AML/KYC/BSA - Why banking sucks

AML/BSA - Why criminals ruin it for everyone.

There was once a time, a long time ago, when shortly after you incorporate, you can take your documents, and open a bank account that day. That is no longer the case. Banks have been fined by various governing authorities for not following KYC - that is know your client. This makes processing business checking accounts a difficult endeavor. I know this because I’ve tried this shortly after incorporating, and it was a mess.

Digital businesses suffer greatly. If you have a remote first business model, especially in the US, a virtual office raises red flags when you open a bank account out of state. When people are more mobile than ever, banks: act like companies are still in an era where we manufacture things, and they ignore the virtual world.

How did this become a problem? 

The problem wasn’t always here. If you want a quick answer to why it is harder for businesses to start, it is simple - criminals. Scam artists have used the banking system to facilitate and conceal their scams. Drug cartels and gangs have been using the banking system to legitimize their ill gotten gains. Governments around the world have been trying to deal with this problem for years, and a continual arms race between governments and criminal groups is ongoing as their interests are diametrically opposed.

So the US government, as well as other western governments, in a drastic move in the 60s and 70s created the bank secrecy act, and added various provisions later on, like Anti-Money Laundering, more. All of these acts, instead of enabling government surveillance, forced banks to act like the government and increased liability for serving anyone deemed suspicious by the government. This adds so much red tape in fact, that many US banks have de-banked even regular business owners and individuals.

One bad apple ruins the bunch.

These laws ruin things for everyone. Banks must be constantly vigilant, or face legal liability and potentially jail time of certain employees for facilitating crime. Marginalized groups face more restrictions on the ability to have banking services, leaving them in the hands of unscrupulous actors to deal with their basic needs. Political activists may face bank account closures and restricted access to funds for associations. And probably most relevant to you, the business owner, business owners are subject to intense scrutiny by banks, forcing them to do extensive paperwork and verification procedures in order to send and receive funds.

The work to catch bad guys failed.

Worse yet, all these regulations serve to restrict entrepreneurs with digital businesses, but they don’t even stop what they were supposed to stop! Money laundering evolved, and focused on more insidious tactics, like using crypto. Terrorism is still financed. Corrupt government officials are able to steal from governments and finance their lifestyles in the West. The attempts to stop bad guys failed. Yet governments still insist that these laws protect their nations from harm. The famous quote goes:

“Insanity is doing the same thing multiple times and expecting different results”

Although a lot of regulation is nonsense, we encourage you to comply with all laws, or move to a country where the laws make more sense. There is no use fighting the system. The best, and smartest thing to do is follow all laws, and move to jurisdictions where the law favors your style of business and strategy.

What can you do as a business to reduce difficulties in the West? Here are some things I’ve learned for American companies.

First, don’t do business in any area deemed controversial. Sexually explicit services, Tobacco Sales, Arms Trafficking, Gambling, or vague businesses with no clear business purpose - all of these are too controversial for most banks to accept. Make sure your business is above board. Another problem would be doing business with sanctioned countries. No bank is going to touch that with a ten foot pole. You have to be as boring and noncontroversial as possible.

Secondly, and this is important, you have to make sure you have a license to do business in the area of interest. If you give financial advice, you need certain certifications by your State Board of professions. You shouldn’t be giving unlicensed financial advice. You also shouldn’t be practicing law without a license. This should be obvious stuff, but some people have no idea what they are doing is potentially problematic.

Next, this may be the most confusing one - Virtual offices are not good enough to be considered your primary business address, even if you conduct your business out of that office, and have that address on filing paperwork. And if you’ve registered outside of your state, you need to register in the state where your actual address is. This may be costly to digital startups, but unfortunately, it is necessary to open a bank account. I’ve known this from personal experience.

Lastly, not every bank will accept your business regardless of who you are. Sometimes, if something from your business doesn’t check out according to the bank standards, or has significant risk from the bank’s point of view you will be rejected, especially if you have international business. This will happen no matter what. Not every bank is happy to have your business. Go where you are wanted. It may be hard, but business is about making the best of hard choices.

Schedule a free introductory meeting with me if you want help with strategy with regards to opening bank accounts for your business. I’ve been through the ringer and can help you.

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