Why do banks ask about this?

Bank questions help to create a clear business description and agree the company’s working payment scheme in advance. When the ownership structure, agreements, counterparties and source of funds are collected into one consistent story, opening a business bank account and later operations proceed more smoothly. For the owner of an offshore company, such preparation saves time and makes it possible to choose a bank or payment system (EMI) for the actual business activity.

Why banks started asking more questions

European banking supervision has shown for many years how seriously regulators treat servicing non-resident companies. The cases of ABLV Bank and Versobank became notable examples of how the quality of financial monitoring affects the stability of the bank itself. Therefore, banks or payment systems pay close attention to documenting the client’s business, source of funds and economic purpose of operations.

Servicing international companies remains a commercial business for banks if the client can clearly explain the business and confirm operations with documents. The bank takes into account the regulator’s requirements, the client’s interests and its own profitability at the same time. For the owner of an offshore company, the conclusion is simple: it is better to take the bank’s requirements into account in advance while the cost of account service corresponds to the profit the company receives from international activity.

The number of questions itself does not mean that the bank intends to stop service. For the bank, it is a way to document why the company opened the business bank account, where the money comes from, whom it pays and how the operations are connected with the stated activity. If this logic is clear and confirmed by agreements, invoices and actual payment history, the international business continues to operate normally.

Bank employees must understand the client’s business

The bank applies the KYC principle (Know Your Customer): it identifies the client and beneficial owner, understands the nature of the business and assesses expected operations. For an international company, the bank may also be interested in signs of real presence and ordinary business activity: a website, office, contact telephone numbers, employees, agreements and other evidence of the economic purpose of creating the company.

In some operations, the bank also looks at the client’s counterparties — buyers, suppliers, borrowers or recipients of investments. This is especially noticeable when payments go to several countries, the amount or purpose differs from the usual account history, or the connection between the parties to the transaction requires additional explanation. Therefore, it is better to have counterparty documents before sending a large or unusual payment.

If the client carries out an operation unusual for its business or the bank does not understand its purpose, an employee may request agreements, invoices, specifications, information about the payer or recipient and an explanation of the source of funds. The better the documents correspond to the real transaction, the easier it is for the bank to approve the payment. In some cases, registration documents of the transaction participants and information about the persons managing them are also requested.

Communication and information

The bank keeps information provided by the client within the business relationship and updates it periodically. If owners, directors, address, activity or expected turnover change, this information should be reported to the bank in good time. During the whole service period, the bank compares actual operations with the activity known to it.

Therefore, it is useful for the business description given by the company when opening the business bank account to match later payments. If the company starts a new business direction, changes supplier countries, significantly increases turnover or moves to another company payment scheme, it is easier to inform the bank in advance and provide documents than to explain the change after receiving a request.

Requirements for carrying out operations

Before carrying out an operation, the bank assesses whether it corresponds to:

• the client’s activity;
• the activity and role of the counterparty;
• the terms of the agreement and supporting documents;
• the normal payment history of the business bank account.

If an operation differs from the company’s ordinary activity, the bank may check the source of funds and economic purpose of the transaction in more detail. For this, the agreement, invoice, corporate documents and a clear explanation of the connection between the payment participants are prepared in advance.

For example, a loan to a business partner is easier to explain when the agreement defines the amount, term, interest, repayment procedure and business connection between the parties. For an investment payment, it is useful to show the investment object and the investor’s rights. When paying for marketing, consulting or other services, the agreement, task, invoice and work result should form one clear transaction. This approach helps the bank see an ordinary business operation and helps the company carry it out without unnecessary correspondence.

What the bank considers a money-laundering risk

Money laundering is giving a legal appearance to funds or property of criminal origin or hiding their source and the real nature of an operation. The bank assesses not the name of the jurisdiction by itself, but the combination of factors: participants in the transaction, source of money, payment purpose, documents and whether the operation corresponds to the company’s activity.

Even a legal loan, investment or payment for consulting services can cause additional questions if the documents do not show the business connection between the parties or the terms of the transaction look unusual for the client. Therefore, before a non-standard payment it is useful to check the agreement and prepare a set of supporting documents. This saves time in later correspondence with the bank.

From the business owner’s point of view, it is important not to try to guess which word the bank will like, but to show the real business logic. Who sells the goods or provides the service, who pays, what exactly the buyer receives, why this company is used, where the money came from and which document confirms each part of the transaction — answers to these questions usually form the basis of the bank review.

