are incorporated in the national legislations of most countries of the world. The following evidence will support this statement: the FATF black list is empty now. Myanmar was the last country to leave the list in April 2006.

Due diligence requirements

In accordance with the national legislation of any country, banks have to carry out due diligence procedures when considering applications for account opening. The procedures include client identification with the help of reliable documents and information from unbiased sources.

If a corporate client is applying for banking services, the first thing that the bank administration wants to know is who the ultimate beneficial owner of the company is who controls the company and how they do it. Besides, the bank needs information about the types of the company’s business activities and business spheres where it operates. At this stage, the bank administration may request documents that reflect the company’s activities such as contracts, invoices, bills of lading, product certificates, and so on.

Another crucially important issue is confirming the legality of the sources that the deposited capital has been obtained from. An ideal document here would be a tax return carrying the figures that coincide with the figures in the application for account opening. However, salary certificates, sale of property contracts, inheritance documents, lease agreements, decisions on the distribution of dividends, etc. will also do the trick in most cases.

What will also help you is a corporate structure diagram that clearly shows how the company is organized and managed. If you supply a cash flow diagram, the bank managers are going to be very enthusiastic and appreciative about it. If you present a detailed business plan, you will simply make the bank officers happy.

Banks will also often request such personal information about the prospective client as his/ her marital status, number of children, professional qualifications, and career details. Why do they want to know that? This information is important for building long-term relationships with the client. The bank tries to learn in advance who is going to inherit the capital deposited by the client. Sometimes, these data can act as an additional element in the client identification procedure. The bank is going to analyze the transactions that the client makes to make sure that they are compatible with the client’s profile, his/ her geographical location, types of business activities, disposition to risk, and so on.

Such is the new reality that we all have to live in. Since there are no indications that the situation is going to change in the foreseeable future, the only sensible thing to do would be to come to terms with the new rules. If yours is a legal business and you are a law-abiding person, the new rules do not differ very much from the old ones.