Settling In Asia
Four Considerations For Opening A Bank Account On The World’s Most Populous Continent
Exporter Fred Crosetto doesn’t mince words when asked what it is like to open a bank account in Asia. “It’s been really hard,” says Crosetto, CEO of Ammex, a global dealer of disposable gloves based in Seattle and founded in 1988. Ammex, which has more than $90 million in revenue, has opened bank accounts at Standard Chartered Bank in China, Hong Kong, Malaysia and the Philippines, where Ammex has established business entities.
A primary challenge to opening a bank account in Asia, says Crosetto, is the Foreign Account Tax Compliance Act (FATCA). Under the law—intended to prevent money laundering—banks and financial institutions around the world must report any accounts owned by Americans and the balances of these offshore accounts to the Internal Revenue Service (IRS), if the combined amount is over $50,000 or, in some countries, register with the IRS. Some banks in Asia see the reporting requirements as too much trouble for too little return and are reluctant to open accounts for Americans, says Crosetto. As he puts it, the banks say, in essence, “We have enough business and we really don’t need or want Americans.”
That can present some challenges to companies in countries such as China with currency controls—government policies that restrict the purchase or sale of foreign currencies by residents or similarly restrict nonresidents from buying or selling the local currency.
According to Alex Schroder, principal of Prisma Group Inc., a business development and investment firm with offices in Raleigh, N.C., and Shanghai that helps clients expand internationally, “Particularly in currency controlled countries, it’s critical to have a local bank account to conduct trade in the local currency.” That is generally true if you decide to employ people locally.
The good news is you often won’t need a bank account in Asia to export there. And if it turns out you do need one, there are plenty of consultants and attorneys available to help you navigate the process. Here are some tips on how to tell if you need a bank account in Asia and how to open one if you do.
DETERMINE IF YOU NEED A BANK ACCOUNT OVERSEAS AT ALL
“In general, it is not necessary for a U.S. exporter to open a bank account in Asia when completing an export sale to a buyer in that region,” says Susanne Keough, head of the Global Trade Solutions division at SunTrust Bank. “The payment for the goods or services will be made by the buyer’s bank in Asia back through the exporter’s bank in the U.S. To facilitate this, there are a variety of payment methods that can be utilized such as wire transfer, letter of credit, or documentary collection.” In documentary collection, in case you’re unfamiliar, an exporter assigns the task of collecting for goods it has sold to its bank.
Small companies trading in small amounts of goods or services can often “work off the grid” and handle many transactions through online processors until they scale up, according to Crosetto. Such options include PayPal, Alipay—a third party online payment solution— and wire transfers, says Crosetto.
Silicon Valley, Calif.-based Waygo, which makes an app that instantly translates Asian languages, including Chinese, Japanese and Korean, has not opened a bank account in China, though it has operations in Shanghai, says CEO Ryan Rogowski. This is because the seven-employee firm, founded in 2011, sells the app through the iTunes store. “Apple takes care of international purchases,” says Rogowski.
SHOP AROUND FOR THE RIGHT BANK
If you do need a bank account, working with a large bank with operations in the U.S. such as Citi, HSBC, or Deutsche Bank may be the easiest route. “What is important is for the exporter to partner with a U.S. financial institution that has expertise in international trade and can advise on export strategies,” says Keough. “This will help optimize the exporter’s cash flow and mitigate payment risk.”
Such banks will offer services to facilitate payments across international borders. “If there is a particular need to collect payment in the local currency of the buyer, then your business can look at options such as foreign currency hedging to ensure your profits do not evaporate,” says Keough. “In addition, if you need to hold local currency in a country, you could open a multi-currency account.”
But don’t rule out overseas banks until you consider the pros and cons. When you open an account with a foreign bank, for instance, “it does allow you to move cash more freely,” says Schroder. And sometimes, even a big international bank may not have a branch near where your operations are. “They will be in major cities like Shanghai, but if your plant is 200 miles away, that is not going to be helpful for your business.”
As an exporting veteran, Crosetto says there are other advantages to using local banks—such as Banco de Oro in the Philippines and Mingsheng Banking Corp. in China. Often, their fees are lower, he says. And because local banks have some rights not given to foreign banks, they may be able to customize their services to your needs more. “A local bank can be a lot more flexible,” he says.
DON’T DO IT ON THE FLY
You can get an idea of how difficult it will be to open a bank account in a given country by checking out the U.S. Department of the Treasury’s website, which has gathered current FATCA agreements negotiated with countries around the world. However, if you open an overseas account, make sure you work with a knowledgeable consultant or attorney so you don’t make mistakes that lead to problems with the IRS. Asking other exporters for a recommendation can be a good way to find a good advisor.
“Every country has its own market conditions, cultural traits, government regulations and business conventions,” says Keough. “Using available resources and finding the right partners—both domestically and locally in your selected market—will be vital to your success. Building long-term partnerships with knowledgeable experts should be a primary goal when embarking on—or expanding—your company’s global business opportunities.”
No matter who you have on your team, don’t expect opening a bank account in Asia to transact business to be a speedy process. “It’s not going to be straightforward,” says Schroder. “It’s going to take several weeks for a foreign company, and the process can involve multiple steps.” In some countries, such as China, you will have to hire an attorney to set up a business entity for you first, and then provide proof that you have done so before you can open an account.
BE WARY OF THE RISKS
One risk in China and other Asian countries is losing operational control of your bank account through the “chop” system, says Crosetto. In this system, companies have a legally binding stamp that anyone in the company can use in lieu of a signature to agree to a document.
Just as in the U.S., many large institutions in Asia have been hacked, so it is important to impose tight controls on your banking activities. Two years ago, someone Crosetto thought was a vendor wrote to Ammex to say it was changing its bank accounts and asking the firm to wire payment for its next two invoices to a new account. Ammex later discovered that the vendor had never received a payment—and Crosetto realized that someone had hacked the supplier’s email network and directed $120,000 to fraudulent accounts. Ammex recovered $60,000, after working closely with its bank and getting advice from the Department of Treasury and FBI. Since then, Ammex has instituted tighter controls on payments. Crosetto considers it an expensive lesson: “The president of the company must now call and personally speak with me, or we are not changing any bank accounts,” he says.