At various times in my life, I have tried to maintain a personal diary; But it’s either I didn’t have the discipline to continue them or perhaps I felt my personal life wasn’t really interesting enough to write it down. At least not every day.
My business diaries, on the other hand, go back maybe 20 years or so. Meeting dates and times, handwritten notes, scraps of papers, names, phone numbers, hundreds of to-do lists, random words and doodles. Most of it is either incomprehensible now, or illegible, or both. But there they are nonetheless.
And I notice a few very interesting things from this assorted garble:
- The number of meetings have increased markedly over the years;
- The volume of handwritten notes has decreased at the same rate, although there is much more detail packed into them;
- The word “bank” appears more way more often than before; and
- My handwriting is getting worse … (so I really should have become a doctor after all …)
So why do I write the word ‘bank’ in my diary so much now? Often several times a day in fact. The simple answer is ‘compliance’. The old saying goes that ‘the only thing in life you can’t avoid is death and taxes’. I am going to add ‘compliance’ to that list now.
I can recall as far back as the 1980s, the OECD has been focusing on taxes (tax evasion, level playing field, exchange of information) among other things. Groups such as the Financial Action Task Force (FATF) were formed to similarly chase proceeds of crime. Almost every government body worldwide has created whole departments to identify and attempt to stop money laundering (this includes tax evasion which is now a criminal offence in many countries) and terrorist financing. After the 911 tragedy of 2001, the US has enacted many laws and imposed many new rules for other nations to follow, either in an attempt to restrict terrorist financing and/or reduce tax evasion.
FATCA for example is where banks around the world need to divulge information about Americans holding bank accounts (and in doing so, even non-US persons with no business interests in the USA also need to sign FATCA declarations to their banks). It’s a compelling argument really as non-compliant banks may not be able to trade in the world’s currency, the mighty US dollars. The Common Reporting Standards (CRS) is poised to do something similar to FATCA, enabling member nations to automatically exchange information about foreign nationals’ bank accounts. Many countries around the world have already begun to implement the CRS. Notably the USA is not one of them … but we’ll save that for another discussion.
OECD, FATCA, CRS, money laundering, tax evasion, terrorist financing and so on. So, crystal ball gazing aside, where is all this going? The answer is … you guessed it … ‘compliance’. Loads of it. I can remember the days when a company could incorporate a company one day, and get bank account opened for it the next. While you can still get a company incorporated in one day (in a number of places around the world), good luck with getting a bank account opened within a month, if at all.
I am not here to beat up on the banks. Twenty years ago, all you needed was a passport to get a bank account opened almost anywhere the world, no questions asked. But scandals in banking sector in recent times where large settlements were paid by HSBC, UBS and others, has hardly helped us to be too sympathetic to their plight.
Sadly and in my opinion, it is small-to-medium enterprises (SME’s) and entrepreneurs, with global ambitions and that must now pay the price. I admit, I am totally biased in saying this. My clients are almost exclusively from this group.
I write the word ‘bank’ in my diary every day because every day I necessarily have to deal with some type of banking issue because one of my Canadian clients is having issues opening a bank account in Singapore, or one of my Australian clients wants to take on a new business partner from the US to source products from China. And the list goes on.
The banking compliance pendulum has swung from one extreme to the other. And the globetrotting SME’s have to work within this new compliance-driven financial world. But how do they deal with it? How do we deal with it?
Back to Four (4) basics, as I see them:
SME’s need to have a logical and defensible business reason for wanting to go abroad and wanting to set up a company in say Hong Kong, or China, Delaware or Ireland. Just wanting a bank account overseas is not enough. Why do I say defensible? The banks in the country where you are wanting to establish will ask why you need a bank account there? Okay, logically you would say to have a local presence, to pay suppliers in local currencies, to have a local presence, and so on. But you’ll need a business plan for the location where you are proposing to set up a bank account. You’ll need details on the products and services, your suppliers, buyers, and forecasts of sales and costs. Simply put, why are you here/there?
Pay the Piper
Banks have invested heavily in compliance – people, systems and procedures, paperwork. And it’s not cheap. Bank relationship managers rarely have the ability to approve any application for a new bank account opening. It all goes to the invisible ‘compliance department’ for assessment. And so the SME has to pay for the privilege. Bank account opening fees range wildly from zero to USD1500 or more – not the initial deposit, just the fee to pay the bank should the application for bank account opening be approved. Initial deposits for places such as Hong Kong and Singapore are usually around USD2500.
More is More
In my experience, bank relationship staff are young and nervous. And bank compliance staff are totally risk averse. With tongue in cheek, I tell my clients to bring everything they can think of when going to the bank. Even if they think it might be irrelevant, bring it anyway.
- The fact that this all relates to their business in their country of residence is irrelevant. It paints a picture for the risk averse bank compliance officer who often is sitting at their desk without the benefit of having met the SME who is applying, and frankly not really caring.
- Brochures, business cards, product samples – anything to show their business is real.
- CVs, testimonials, references, success stories, partnerships, long term business relationships in the region – anything to show the years of experience, much the same as applying for a job really.
- Business proof – this is the part I love to hate. The SME will say “wait on, how can I give business proof for a company I have just set up with no bank account in a foreign country?” Good question. Please read point a above – the SME needs to take everything they can from their existing business in their country of residence. No, it may not be the same products and services, and yes, it might be a different type of business with a different business partner – but take the documentation anyway. If nothing else, it shows the bank that the SME is a seasoned business person and not just telling a good yarn.
Talk To A Local
For most SME’s deciding to set up a limited private company in Hong Kong or an LLC in Delaware, this is not their first dance. In an earlier article, I heavily promoted the idea of buying people coffee to exchange ideas and learn. When it comes to banking, an SME cannot be overprepared. So, buying anyone you know who has ‘been there done that’ a coffee is a pretty sound investment in my opinion.
For the foreseeable future, I know that I will still be writing the word ‘bank’ in my business diary many many times. The pendulum has swung and seems to be stuck at the far end.
But in time I believe that it will swing back towards the middle and/or business people will change the way they do their business internationally to make it so.