The time has come to take a look at the three Caucasus republics and what banking there is like.

Azerbaijan

What do you get when you mix friendly relations with Russia, Iran, Turkey with oil, a totalitarian regime, a growing economy that seeks foreign investment, and one-time Eurovision winner?

You get the Republic of Azerbaijan.

Born from the ashes of the Ottoman Empire, the Russian Empire, the Soviet Union, Azerbaijan is a fiercely independent and proud country. While it has its flaws (some of which are really bad), it is a country of exciting (if risky) opportunities interspersed with stunning scenery and the unique Azerbaijani culture – and cuisine.

Every visit to Azerbaijan is a pleasure and even familiar parts of Baku surprise. The people are increasingly comfortable speaking English, in addition to Azerbaijani and Russian. More and more tourists are coming to Azerbaijan, including western Europeans.

FATF and Moneyval have criticized  harshly Azerbaijan for lapses in AML (Anti Money Laundering) regulation and enforcement.

Azerbaijan is seen as being at tremendous risk of being used for drug smuggling, trafficking, and arms smuggling. It acts as origin, destination, and transit point for all these activities. Money laundering is likely rampant but corruption and lax government enforcement make it difficult to know for sure. Petty money laundering may not even be illegal and there is very little precedent for what constitutes significant money laundering, which is the legal definition.

Feigning ignorance is also a valid and usable defense to prevent confiscation of assets.

Curiously, juridical persons (legal persons, i.e. companies) cannot be held liable for money laundering which makes money laundering involving companies – especially secretive offshore companies – virtually impossible to prosecute in Azerbaijan.

But before you open a bank account for Drugs & Guns LLC in Azerbaijan, remember that you can still be prosecuted elsewhere.

Out of the 48 tax treaties Azerbaijan has signed, 45 are DTAs and 3 are TIEAs.

Banking

As one would expect from the above, bank account opening in Azerbaijan is a very relaxed procedure in general. It’s easy to open accounts here without actually disclosing the UBO (Ultimate Beneficial Owner). The banks fall into two camps: those who don’t understand what they are doing and those who understand exactly what they are doing but know that there is very little risk for them.

Owing to its almost universally friendly relations (less Armenia), Azerbaijan is a significant transit point for money to and from sanctioned countries such as Iran, Syria, Pakistan, and Afghanistan.

This makes banking in Azerbaijan considerably risky. All of these legal loopholes, easy-going enforcement, and general disinterested in CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence), coupled with very loose definitions of PEP (Politically Exposed Person), makes it likely that actions similar to what we have seen in recent times against for example Multibanka, Loyal Bank, FBME, and BPA may hit Azerbaijani banks.

Yes, you can find high interest rates here, including rates of over 5% on EUR and USD currency deposits and over 15% on the local AZN (Azerbaijani new manat). These interest rates are dependent on Azerbaijan’s economy continuing to grow and the banks making more than 5% on your EUR and USD deposits. Unsustainable interest rates can cause significant damage.

This could all come to a grinding halt if FinCEN and European authorities turn off the faucet and blacklist Azerbaijan from transacting in USD and EUR and other European currencies.

That all said, banking as such is of generally high quality in Azerbaijan. The banks are fairly modern, although there is a distinct post-Soviet lingering in the air when it comes to some bureaucracy. Stick to the bigger banks and you won’t feel as much of it, though.

Non-residents are welcome with open arms: companies, persons, foundations, organized criminal networks, come one – come all! Remote account opening is possible with all banks – sometimes. They change their policies irritatingly often.

Apostille is almost always required for copies of documents. Azerbaijani banks will usually not be satisfied with certified or notarized copies.

Opening an account requires all the usual documents required to open an offshore account. EU citizens rarely need to show more than a passport to open a personal account if appearing in persons.

Credit cards are fairly easy to obtain and while most banks demand a 100% security deposit, this is often waived after only a couple of months to a year. Building credit in Azerbaijan is remarkably easy.

