Why Can Banking Services be Denied to You?  

When you try to open a corporate bank account, there is often a chance that you might face service denial. This does not happen because the bank administrator is whimsical, but because he or she has to follow strict rules when taking new customers onboard. If a corporate client is applying for banking services, the bank administration has to make sure that the company is engaged in business operations on legal grounds and that it does not pose any threats to the bank.

What sorts of threats could a corporate customer potentially pose to the bank? First, the company might be involved in some money laundering schemes. Laundered money, in turn, might be used for tax evasion and financing terrorism. Both of these activities are not only illegal but also highly undesirable.

What consequences might the bank face if it takes an untrustworthy client onboard? If this client is found guilty of fraud or tax evasion, for example, the bank that has provided services to him or her is going to suffer a lot. First, it might have to pay a heavy fine. If things are more serious, the bank might face losing its banking license. If things are extremely serious, the head of the compliance department might even go to prison.

This is why all banks check both individual and corporate applicants for their services meticulously. They have to do it to avoid potential problems. So please don’t think that bankers intentionally make it difficult for you to open a bank account. No. They only do their best to stay away from any potential trouble.  

Main reasons why banking services may be denied to you

The main reasons why banking services may be denied to a corporate applicant (or why the due diligence procedures may be stricter than usual) include the following ones:

• Your business qualifies as high-risk;
• There are problems with your company’s legal address;
• Your application document package is incomplete or there are other problems with the documents;
• The personality of the company director is suspicious;
• There are suspicions that you are opening an account for a shell company.

Let’s discuss these reasons for banking service denial in some detail.

High-risk business

If you would like to open a bank account for your IT business, your task is going to be more difficult than it is for a computer hardware manufacturer, for example. Even though information technology is very much what today’s world is all about, banks qualify IT companies as high-risk clients. Even if your company has a transparent corporate structure, is registered in a reputable jurisdiction, and develops software for reliable and law-abiding customers, it remains a high-risk company in the eyes of the banker anyway. Why? Because he or she cannot be sure that you don’t develop software for someone else, someone that you don’t want to mention in your application documents. That ‘someone else’ might be involved in some illegal activities, and if your IT company provides services to a criminal, the bank also provides services to a criminal by servicing your company. License gone, bank officers in jail.

Some banks refuse to provide services to high-risk businesses. Others take high-risk customers onboard, but they charge higher service fees and commissions. There is a nice alternative, however, if yours is a high-risk company. Most payment service providers (also referred to as e-banks or online banks) do take high-risk clients onboard, and they can afford to charge lower fees and commissions because they don’t have to maintain any brick-and-mortar offices: they do all their business in the virtual space. At the same time, the level and range of banking services that they offer match the level and range of services that you can find in traditional banks.

Company’s legal address

The legal address is the address that you use for official purposes, such as filing tax returns, for instance. If the head office of your company is not located at its legal address, this can arouse suspicions. The bank’s security service may instruct the bank administration to deny services to you in the following cases:

• Your legal address is on a black list of addresses used for mass company registration. It is easy for the bank officers to find out if it is because the national tax service usually gives free access to such lists.
• Your legal address is the address of a ‘ghost’ building that does not have any facilities and nobody lives or works there.
• Your legal address is the address of a building that is going to be demolished.

Application document package

Banking services are often denied to applicants who provide incomplete application document packages. We must admit that this problem may turn out to be rather hard to solve. The matter is that different banks have different requirements for the application documents.

When opening a corporate bank account, you have to submit the full set of corporate documents in addition to personal documents. But what documents should the ‘full set’ of corporate documents contain? This phrase has different meanings in different countries in the first place, and the administration of a particular bank may put its own meaning into it too. For this reason, you’d better seek professional support if you would like to set up a corporate bank account. You need a specialist who knows exactly what documents a certain bank wants to see.

Company director’s personality

A company director is the person who carries out legal and business operations on behalf of the company. Naturally, the Compliance Department of the bank will want to ascertain that the director of your company is a reliable individual. They are going to find out about the following issues:

• If the company director has even been sued for money laundering or any other financial crimes;
• If the company director is the director of many more other companies,. If so, he or she is clearly a nominee director, which many banks don’t like;
• If the company director has many unpaid debts and a bad credit history,.

Shell companies

Shell companies are sometimes used for illegal transactions, and this fact puts bankers on alert. They are going to grow suspicious in the following cases:

• The company has registered the minimum charter capital allowed;
• The company has been filing ‘zero’ tax returns;
• The company founder, director, and accountant are the same person. This may be the case if the company has just been established, or it might be a sign of fraud.

How to reduce the risk of banking service denial

To avoid problems when applying for banking services, find out what documents the bank needs and what the procedure for opening a corporate account is. Make sure of the following:

• The company director has a spotless (or a good enough) reputation;
• The application documents do not contain any factual mistakes and all of them look neat and tidy;
• Your company is officially registered in accordance with the requirements applied in the country of its registration;
• Your company’s legal address could not be suspicious for any reason.