Offshore Banking 101: Why Your Country’s Banking Reputation Matters… a lot

Many readers of GlobalBanks.com are looking for offshore or international bank accounts and are wondering about the banking reputation for different countries. But they don’t know how or where to get started.

Naturally, there are a number of variables that need to be considered before choosing where to bank. And opening an account without considering these factors is not recommended.

Such variables can include everything from taxes to privacy, asset protection to currency controls, as well as social, economic, and political issues specific to each country. 

But in this article, we’re going to focus on one of the most commonly overlooked factors when opening a bank account: the reputation of a country.

Below, you’ll learn how to vet a country’s banking reputation and how to identify countries that can hurt your business through association.

If you’d like to get a head start on account opening as a non-resident in good banking jurisdictions then download our FREE Non-Resident Banking Starter Guide right now!

Why Banking Reputation Matters

There is a long list of “normal” considerations that you need to know before opening a bank account in an offshore or international jurisdiction. The key criteria that we consider for each country include the following: 

  1. Financial solvency of the country’s government and central bank 
  2. The political stability of the country’s government
  3. The reputation of the country in terms of business, trade, and finance
  4. Rule of law in the country
  5. Quality of the banks that are based in the country
  6. Adherence and implementation of regulations by the various governing bodies
  7. And more… 

We dive into each of the above factors in detail in our recent article Where to Bank Overseas, which explains how to find the best country for your banking needs. 

But, as mentioned above, a jurisdiction’s banking reputation is one of the most overlooked factors. 

And we get it. When you’re looking to open an international or offshore bank account, sometimes the only criteria you have is “will this bank accept me”? After all, opening accounts anywhere is difficult. So whether or not you can get your foot in the door is the only thing you are about.

But that’s a mistake. And opening an account in the wrong jurisdiction can ruin your business, get you blacklisted, make it impossible to access certain payment processors and merchant accounts, and cause a lot of damage. It can even make it significantly more difficult to open accounts in the right jurisdiction in the future.

The bottom line, choosing where your bank account is domiciled is an important decision. Choose incorrectly, and you can run into serious problems. The banking reputation (deserved or not) of the country where your bank account is located has implications for you and your company. 

What If a Country Has a Negative Banking Reputation?

When it comes to banking, opening an account at a poorly managed bank with astronomical fees or bad customer service can happen. It can be annoying, very expensive, and incredibly time-consuming. But even that’s not as bad as choosing a country with a bad banking reputation.

When you open an account in the wrong jurisdiction, it can have very real consequences for you and your business.

Being associated with a banking hub with a bad reputation can result in extra scrutiny for your business, enhanced due diligence, the bank refusing incoming or outgoing transfers, and you being blacklisted from other payment processors, EMIs, and even other banks.

Likewise, banking in a jurisdiction that is perceived as “high-risk” or has a reputation for being associated with money laundering, high-risk businesses, or shady deals can result in you losing business. 

For instance, partners, suppliers, customers, and investors in developed countries may not want to do business with a company that has a bank account in Belize or Seychelles. They don’t want to damage their own banking relationships, reputations, or attract scrutiny.

Remember, we’re not talking about facts, proven court cases of money laundering, or banks engaged in illicit activities. But we are talking about perception. How the public, other banks, international regulators, and your clients or suppliers will view you and your business if you bank in a certain jurisdiction.

While it’s unfortunate that such surface-level considerations need to be assessed when choosing a jurisdiction, they are a reality of doing business in a global economy. 

But, it’s also worth noting that the way a country is viewed by one person, one regulator, or one government might not be the way that it is viewed by others. 

If you have a bank account in Panama, for example, Latin American banks or regulators will view it positively. But in the eyes of North American’s or Europeans, you will instantly draw extra scrutiny.

In order to choose the best banking jurisdiction, you need to look at the pros and cons. But you also need to know what your specific banking needs are. And you also need to find the country that offers the most compelling mix, while limiting risk. 

And again, the reputation of a country is only one of the many factors. You need to consider many other factors when analyzing different banking jurisdictions. To get the full list and a walkthrough of how to analyze banking jurisdictions, read our Where to Bank Overseas article.

