But first

Let’s address the elephant in the room first: the dormancy of the blog. I have ideas for blog posts but limited time in which to write them. I don’t want to sacrifice on quality by sticking to a schedule so for the coming months, the blog will probably be responsive and reactive (i.e. writing about stuff as it comes to me based on discussions on forums and elsewhere) as opposed to writing about something new every X days/weeks.

Today’s post started out as a response to a thread by @Raphael in which the following question was posed: Which IBCs/LLCs do Georgian Banks go with? What started out as a short answer because a small treatise and I decided to share it here instead.

Categories

With the usual caveat that everything varies depending each unique situation and there’s no silver bullet approach – many banks will accept precisely any non-sanctioned jurisdiction for the right amount of money and risk profile.

Having read, reviewed, and even written dozens of compliance manuals for banks and other financial institutions (payment processors, e-money) and financial and corporate service providers, it’s apparent that nations are not equal. To financial service providers, some nations are preferred over others.

There are, by and large, five categories of jurisdictions. This refers to jurisdiction of incorporation, residence and citizenship (UBO, share holders, directors), banking, and even things like operations, customers, warehousing, web hosting, suppliers, and business partners. These categories are based on a a lot of different factors such as wealth, social and political stability, and international perception.

In this article, I will present these categories and the jurisdictions that go in them.

I’ll be painting with a broad brush here. Regional, political, cultural, economical, and other variations apply. There are also internal rankings. Some jurisdictions in a category can be favoured over others. As an example, Bulgaria falls into the Trusted category because it’s an EU jurisdiction, but there is no shortage of default suspicion against Bulgarian entities or persons.

While the categories may seem Eurocentric or Western-centric, what I’ve pieced together here is from businesses across the globe. A bank in Namibia isn’t more trusting of Nigeria than a Dutch bank might be.

Arguably, there aren’t five categories. There are only three: highly respected (Trusted), Tolerated, and Garbage. My inclusion of Familiar and Unknown are in the case of the former a middle-ground between Trusted and Tolerated and in the case of the former, somewhere between Tolerated and Garbage.

Trusted

The Trusted category consists of jurisdictions which are universally or almost universally viewed favourably internationally.

As you can probably guess, we’re talking about EU/EEA, Switzerland, USA, Canada, Australia, New Zealand, et cetera in this category.

Residents, citizens, and companies in these jurisdictions typically enjoy a more favourable risk assessment with banks, fiduciaries, and governments. There is a presumption of good character.

Familiar

These are nations for which a presumption of good character might not exist, but a presumption of bad character doesn’t apply either. These are jurisdictions which are familiar to most compliance officers. They have seen at least a dozen or so applications involving these jurisdictions have and have often find them to be good applications.

A higher degree of due diligence may be applied.

For companies, public registries are sometimes incomplete, missing, or of poor usability which means banks and others are more likely to insist on notarised copies of documents when that often isn’t the case in Trusted jurisdictions where company ownership can be fully verified online for free or for a small fee.

Applications are subject to more scrutiny.

Tolerated (Offshore)

This is an unspoken category. On paper, many banks and financial service providers will not engage with the likes of Seychelles and Belize, but almost always will for example take on a Seychelles IBC if the amount of money is attractive and character of the client is more favourable.

An EU resident and citizen with a Mauritius offshore company might find it easier to bank with a Maltese bank than resident and citizen of Indonesia.

These jurisdictions often lack public registries for companies or such registries are incomplete. However, there is frequent legitimate usage of offshore companies and banks are often well aware of how to handle and verify applicants involving these jurisdictions.

Applications involving these jurisdictions are often subject to additional screening. As a means to weed out unprofitable small fish, many banks ask for a much higher minimum deposit to take on clients (persons or corporates) from Tolerated jurisdictions. You might also be asked for additional reference letters or more in-depth proof of source of wealth/income.

Unfamiliar

These are jurisdictions which are usually assigned a higher level of risk due to primarily lack of familiarity. Poor international perception (high crime, corruption, war, political instability, et cetera), along with substandard (if any) transparency on company ownership and failure to meet international standards on compliance and cooperation.

This category may be the largest but it’s shrinking. Jurisdictions typically move from Unfamiliar to Garbage once it becomes clear how profoundly malfunctioning they are or to Familiar or even to Trusted.

Africa and Central Asia are home to most of these jurisdictions. I have found Bolivia, Paraguay, and some nations in South-East Asia also often fall into this category but specialized or regional banks often treat them differently (better).

In some cases, dealing with a local or regional financial service provider may be preferred as they may be more familiar with your jurisdiction than someone halfway across the globe.

Garbage

This category contains nations that are politically unstable, have severe sanctions imposed them, and generally poorly regarded internationally (very high crime, corruption, war-torn, totalitarian government, severely limited freedom of speech and press, et cetera).

It’s the most controversial category.

No bank will tell you that all residents of Pakistan are automatically bunched together with terrorist organizations and money launderers, but in the eyes of an average bank in a wealthy nation, it is a fact that income earned from an average or median Pakistani resident is far less than the fines and other compliance headaches associated with taking on one the aforementioned terrorists and money launderers that do exist in Pakistan.

Applications from these jurisdictions are often declined on the spot or subject to extreme scrutiny.

Map and List

The below is compiled from the aforementioned source materials: compliance manuals from banks, e-money institutes, financial and corporate service providers, fiduciaries, trusties, financial services regulators and other government bodies, and international organizations engaged in compliance and financial services. By having such a vast source material, the consolidated data on the one hand perhaps ends up being too vague and on the other hand has enough of a sample size to be relevant.

Special Cases

Some jurisdictions are worth special note. I might update this section based on comments and discussions.

Azerbaijan

I listed Azerbaijan as Familiar because from the sources I was looking at, that’s where it on average would fit in. However, it is listed as Garbage (high-risk) in many cases.

Islands and Remote Territories

This applies in particular to France, whose overseas territories essentially are just an extension of mainland France. Technically, Guadeloupe is as French as any other region of France. Similar can be said about for example Guam and the US.

To some banks, this means that our example islands of Guadeloupe are treated equal with France (i.e. Trusted). However, some take a different approach and simply classify these islands and remote territories as risky or unfamiliar.

Middle East

This whole region is often classified as posing elevated risk, but there is so much trade and economic activity that many jurisdictions in the Middle East that many financial service providers are comfortable with the more stable nations.

Even a Familiar or Trusted jurisdiction in this region will very often be subject to scrutiny (due diligence) as if it were a Garbage jurisdiction.

Malaysia (Labuan)

While Malaysia is typically considered quite favourably (moderate risk), the island of Labuan is sometimes treated differently. This is akin to how the UK is Trusted but Bermuda is Familiar and Cayman Islands are Tolerated.

Russia

The biggest question mark in the Garbage category is probably Russia. Due to its profoundly unique standing internationally, Russia fits in both Familiar and Garbage on most banks’ compliance lists.

Sanctions come and go. Crime and corruption are huge problems. But Russia is big and there is a lot of trade to and from Russia, so it’s in a sense Garbage that’s very Familiar.

USA

Because of FATCA, the USA is both highly compliant but also a compliance headache. While there is a presumption of good character for American natural persons, the compliance cost has until recently been prohibitive to many banks. This is easing up, with banks being more likely to take on Americans once they sign the adequate forms to enable disclosure.

However, some banks still struggle with FATCA compliance and turn down all or at least non-HNWI Americans.

See also Offshore, USA.