Reasons for closing corporate bank accounts in Georgia, Estonia, Latvia and other countries

For a business that you opened in Georgia, it is important to have a bank account in the country. But there is a risk that the bank may refuse to open you without explaining the reasons and this will be absolutely legal, spelled out in the internal policy of the financial institution. Based on our practice, we have collected the main reasons for closing bank accounts in Georgia and other countries, as well as recommendations for working with Georgian banks.

Reputation risks and tax evasion

Self-respecting banks are especially sensitive to their own reputation and very carefully check non-resident companies before opening an account. After contacting the bank with such a request, the compliance officer examines all information about the client, the statutory documents of the company, and the main purposes of using the account. This is done in order to determine the legality of your activity and check your company for involvement in illegal activities.

Before applying to open a bank account, you need to make sure that:

  • Your business is not a high risk business;
  • You have no debt on loans, taxes or partnership obligations;
  • The director of your company has an impeccable reputation, this also applies to other owners of the company;
  • All information must be true and documented;
  • The company’s activities must be transparent and legal;
  • Your corporate structure should be well defined and clear;
  • The competence of the director and owners should not be questioned;
  • Any receipt of funds must be documented and legal.

If all these points are met, the bank still has the right to request additional documents and conduct an independent audit. Even after you have opened an account, the bank also has the right to close your account in certain cases. Next, we will take a closer look at how this is the case in different countries.

Russian banks

You can close your company’s account yourself. According to the legislation of the Russian Federation, this is possible without explaining the reasons, it is enough just to write a statement. As for the closure of an account by the bank, they act on the basis of the provisions of the Civil Code, the Federal Law “On Combating Money Laundering and the Financing of Terrorism” and in accordance with the Federal Law “On the Specifics of Carrying Out Financial Transactions with Foreign Citizens and Legal Entities”.

There are 3 mainly reasons:

  1. there were zero funds in the account for 2 years;
  2. no transactions have been made for 2 years.
  1. The non-resident company did not provide information that it is a foreign taxpayer within 15 working days after the request;
  2. A non-resident company, which is a foreign taxpayer, did not consent to the account data being provided to the tax office.

In any of these cases, the bank is obliged to inform you about the closure of the account 30 days before the decision takes effect. At the same time, if the bank has doubts about the legality of any transactions, according to the law, the credit institution is obliged to conduct a preliminary check of such transactions at least twice before applying the account closure.

Banks of Azerbaijan

Banks of Azerbaijan also bury an account without any problems at your request at any time. In other cases, at the request of the bank, the contract may be terminated through the court if:

  • the amount on the company’s account will be lower than the minimum specified in the agreement and will not be restored within 1 month after notification from the bank;
  • there have been no transactions for a year;
  • the company is using a bank account for illegal purposes.

The bank must have a documentary justification for closing your company’s account.

It is important to know that both in Russia and in Azerbaijan there is currency control, that is, when conducting an operation in foreign currency, with a foreign company, within the framework of foreign economic activity, it is mandatory to submit primary documentation to the bank. That is, in fact, banks a priori check each international transaction.

Consider examples of European countries that do not have mandatory foreign exchange control of foreign economic activity, as well as that are popular as low-tax jurisdictions.

Banks of Cyprus

Cyprus is a jurisdiction that for a long period acted as a European offshore and its measures:
Based on the order of the National Bank of Cyprus, all accounts opened in the name of shell companies (shell companies) fell under special checks. Let us remind you that such companies can be considered:

  • do not own real estate or other significant assets in the territory of the jurisdiction;
  • do not have premises for conducting business activities;
  • do not have staff and have little economic value;
  • do not submit regular financial statements to the competent authorities;
  • have no affiliation with any of the local companies.

That is, commercial banks have the right to unilaterally close the account of a company that will not confirm even one of the specified conditions upon request. Banks operate on the basis of an official order of the National Bank of the Republic.

Banks of Latvia

In accordance with the Civil Code of the Republic of Latvia, commercial banks or credit organizations within a year can legally close an inactive account with no money, but this is not their obligation.

The law that banks rely on when deciding to close an account is designed to prevent money laundering, financing, and the spread of terrorism. Another common name is Anti-Money Laundering.

According to the latest news, banks of Latvia, without strict observance of the norms of the specified law, closed tens of thousands of accounts of legal entities, which forced the business to switch to using payment systems. For example, as of 2019, Paysera alone serves more than 28 thousand Latvian customers, including 6506 legal entities. The turnover of this non-bank organization in 2019 exceeded 5.5 billion euros.

Estonian banks

Estonia, following Latvia, is massively closing the accounts of non-resident companies. All referring to the same law on money laundering, if the activities of a non-resident company are not clear to the bank, then it has the right to close the account without explaining the reasons.

Almost all foreign clients of Estonian banks, whose financial information is questioned, or whose sources of assets are of uncertain origin, are at risk. All this is taking place despite the active steps taken by the Estonian government to attract foreign investors and the “e-residency” program.

Georgian banks

There is still no clear legislative act regulating the actions of banks to close customer accounts. Banks operate with the internal instructions of the National Bank of the country and the terms of contracts for servicing corporate accounts.
Be sure, if your Georgian company conducts any activity on the territory of Georgia, at least 30% of operations are carried out on the local market, you definitely should not worry about closing an account. There are various reasons for closing bank accounts in Georgia.

What is the situation with companies that have Georgian tax residency and operate abroad?

Such companies run the risk of denial of service. In fact, this is expressed in a delay in making payments until the account is completely blocked or even closed by the bank unilaterally.

The main reason is the lack of transparency in the business and global trends in financial services, which prioritize the principles of AML (Anti Money Laundering) and KYS (Know Your Customer, know your customer).

How to protect yourself from closing an account?

  1. provide all transactions with primary documents and, at the first request of the bank, provide them in electronic form, preferably in a preventive manner – that is, send all documents in the Internet account in advance of the currency transaction;
  2. pay taxes regularly on the territory of Georgia;
  3. It is desirable to provide the so-called substance on the territory of the country, pay salaries to citizens of Georgia, rent an office, that is, have an actual presence in the country where the company is registered.

At the same time, it is important to consider that nominal services in Georgia are still relevant.

In practice, Georgian banks are really closer to companies whose beneficiaries are residents of other countries, but with a well-built compliance policy of the company, all these requirements can be observed and work successfully through the Georgian jurisdiction.

Before deciding to open an account in a country that you are not a resident of, it is important to study the banking sector and all regulations related to this issue. Among other things, you need to be prepared to thoroughly check all information about your company. But after taking all the preventive measures, you still cannot be 100% sure that the account will be opened.

That is why you need to contact professionals who specialize in providing services for opening bank accounts, who have all the relevant information about the requirements of banks in Georgia.

Fill out the application and get a free consultation on the issues you are interested in, we will help you open an account with a Georgian bank.