A transit bank account — also called a pass-through account — is a bank account used to quickly and easily tunnel money. Except it’s not as quick and easy anymore as it used to be. Banks are under increased pressure to comply with AML/CFT regulations and while some look the other way, it’s only to a certain degree.
The term ZBA (Zero Balance Account) is sometimes used to describe a transit account. In reality, ZBAs are a completely different story and are usually used in an acquiring and merchant account context, where one party opens the account and another sweeps (clears) it daily.
Here we will go through how to use an offshore bank account as a transit account without getting your bank account closed for suspected money laundering.
Understanding SAR
SAR stands for Suspicious Activity Report. Sometimes the older term STR — for Suspicious Transaction Report — is used.
SARs are what banks file with their FIU (Financial Intelligent Unit), which goes by different names in different jurisdictions, if the bank thinks that someone is behaving in a suspicious manner which may involve money laundering, funding of terrorism, or any other illegal activity.
Banks aren’t the only people to file SARs. All financial services companies are obligated to file SARs, as well as for example online gambling merchants, which are often targeted by fraudsters and money launderers.
An SAR contains the name of the client and persons involved (plus any other personal details available), a description of the suspicious activity, an indication of sums involved, and contact details of the entity filing the SAR. A truly compliant company will have what’s called an MLRO (Money Laundering Reporting Officer), who is responsible for filing the SAR.
The SAR is received by the FIU which will decide whether to throw it in the trash, file it for future reference, or take it to the relevant police or tax authorities or conduct its own investigation. The latter varies hugely between jurisdictions and how developed their AML capabilities are.
FIUs are supposed to keep record of SARs received and how many were followed up. If you browse around your local FIU’s website – and any other FIU that may affect you – you might be able to get an indication of how good their SAR procedures are. A list of some offshore FIUs are available under Links above.
As you can imagine, constantly receiving incoming wires into a bank account and then moving the funds out — typically to another offshore jurisdiction — will trigger an SAR. This brings us to the next item on the agenda.
Keeping the Bank Happy
SARs are bad for you. You want to avoid them. The time from an SAR being filed to an account being frozen, either on instruction from the FIU or proactively by the bank, can in some cases be minutes. Knowing this doesn’t help much, though, since SARs are highly confidential and the account holder is not made aware of it. I’m just laying out some context here.
The way to avoid SARs is to keep the bank happy. You keep the bank happy by doing what banks love the most: give them money.
A transit account today is a bank account into which funds are received and instead of transferring it all out, you keep a healthy deposit sitting in the bank account.
There are many ways of doing this. What is described below is just one way.
When you open a transit account, try to estimate the average weekly sum of all incoming transactions. Let’s say it’s 25,000 USD. This is going to be your minimum balance in the account.
For the first two weeks, do not make any outbound transfers. Not even small ones. If you trust the bank and if this is a long-term relationship, consider locking some funds in a term deposit. You won’t get much interest but the bank likes term deposits.
After two weeks, you have 50,000 USD sitting in the account. From now on, you can transfer out about 110% of your weekly incoming total until your balance reaches 25,000.
You have now shown the bank that this account has stable transactions coming in and out every week of more or less the same amount. From now on, you can transfer our between 90% – 115% of the incoming amount, as long as you always maintain a minimum of 25,000 USD.
Be as a regular and predictable as you can, meaning that if you make your first outgoing wire on a Wednesday, you make all future outgoing wires on Wednesdays. If you have to do it earlier one week, switch to using that day for a couple of weeks. This builds up a pattern in your behaviour and as long as you stay within the same parameters, the bank will not find your activity suspicious and hence not file an SAR.
And in the end, that’s all we want here. An account through which we can shift money smoothly without alarming the bank and having an SAR filed.
Streber,
With an off shore merchant accout it should seem odd to the bank to hold a zero balance per se?
Evan
Not at all. Merchants rarely actually hold their money with the acquirer (“merchant account bank”, which needn’t actually be a bank). Settlements are often wired directly to a different bank or just pushed through a zero-balance account to keep the card schemes happy.
If an acquirer tries to force the merchant to hold funds with them, I stop the negotiations right then and there.
