Dateline: Kuala Lumpur, Malaysia

If you thought opening an offshore bank account was difficult, you may have seen nothing yet.

We frequently discuss the idea that countries like the United States and other OECD Members are making it harder to move your money offshore – on purpose. Bankrupt countries you would have trusted just a few short years ago have resorted to some pretty draconian measures to confiscate pensions, bank accounts, and savings.

It only makes sense that high-tax countries with high sovereign debt loads have access to as much money as possible. After all, the government doesn’t view it as your money.

In fact, one banker friend of mine has suggested that the United States may extend its FATCA imperialism to excluding foreign banks from accepting US citizens altogether in the future.

Yesterday, I got an email from another banker friend of mine to clarify what type of clients they can accept, and which clients they can not accept.

From time to time, I help readers and clients by introducing them to appropriate offshore banks.

Because I get emails about so many “interesting” cases here, my banker thought it would be a good idea to update me on his bank’s “restricted list”.

Every bank has a restricted list – people the bank has determined it can not or will not open accounts for.

In some jurisdictions, this restricted list can be so broad as to include everyone who is not a citizen or resident of the country the bank is located in. Those types of jurisdictions are often ones to avoid, as shunning foreign wealth is rarely the ticket to prosperity.

Other jurisdictions are much less lenient, accepting foreigners and even tourists walking in off the street. (These, of course, tend to be the best countries to bank in).

However, there are some types of people, and some companies, that very few banks will accept. In some cases, this is based on international laws, while in other cases, it is at the discretion o the bank.

Just who is on an offshore banks’ restricted list?

In almost all cases, foreign banks will refuse to accept businesses that are involved in immoral or shady activity. These industries include gambling, pornography and adult entertainment, pharmaceutical sales, commodity trading, and other related industries.

While I’m sure there are one or two perfectly legitimate guys selling Viagra over the internet from Pakistan, no offshore bank is going to take a chance on a business that sells pills through the mail.

The same goes for adult entertainment. If you’re in the porn business, you’ll have one hell of a time opening an offshore bank account, especially in a zero- or low-tax jurisdiction. The few countries that welcome porn with open arms tend to be high-tax, self-congratulatory “open-minded” places.

Gambling is also a no-no, as internet casino operators have a habit of getting banks into trouble with their local regulators. Yes, even in lightly regulated banking jurisdictions, banks have to be held to some standards.

If they weren’t, would you want to bank there?

In some cases, refusing to deal with companies in these industries is the choice of the bank. They merely don’t want the potential trouble that comes with companies with a lot of bad actors.

One money laundering investigation or criminal probe and the whole operation could come tumbling down. Even centuries-old Swiss banks couldn’t stand the pressure of a US government investigation; a bank on some island somewhere would fare much worse.

It’s not just companies in shady industries that offshore banks have problems with. When it comes to individuals opening offshore accounts, banks can be just as prickly thanks to foreign government intervention.

For example, the banks of both aforementioned friends refuse US citizens in all cases; there are absolutely no exceptions.

Small offshore banks around the world have seen just how much it costs large banks to be FATCA-compliant, and many know they can’t afford to do the same.

Canada’s TD Bank spent some $100 million complying with a law that had nothing to do with Canada. That was the price tag for one of Canada’s largest banks to update their systems to spy on US account holders and report their data to the taxman south of the border.

Offshore banks in the Caribbean and other so-called “tax havens” don’t have $1 million, let alone $100 million, to update their systems to accept US citizens.

In the case of one bank, they simply don’t answer the phone for US area codes. That’s how far offshore banks are going to make sure they don’t deal with the much-maligned “US person”.

In fact, anyone who has “US indicia” – even so much as a phone number starting with “+1” is refused from banking at any number of banks from Switzerland to St. Vincent.

Also owing to US law, most offshore banks refuse to allow any account holders to deal with countries on the OFAC list. OFAC is the US government agency that imposes sanctions on countries it doesn’t like.

US citizens are prohibited from doing business with “specially designated nationals”, including almost everyone in North Korea, Cuba, Sudan, Syria, and Iran. However, because the United States is the largest hub for money movement in the world, offshore banks almost always must comply with OFAC’s mandates.

That means that folks from countries on the OFAC list – or countries with a greater than average number of people on it – will find it nearly impossible to open a bank account.

It’s not just Iranians who can’t bank offshore; I’ve seen a lot of African nationals refused accounts as well. If you can’t provide some plausible explanation as to where the money you’re depositing came from, no bank will do business with you.

As my friend Peter Zipper jokes, the only alternative is to visit a bank that charges 10-20% to deposit cash, or as he calls it “ought to just hang a sign on the door that says ‘We launder money.'”

In short, offshore banks have to play by the rules set up by countries like the United States if they want to move their money around. Choosing the right offshore bank is really important, because I’ve seen several banks just in the last year totally LOSE their ability to move money out.

A bank that falls out of compliance with international standards may not be able to wire your money to you when you demand it. Having a bunch of money stuck in the Seychelles won’t do you much good… unless you want to move to the Seychelles.

If you’re a US citizen, you’ll have a harder (yet still possible) time opening a foreign account. If your business is even remotely questionable, you may also have trouble. Even our business has had gotten the occasional stink-eye from a banker who thinks teaching offshore stuff is the domain of underworld criminals.

Andrew Henderson
Last updated: Aug 19, 2021 at 8:51AM