Banking Worldwide Is More Regulated All The Time

I met last week with a banker from a bank I’ve worked with for years. In conversation, I lamented the difficulties we would-be account-holders face these days when trying to deal with banks around the world, especially if the passports we hold are American.

She responded to point out that it’s not only account-holders who are struggling.

If it were any time other than right now, I would have dismissed her complaints. How tough can a banker’s life be?

In the current climate, the truth is, pretty tough.

“Banking has changed tremendously since I started 20 years ago,” explained my banker-friend. “The paperwork and reporting required behind the scenes are incredible.”

My initial reaction to any banker asking about the source of funds for any large wire or other transaction I’m trying to execute is that it’s none of his f$%&ing business. With my wife’s help, I’ve learned to overcome that instinctive response, not because I mind the invasion of privacy any less but because not providing the information they ask for

means running the risk of losing the account.

As my banker-friend reminded me last week, it isn’t the bank wanting the information anyway. The bank is caught in the middle and no happier about the situation than I am.

It’s the regulators who insist the questions be asked, and, thanks to the terrorists and the drug cartels, the gun-runners and the tax-cheats, banking regulations are growing tighter all the time. Used to be that, if you received a large wire of funds from, say, the sale of a piece of real estate, your bank would inquire as to the source of the funds. You’d explain that they were the result of the sale of a piece of real estate. And that’d be that.

No longer. Most banks today aren’t going to leave it at that. Most banks today are going to want to see a copy of a sales contract for which the seller’s name matches the account name from which the funds have been sent. Not, my banker pointed out, because they’re being nosy, but because, if they don’t have that information and the supporting documentation in your file when the banking regulator comes to audit them, the bank risks huge fines and sanctions. The individual banker responsible for the account runs the risk of jail time, depending on the situation.

So most bankers have become excessively diligent in these matters.

A couple of years ago, a bank where I have an account in Panama requested a meeting to inquire about some transactions. The banker came to my office, sat down, and began her inquiries. I practically threw her out. I’d already been questioned about most of the transactions she was asking about–nine months earlier!

Then the woman had the nerve to ask about a relatively large local check I had written six months before the date of the meeting. A local check…really? In this case, I did tell the banker it was none of her business how I spend my money. The meeting was over. She should go.

Over the next few weeks, the banker continued to follow up via e-mail. Eventually my stubbornness subsided, and I told her what the check was for. We’d bought a car.

I gave in only because a thought had been nagging at me throughout the entire exchange. If the bank closed my account, I’d be out of luck. I didn’t have another account open to serve the same function.

I remedied that quickly. Within a month, I opened another banking account with another Panama bank. Coincidentally, around the same time, I started hearing stories of Panama banks closing the accounts of foreigners (mostly Americans) with no notice. If I’d had any doubt, it became clear. A bank would (and will) close an individual account before risking fines or sanctions from the local banking regulators for missing transaction details.

Most of the time, even in the current climate, banks question only “unusual” transactions. What’s unusual? That depends on you. If you have been transferring US$3,000 a month into an account for several years, building an investment portfolio, and then suddenly you wire in US$50,000, the bank will likely ask you about it. If you wire US$50,000 a month for years and then, one month, receive US$100,000, the bank may not blink an eye.

Another banker I know says he sends million-dollar wires for clients several times a year. Sometimes the correspondent bank asks for documentation, and sometimes it doesn’t. What’s the difference? Probably to do with the relative activity of the account-holder in question.

One thing that can help keep you from getting that unwanted call from your banker asking about some past or recent transaction is to keep your profile at the bank updated. When you open a bank account anywhere in the world, you’ll be asked to provide an abundance of information that, if you are setting up an account for a new corporation, you may have to guess at.

How many transactions will the account see each month in total? How many cash deposits? How many withdrawals? How many check deposits? How many checks written? How many wires to be received…and sent? For what typical value in each case? For what maximum value?

Here’s a tip: If you’re uncertain of the actual values and volumes (because, for example, you’re opening an account for a new business), fudge your responses to each of those questions on the high side. Indicate a volume or value that’s too low, and you run the risk of being interrogated for every single transaction that surpasses your original estimate.

Which leads to my point about keeping your account profile up-to-date. When you have a more realistic idea of what account activity will look like and, as well, whenever you expect account activity to change, contact the bank to update your profile with them. The bank won’t think to suggest this. They’ll just start asking questions and interfering with your ability to send or receive wires, to make deposits or withdrawals, etc. Often, you can avoid all that hassle by taking time to adjust whatever account particulars the bank has on file for you.

Lief Simon