Offshore Bank Account Scams

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Offshore Bank Account Scams

Changes to legislation in recent years have shown an increasing number of foreign bank accounts becoming more and more complicated to open. This is primarily associated with the pressure imposed on banks by relevant tax authorities and governments. Examples of this are not hard to find! Heavy penalties imposed on HSBC and UBS banks for various violations deserve special mention. After being scolded a couple of times, the banks now fear cold water, figuratively speaking of course.

Above all else, nowadays banks frequently require personal attendance to open a bank account. Exceptions can be made for some financial institutions, as well as private wealth banks that deal with VIP clients and arrange individual visits to the country of a potential client in order to establish personal acquaintance and witness the client’s signature. However, a few years down the line, this option is most likely to fall by the wayside too.

A constant market for anonymity also plays a significant role here, typically ex-USSR businessmen. Simply put, these businessmen don’t want their name to be mentioned as an account beneficiary. This, of course, has its own grounds. Not to be highlighted in this article, yet they contribute to excessive demand for companies that have already opened bank accounts.

What are the options for remote bank account opening?

There are two ways to open a bank account remotely:

  1. Via banks that agree to open accounts without individual presence. However, the KYC (“know your client”) procedure requires more documents than personal attendance.
  2. Via an offshore company’s registrar that opens a bank account on its own behalf and in its own name to offer it later for rent with two options. The first one implies that the token remains at the disposal of a service provider who carries out all payments, while the second one assumes the token is to be given to a client.

Whether or not a businessman has any legal rights over the bank account is the key difference between the above options. The first case implies that the businessman is introduced to the bank as its client, and the bank has particular obligations to him. In the second case, the bank’s client is a service provider, i.e. the bank’s employee, whilst the client itself has no direct relations with the bank. The risk here is obvious and is therefore frequently unreasonable. The risk here is not only obvious, but very often unreasonable.

Scams involving offshore companies with accounts opened in the name of a service provider’s employee

Fraudulent activities in selling ready-made companies with previously opened bank accounts or in the remote opening of bank accounts are flourishing. Most scams have been carried out in Hong Kong, although some have also been reported from Cyprus.

Let me set out the main principle of such fraud. As a rule, an online ad offers a ready-made company in Hong Kong that has its bank account opened in HSBC. The price is incredibly low – in order to entice an unsuspecting lamb!

A businessman that makes an enquiry over the phone is given information that a courier will bring the company documents together with a token required to access e-banking, and takes payment. Then a part-time student arrives with documents and token accordingly, along with taking any outstanding money.

The “lucky” businessman is happy to buy a cheap company with a bank account. Being no less sensible than others, wants to avoid any extra risk and completes several test transactions using small amounts involved. The money is successfully withdrawn and credited back without any problems. Thus the businessman decides to use the account for more serious transactions, where sums normally vary from US$100,000 to US$250,000.

As soon as this payment is credited to the bank account of the Hong Kong Company, the token stops working. The hapless businessman thinks the problem lies with the e-banking system. Unfortunately not! And alas, the problems continue. The service provider that has given the token, stops answering phone calls and emails. So the businessman decides to call to the bank, who denies his request on the grounds that he has no relation to said account and thus cannot be given any information. The funniest thing is that the ad offering to buy this Hong Kong Company is still posted, attracting new victims that still hope for a free lunch.

Only now the poor lamb realises he has played victim to a scam, however it is too late to act.

Once we had a client asking us to assist in returning his money after a similar scam. We went as far as contacting the Hong Kong police department to set it afloat. Unfortunately, at the last moment our Moscow branch asked to step aside, and we had to play things cool. The point being, fraudsters are well aware that no one is going to apply to the police or file legal proceedings, since the ill-fated businessmen have absolutely no grounds for such actions.

The last case we dealt with happened in February 2016 and involved US$1 million – a pretty large sum! How it all ended up, I have no idea, but it seems to me the poor fellow had to attribute the loss to business complications.

So be aware, dear businessmen! Constant lurking and the pursuit of cheap commerce come to no good.