Small Business Reading Room

Wednesday, November 12, 2003

Terrorism and New Bank Accounts

Many of our international clients have noticed a change in US banking regulations in the months following the September 11 terrorist attacks. We are constantly striving to provide solutions to the clients of Delaware Intercorp, Inc. Although we have not been able to find a bank that is willing to work with international clients in the current political climate, we will continue to monitor the situation. We hope the banking industry and our firm will be able to work together to service the banking needs of the international business owner again in the near future.

Patriot Act: Don’t take it personally

Small business owners who are not US citizens or residents are finding it more difficult, if not impossible, to open a checking account for their US based corporate entities. They are being stonewalled at US financial institutions because of the “know your customer” regulations born out of the Patriot Act signed into law on Oct. 24, 2001.

As of October 1, 2003, banks, savings associations, credit unions, brokerages and mutual funds are expected to be in compliance with the anti-money-laundering provisions of the Patriot Act1. Perhaps the most notable, and certainly the most obviously invasive of these provisions is background checking requirements. Background checks not only affects non-US citizens and residents, but all individuals opening new accounts- even if you already have existing accounts with the same bank!

Here is what is required when a new account is opened:

1. The institution must verify the identity of any person seeking to open an account by obtaining customer identification that includes:
- Name
- Date of birth
- Address
- Identification number - a taxpayer identification number for American citizens or a government-issued document for non-citizens.

Most banks are requiring a State issued ID (such as a drivers license), and a Social Security Number. Of course, this presents most international business owners with requirements that they simply can not comply with.

2. The institution must maintain records of the information used to verify the person's identity.

Originally, the regulations required financial institutions to keep a photocopy of whatever document was used for identification. That rule has now been changed, and they will only have to keep a written record of the document.

3. Determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency.
Again, this means presenting a driver’s license or passport, proof of address and date of birth. Additionally, you may find yourself having to answer any of the following questions:

- Other accounts with links to the customer
- Nature of the customer's business and occupation
- Name and address of employer
- Customer's wealth
- Source of customer's income
- Customer's tax status
- Source of customer's funds used to open account
- Customer's investment objective

Ultimately, banks retain some latitude in their scrutiny of individuals; however, since they suffer stiff financial consequences for violations of the Patriot Act, expect them to error on the side of caution.

In addition to the “know your customer” requirements facing banks, they are also required to monitor accounts for suspicious or illegal activity. Your account could be flagged for something as simple as a few large deposits that are out of character with your normal account activity.

What does this mean for you? Account beneficiaries could find themselves on the 314A list. What is the 314A list? It is a list of people suspected of money laundering or terrorism. You are not required to be notified if you are placed on this list. Further, you could find your account frozen. In this unfortunate case, you can expect that the Federal Authorities will be contacting you shortly to resolve the matter.

Whether you consider the Patriot Act to be an assault on your civil liberties or the keystone to the safety and soundness of our nation’s financial services industry, there is no doubt that it is going to affect anyone who does there banking in the United States for the near future. As for the international business man, you may still be a year away from being able to open that checking account for your U.S. Corporation or Limited Liability Company. Many provisions of the Act are set to expire on December 31, 2005 unless renewed by Congress.

1 From the Article, “Patriot Act makes banks pry into new accounts”
By Laura Bruce,, posted September 30, 2003

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Delaware Intercorp, Inc.
113 Barksdale Professional center
Newark, DE 19711-3258

"For all the best reasons to incorporate,the best place
is Delaware and the best incorporator is
Delaware Intercorp!"

Call Monday - Friday 09:00 (am) - 17:00 (pm) Eastern Time (GMT-05:00)

Toll Free - USA only - 888.324.1817
International: (1) 302.266.9367
FAX: 302.266.9940