Bank Account opening in Cyprus and in other EU countries

Shanda Consult Ltd, February 5, 2018

This article informs about necessary documents and information required for the opening of a bank account in Cyprus or elsewhere.
We often hear that some service providers like consultancy firms, corporate service providers, accountants and others advertise “guaranteed bank account opening” in Cyprus and in other countries. This is, indeed, not true.

It is important to know that the decision to open or to reject the opening of a bank account is in the absolute and sole discretion of the bank applied to. Nobody else, no third party can “guarantee” the opening of a bank account in Cyprus or in any other country.

Documents and information generally requested for Cyprus bank account opening

Documents and information generally requested as a minimum requirement for due diligence and compliance procedures in the context of the application for a Cyprus bank account are listed below. The requirements may slightly vary from bank to bank. The documents and information requested is based on the provisions of the 4th Anti Money Laundering Directive (the 4th AML Directive).

Certified copy of a valid international Passport or national Identification Card.
Applies to all individuals involved in a company or in company structures, including shareholders, ultimate beneficial owners (UBO), etc.If the shareholder of a Cyprus company is a company where the client is shareholder, then, for example, passport or national identification card and all other following documents of the director of that company is required as well. If that company has other individual shareholders, the same applies for those other shareholders.

Proof of Address - Original or certified copy
Must be not older than 3 months, bearing the full residential address (including postal code) and the full name of the person as stated in the passport. Following types of documents are accepted as proof of address:
• Utility bills (electricity, gas, water, fixed phone bills or municipality service bills, but not mobile phone bill)
• Confirmations of Residence issued by Office for Registration of Residents.
The Proof of Address must be in English language. If it is issued in another language, an official and testified translation must be provided. Testified translations can also be arranged by Shanda Consult, for an additional fee.

Bank Reference Letter - Original
Must be not older than 3 months and must bear the individual’s address as stated in the Proof of Address.Most banks have standard reference letter templates in their systems; account balance does not need to be mentioned.
The Bank Reference Letter must be in English language. If it is issued in another language, an official and testified translation must be provided. Testified translations can also be arranged by Shanda Consult, against an additional fee.

CV
Curriculum Vitae (or résumé), in English language, showing the professional career of the individual.Note: In order to assess the risk that a particular customer or client may bear for the bank, the bank has to understand how experienced and/or educated the individual is in the field of business planned or carried out.

Additional documents in case the shareholder is a legal entity:

Certified and recent core documents of the legal entity
This generally includes the corporate documents of a legal entity, such as excerpt from the registrar of companies, Memorandum and Articles of a company etc. The documents must provide evidence regarding the shareholders, directors, registered address and registration number of the legal entity. It must also be proven that the legal entity is currently existing.

Note on Certifications
Please note that the passport copies and the address proofs need to be certified as a true copy, in English language.Documents may be certified by an independent lawyer, accountant, notary, bank manager or embassy official, who should provide their name, address, status on the certified document.

Detailed description of business
A detailed description of planned or currently undertaken business must be provided. The business description must provide names (with addresses, if possible, but at least mentioning the countries involved) of suppliers and customers (or future suppliers and future customers), and a clear picture of the flow of goods or services, and flow of payments (in both directions (suppliers/customers). The description shall also include domain names of websites of the company, the beneficial owner’s company (if applicable), and of (planned) suppliers and customers).
In case that (planned) customers are retail customers, the current or targeted group(s) of customers must be described.
Consequently, an appropriate business description consists of minimum half a page of text.

Source of Wealth
The ultimate beneficial owners are obliged to declare the source of their wealth, including a listing of their wealth.Considered as wealth are owned real estate property, substantial funds on bank accounts, investments in securities or shares of companies, owned luxury cars, yachts or planes, etc.
If an ultimate beneficial owner does not have any wealth, then this must be declared as well.

Business Plan
Some banks may require a business plan. This is not common for Cyprus bank account opening, but obligatory for example for Hong Kong bank account opening.
Additional information, in the normal course of procedures
In the context of Cyprus bank account opening (or elsewhere) banks will ask for additional information, which will be covered by the application forms of questionnaires of banks or service providers. Such information generally includes:
• purpose of the bank account relation,
• expected annual account turnover,
• expected highest incoming transfer,
• expected highest outgoing transfer,
• countries from which transfers are expected,
• countries to which transfers are expected
• nature of incoming transfers,
• nature of outgoing transfers,
• tax identification number of the beneficial owner(s) in his or her country of residence.