Legal requirements when opening accounts

Opening an account for an individual

When opening an account, the bank identifies the client using documents and assesses the purpose of opening the account, tax residence, source of funds and expected nature of operations. A passport or another permitted photo document is usually used, while the specific list depends on the country and the bank’s internal policy.

For a non-resident, the specific reason for choosing this bank or country is also important: residence, work, investments, real estate, payments with local counterparties or another clear economic interest. The size of the deposit may be commercially important for a particular bank, but it does not replace client identification and explanation of the source of funds.

Opening a business bank account for a legal entity

Company representatives provide registration documents, articles or other constitutional documents, information about directors and persons with signing authority, the ownership structure and documents on the beneficial owner. The bank also checks the authority of the person acting on behalf of the legal entity.

Additionally, the bank usually requests a description of the activity, geography of clients and suppliers, expected turnover and documents for the main transactions. The more accurately this information corresponds to the real business, the easier it is to carry out ordinary payments through the business bank account later.

Many banks conduct a video interview with the beneficial owner or director. The company’s activity, source of capital, counterparties and planned payments are discussed. We prepare a list of possible questions and a document set in advance so that the owner’s answers match the information submitted to the bank and the discussion is specific and does not require unnecessary clarification.

Beneficial owner

The bank identifies the ultimate beneficial owner (UBO) — the individual who ultimately owns or controls the company. A nominee shareholder or director does not by itself replace disclosure of the actual owner. If the structure includes several companies, the bank usually asks to show the ownership chain down to a specific individual.

Politically exposed persons

For politically exposed persons (PEPs), members of their families and close business associates, enhanced risk assessment is applied in accordance with the law of the specific country and the bank’s internal procedures. In practice, this may mean more detailed confirmation of the source of wealth and funds, and additional internal approval of the relationship.

If information is insufficient

If the bank cannot obtain information required to review the client or operation, it may postpone the payment, request additional documents or terminate the business relationship in accordance with local law and the banking service agreement.

Therefore, it is better to answer a bank request directly and with one consistent set of documents. Contradictions between the agreement, the owner’s explanation, the company website and the actual payment purpose create additional questions. Consistent information, on the other hand, allows the bank employee to complete the internal review faster.

Why banks pay close attention to non-resident companies

Banking supervision requires banks or payment systems to document their understanding of the client, beneficial owner and operations. For an offshore company, this means a more detailed document set, especially if payments pass between several countries or relate to investments, loans, consulting services or other operations receiving increased attention from the bank.

The regulator assesses not only whether formal forms exist, but also how well the bank actually understands the client’s activity and can explain the operations carried out. Therefore, banks invest more resources in internal control and request agreements, invoices, specifications, registration information about counterparties and confirmation of the source of money where necessary for a specific transaction.

In practice, this is solved by preparing the agreement, invoices, counterparty documents, explanation of the source of funds and history of previous payments. The more consistent the set, the less time is spent on additional requests. For the business owner, this is an ordinary part of organising international payments that can be prepared in advance together with an accountant and lawyer.

Legislation on prevention of money laundering and terrorist financing

Banks work on a risk-based basis: they identify the client and beneficial owner, understand the purpose of the business relationship, conduct ongoing monitoring of operations and apply enhanced checks where the risk is higher. FATF recommendations are the international basis for these procedures, while specific duties are established by national and European law.

There is no single rule under which every payment above EUR 50,000 automatically requires the same document set. The amount of the operation is only one factor. The bank takes into account the client’s activity, country, counterparty, payment purpose, account history and other circumstances.

Reasonable counterparty checks are useful for the business owner as well. Before making a significant advance payment to an unfamiliar company, it usually makes sense to obtain a registry extract, check the authority of the signatory, understand the ownership structure, agree the contract and make sure the recipient details correspond to the party to the transaction. For public and widely known companies, some of this information is available from open sources, so confirmation of the counterparty is usually easier.

Banks are commercial organisations and within the law establish their own rules for accepting clients and carrying out operations. Practice can differ significantly between countries and banks or payment systems. For this reason, it is convenient for an international business to have a main and reserve business bank account with different suitable institutions: if a specific operation does not meet the internal rules of one bank, a prepared alternative payment scheme helps maintain the company’s working rhythm.

An effective plan is to keep company documents current and prepare supporting documents for non-standard operations in advance. Several accounts do not replace transaction transparency, but they reduce the business’s dependence on one bank or payment system and give the owner more possibilities to organise payments where the client and operations match the service rules.