How to Get an U.S. Banking License

How To Get An U.S. Banking Licenses

Establishing a banking subsidiary in the USA.

New Bank Charter

If you are a foreign bank, banking license requirements to establish a subsidiary in the USA will depend on the type of application: Federal or State banking license also called a Federal or State Charter.  

If you apply for a Federal Charter, the application process will include:

  • Organizing a group of five or more individuals.
  • Application to the Office of the Controller of the Currency (OCC).
  • Business Plan.
  • Detailed biographical and financial information of each organizer, director, officer, and shareholder.
  • Filing of Articles of association and By-laws.
  • Application to the Federal Deposit Insurance Corporation (FDIC).

If you apply for a State Charter the application process will include:

  • Organizing a group of five or more individuals.
  • Application to the State regulator.
  • Business Plan.
  • Detailed biographical and financial information of each organizer, director, officer, and shareholder.
  • Filing of Articles of association and By-laws.
  • Application to the Federal Deposit Insurance Corporation (FDIC).

The capital amount for a new bank application varies by state. In Puerto Rico, the minimum capital requirement is 5 million dollars for establishing an international bank. In the two types of charters, the directors and officers should show a long track of banking experience in the United States.

Acquiring an existing Bank

The other option to enter the US market if you are a foreign bank is to buy an established bank. The process starts with finding a potential target bank. But you cannot buy any shares unless you receive the approval of the Federal Reserve (Fed) and if the bank is a Publicly Held Company, you will also need the approval of the SEC. This process is lengthy and long due diligence is needed, as well as the approval of the shareholders and directors of the target bank and approval of State banking supervision authorities.

If you are buying an existing bank in the US the process goes like this:

  • Application to the Fed including detailed information of the foreign bank applicant’s finance, business, management and system of home country supervision.
  • Fed will solicit public comments or objections.
  • Fed will evaluate management and financial resources of both the acquirer and the target bank.
  • Fed will evaluate the consolidated AML effectiveness of the applicant.
  • Fed will evaluate the supervision and reporting to which the applicant is subject to its home country.
  • The applicant will provide information to the Fed about any other affiliate office.
  • The applicant will prove to Fed that all Parent, subsidiary to buy and any other affiliate office are well capitalized and well managed. For the subsidiary to buy, the Fed requires, in addition, satisfactory credit ratings.

Buying an existing bank involves additional considerations such as the location of the target bank in relation to the buyer market, especially if the buyer is a foreign bank willing to target Expats living in the US. Additionally, the extensive due diligence and legal advice needed as well as the ability to locate the right target, make the buying of an existing target a little more expensive option than starting a new bank in the USA.

How to Open a Bank in the USA

The U.S. Banking System is very complicated and strict at the time of approving new licenses. But since 2012 many foreign bankers and investors benefit from the Puerto Rico International Banking License. 

A Puerto Rico International License gives access to the U.S. banking system. The bank gets its own ABA or routing number. The bank will be able to take U.S. clients and offer their products worldwide. The bank can even take clients remotely. Clients need not go to the Puerto Rico office to open an account.

USA is Open for New Banking Business

In a Financial Institution Letter, dated May 1, the Federal Deposit Insurance Corporation (FDIC) announced the release of the final handbook designed to help the new banks apply for deposit insurance.

“The handbook offers guidance for navigating the three phases of establishing an insured institution: pre-filing activities, the application process, and pre-opening activities. It provides useful information for organizers of a new depository institution, and reflects comments from organizers and other interested parties during recent industry outreach events.”

The handbook is entitled Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions.

In a Press Release, announcing the availability of the new guidance, the FDIC went on to say, the handbook was, “designed to provide a plain language overview of the requirements and considerations significant to the application process, and to provide organizers a clear and transparent explanation of the path to obtaining deposit insurance.”

In the press release, FDIC Chairman Martin J. Gruenberg said, “In welcoming applications for deposit insurance, the FDIC wants to ensure applicants are well informed about the FDIC’s application processes, and are aware of the tools and resources available to assist in developing an application.”

Why Is This Important News?

Basically, a “de novo” bank is a new bank that has yet to become a member of the FDIC. Such “de novo” banks, or the creation of new banks, has been relatively rare since the financial crisis of 2008.

What the release of the eagerly awaited new handbook really means to the economy and the general public, is that it makes the path to chartering and establishing new banks easier once again.

The release of the handbook is the latest in a series of measures recently enacted by the FDIC intended to stimulate applications for new bank charters. Ultimately, the creation of new FDIC member banks will be good for consumers, and the economy.

