Bank References and Other KYC Requirements at Offshore Banks

In Part 1 of this article last week, I posed the question, Why do Offshore Banks Ask So Many Questions?

The documentation requested by offshore banks (bank reference letters, proof of source of funds etc) when opening accounts for the first time can sometimes appear overwhelming. Panamanian banks, in particular, are extremely bureaucratic. But don’t be perturbed. Once you understand the logic behind it, it’s really quite straightforward.

You can basically break down the requirements into just three things that the bank wants to document before opening your new account:

  • Who you are. This is almost exclusively demonstrated with your passport. A passport is definitely the preferred identification document internationally. Most people who want to open accounts or invest offshore will be in possession of a valid passport. In certain cases, banks may accept other documents like government-issued ID cards or driver’s licences, but as a general rule you will need your passport.

This step is easiest if you are meeting your offshore bank in person, since you just need to show your passport and allow the banker to take a copy. It’s a little more complicated if you are opening the bank account by mail, as the copy will normally need to be certified as a true copy. Requirements vary by bank, but notaries are almost universally accepted for the purpose of certifying copies. Lawyers, consulates and embassies, and offices of international banks may also be accepted as certifiers. If you are meeting a consultant or corporate service provider, they can usually arrange to certify your passport copy too.

  • That you’re a good guy (or girl). For this, the best document is a letter of reference from your existing bankers. A bank bank refreference just says something like “Mr and Mrs Bloggs have been clients of our bank for five years and have always maintained their accounts in good standing.” That’s it – no big deal! Some banks also refer to reference letters as “certificates.”

My clients are sometimes worried that their banks won’t issue references – but it is very unusual to find a bank that won’t issue a reference. Even if you don’t know any one individual who works in your bank, it’s a standard document that the back office should be able to produce based on their records.

British banks are some of the most difficult to deal with, but even they will, according to the guidelines of the British Bankers’ Association, issue exactly the reference you require if you ask in the right way. In the UK the reference must be requested by a hard copy letter in the post. Banks in other countries like USA, Canada, Australia, Europe etc will usually write bank reference letters on request.

You need to check with both banks (the new one and the old one) about any specific requirements. For example, whether the reference can be addressed “to whom it may concern” or if it has to be addressed to a specific bank.

Some banks will accept references from professionals like accountants, lawyers, corporate service providers and the like. This can be useful if a “to whom it may concern” reference is not an option, and you don’t want the old bank to know where you are opening the new account.

Overall, you should not worry about references. They are not a problem. If you have any doubts, contact me for specific case-by-case advice.

  • The final thing you need to prove, is the source of funds: where the money is coming from. The rationale behind this, of course, is for bankers to be sure that they are not accepting money that is being laundered or was acquired irregularly. They are not usually interested in tax matters. Typically documents people present to show source of funds are contracts for sale of real estate, documents showing you inherited money or received it from a family trust, documents demonstrating that you own a business from where the funds are being withdrawn, or a contract of employment showing your regular income.

Of course, the documents presented must match the amounts you are depositing. A document showing you earn $5000 a month net would be fine if your average balance will be under $20,000. But then if a million suddenly arrives in the account, the bank will freak! If you want to receive a million all you need to do is provide documents in advance, for example showing that you sold a million dollar house or that you sold out your business for cash… then the bank will roll out the red carpet for you.

So that’s it… those three things are all banks are really looking for. Some also want proof of your residential address. And obviously if you are opening a corporate account the bank will want to see documents linking you to the corporation – but it’s best to let your corporate service provider take care of that for you.

Remember: banks are in business to open accounts and accept deposits. So if you are in doubt about what documents are needed, or if there’s something they ask for that you can’t supply, just talk to them openly and explain the problem. Most likely, they will be able to suggest a common sense, mutually-acceptable solution. If not, then take your business elsewhere.

So all in all, the documentation is not as difficult to handle as it sounds. If you use an intermediary such as my firm, it’s even easier – we can dedicate more time to you as an individual than banks can afford to on all but the largest accounts. Often, with a short telephone call we can help you complete all required documentation and just provide you with the finished versions to sign. Services of my firm are available exclusively to Q Wealth Members.