Four Ways to Legally Stash Your Money Overseas

How do I open a foreign bank account?

This is a question I’m asked repeatedly.

Many who ask aren’t particularly interested in living abroad themselves. They just like the idea of having money stashed somewhere outside the U.S.

They aren’t alone. A recent survey by GoBanking.com estimates that about 30% of domestic U.S. taxpayers have foreign bank accounts. The U.S. State Department estimates there are around 10 million Americans living abroad… who almost certainly have a bank account in their country of residence.

Unless you go with your money, opening a foreign bank account is tricky.

Here’s why… and how you can get around it.

The End of Financial Freedom

From the late Middle Ages until the late 20th century, it was possible to walk into a bank in a foreign country and open an account without too much trouble. In the 21st century, however, governments have inexorably restricted financial freedom.

The original motivation was to control terrorist financing, prevent money laundering, and so on. Inevitably, that morphed into a general desire to keep track of citizens’ money. And the modern digital economy has made that easy.

The U.S. is one of two countries (the other is Eritrea) that requires its citizens to pay tax on income earned anywhere in the world. Obviously, it can’t do that if “U.S. persons” (see box on page 13) can simply open accounts in foreign countries and keep their money hidden from the IRS.

That’s why in 2010, Congress passed the Foreign Account Tax Compliance Act, or FATCA. The U.S. had discovered that thousands of high-net-worth U.S. persons had been hiding money from the IRS in Switzerland for decades. And so the assumption was that any American living abroad was probably failing to report their income to the IRS. Some legislators even implied that Americans who bank abroad were potentially disloyal and suspect.

FATCA requires U.S. persons to report their foreign financial assets to the IRS and the Financial Crimes Enforcement Network (FinCEN). Failure to do so can result in massive fines, confiscation of foreign money, and prison sentences of up to 10 years.

FATCA also “requires” foreign financial institutions (FFIs) to search their records for U.S. persons and to report their financial assets to the Treasury Department. Now, obviously, the U.S. can’t make laws for foreign banks. Instead, FATCA relies on the power of the U.S. dollar. FFIs that don’t comply are shut out of the global financial system, which requires dollar-denominated transactions to clear through the U.S. Federal Reserve system. All it takes is blacklisting the bank’s identity code.

It’s all stick and no carrot. For FFIs, complying with FATCA is onerous and expensive. If the U.S. client misbehaves financially, the bank could get in trouble. So FFIs weigh the benefits of having U.S. clients against the costs and potential risks. And for the most part, unless we’re talking very large amounts of money, the easiest route is just to say no to potential U.S. clients.

There are exceptions. I’m an example. As a dual U.S.-South African citizen, I have bank accounts in both countries. Even if I weren’t a South African citizen, the fact that I own residential property in Cape Town gives me a connection to the country that would satisfy local banks’ concerns about FATCA.

The same is true everywhere. The first thing foreign banks want to know is whether you have a true connection to the country. That could be owning property or a local business, having physical assets like gold or other precious metals stored in a vault in the country, being able to prove that you visit frequently, or having a legal structure like a trust or limited liability company registered there. If you have one of these things, it’s not too difficult to open a bank account.

If not, you’ll have to work harder.

4 Ways to Open a Foreign Bank Account

1) Have a substantial deposit: I mentioned above that foreign banks weigh the risks and benefits of U.S. clients. The more money the prospective client has, the bigger the benefits to them.

Even today, traditional banking havens like Switzerland, Austria, the Channel Islands, and the Cayman Islands will happily open bank accounts for U.S. persons if they are prepared to deposit a minimum of $1 million. They’ll still go through the due diligence and know-your-customer routine, but they are far more willing to work with you to sort out any issues.

Some countries will create a bank account for you if you establish a trust, limited liability company (LLC), or other legal structure there. But since the point of establishing such a structure outside the U.S. is privacy and safety, most people who go this route avoid countries that tend to cooperate with U.S. authorities. Instead, they prefer some of the Caribbean islands, Singapore, the Cook Islands, etc.—where legal systems still enforce strong privacy.