MBAF has long supported efforts by the industry and regulators to encourage the creation of more de novo organizations, and we welcome this new handbook. 

How America Became a Haven For Offshore Banking

The U.S. turned into the new tax haven for many wealthy individuals from around the world, successfully replacing well-known offshore account destinations like Bermuda, Switzerland and the Cayman Islands. Here’s what and how it happened in a nutshell:

  • In 2009, 20 countries from the developed and developing world came together to think of a solution of the growing tax evasion problem associated with the secrecy provided by some jurisdictions. They agreed that financial institutions must reveal relevant information to the country authorities in relation to their citizens who have offshore accounts in those banks.
  • In 2010, the U.S. Congress passed FATCA (Foreign Account Tax Compliance Act), requiring all foreign banks to disclose personal and financial information about U.S. taxpayers who hold offshore accounts with them. Just a handful of countries refused to comply.Years later, despite many attempts from the previous President and his administration, the U.S. still does not reciprocate the sharing of information with other countries.
  • The U.S. has also refused to become a part of the Common Reporting Standard agreement, signed by over 100 other countries, which effectively turned the States into the new tax haven.
  • A number of financial organizations like Rothschild & Co. and Trident & Co. have thousands of offshore accounts registered in the 3 most favorable states – Nevada, Wyoming, and Dakota.
  • The promotion of the USA as the new tax haven is also on the rise, being popularized and recommended as the best offshore accounts destination by top New York lawyers.

In summary, the U.S. has managed to persuade most countries around the world to disclose important financial information about offshore accounts of U.S. taxpayers, but get away with the refusal to provide the same standard for any other country whose citizens decide to open an offshore account in the U.S.

It has been a long-standing tradition in international banking to help foreign banking clients to hide their money and evade tax.  When bankers in Switzerland and Liechtenstein helped American citizens who used offshore banking overseas to hide their money from the IRS, America did not take kindly to it, and both these offshore banking jurisdictions lost a great deal as capital drained from its bank accounts to safer international banking accounts.

It seems that the tides are now turning. After Swiss banks alone had to pay fines of more than $5.5 billion for their indiscretions, it now appears that some European countries are coming to the US to for it to reveal untaxed money stashed away here.

In reaction to the 2010 US law known as FACTA (Foreign Account Tax Compliance Act) that forced international banks to report their American clients that were hiding their assets to evade taxes, more than 100 countries signed the Common Reporting Standard (CRS) to exchange tax information with each other.

America is not making it easy for these undersigning nations. First off, it did not sign and become part of CRS. When sharing is deemed in its interest, the US uses FACTA provisions for it. However, the US stocks on a preferential basis. Only some nations get information. Others get nothing at all.

Also, the high levels of anonymity that US shell companies offer investors, it is unsurprising that the US is becoming a favorite destination for foreign tax evaders.

Some say that over 90% of worldwide assets evading CRS are stashed away in the US.

What makes it even more attractive for the evaders is the fact that no foreign power has the same financial power the US has to punish participant banks and institutions if they do not comply.

There are some useful tools with which CRS nations can mete out ramifications for US participants.  One of those tools is known as a “John Doe Summons.”

A John Doe Summons

Is a US provision used to go after suspected tax evaders of unknown identity.  If a court approves these John Doe summonses, the banks are forced to comply by handing the names of the perpetrators over to the state. The US used John Doe summonses when they circumvented Swiss Banking Privacy Laws. It forced UBS to hand over 4,500 names to US authorities.

During April 2019 things suddenly changed when Finland requested the IRS to petition a Federal Court in North Carolina for permission to serve three US Banks with John Doe Summonses. The Finnish Revenue Service got wind of abnormal Finnish ATM use of payment cards issued by these US banks, linked to American accounts. They concluded these were accounts that belong to Finnish taxpayers who are hiding untaxed income in the US. The US Federal Court approved the request.

No doubt many of the other CRS nations are following this state of affairs with great interest.  Some say this could lead to the breakup of not only questionable bank accounts, but also of trusts and insurance policies which are frequently used to hide capital.

The road is not yet clear ahead. Accounts that are owned by entities rather than individuals will not be exposed by this maneuver. The banks served with John Doe summonses will nevertheless have to investigate properly and provide answers as to who stands behind account-holding shell companies.

In fact, under the due-diligence rules issued by Finance to curb money laundering and terrorism, banks are already required to know the identities of beneficial owners of these accounts.

It seems that tax dodgers who are banking in America should take note. Things are changing. 

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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