Aggressive Anti-Money-Laundering Efforts Make Offshore Banking More Challenging

I’ve been reporting on the coming of FATCA for eight years. That’s old news. FATCA has arrived. It’s a reality of today’s offshore world. Banks have decided or are in the process of deciding which path they’ll follow toward compliance. Either they’ll continue to work with American clients and meet all the reporting requirements… or they’ll boot all U.S. clients to the curb, refuse any new ones, and be compliant with FATCA by effectively opting out of FATCA.

Many banks have implemented extra fees intended to cover the added costs of following FATCA rules. Some are charging application fees of would-be American account-holders; others are charging additional annual fees of American clients, on top of any existing annual fees; some are charging both.

However, again, all that is old news. If you’ve yet to be hit by a FATCA-related fee or hassle, count yourself lucky but don’t count yourself in the clear. If you haven’t yet received a notice from one or more of your offshore banks—of a new fee, of new required documentation, or of a closed account—I’d say it’s just a matter of time.

Meantime, those of us trying to do business with offshore banks face increasing hassle on another front, to do with more aggressive anti-money-laundering efforts. These are leading banks to enforce more invasive know-your-client rules. In some cases, banks are asking account-holders for copies of tax returns, for example. Banks I’ve spoken with say that’s now their preferred method for confirming Social Security numbers rather than using the IRS form W-9, which is simply an informational form completed and signed by the taxpayer. A W-9 isn’t submitted to or confirmed by the IRS.

The tax return has the added benefit for the bank of verifying income for the previous year, which helps to give them an expectation of reasonable transfers and account activity for that client. That’s the next step with banking—comparing transactions with income levels to raise the alarm when one doesn’t jibe with the other.

A friend of a colleague withdrew US$20,000 cash from his account with a U.S. bank where he had been doing business for more than 40 years. Nothing illegal about withdrawing US$20,000 from your own bank account. However, because of the “large” cash transaction, the bank closed the account. No warning, no notice, no discussion. Simply told the guy to take a hike.

In the news this week is Nogales in Arizona, where banks have closed accounts of Mexican nationals working for U.S. companies. These are legal employees working for cattle ranchers and other businesses in that part of the country. Their accounts are being unilaterally and arbitrarily closed because banks near the U.S.-Mexican border are just that paranoid about illegal transactions.

In some cases, banks are closing entire branches. Better to have no business at all than risk big government fines if some transaction is deemed money laundering. As you can imagine, this is putting businesses along the border in dire straits as they try to figure out how to pay employees and vendors.

U.S. banks aren’t the only ones overreacting to concerns over money laundering risks. Banks in Panama have closed accounts of Panamanian businesses that receive money from the United States. These businesses aren’t run by Americans. Their sole crime is being successful in selling their products to Americans, so successful that they are receiving many wire transfers from U.S. banks. The Panama banks on the receiving end don’t want to take the risk that any of the many payments coming from U.S. clients could be considered from illegal activities. Better, they determine, and certainly easier simply to close the accounts.

Other banks are saying clients can’t have more than US$1 million in their accounts. I’m not sure what that has to do with anything, but that’s where some banks are drawing the line. They’ll keep your business account open and allow you to receive money from U.S. clients and U.S. banks but only if you have less than US$1 million in the account.

In the current climate, all international business transactions have become suspect.

Meantime, some of us are just trying to earn an honest living.

Lief Simon

“Lief, will you be covering the changes to the new Panama residency program?”

D.R.

The Panamanian government this month announced immigration changes, but they’re nothing to do with the pensionado or Friendly Nations visas or any other residency option you may be considering. The changes are to do with foreigners in the country with “extraordinary provisional migration permits.” These have been issued mostly to regional migrants in Panama as maids, restaurant staff, drivers, etc., through a series of amnesty programs over the past several years. Tens of thousands of formerly illegal aliens have taken advantage of these opportunities to legalize their status. Now, if they have not kept that legalized status current, they’re no longer eligible to renew it.

In other words, this has nothing to do with you and me.