Top 4 reasons for closing a corporate bank account immediately after opening

Imagine this: you have done a lot of work and successfully opened a corporate account in a foreign bank. For this purpose, many documents were submitted, questionnaires were filled out, a business plan was prepared, and time, money, and effort were spent. Finally, you have access to online banking, your details have been received, and you have launched your first payment.

And then your brand new account in a foreign bank is blocked and closed! Is this possible, or is such a scenario just a horror story for a business that dares to start working abroad?

Alas, this is a more than realistic scenario that occurs quite often. Why can bank clients suddenly face the closure of a completely new account almost immediately after opening? Antwort specialists know why this can happen and how you can prevent such a negative scenario for your company.

We will share the four main reasons why banks may close a business account and how to mitigate this risk.

Reason No. 1 and the most common is your incorrect account use.

When opening a foreign account, certain parameters of the company's future activities are indicated in numerous forms, questionnaires, and letters to the bank. For example, the type of business, types and planned number of transactions, names of clients, suppliers and counterparties, and other characteristics are indicated. Often, banks even ask for an example of your contracts.

Suppose you are starting to use your corporate account and immediately deviate from the previously specified information (for example, transfer money under other agreements, to other countries, to other contractors). If you behave differently from how you positioned yourself before, the foreign bank may close the account for you.

Recommendation: carefully and consciously fill out all the documents when applying to the bank because, in the future, you will have to comply with the information provided to avoid unnecessary questions and even closing the account. Always ensure that the first transactions comply with the parameters stated by the bank for using your account.

Reason No. 2 is the special approach of banks to opening and maintaining accounts.

Each country, and even each bank, has different operating conditions and procedures for interacting with clients. There are countries where opening an account is not a problem, but keeping it open is much more difficult. For example, in Georgia, opening an account occurs almost simultaneously with registering a company - local banks ask a minimum of questions and make a positive decision automatically. However, at the very first of your transactions or receipt of funds, a real check begins, which you may fail and be left without an account, which you, it seems, have already successfully opened.

Recommendation: Always find out information about the features of banks or consult with trusted consultants regarding a reliable and suitable jurisdiction for opening an account. Remember, its easy and quick opening does not guarantee a long service life.

Reason No. 3 is changes in legislation or political situation.

Banks are highly dependent on regulators and the domestic and foreign political situation. Unfortunately, no one is immune from unforeseen circumstances in the form of changes in the law, the outbreak of a revolution or war in your home country, or a deterioration in relations between the bank's country and yours. Closing an account for these reasons does not always happen instantly, but in the future, bankers may pay additional attention to you and, to be on the safe side, close the account.

Recommendation: Before opening an account, check in advance whether any changes are being prepared in the country's legislation where your future bank is located. Reducing political risks is not so easy, but there are certain solutions for this, which are selected by professional consultants individually for each case.

Reason No. 4 applies to those who buy ready-made companies with already open accounts.

Some entrepreneurs purchase an already registered company with a ready-made corporate account (the so-called "shelf" company) due to urgency or to avoid paperwork. But, many do not consider that when the owner, director, and sometimes the type of activity of such a company changes, the bank may not agree with the changes because the new parameters do not suit them. And decide to close the account for which you already paid when purchasing the company.

... If the company is sold with a "nominal" service, there is a high risk of facing account closure for Reason No. 1, which we wrote about earlier.

Purchasing a ready-made company from unverified providers or contractors is always a risky venture. Therefore, always thoroughly check all the details of the company that interests you.

If the provider selling the company is unwilling to answer any questions about its history or refuses to disclose the account description previously provided to the bank, it is better to refrain from making the purchase. ...

Vladyslav Makarenko, Managing Partner, Antwort Law

Recommendation: Always ask the shelf company seller for details on open accounts. Knowing what activity parameters were stated in the bank when opening the account, you can plan your activities so as not to go beyond these limits, and then, when the account has been operating for some time, you can make the necessary changes.

As discussed in the article, opening an account is only half the battle; then comes the work of managing it competently and maintaining good relations with the bank. The account will serve you for a long time if you initially open it “wisely,” that is, in a suitable jurisdiction and bank, fill out the application correctly, not according to the “write something” principle, but taking into account the horizon of your future activity, and also follow its rules management The attorneys at Antwort Law can help you make the right choices and provide personalized advice that will ensure your accounts last a long, productive life.

Lidia Ivanova,

International Lawyer
Antwort Law

Why does the bank refuse to open an account?
The reasons can be diverse, but the four most common ones are: 1. Errors in document preparation. 2. Incomplete data, brief and unconvincing answers, lack of logic and structure in responses, and the absence of a well-thought-out company history. 3. The nationality of the founders and/or directors. 4. The company's activities or insufficient turnover. For example, it can be challenging for cryptocurrency companies to open an account due to the nature of their business, and many banks evaluate the potential turnover of the company during the selection process.
Is it normal for a bank to send questions about your payments?
Yes, don't worry, this is a common practice for banks. They have the right to request any information regarding your payments. We recommend responding to all questions as accurately and promptly as possible.
How detailed should the responses to bank inquiries be?
It's best to respond directly to the specific question asked, without delving into unrelated areas. This way, you won't provide unnecessary information or arouse additional interest, while still addressing the banker's inquiry.
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