Fees are quite low but perhaps not as low as one might think. Azerbaijan is a wealthier country than many foreigners may realize.

Secrecy

Banking secrecy is very strong in Azerbaijan. While Azerbaijan authorities swore up and down that they can access information at will when Moneyval last paid a visit, the reality is very different. It is unclear which law takes precedent (the AML law or the banking secrecy law) and a bank that is duly motivated can challenge and delay the process for a long time.

However, the authorities are not completely irresponsible nor are they (not all of them at least) criminals. They will find ways to honour requests for information for sufficiently damaging and damning cases.

Banking secrecy can seemingly not be penetrated for tax matters for accounts held by non-residents and non-nationals, except for when the account holder files for taxes in Azerbaijan. This would normally not be the case for a typical non-resident.

Banks

Banks are supervised by the Central Bank of Azerbaijan (Azərbaycan Mərkəzi Bankı), founded in 1992 shortly after present-day Azerbaijan gained independence.

There are all in all 45 banks licensed in Azerbaijan, many of which are Turkish-run.

• Accessbank
• AFB BANK
• AGBank
• Amrahbank
• AtaBank
• Atrabank
• Azer-Turk Bank
• Azerbaijan Credit Bank
• Azerbaijan Industrial Bank
• Bank BTB
• Bank of Azerbaijan
• Bank of Baku
• Bank Respublika
• Bank Silk Way
• Bank Standard
• Bank Technique
• Bank VTB (Azerbaijan)
• Caspian Development Bank
• Caucasus Development Bank
• Dekabank
• Demirbank
• EuroAsia Bank
• EuroBank
• Expressbank
• Ganja Bank
• GunayBank
• International Bank of Azerbaijan
• Kapital Bank
• Kredobank
• Milli Iran Bank
• Muganbank
• Nakhchivanbank
• NBCBank
• Nikoil
• Pakistan National Bank
• Parabank
• Pasha Bank
• Rabitabank
• Turanbank
• Unibank
• Xalq Bank
• Yapi Kredit Bank Azerbaijan
• Yunayted Kredit Bank
• Zaminbank

It’s safe to assume that if a bank’s website is available in English, it’s open to non-residents and may even accept remote account opening.

International Bank of Azerbaijan (IBAR) is, as its name implies, a bank very much focused on international clients. It is the bank with the most comprehensive card products on the Azerbaijani banking market.

Georgia

The middle child of the three, Georgia is on amicable terms with both Armenia and Azerbaijan. Its relationship with Russia is difficult, to say the least.

Georgia is trying to establish close ties with western Europe and the EU. It is already on good terms with US, having provided military support to various missions and maintaining strong relations.

Georgia, unlike it’s rowdy eastern neighbour, is doing a lot to prevent from becoming a money laundering nest. There are still significant gaps but they are being worked on.

Moneyval criticized Georgia in 2007 but issued a mostly-content statement in 2012 saying that satisfactory laws have been passed but that, owing to the laws only recently being passed, enforcement is not assessed. In particular, Moneyval identified issues with resources and capabilities of the relevant competent authorities.

Furthermore, Georgia is seen as being at risk due to its rapidly increasing non-resident deposits, often held by offshore companies for which UBO has not been determined.

Because of its location, underfunded government authorities, and pervasive (although decreasing) corruption, Georgia is also at significant risk of being an origin, a destination, or a transit point for drug smuggilng, trafficking, arms smuggling, and other criminal activities.

With a rather low corporate tax of 15% and several regulatory relaxations such as permitting gambling, Georgia is trying to position itself as a business friendly jurisdiction. Consequently, there is a small but growing expat community in Tbilisi.

Georgia has signed 49 tax treaties, all of which are DTAs.

Banking

Banking in Georgia is of generally high quality and the banks welcoming to foreigners. However, remote bank account opening in Georgia is very rare.