I’ve worked with U.S.-based attorneys who can facilitate these kinds of arrangements, and in my experience, they also require hefty upfront financial commitments to make it work.

2) Just show up and ask: For people with more modest means, banks in Belize, Panama, and Uruguay are also willing to open accounts for Americans if they can determine that you have a plausible reason to want one.

Here, the minimums could be much lower… but you’ll most likely have to go to the country to open the account. (Note, Belizean banks are grey-listed by U.S. authorities, and many U.S. banks refuse to transfer money to and from them.)

Depending on the amount of money, these foreign banks might be willing to accept a flimsy connection to the country to bank with you. Before they meet you, they’ll ask for letters from U.S. banks or credit card companies confirming that you’re a worthy banking client. They’ll probably also ask for a reference from someone in their own country, preferably a professional, such as an attorney, accountant, or doctor. They’ll want a utility bill in your name. And of course, they’ll want two types of photo ID.

Once they’ve got that, they’ll be willing to meet with you. Then they’ll want to know why you want the account, how much you’re planning to deposit, and where that money comes from. They’ll ask how much you expect to put into the account and how often. And they’ll want to know how you intend to use the account.

If you’re patient and cooperative, you’ll probably get your bank account.

3) Bank with HSBC: Global bank HSBC offers foreign accounts in Argentina, Australia, Bahrain, Bangladesh, Bermuda, Canada, China, Egypt, Jersey, France, Greece, Hong Kong, India, Indonesia, Macau, Malaysia, Malta, Mauritius, Mexico, New Zealand, Oman, Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Taiwan, Turkey, the UAE, the U.K., and Vietnam.

The process is easier if you’re already an HSBC customer. If you meet the right qualifications, you won’t have to pay account maintenance fees.

To open an account, you’ll need to provide a passport and driver’s license, proof of address, employment information, and tax details. For some countries, additional documentation might also be required.

In my experience, the HSBC route isn’t as easy as it sounds. They still want to know why you want the account and what your connection to the country is. They’ll open an account without a real connection to the jurisdiction if there’s a lot of money involved, but otherwise they’re going to want proof that you have a legitimate reason to keep money in the country. And of course, as a major global retail bank, HSBC cooperates with U.S. authorities, so a foreign account will be as transparent to the U.S. legal system as a domestic account.

4) Move or invest overseas: The simplest way to get foreign bank account is to move abroad yourself. Once you’re living in the country, you have a legitimate connection, and many banks will happily open an account for you.

Now, I’m not suggesting that you have to move to a foreign country permanently just to have a bank account there. But renting a flat for a few months with a confirmed lease agreement gives you an ongoing presence in the country. The length of stay required to convince a bank will vary from country to country.

Another way is to invest in property in a foreign country. For example, I know several people who have invested in Uruguayan farmland—a fabulous long-term investment, by the way—and on that basis have been able to open accounts at that countries’ stable banks. The same is true of almost any country you can name; property ownership is probably the best connection you can have.

Be Prepared To Pay More

Most of the time, U.S. banks are safe and secure. But they can find themselves in risky situations due to interest-rate hikes or the kinds of loans and investments they’re allowed to make. A crisis, as the recent Silicon Valley debacle illustrates, can destroy individual banks and tear down the entire industry.

Most foreign banks mitigate that risk through sensible regulations that put customer security over bank profits. But they tend to charge higher fees. For example, on my South African bank accounts, I have to pay monthly maintenance fees, a fee to have a chip-enabled debit card, a fee every time I transfer money to someone else, and fees on pretty much anything else you can think of. (But despite the country’s economic challenges, its banking sector is regarded as one of the safest and most well capitalized on the planet.)

So if and when you do get your new account, bear in mind that higher fees can mean greater safety.