How to Determine a Country’s Banking Reputation

Before opening a bank account overseas, look closely at that country and its reputation in the banking world. To do this, you first need to determine how that country is perceived by five key groups:

  1. You and your business
  2. Your business relationships (partners, suppliers, customers, investors) 
  3. Your banking relationships
  4. Institutional banking relationships (correspondent banks)
  5. Domestic and international regulators and authorities

Below is a brief explanation of each group:

  1. You and your business

First, the most important group to consider is you and your business. You should ask yourself… 

How do you, your directors, and shareholders feel about having your company’s money being received and sent from that particular jurisdiction? Do you have any reservations about the country’s financial health, political stability, underlying economy, or social dynamics? Will banking in this jurisdiction create any problems or challenges for your business? Will banking here impact any of your current or future business relationships?

  1. Business associates (customers, suppliers, partners)

Make sure that the people and companies you do business with are comfortable sending and receiving money from that particular country. Believe it or not, some people and businesses may take issue with sending or receiving money from certain countries, so it’s always best to check. 

For instance, some businesses may have to pay more in taxes if they send payments to a specific country. Other times, larger businesses and publicly-listed companies might have strict internal protocols that restrict where they can send money to.

Additionally, some people can get sensitive and worry about where your bank account is based. For instance, small businesses, people with limited international experience, or those who have only ever banked in their home country, may need to feel emotionally comfortable with where they are sending money.  

  1. Banking relationships (compliance, intermediaries, receiving bank)

Another consideration is the administrative burden that the jurisdiction can cause when sending and receiving money. Often times, bank accounts that are located in grey and blacklist countries can alert internal compliance teams. This requires the bank on the other side of the transaction to conduct enhanced due diligence on a transfer. 

When this happens, it can require you and your business partners to provide additional documentation. This includes information on the transfer and the services on offer. 

Because of increasing KYC and AML regulations and “de-risking” by correspondent banks, it’s also not uncommon for banks to now ask for copies of the passports of the people you’re paying. Some banks will also for the passports of the directors and shareholders.

  1. Institutional banking relationships (correspondent banks)

Do the banks in your desired jurisdiction have stable correspondent banking relationships (CBRs)? For example, Belize lost 83% of its correspondent banking relationship between 2013 and 2016. Even the Central Bank of Belize lost two US correspondent banking relationships.

Correspondent banks are critical to the survival of banks in certain jurisdictions. Without them, local banks can’t transact in US dollars and can effectively be cut off from the global financial system.

If a country is constantly losing correspondent banking relationships, it’s a bad sign. It’s a threat to that country’s financial and economic stability, as well as its banks. It’s also a threat if your bank loses its correspondent banking relationships.

That said, understanding the strength of the correspondent banking relationships in your desired banking country is key.

  1. Domestic and international regulators and authorities

Lastly, it is equally important to ask how international regulators will view the country that you want to bank in. You should consider whether it is on any grey list or blacklists made by the OECD or FATF. And also consider whether domestic authorities and regulators in other countries will view transactions coming to or from your desired banking country as higher risk.

If the sending or receiving bank thinks that a transaction could upset their regulators in any way, they may request supporting documents or shut down the account entirely. That said, understanding which countries have regulators that are likely to be sensitive to your desired banking jurisdiction is important and helps you avoid headaches later on.

What Does This Mean for You?

Understanding the perceived banking reputation of a banking hub before opening an account there can be a challenge. This is true even for seasoned banking professionals. 

After understanding how each of the five groups above view your banking country, weigh that against your other banking options. This can include other countries where you can really open a bank account. Fortunately, if you’re a GlobalBanks Insider, our analysts will do all of this for you.

Having the right banking stack and account opening strategy is critical. It can make the difference between banking with a low-quality bank in Belize or a mid-level bank in another country. And that difference can impact your relationships, your business, and ultimately your own financial security.

If you want to access the offshore banking world while maintaining your reputation with business partners and banks, we can help. Get started with account opening and find the best international banking solutions for you and your business, join GlobalBanks Insider now and you can cancel anytime. Click through below to learn more and get access today…

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