• Our firm
  • Our Team
  • Practice Areas
    Business Law
    Real Estate Law
    Commercial Law
    Litigation
    Family law
    Estate Planning
    Employment Law
    Criminal Law
  • Learning Center
  • Lastest news
  • Contact us

BANKING CHAOS FACING FOREIGN-OWNED BUSINESSES

By: María Cristina Estrada, CPA (COL).

Those of you who have followed us on social media this past year know that foreign-owned businesses are currently facing increasing challenges in registering and even maintaining corporate bank accounts throughout Colombia.

These challenges appear to be multilayered:

  • Huge Delays: We are seeing that local banks are taking several weeks and even months to open a new corporate bank account as they implement new due diligence processes.
  • Expanded Requirements: Local banks are now requesting much more documentation from foreign owners before approving an account.
  • New Visa Requirements: While haphazard, it is clear that some bank branches are requiring that all legal representatives and even owners secure an appropriate visa prior to registration.

WHAT’S GOING ON

Some of this chaos is likely related to normal long-term efforts by local financial entities to tighten due diligence requirements in order to combat money laundering. Then reality is that Colombia continues to be one of the jurisdictions most impacted by illicit transfers and financial institutions are always looking for ways to improve internal due diligence controls in order to avoid any penalties imposed local government agencies.

An change in the local financial regulatory framework may also be a culprit. Back in May, 22, the Financial Superintendence published External Circular 11, which required that certain financial institutions tighten internal protocols in order to better manage international money laundering and terrorism financing risks. These updated protocols also required that financial institutions identify the ultimate beneficial owner of financial accounts. This has led banks, brokerage accounts and other financial institutions to tighten their due diligence processes across the board.

CURRENT BEST PRACTICES

While we are still monitoring the actual effects of these new protocols we have identified certain key considerations that foreign business owners should keep in mind over the short-to-medium term:

Business Owners

  • Now
    • Individual business owners should secure a visa in order to receive a “cédula.” This will allow them to register directly with local banking institutions.
    • If a shareholders is a foreign business entity, the legal representative of that entity should secure a visa and “cédula.”
  • Previously
    • Banks did not require that business owners/shareholders have a visa as a passport was sufficient.

Legal Representatives

  • Now
    • All primary and secondary legal representatives will be required to secure a visa and a “cédula.”
    • Financial institutions may require a copy of a formal employment agreement between the business and the legal representative(s)
    • Business entities may be completely disqualified from serving as legal representatives.
  • Previously
    • No issues if at least one of the legal representatives had a visa/“cédula.”
    • Business entities could serve as legal representatives.

Added Due Diligence Requirements

  • Now
    • Financial institutions will require that companies provide significantly more documentation and information in order to open and/or maintain a local business corporate account.
    • New documentation requirements are specifically focused on identifying the ultimate beneficiary owner of local businesses.
  • Previously
    • Due diligence requirements were not as extensive.

Site Visits Required

  • Now
    • We are hearing that over the short-to-medium term virtually all local banks will require an on-site visit as part of the account registration process. We expect this to impact businesses that manage hybrid and virtual-only formats.
  • Previously
    • While many banks currently manage this requirement, some banks are not as strict.

New Visa Requirements

  • Now
    • Banks are now checking to ensure that anyone linked to a local bank account (legal representative, shareholders) has a visa that allows them to serve in that specific capacity.
  • Previously
    • Banks did not place a lot of emphasis on this issue.

AN EVOLVING PROCESS

It should be noted that the best practices listed above should not be considered an official set of requirements or even a summary of any new overarching policy. Financial institutions often enforce policies inconsistently and haphazardly. This means that certain bank branch may enforce much tighter requirements than others or that certain branches may provide exceptions to certain foreign-owned businesses for any number of reasons. Bottom line, these best practices are intended to prep foreign-owned businesses for the most draconian requirements.

We will continue to update the entire community as this situation evolves.

This post is being published for general informational purposes only and it is not intended to provide specific legal and/or tax advice.  It should not be used as a substitute for competent legal/tax advice from a licensed attorney and/or accountant in your jurisdiction.