If the shareholder of a Cyprus company is a company, banks may also ask for recent annual financial statements of that company.

Additional information, for licenced business
If the Cyprus company (or applicant company in another country) conducts or plans to conduct regulated business activities, certified copies of the respective licences or permissions need to be submitted.
Additional information, in case of politically exposed persons
If the ultimate beneficial owner of a Cyprus company (or applicant company in another country) is a “politically exposed person” (“PEP”), “enhanced compliance rules” apply automatically and appropriate additional information and evidence may be requested.

Additional information, in case of high-risk customers in general
If the ultimate beneficial owner(s) of a prospective customer is to be classified as a high-risk customer, “enhanced compliance rules” apply automatically and appropriate additional information and evidence may be requested. Regarding the classification of high-risk customers, please see the EU’s guidelines in the Annexes to the 4th Anti Money Laundering Directive at the end of this article.

Cyprus still remains as a place of business with a relatively low tax burden, compared with other EU countries. Cyprus tax rules provide for a total taxation of business profits with 12,5 % corporate tax, payable on taxable profit classes. As Cyprus provides the lowest overall tax burden for both businesses and individuals in the EU, Cyprus Company Formations are increasing. The Cyprus Registrar of Companies reported almost 1.900 Cyprus Company Registrations during the first two months of 2017.

Please do not hesitate to contact us for more information and perhaps for our services regarding Cyprus bank account opening or Cyprus company formation: info@shandaconsult.com.

Banks’ customer acceptance policies and account opening procedures

Banks’ customer acceptance policies and account opening procedures in the EU member states are mainly ruled and shaped by the national implementation laws of EU directives and OECD/G20 rules. If there is no national implementation law in place or if a national implementation law is not covering all provisions and aspects of respective EU directives, said provisions of such EU directives become national law automatically and are thus legally binding.

Furthermore; Central Banks or National Banks formulate directives and circulars, based on respective EU directives and national implementation laws. Those directives and circulars are binding for the banks in the country.

The 4th EU Anti Money Laundry Directive

The current 4th EU Anti Money Laundering Directive (the 4th AML Directive) is the main legislation affecting banks’ customer acceptance policies and account opening procedures. However, said directive is not the only legal instrument to be taken into account.
At the time when this article was published (09 March 2017), there were yet no national implementation laws for the 4th AML Directive in place, not even in one single EU member state. Thus, the 4th AML Directive itself became national law in all EU member states, as per 01 January 2017.
There are some very important differences between the 3rd and the 4th AML Directive, which seriously increase the burden and the risk of entities concerned. Entities concerned are not only banks, but many other “obliged entities” such as financial institutions, financial consultants, funds and fund management companies, payment providers, administrative service providers, law offices or accountants and auditors.
While the 3rd EU AML Directive provided for a rule-based approach of due diligence and compliance methods, the 4th AML Directive provides for an enhanced risk-based approach. The rule-based approach was providing more or less clear rules, which needed to be complied with.
However, the enhanced risk-based approach provides for the definition of due diligence and compliance rules, measures and tools to be defined by the obliged entities (banks etc., please see explanation in previous paragraph), based on the entities’ risk classification of the customer or client.
The 4th AML Directive does not provide clear rules for the risk classification of customers or clients. In its appendixes, it provides some guidelines, though. But: some of those guidelines contradict current rules, directives and laws. The 4th AML Directive suggests that Private Banks are to be considered as high-risk customers. However, being regulated entities themselves, under the strict control of the national regulators of the financial markets, all entities regulated by capital market regulators were deemed to be low-risk customers automatically, until the 4th AML Directive came up.
Now, obliged entities have to judge and determine the level of risk that a client creates themselves, and they must be able to prove the rationale for this decision.
The guidelines for risk classification as per the appendixes of the 4th AML Directive are really very interesting and raise some question marks at the same time. The guidelines can be found at the end of this article.
Another important change in the 4th AML Directive is the scope crimes covered. While the 3rd AML Directive was referring to money laundering, terrorist financing and organized crime, tax evasion is no added.
An example for changes regarding practical procedures: while the customer or client had previously to be identified based on sufficient documents, the customer or client’s documented identity now needs to be verified through third-party sources! This needs to be seen in praxis, because even many EU countries do not have such sources in place, or they are not accessible for the obliged entities.