Thanks for this informative post Streber. I found the post really helpful with my queries related to SAR and the manner it follows. Also, I’m very impressed with the way it describes or rather suggests ideas for a secured relationship with banks and an advice to keep the account healthy.
Thanks for your kind words! Glad you liked the post.
Thank you for the insight. I agree, any bank this creative is possibly one of the best!
Is a term deposit with FBME let us say, a safe or recommended. I read term deposits are safe if FDI guaranteed etc.
Any ideas?
Cyprus insures deposits up to 100,000 EUR per bank per person and FBME itself is financially sound. I can’t tell you what safe or isn’t or give recommendations (that’s for you to assess based on your own risk appetite), but I don’t lose any sleep over the money I have sitting with FBME.
Thank you for that input. Based on your personal feeling, it sounds like whether one has funds in Tanzania (FBME) or Cyprus — they should be just as safe, correct? I struggle to open an account in Cyprus due to the recent crises and Tanzania just on the basis of it not being much a financial centre.
Well, you should always consider the risks and pros and cons of any bank anywhere. However, FBME is a bank I’ve worked with a long time and they have always provided top notch service. While a privately held company with no public financials, I have seen parts of their balance sheets and it’s quite impressive. It comes at a price, though, with fees being higher than most other Cypriot banks.
I can’t straight up tell you it’s a safe or not, as that might be construed as financial advice and not something I can offer through this blog.
During the lockdown in Cyprus, some VIP clients were able to use money that was technically in Cyprus through their Tanzanian branch. If you had a million sitting in Cyprus that you needed to wire out, you could wire them out from Tanzania instead. I’m not aware of any Cypriot bank that did that. It’s possible some of the other more – shall we say – creative banks did it as well.
I’ll be holidaying in Turkey in 6 weeks time. Can you recommend a bank there that will allow me (a tourist) to open a bank account? Is Turkey banking any good? What paperwork is needed?
With regards to paperwork, as mentioned above, you will need a Turkish tax ID which most banks will help you with. In addition to that, your passport is usually all you need for a personal account. For corporate accounts, it varies depending on type of company, location, and the bank’s own policies.
In either case, I’d suggest speaking to banks in advance and get confirmation. I have so far never heard of a bank in Turkey that won’t open an account for non-residents, so finding a bank is basically just a matter of picking one that looks good to you. Maybe some smaller, local banks don’t accept non-residents.
It’s not in the nature of the blog to make recommendations. That said, my favourite banks in Turkey are İş Bankası and Finansbank, both listed in The Best Offshore Banks 2013.
Banking services in Turkey are generally of high quality. Naturally, the bigger banks will have more advanced services than the smaller ones. As always when banking in a country like Turkey (or really any country in the world), examine the risks and stability of the bank and country closely.
Hope you have a pleasant stay in Turkey!
Hi Streber,
thanks for the interesting post. This is exactly what I am looking to do. I do have a problem though and I would highly appreciate any help again 🙂
I receice payments from clients from the EU that demand an iban for transfering money to me. To open an account in the EU is no option for me. Do you have any idea how I could receive payments without having an account in the EU? I know there are a some countries outside of the EU that offer ibans but most of them are no option either. Do you know any other way to offer my clients an iban?
Thank you so much,
Jule
Hi Jule,
Thanks for your comment! Glad you enjoyed this post.
There is unfortunately no practical way to get an IBAN in a country that hasn’t adopted it. It’s theoretically possible to get an IBAN but the recipient bank will have no idea what to do with the transaction and reject it, if they even see it at all.
These days, there are quite a lot of non-EU countries that have adopted IBAN. You can see a full list here: http://www.swift.com/dsp/resources/documents/IBAN_Registry.pdf
Some noteworthy examples of jurisdictions in that list which (for better or worse) tend to not ask a lot of questions would be Azerbaijan, Moldova, Turkey, and Israel. You will have to visit the country in person, which probably makes Turkey the most attractive. Opening an account there is a breeze. You will need a local tax ID but if you make arrangements in advance, the bank can help you with it.
Best of luck!