What happens if my offshore company’s bank account is closed?

Written by Andrew Henderson
i

Dateline: Istanbul, Turkey

Opening an offshore company is one of the easiest things you can possibly do in many instances. While some countries have a relatively Kafkaesque array of forms, some other countries make it extremely easy to form a corporation, even online.

The trouble for most entrepreneurs comes when you want to actually USE that company. The most important tool needed to use any company, whether an offshore company or one in your home country, is a bank account.

Without a bank account, you can’t do much of anything. Unless you’re using your shiny new foreign company to hold and license intellectual property — something US citizens should be wary of — or hold tangible, non-income producing assets, there is little use for a company with no bank account.

But it’s the offshore bank accounts for these companies that have been giving people more trouble than ever. Ever since the war on terror and the war on drug cartels was ramped up earlier this century, governments have been subjecting banks to more strict due diligence and Know Your Customer policies.

That has made it more difficult for many people to open bank accounts, especially in far-flung island locales.

The Panama Papers only worsened this phenomenon, and in the last year, all of the European banks I know have shed themselves of any companies in “anything goes” countries like Belize, BVI, or the Seychelles.

But what if you already have a bank account for your offshore company and the bank is threatening to close it?

Diversification is always key

First things first, never put all of your eggs in one basket. If you’ve been reading my stuff for more than a minute, you know that diversification is the name of the game. That means that one corporate bank account is not enough; you should have at least two GOOD bank accounts. A good bank account is defined as one that is a “real” bank, not merely a trust account on some island that doesn’t make their own rules.

If your business is a cash cow that doesn’t reinvest all of its profits, you may need more than two bank accounts to safely hold your money. By “safe”, I mean not only safe from a ban failure — which should be unlikely if you use the right banks — but also from a bank freezing, suspending, or closing your account.

At a certain point, you should even consider using that business cash to buy precious metals, real estate, or something else your company can hold to further diversify.

But I digress…

The Hong Kong herd mentality

Recently, a couple of guys running a business in Hong Kong came to me. They had done everything I advise against: get advice from random people with different businesses on some internet forum, use a cut-rate incorporation service that didn’t understand their business, and follow that cut-rate incorporation service to open a bank account at HSBC.

For years, entrepreneurs have been telling their friends to start a company in Hong Kong. While that’s not bad advice, things are beginning to change. The worst part of this advice, however, was that most people took the easy way out and opened ONE and only one bank account… at HSBC Hong Kong.

HSBC was the “easy” bank to work with. Everyone knows them, and the cut-rate incorporators worked with them because they were the easiest bank to send people to. You get what you pay for.

Sadly, the guys who called me had been having problems with HSBC for six months. One day it was “your account is suspended until you fill out this form”, the next day it was “US citizens need to fill out this FATCA paperwork within one week, or else”.

The people who work at HSBC Hong Kong might just be some of the dumbest people on earth, not to mention being extremely hard to reach by phone, so the process was hard for my clients who didn’t live in Hong Kong.

Then, one day, HSBC decided to cull a large number of US-owned companies and my clients were out in the cold. They had thirty days to find a new home for their cash. The sad thing is, they’re not alone, On my recent trip to Hong Kong, I saw a lot of people in the same boat.

Solutions to your company’s bank account closure

Once a bank decides to close your account, there is not much that you can do. You might be able to convince a small bank to hear your appeal, but there is no way you will get HSBC or any other large bank to listen to you. You have to accept their decision and find an alternative.

The mistake my clients were prepared to make was to chase after the same offshore banks in places like the Caribbean that have had so many problems. While these accounts may seem alluring due to possible remote opening and their open stance, I don’t recommend them — particularly for US citizens and many others.

If your bank account is closed, you must open a new bank account somewhere else. Simple as that; there are no great secrets to getting around this other than to follow any compliance procedures you may have been lax with more closely at the next bank.

If your company is in Hong Kong and you’re not a Hong Kong resident, you might find the account opening process there difficult. Hong Kong banks have become very strict with non-residents, so if your Hong Kong company’s account is being closed, you should expect to deposit and maintain a balance of at least HK$500,000 (US$64,000) if you want any decent banking options.

If you don’t have that kind of cash to let sit, you’ll likely need to consider some other banks, possibly in emerging countries. Fortunately, some emerging world banks are actually more stable than the poorly managed institutions of the West and can be far easier to deal with.

Review your business structure

One thing I strongly recommend if a bank decides to close your account is to review your structure. Sometimes, the issue is not the specific bank, but the fact that the country your company is in is no longer acceptable to many banks. If your company is in the Seychelles, Belize, BVI, or Marshall Islands, it might be a better idea to review your options for a new structure that banks will find more appealing.

Also, if you are using things like nominee directors or shareholders, some banks may find that unappealing, There may be a better structure. While some banks have just become impossible to deal with (as with HSBC), there may be some things you can change to be more appealing to your bankers. If you’d like help with that, you can get some help here.

There is no specific advice other than “get another bank account quickly” if you’ve already been advised that your offshore account will be closed. Either way, you can and should prepare for that to happen if it hasn’t already. Open additional bank accounts in different countries, make some small inward transfers, and see how the bank operates.

One other suggestion is opening a precious metals account, which you can do here or here.

Remember that “nomad” means constantly being aware of the changing landscape and adapting. If you set up the right bank accounts for your offshore company, you should be able to operate hassle-free for many years. The trouble has been not only for US citizens, but also for those who try cute shortcuts. That no longer works.

Andrew Henderson
Last updated: Dec 26, 2019 at 7:39PM

Start Your Offshore Journey Today

The Nomad Capitalist team has helped hundreds of people create and execute prolific offshore plans to help them legally reduce their taxes, become dual citizens, and live the Nomad Capitalist lifestyle of success

Start Your Offshore Journey Today

The Nomad Capitalist team has helped hundreds of people create and execute prolific offshore plans to help them legally reduce their taxes, become dual citizens, and live the Nomad Capitalist lifestyle of successWould you like to be next?

Read this next..

6 Comments

  1. Nicole Jolie

    Andrew, the buttons for the precious metals account at the bottom of the page don’t work. Great article, although, I’m still confused as to where I would look if I owned a bank account that would be closed. Do they take all the money in the account? Are you penalized and then given the rest? Just curious.

    Reply
    • James

      Hi, the article rightly says that banks are shedding services to companies in ‘exotic’ locations such as BVI, Panama etc. These are called Overseas Territories. However, the are more regulated areas like Crown Dependenices and if you go with a good incorporation company and allow them to be directors, then banks are comfortable.

      Reply
  2. Pal

    Please be aware that any list of offshore banks recommended should exclude Caye Internation in Belize. I got burned by them during their lock out last year and the the list of lies that they told me and the damage they did to my offshore life DUE to their lies rather than tell me the truth and doing the things they said they would do ending up costing my a small business deal of 30k and personally over 20K is costs scrambling to survive and re-establish myself. I just cannot stress what a bunch liars and I mean every person I dealt with lied to me over and over again at Caye Int Bank in Belize. Being lied to by the people in a foreign land that are sitting on your money ….that is not a bank…that is a trap door waiting to send you down a dark black hole when you least expect it…I know from experience. Please don’t recommend this bank to expats.

    Reply
  3. Mona

    Can an offshore bank close down and hold your money and demand huge fees upfront to release it your money?

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.