We would like to stress that all the above information is not limited to legislation and procedures in Cyprus and to Cyprus bank accounts, but they are legally binding in all EU member states. Although we know that some countries, including Germany, are quite relaxed with the implementation of the new rules during bank account opening procedures.

The original whole text of the 4th AML Directive can be found here, in all languages of the EU.
After all the above, would you still believe that any law office, consultancy firm, corporate service provider or accountant could “guarantee” the opening of a bank account?

ANNEXES OF THE DIRECTIVE (EU) 2015/849 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015

on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC.

ANNEX I
The following is a non-exhaustive list of risk variables that obliged entities shall consider when determining to what extent to apply customer due diligence measures in accordance with Article 13(3):
i. the purpose of an account or relationship;
ii. the level of assets to be deposited by a customer or the size of transactions undertaken;
iii. the regularity or duration of the business relationship.

ANNEX II

The following is a non-exhaustive list of factors and types of evidence of potentially lower risk referred to in Article 16:
1) Customer risk factors:
a. public companies listed on a stock exchange and subject to disclosure requirements (either by stock exchange rules or through law or enforceable means), which impose requirements to ensure adequate transparency of beneficial ownership;
b. public administrations or enterprises;
c. customers that are resident in geographical areas of lower risk as set out in point (3).

2) Product, service, transaction or delivery channel risk factors:
a. life insurance policies for which the premium is low;
b. insurance policies for pension schemes if there is no early surrender option and the policy cannot be used as collateral;
c. a pension, superannuation or similar scheme that provides retirement benefits to employees, where contributions are made by way of deduction from wages, and the scheme rules do not permit the assignment of a member's interest under the scheme;
d. financial products or services that provide appropriately defined and limited services to certain types of customers, so as to increase access for financial inclusion purposes;
e. products where the risks of money laundering and terrorist financing are managed by other factors such as purse limits or transparency of ownership (e.g. certain types of electronic money).

3) Geographical risk factors:

a. Member States;
b. third countries having effective AML/CFT systems;
c. third countries identified by credible sources as having a low level of corruption or other criminal activity;
d. third countries which, on the basis of credible sources such as mutual evaluations, detailed assessment reports or published follow-up reports, have requirements to combat money laundering and terrorist financing consistent with the revised FATF Recommendations and effectively implement those requirements.

ANNEX III
The following is a non-exhaustive list of factors and types of evidence of potentially higher risk referred to in Article 18(3):

1) Customer risk factors:

a. the business relationship is conducted in unusual circumstances;
b. customers that are resident in geographical areas of higher risk as set out in point (3);
c. legal persons or arrangements that are personal asset-holding vehicles;
d. companies that have nominee shareholders or shares in bearer form;
e. businesses that are cash-intensive;
f. the ownership structure of the company appears unusual or excessively complex given the nature of the company's business.

2) Product, service, transaction or delivery channel risk factors:

a. private banking;
b. products or transactions that might favour anonymity;
c. non-face-to-face business relationships or transactions, without certain safeguards, such as electronic signatures;
d. payment received from unknown or un-associated third parties;
e. new products and new business practices, including new delivery mechanism, and the use of new or developing technologies for both new and pre-existing products:

3) Geographical risk factors:

a. without prejudice to Article 9, countries identified by credible sources, such as mutual evaluations, detailed assessment reports or published follow-up reports, as not having effective AML/CFT systems;
b. countries identified by credible sources as having significant levels of corruption or other criminal activity;
c. countries subject to sanctions, embargos or similar measures issued by, for example, the Union or the United Nations;
d. countries providing funding or support for terrorist activities, or that have designated terrorist organisations operating within their country.

Please do not hesitate to contact us for more information and perhaps for our services regarding Cyprus bank account opening or Cyprus company formation.


Original-Inhalt von Shanda Consult Ltd und übermittelt von Shanda Consult Ltd