Unlike Azerbaijan, the Georgians take CDD and EDD recommendations from FATF seriously and will insist on either meeting you in person or having a lawyer or certified accountant appear in person with a power of attorney. Apostille will be required in nearly all cases; certification or notarization won’t cut it.

Fortunately, flights between Tbilisi and Europe are common and quite cheap.

Just like Azerbaijan, opening an account requires all the usual documents required to open an international bank account. EU citizens rarely need to show more than a passport to open an account if appearing in persons. The difference here is that your application will be reviewed more diligently in Georgia.

High interests rates on deposits, including foreign currencies, are available.

Secrecy

Whether intentional or not, current Georgian banking secrecy law does not permit for exchange of information on tax matters. This will likely be remedied in the future but for now isn’t a big concern since there is no evidence of any significant amounts of money being stashed in Georgia for tax dodging purposes.

Banking secrecy can however be penetrated for more severe crimes such as money laundering.

Banks

Supervision of banks in Georgia befalls the National Bank of Georgia (საქართველოს ეროვნული ბანკი). Banks in Georgia are a mix of local and international (mostly Russian, Azerbaijani, and Turkish).

As of writing, there are 19 banks (including branches of foreign banks) in Georgia:

• Bank of Georgia
• Bank Republic
• Basisbank
• Capital Bank
• Cartu Bank
• CDB
• Finca Bank
• Halyk Bank
• International Bank of Azerbaijan-Georgia
• İşbank Georgia
• KSB
• Liberty Bank
• Pasha Bank
• ProCredit Bank
• Progressbank
• Silk Road Bank
• TBC Bank
• VTB
• Ziraat Bank

International Bank of Azerbaijan-Georgia (IBAG) is a subsidiary of International Bank of Azerbaijan and maintains most of the the simplicity of the parent.

Together with Liberty Banks, they are the two banks most popular with foreigners and non-residents. However, all banks in Georgia will entertain applications from non-residents.

Armenia

Two out of three neighbours being hostile, Armenia is in a difficult position.

Its relation with its western neighbour Turkey is extremely bitter following the Armenian genocide which Turkey has not officially recognized.

A war with Azerbaijan has left the region shattered. Despite over a decade of peace, the two combatants have still not reconciled and relations instead remain hostile. This is exacerbated by Azerbaijan’s politically and culturally close ties to Turkey.

But at least Georgia and Armenia get along. Or, to be precise, it’s been cooperative although not necessarily amicable. While Armenia has strong relations with Russia, which Georgia does not, Georgia has strong relations with Azerbaijan, which Armenia does not.

And I’m only scratching the surface here. You need to keep your wits about you if the a dinner conversation in the Caucasus turns political. Remember where you are, whom you are with, and see if maybe you shouldn’t order another round of oghi to ease the mood.

Now, as for financial services, Armenia is the least developed of the three.

After an initial evaluation in 2009, Moneyval issued a progress report on Armenia in 2014 and found it was mostly compliant with FATF recommendations.

Banking

Thanks largely to innovation driven by Russian banks, the Armenian banking sector is stronger than one would expect from a country of 4 million people and a relatively low GDP.

Banking in Armenia is cheap. Some banks have started charging higher fees to non-resident clients but those are far below what comparable services would cost in major financial centers.

Ease of account opening typically falls somewhere between the bare-minim-questions-asked attitude of Azerbaijan and the internationally-compliant attitude of Georgia. Documents required to open a non-resident bank account in Armenia are the usual. Armenian banks are not entirely as adamant about apostille but will often ask for it when opening bank accounts for IBCs and comparable offshore companies.

Banks are occasionally open to remote account opening directly with the account holder; usually for larger deposits that go into term deposits or private banking, the latter being a fairly new product on the market.

High interest rates are available on term deposits. I have seen upwards of 20% for the local currency but recently it seems to have stabilized around 15%.

