Why do banks refuse to open accounts to foreigners or people with temporal residence permits?


Why do banks refuse to open accounts to foreigners or people with temporal residence permits?

In: 14

In the US, the Patriot Act requires banks to verify the identity of accountholders. Easy enough to do for those holding official US or US state IDs (like passports and drivers licenses) and a social security number, but more difficult to do when the ID is issued by another country. That said, plenty of US banks will go through the verification process for foreign documents as long as there’s also a social security number or an individual taxpayer identification number provided as well, and a US address. They generally won’t do this online though – you have to go to a branch, and sometimes you have to go to a particular branch. In other words, it’s usually less streamlined for a foreigner to open an account at a US bank, but generally doable if you have a few key pieces of information and ID.

Who says they do?

This isn’t an easy thing to answer without context of a given country.

There is one typical situation where banks won’t open an account to a specific type of person. Many non-US banks will not open accounts for US persons because the bank does not want to have to deal with American tax laws requiring disclosures to the American government under penalty of some really severe fines.

Another complication, though, is whether a person is considered a politically exposed person or if there are questions on how the money was obtained. In those situations, Know Your Customer policies, procedures, regulations and laws may prevent the bank from opening up an account to protect the bank from exposure to certain risks that come along with those situations.

It sort of depends on the country in question. Every country has a bank regulator (usually Central Bank) and they set up specific rules for banks to operate in their country.

It is quite typical that banks are required to “know your customer”. These “know your customer” (aka KYC) rules are there to make it harder for money laundering and tax evasion. Some countries have capital controls that restrict the amount and nature of foreign currency transactions. There are also countries like the USA (somewhat notoriously) that specify rather strict reporting rules for banks that service US citizens and residents. Because almost every bank needs to use the USD etc, they try to follow these reporting rules to avoid sanctions and blacklists. Overall, these kind of requirement makes it rather inconvenient, somewhat risky and definitely costly to service foreign customers. So a smaller local retail bank might have policies not to serve non citizens etc simply to avoid this.

In many cases, foreigners can open accounts with large international banks if they have a local subsidiary. Most large international banks have the systems in place and will service foreign customers unless it is totally forbidden by local bank authorities.

Banks aren’t obliged to open an account for anybody.

There are several factors, but the minimum needed is a positive personal ID.

With many foreign nations, documentary ID is so weak it is effectively impossible to ID someone. No ID, no bank account.

What about Europe or APAC? I see too many comments related to the US.