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Compliance for Russians: What you need to know when opening an account in the EU
In Russia, there has long been an opinion that European banks, especially Swiss ones, are the standard of reliability and confidentiality. Many people wanted to live off the interest from their accounts in Swiss banks, and some did so. The bank has demonstrated a warm attitude towards Russian clients for many years. There were, and in some places still are, so-called Russian bureaus - departments of client managers specializing in working with Russian-speaking people. In Switzerland, you can safely keep money with only a Russian passport, without the need to obtain a residence permit. But times have changed, and the requirements have become stricter. Even Switzerland's centuries-old neutrality has been violated, and without a residence permit in Europe, it is becoming increasingly difficult to place funds in Swiss banks, especially for Russians and Belarusians. Theoretically, it is possible to open an account on a Russian passport without registration, but the limit is €100,000.
Each bank may impose its own additional terms and conditions as part of its compliance, even if not explicitly stated. One bank may be more flexible with customers with minimum deposits, while another may require proof of physical residence in Europe. All of this creates additional difficulties for those trying to maintain or access European banking services.
Strict compliance with the requirements of European banks causes understandable concerns among Russian clients. They are afraid not so much of checks, but of the fact that their access to money may be limited or closed in the future. Yes, you can temporarily switch to a more loyal bank, but every year the situation is getting more complicated and even with a new bank there may be difficulties. Now accounts in European banks are suitable mainly for residents of Europe and in any case for those who live or earn money outside of Russia. If you do not live in Europe or your money is connected to Russia, you may want to consider finding a bank that accepts funds from outside Europe, for example, in Israel or the USA.
The compliance process requires a lot of paperwork and time for verification, so it is important not to waste time saying “let’s do it” but to immediately choose the bank that is most likely to accept you as a client. Ideally, you should prepare for the procedure in advance. Companies specializing in such preparation help their clients conduct analysis and collect all the information necessary to develop a strategy. This allows us to determine in advance which jurisdiction and bank are best suited for a particular client, taking into account the client’s experience, sources of income and future plans.
Client Identity. It’s not just the money that’s being checked, but also the clients themselves, their families, and their network. The bank will ask for your background and look for references online. These include whether the client is subject to sanctions, whether they are involved in sensitive industries like oil and gas, and more. Finally, how well do their assets compare to their overall wealth? The likelihood of rejection increases if the client operates in a high-risk industry or has ties to Russia.
Residence. Where have you actually lived in recent years and where do you plan to live? What type of residence permit do you have and what kind of permit do you plan to obtain? In some cases, a formal residence permit may be enough, but many banks want their clients to actually live in the country. So don’t throw away your electricity and water bills to prove your actual location in Europe.
Tax compliance. Banks carefully check where new clients have paid their taxes. What country are they currently and previously a tax resident of? Do you plan to change your tax residency? Banks want to know where their clients will pay their taxes in the future.
Source of funds. In banking circles, this is called the source of wealth, or source of wealth. This is one of the most important compliance issues. The bank wants to know whether the amount the client is trying to deposit is legitimate money and not the result of fraud, and how it fits into their career and life path. You will need to provide a list of past investments and information about the bank where the client has an account. It is important that everything looks logical and fits the client’s wealth. This is a common sense test. Sources can include dividends, wages, property sales, business or stock sales, securities, or gifts. The source is supported by documents such as income tax returns, sales contracts, and deeds of gift.
Where is the money stored? Or the source of funding. Banks are very careful to ensure that the funds are not linked to sanctions. And if the funds are in a bank authorized for Russia (for example, Sberbank), European banks may refuse to accept them. Some allow transfers to the bank without prior authorization of funds. However, after this, the client must remove the account from the approved bank. Tracking of money (how money moves between banks and jurisdictions) is also monitored. What is important here is that there is no break in the chain or any period of storage of money in cash. In addition, not all banks are loyal to cryptocurrencies.
For transfer purposes. Banks want to know what you will use your money for. You may indicate that you will invest in securities or participate in alternative investments. Perhaps you plan to purchase real estate. However, holding assets for current expenses or simply as a deposit is also an understandable transfer purpose.
sanctions. Are you or your family under sanctions? Do any of them have a Public Enforcement Officer (PEP)? Is there any adverse information about you in the media, such as lawsuits? It is important to indicate whether you have a relationship with a sanctioned person, company or country.
Sensitive industry. In terms of banking compliance, sensitive industries are those with a high risk of regulation, sanctions, money laundering and financial crime. Banks will conduct more thorough due diligence on their customers and assets if they operate in or are associated with these sectors. Sensitive industries include oil and gas, defence, precious metals, cryptocurrency, foreign exchange and, unfortunately, charities, which are often used for money laundering. If you work in the top management of an oil and gas company or own a business in this sector, you will have a difficult time in Europe.
union. Some banks, in order not to waste time on compliance, open the doors to clients with a Russian passport only if they have at least 10 million euros in their account, and sometimes 20 million euros. This high threshold allows banks to focus. Identify large clients who bring in significant income.
Now, one of the requirements for clients who own Russian assets is that they do not earn money in Russia after February 24, 2022. If the funds were withdrawn from your country before this date, your bank may continue to work with you on these funds. However, in the future, even if you are a passive investor who owns real estate or deposits, the bank may consider these funds "dirty" and refuse to open an account or require it to be closed.
However, some banks are more flexible and take asset ratios into account. For example, if a person has lived outside of Russia for a long time (Switzerland, the USA, Cyprus or Dubai), but still owns assets in Russian jurisdiction, the bank will assess what percentage of his property consists of these assets. His participation in Russian business is also important. If the client is simply a beneficiary and receives income from the business, but does not participate in the operational process, it may be difficult to withdraw these assets, and the bank will keep them in its account.
It is important to present the bank with the full picture. Trusting relationships with clients will allow you to find a bank that will understand and adapt to this situation, despite the fact that many have completely stopped working with Russian clients.
A client recently sent me the following email: "Mark, yesterday I received an email from my bank saying my account has been frozen. I have been a customer for over 10 years. What should I do now? This case illustrates the main mistakes wealthy clients make when managing their money.
The first mistake is not paying enough attention to the risks associated with your personal capital. Business owners are used to calculating the risks of their company, but often lose this skill when it comes to capital. Many people have accounts in only one jurisdiction, without thinking about the problems that may arise. It is important to open reserve accounts in several countries in advance to avoid unexpected situations.
The second mistake is not understanding your costs. Clients often don’t know exactly how much they are paying their bank in fees, or how to negotiate better terms. These unnecessary charges can significantly reduce your equity, and compound interest makes things even worse. A wealthy client might haggle over the price of a bottle of champagne at a restaurant without knowing how the bank is now charging them an extra $100,000. If possible, open an account. It’s important to choose carefully and consider your clients’ goals. Not only will this protect your assets, it will also significantly reduce your fees. And this approach remains valid regardless of the current compliance or sanctions situation.
The editor's opinions may not coincide with the author's point of view.