Secrecy

" target="_blank" rel="nofollow">Law on Banking Secrecy. It passed in a tumultuous time for the region and did not receive much international scrutiny, despite being a surprisingly strict banking secrecy act in a time when financial crimes were being given increased attention internationally.

In essence, under the Armenian banking secrecy law, a court order is required for any form of disclosure.

An amendment in 1997 enabled disclosure of information to the tax authority, but again subject to a court order.

This makes it very unlikely that Armenia can honour requests for exchange of information for tax.

However, the Armenian banking secrecy is virtually untested. While the influence of western powers may be limited, it would very likely honour requests for information from Russia or even Georgia.

Banks

Banks in Armenia are supervised by the Central Bank of Armenia (Հայաստանի Հանրապետության Կենտրոնական Բանկ).

There are currently 22 banks and two representative offices in Armenia:

• ACBA Credit Agricole Bank
• Ameriabank
• Anelik Bank
• Araratbank
• Ardshinbank
• AreximBank-Gazprombank
• ArmBusinessBank
• ArmEconomBank
• Armenian Development Bank
• ArmSwissBank
• ArtsakhBank
• BTA Bank
• Byblos Bank Armenia
• Converse Bank
• HSBC
• InecoBank
• Mellat Bank
• Panarmenian Bank
• ProCredit Bank
• Prometey Bank
• Rietumu Banka (representative office)
• Russian Agricultural Bank (representative office)
• UniBank
• VTB

If a bank’s website is available in English, they are receptive to non-residents. Others might as well but do you really want to manage your finances through Google Translate? Consider privacy and accuracy.

Notably, ArmSwissBank has a web interface for taking online bank account opening applications.

Deposit Insurance

Azerbaijan’s Deposit Insurance Fund covers 30,000 AZN (circa 25,000 EUR and 28,500 USD) per person per bank for participating banks; currently 43.

Deposits held in foreign currencies are also protected but insurance can only be paid out in EUR or USD.

Georgia does not have a deposit insurance.

The coverage of the Armenian Deposit Guarantee Fund depends on the currency of the deposits. Presently, AMD deposits are covered up to 4,000,000 AMD (circa 7,500 EUR and 8,300 USD) per person per bank while foreign currency deposits are covered only half of that (in AMD equivalent).

A law recently passed which will raise the Armenian deposit insurance to 10,000,000 AMD and 5,000,000 AMD for local and foreign currency deposits.

Risks

Banking in this region is very sophisticated, overall affordable, and generally secretive. So what’s the catch?

For Azerbaijan, the catch is that there is a non-negligible risk of massive money laundering scandals waiting around the corner. This can have a negative impact on legitimate clients if a bank’s operations are suspended. There are significant human rights concerns in Azerbaijan which continues to tarnish the country’s reputation. However, despite its totalitarian regime, out of the three Caucasus republic, it is arguably the most politically stable.

For Georgia, the risk of money laundering scandals is there but probably less so than in Azerbaijan. However, it has fought a proxy war with Russia in recent times and the South Ossetia situation continues to be fragile. Furthermore, Georgia lacks a deposit insurance.

For Armenia, there is the Nagorno-Karabakh issue which causes geopolitical uncertainty in the region. It is also bordered by two hostile countries, with both of which Armenia has been at war in one way or another.

Conclusion

Time to wrap this up. WordPress is telling me this is already over 2,500 words. Good on you for reading this far!

If you are going to the Caucasus to open a bank account, you are going there for one of two reasons: to invest in the local or regional economies, or to hide money. As it happens, these countries are apt for both. None of the three republics has signed up for the EU Savings Directive (EUSD, withholding tax) or any OECD-led multilateral agreement.

If you are planning on opening accounts in all three countries (what some people call the Caucasus Triathlon), just remember that you can’t fly from Baku to Yerevan. There are no flights between Azerbaijan and Armenia. Don’t bother trying the land route either. Just go via Georgia. — That is if they aren’t at war.

Carefully consider the risks versus the benefits of banking here.