Coping With Offshore Banking Rules


Are overseas banks and financial institutions driving you up the wall? They are certainly having that effect on me. Apart from what appears to be a growing number of instances of ‘missing’ or delayed transfers the greatest misery is being caused by the anti-money laundering rules.

What is money laundering?

Basically, money laundering is the process where criminals conceal the true origin and ownership of the proceeds of crime. It is accomplished by the channeling of illegally acquired money, derived for example from theft, drug trafficking, corruption etc., to legitimate banks and other financial institutions so that when it is taken out it appears ‘clean’. Recognizing that extensive use of financial institutions was being made by criminals a total of 31 countries got together in 1989 to form the Financial Action Task Force (FATF). It developed 40 recommendations that set out measures governments should take to fight money laundering. Countries that failed to cooperate were placed on a blacklist. Transactions in those countries were subject to greater scrutiny and the countries were potentially subject to sanctions. For years Indonesia was on this blacklist, together with countries like Nigeria and Myanmar. This month however, Indonesia was removed from the blacklist thanks to efforts made by the government to implement the recommended measures, although it will still be closely monitored. This is good news since more stringent measures, such as the refusal of correspondent banks to handle transactions and the non-acceptance of letters of credit, could have been implemented with serious repercussions for the country’s international trade.

What has been the personal impact of the regulations?

If you have an offshore bank account in any of the highly regulated jurisdictions such as Europe, including the British offshore islands, you will probably have already provided or been asked to provide proof of identity and place of residence. It may appear absurd to have to prove who you are, even if you have held an account with the bank for the past 20 years, but the rules make no exceptions. Sometimes, providing that proof is far from simple. For example, it is insufficient to just forward a copy of your passport; it must be certified by one of a list of professional persons listed by the authorities. Unfortunately, the people who wrote the regulations appear to have limited understanding of the real world beyond their local boundaries. For example, the signature of a headmaster or managing director is unacceptable but they will accept the signature of any government official or police officer. So whilst honest investors pay an arm and a leg to have their documents certified by a notary or consul, there are clearly potential ways for the regulations to be abused.

How do you prove where you live?

The rules state you must provide a recent original utility bill or bank statement addressed to you at your residential address. But most expatriates have their mail addressed to them at their place of work and utility bills are usually addressed to the house owner, not the expatriate tenant. Most institutions recognize this and will accept an employer’s letter or a certified copy of a lease agreement. One of the problems facing some people in Bali is that their house may not even have an address. I managed to help a client around this once by getting the institution, a life company, to accept a letter from the head of the village confirming that the person concerned had built a house in the middle of the rice fields!

Can you prove where your money came from?

This can also be a requirement in making an application to open an account. If you work for an employer and receive a regular salary this is usually easy to prove. However, if you are in business you may have to provide audited accounts to prove your income. In one case in Bali recently I was unable to proceed with an application as all the transactions of the person concerned were in cash and he could not provide any accounts.

Why do the institutions take such a hard line?

One reason could be the severe penalties for failure to report suspected cases of money laundering or failure to recognize laundered money. One major international bank was fined two million pounds sterling last year for accepting an application from a Nigerian whose money was found to be illegitimate. Another is that money used by terrorists such as on 9/11 would have been harder to come by if the rules had been tougher. There is a case right now in Ireland where the IRA is alleged to have tried to launder money stolen in a recent bank robbery. This may have little to do with a retired expat pensioner in Bali who suddenly finds his account blocked while his bank awaits proof as to who and where he is, but unfortunately the innocent must suffer in order to make it more difficult for the criminal minority to go about their business. What I would suggest to everyone is that you try to have bills or bank statements sent to your home if possible and keep good records proving income etc. so that they are readily available if required by an existing institution or should you wish to open a new account or investment. The anti-money laundering rules are not going to go away!

Like to learn more about the financial world?

It is more important than ever before to be well-informed. In March our group will be hosting a second seminar in Bali with speakers from the UK, Hong Kong and Australia. It is principally for existing clients of our group but we may have a few places for readers of the Bali Advertiser. Drop the writer a line if you would like to be included.

Colin Bloodworth is a senior consultant with Financial Partners International. The views expressed are his own. No investment decisions should be taken without proper advice. If you have any questions you may contact the writer at colin.bloodworth@financial-partners.biz