Increased Due Diligence

Doing business requires more and more paperwork. There was a time when you could open an offshore company by sending all details in an email. Nowadays, you have to present all sorts of documentation. Utility bills. Bank reference letters. Declarations on source of income.
Most of the implemented policies have noble goals like preventing money laundering and protecting the integrity of the financial system (which is very integer). But it appears like the whole industry has been turned into private police force for governments that cannot keep their balance sheets in order.
There are some things going on here.
First of all, it creates a false sense of security. Compliance officers are so busy with following check lists, that they often forget to properly analyse what is really going on. When asked, most don’t know why certain documents are needed.
But when you are a drug dealer you will not have a problem with getting a utility bill photo-shopped to make sure a compliance officer gets everything he needs.
Increased costs. The effect of this is that companies that operate internationally (which is almost everybody nowadays) have higher costs that they have to calculate to their customers.
Due to the fact that compliance officers are prevented from making commercial decisions (and don’t have a commercial cell in their body) we see financial service providers enter into competitions as to whom is more compliant, like it is a unique selling point.
All paid for by the entrepreneur, of course, who encounters more and more red tape…
 

Opening Of Bank Accounts

The main bottle neck in the offshore finance industry are the banks. With so much going on in the financial world, banks are terrified of being associated with money laundry.
The first result is that banks do not take on clients that do not have a standard business model.
This leads to neurotic behaviour and the erosion of the rule of law. When banks are so frightened to be contaminated the will immediately cancel relationships at the first sign of trouble.
Examples are Loyal Bank and FBME. These banks were unable to provide services to their customers after trouble with their correspondent banks.
If you wish to successfully open an international corporate bank account please make sure to read the article we wrote in one of our previous newsletters Things To Consider When Opening An Offshore Corporate Bank Account.
 

Sanctions And Political Exclusions

Another thing is the certain sanctioned countries. And example is Iran. Iran can be found on the blacklist of the OECD. This means that they are considered a serious risk to the integrity of the financial system.
These policies are of course purely political. Since the trade embargo is pure geopolitics. But in a reaction the whole financial services industry bans its services to ALL Iranians. Even when they have been living in the West their entire life and have Western passports, but simply had the misfortune of being born in Iran.
 

World Check

Another source based on which clients are being denied is the database like world check. Surely the use of these databases is useful to find convicted criminals.
But in practice we see that people are singled out because they have a similar name. Something that somehow seems to happen a lot with the Chinese…
It is even included in world check when someone appeared in a newspaper or they have been accused (NOT convicted of anything).
The standard reaction is to deny individuals services regardless of the facts. Just to be on the safe side.
This leads to Kafkaesque situations where individuals are denied of services simply because they appear in some sort database of a private entity the have never heard of.
 

Will the increase in Offshore Finance Regulation end soon?

Most likely not.
Government control is ever expanding. And this is a global phenomenon, since all governments worldwide are now doing what they do best. Making up rules and sucking capital out of the private sector.
 

How to deal with increased offshore finance regulation?

As an international entrepreneur or CSP you have to accept the increased offshore finance regulation. This is the “mode du jour“.
There are still options to move to where they are treated better. Whether it is moving your company or moving all together.
Some people move all together and go to places like Dubai, Hong Kong or Panama or places in the third world where the governments are simply not as repressive or don’t tax income generated abroad.
Banks in the UAE still open bank accounts based on really knowing their clients. Meeting them face to face and understanding their business.
 
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