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Banks: regional differences

1. Why and who would need a foreign bank account?

2. Main criteria when choosing a bank

3. European banks

4. Cyprus banks

5. Baltic banks

1. Who Wants to Be a Millionaire is the game that flooded TV air around the world some time ago. And in fact most of us certainly would answer – Yes, I want to be a millionaire. But this is just an intellectual game on TV, while life is a whole lot different. You work hard, create your own business, make money…and eventually face the problem of saving that capital you already earned.

Recent problems in the banking sector, the global credit crisis, and unstable political situation, all these factors make people very cautious in considering ways of insuring safety of their capital.

One of the ways is opening a foreign bank account and transferring one’s funds onto it.

But it isn’t an easy choice, when you have to elect a reputable and reliable bank that suits you best.

We have a strong stereotype that only rich people have the ability to open foreign bank accounts. But in fact anyone can do it. Foreign banks are much more reliable than Ukrainian ones due to many reasons. Also, a foreign bank account provides additional perks for the beneficiary, such as full confidentiality, high quality professional service and ease in account management.

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2. Let us name some of the main criteria that one should consider when choosing a bank:

  • Political and economic stability of the country where the bank is headquartered.
  • Bank’s reliability and prestige, which is indicated by high grades of big international rating agencies (Standard&Poor's, Moody's, Fitch, etc.)
  • Level of government’s control over banking sector.
  • Set of services provided by the bank.
  • Correspondence of the bank’s profile to the intended operations.
  • Minimum deposit requirements.
  • Cost of service.
  • Ability to accommodate clients remotely.
  • Ability to issue credit cards.
  • Interest rates on current and deposit accounts.
  • Available investment programs.
  • Geographic location of the bank and its branches.
  • Time it takes to set up an account.
  • Level of confidentiality.
  • Account management possibilities (internet banking, fax, telephone – voice confirmation).
  • Multilingual personnel.

Foreign banks can be conditionally divided into three groups: European, Cypriot and Baltic. They differ by ways of government control, traditions of work, requirements they set towards the clients, KYC policies, the extent of following FATF requirements, costs of opening banks accounts, etc.

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3. European banks

European banks – are considered to be among the most prestigious and trustworthy banks in the world. But when opening an account in one of these banks one must strictly follow certain rules and obligations.

Servicing an account in a European bank is pretty costly. There is almost always a minimum deposit requirement (starting from EUR 5,000), this sum later serving as a non-decreasing reserve. In case the client is unable to provide the necessary initial deposit the bank may prolong the term for such initial deposit for 2-3 months. The number of transactions is often limited (5-6 per month), since these banks are interested in maintaining deposit accounts rather than trading accounts.

For instance, Vontobel Bank (Austria) requires a minimum deposit of EUR 100,000 which serves as a reserve that cannot be reduced. Annual maintenance cost – EUR 200. There is also a limit on the number of transactions. The account can be managed by means of fax and voice confirmation. Internet banking is available only for checking the state of account.

European bank managers are very strict with their due diligence, which includes full disclosure of client’s information about his funds as well as his relevant personal information. Banks also stick to the KYC (know your client) policy, which is carried out by means of a face-to-face interview of the client by the bank manager.

In fact the due diligence procedure is absolutely legal, justified and is not as scary as many businessmen may think. Every bank wishes to know who it is working with, what the source of client’s funds is, who client’s major business partners are and what amounts of money will the bank service through the client’s account.

The Know Your Client principle implies that the bank’s primary interest is not how much money the client has (provided they were obtained legally), but who the client actually is. During the interview a bank manager merely wants to get to know the client better. However, the bank may refuse in opening a bank account if the client’s reputation casts a shadow on his financial situation. The bank may request any information or documents that confirms the legality of client’s business and acquisition of capital.

Nevertheless, after surviving the stringent procedures to open the account the client receives much more – a bank account in a trustworthy and reliable financial institution that guarantees confidentiality and decreases political and financial risks.

The downside of opening an account in a European bank is that it is usually prohibited to withdraw cash in the amounts over EUR 10,000. In order to avoid the account being frozen when withdrawing a large amount it is necessary to let the bank know of the transaction beforehand and explain the reasons.

Moreover, banks always use effective means of control over the movement of funds, including the Anti-Money Loundering Policy, European Terrorist List, Know You Client Policy, etc.

In practice these policies mean that the bank tries to be aware and in control of the source of moneys, reasons for transactions, trustworthiness of parties to transactions, takes into account “black lists” of jurisdictions and is always monitoring suspicious deals.

An account in England

An account in Austria

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4. Cyprus banks

Cyprus has been a member of the European Union since 2003 but Cyprus banks are still viewed differently as to other European banks. This is due to the fact that while while Cyprus banks have most of the advantages of European banks they do not possess some of their disadvantages. For instance, there may be no minimum deposit requirement, no extremely strict control over the client’s transactions and the source of funds.

Cyprus banks are working hard to maintain and build up their own prestige as well as the reputation of their country. Practically all Cyprus banks have internet banking service, which makes it very convenient for the clients to mange their accounts.

All banks are interested in increasing their clients’ profitability; hence they are always open to clients’ investment suggestions and creating individually-tailored investment schemes.

Banks offer a high degree of confidentiality, ease in managing accounts, no minimum deposit requirements and limits on transactions. They suit perfectly for both current operations of a company and for long term depositing of capital.

Bank of Cyprus, the largest bank of the country is a great example. The cost of opening a bank account is USD 150, there is no yearly maintenance charge for individuals and for legal persons it is just USD 100. DigiPass, a tool for account management comes for a small fee.

In order to open an account one just needs to sign the bank forms and provide the bank with some information about the company – what are company’s main activities, approximate revenues, beneficiary’s passport copy, a reference letter from another bank and a utility bill to prove residence.

Another obligatory requirement is a personal meeting with a bank manager, which can be arranged at the Kiev office of Bank of Cyprus. . Having submitted all the aforementioned documents and having filled out all forms correctly the bank account may be activated in the matter of days.

A client has the right to ask the bank about its confidentiality police and about information disclosure for tax authorities. All client’s information is kept under vigilant control of the Central Bank of Cyprus and during our past extensive practice there have been no cases of disclosure of client’s information following any requests. And without doubt there have been no cases of clients conducting unlawful operations, such as arms or drugs trafficking, prostitution or money laundering.

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5. Baltic banks

Baltic banks make up another group of banks, which still remain in our memory as the most loyal and mobile. They offer Russian-speaking personnel, 24-hour access to your bank account, internet banking and other up to date services.

Nevertheless, as many may remember, not so long ago United States have pressured Baltic countries, which led to closing some bank accounts of US-incorporated limited liability companies and thorough inspections. Some banks did not incurred problems after this pressure, others modernized and toughened their requirements. Currently the information requested by Baltic banks when opening an account is comparable to that required by Western European banks.

After Lithuania, Latvia and Estonia became EU members the banks there significantly improved their standards but the process of opening an account is not that difficult.

For example Latvian ‘Norvik Banka’ . The cost of opening a bank account is EUR 250, maintenance fee – EUR 20 per month, with internet banking as means of managing the account. No minimum deposit requirement and no limit on transactions. Personal interview with the bank manager is not required. The client needs to present a passport copy, description of business activity, bank recommendation letter, certificate of employment or a copy of work record card. Client information is confidential and can only be disclosed based on a court’s decision.

To sum up, the advantage of having money consists in one’s ability to use it. Foreign banks give the ability to use money to the fullest extent. And not only use it, you can also save it and gain proceeds – all those things, which are so hard to get from banks in our country.

An account in Latvia

An account in Estonia