The Challenges Of Setting Up A Forex Account

Last week I mentioned that I was trying to set up a forex account to save some pips on a transfer from U.S. dollars to euro for a property purchase I’m making in France. The first forex company I tried to work with turned out to be no better than others I have tried in the past. In my initial conversations with them, they assured me that setting up an account would be quick and easy. As it turned out, they aren’t equipped for real international business…just Plain Jane clients.

The account I wanted to open with them was to be for a non-U.S. entity, and they weren’t able to verify independently the directors and shareholder. Of course, that is one of the advantages of using an offshore entity for business, investing, and asset protection. It didn’t matter to this group that my entity has a U.S. Employer ID number for U.S. tax purposes, as I report the activity of the company on my U.S. taxes each year even though all that activity is offshore.

After realizing the company wasn’t a U.S. entity, they asked for a letter from my accountant or attorney verifying the company data that I had provided. My attorney wrote up the letter. They weren’t happy with that because the attorney in question operates in the virtual world and doesn’t have a physical office (because he doesn’t need one). They dismissed the letter out-of-hand and told me that, instead of the letter, they needed to see certified incorporation documents, among other things, directly from the country where the entity is registered.

In the course of what turned out to be my final conversation with this company, their representative went way beyond the scope of normal know-your-client questions. He wanted to know in what name the property I was buying would be held, the intended use of the property, and other particulars that suggested this was not an outfit I wanted to work with.

Plus, I was on a timeline that couldn’t wait the weeks or more I knew it would take to produce and authenticate the documents being requested. I decided better to try another group.

The group I’ve ended up using is GCEN. They were able to set up my account immediately upon receipt of the required documents (the same original documents I had sent the other folks).

Why was GCEN happy with my corporate documentation when the other group wasn’t? Could be because the first group is in the United States, and the know-your-client bar in that country is high and getting higher. GCEN is in the UK.

The second possibility and the one that I find more plausible (as I don’t think the UK’s anti-money-laundering requirements are any less onerous, really, than those in the States) is that, despite having branches in multiple countries, the first group isn’t really equipped to deal with international companies.

Documentation aside, the intrusive questions they asked put me off them even for non-corporate currency transfers.

You can find out more about GCEN here.

My experience with GCEN so far has highlighted only two downsides to doing business with them. First, their rate for my initial transfer wasn’t quite as good as the one I would have gotten from the first group. Second, the time zone difference between Panama and the UK means a more limited window for speaking with my rep.

The good news and the bottom line, though, is that my account with GCEN was set up within a few hours and my transfer was made quickly so my property purchase was able to proceed.

Lief Simon

“Lief, understanding that there are no guarantees in life, I am curious about the expected ROI on some very low-risk investments in Medellin. I would lean toward CDs or some type of guaranteed bonds rather than investing in real estate. The assumption would be that I would be living in Colombia.”

S.Z.

One place I know to make the kind of investment you’re suggesting is the fiduciary Alianza. The two interest-bearing accounts I have at Alianza have averaged 3% to 4% annualized interest over the last 90 to 180 days. Meantime, the Colombian peso has lost 15% of its value versus the dollar over the last year, so I’m losing money with these two investments in dollar terms right now.

That doesn’t bother me, because I own property in Medellin and travel there often with my family. In other words, if you would be living, investing, or spending time in Colombia, an investment in Colombian pesos doesn’t come with the same currency exchange risk that it does for someone who’s simply making that investment and has no personal use for pesos.

The 3% to 4% is less than you could earn from a rental property but comes with less risk. On the other hand, getting double the cash yield plus capital appreciation from a piece of real estate might be worth the added risk.