In this article, I’ll review the due diligence requirements for an international bank in Puerto Rico. While this post looks at Puerto Rico in detail, the majority of these requirements also apply to all quality offshore jurisdictions. When negotiating an offshore banking license, you’ll succeed or fail based on the quality of the applicants and the business plan. Thus, the due diligence requirements for an international bank in Puerto Rico are a primary concern.
When applying for an offshore banking license, you can assume that everyone as a professionally prepared business plan, a solid financial model, and millions of dollars in capital ready to go. What will differentiate applications is the quality and experience of the people behind the bank. Thus, it is the due diligence package that will likely determine whether or not you’re approved for an offshore banking license.
For these reasons, I suggest each applicant must have some banking experience on his or her team. If you have five people on the application, at least two should be bankers. If one of those has compliance experience, that’s even better.
Note that I’m talking about the core team that will build out the offshore bank. The team that will take the offshore bank from the Permit to Organize to the Permit to Operate. Once the bank is up and operating, and you have your four employees in Puerto Rico, these people might stay on as directors or in some other capacity… or they might move to Puerto Rico and operate the bank.
Each and every person named in the business plan for the offshore bank must complete the due diligence requirements. That means that all investors, shareholders, officers, directors, and key persons must submit the due diligence package and go through a background check.
Once the international bank is up and running, and all licenses are approved, new shareholders that purchase 10% or more of the shares must go through the same due diligence process and be approved by regulators. So, if someone were to purchase 9% of the bank, they do not need to go through the process. If they increase their share to 11%, they need approval from regulators.
To reiterate, everyone named in the business plan must be approved by regulators. After you have your license, only those holding more than 10% of the shares need to be approved.
A family unit, such as a husband and wife, are counted as one person. So, if they each buy 9%, they hold 18% together and must go through the due diligence process. The same is true for shares held in a trust or corporation… we look through the entity to the ultimate beneficial owners.
The three primary components of the due diligence requirements for an international bank in Puerto Rico are:
1. Completed Personal History Form,
2. Audited or Revised Personal Financial Statements, and
3. Third-Party Background Check.
The personal history form will ask for things such as your date and place of birth, nationality, passport information, etc. You will also need to provide your last few home and business addresses, as well as past and present employment.
Next, the personal history form will go through your education, training, certifications, and previous 10 years of work experience. It specifically asks you to list any particular training related to the banking business and/or securities, investment, finance, and BSA/AML. As stated above, your startup team should have someone with banking experience and someone with compliance (BSA/AML) experience.
The personal history form for an offshore bank in Puerto Rico ends with a request for three references and a certification that you have no criminal history. No one with a criminal history will be approved for a banking license in Puerto Rico or any other quality jurisdiction.
The next component of the due diligence requirements for an international bank in Puerto Rico is the personal financial statements of everyone named in the business plan. Each will be required to provide three years of financial data revised or audited by a CPA. The purpose is two-fold: 1) to ensure that only solvent and fiscally responsible persons are involved in the offshore bank license application, and 2) to prove the source of funds that will start the International Financial Entity in Puerto Rico.
The financial statements of the investors must demonstrate their ability to properly capitalize the bank and to reach profitability. Minimum capital will begin at $550,000 and you should have a plan to reach $2.5 million and $5 million in the first few years of operation.
Note that the personal financial statements required in the due diligence requirements for an international bank in Puerto Rico must be audited or revised by a CPA. It is not sufficient that these statements are “compiled” by a CPA. Also, when the International Financial Entity applies for a FedWire account, audited statements will be required (revised statements are not sufficient for the Fed). Thus, you might go with audited statements in the Permit to Organize stage.
Finally, you must provide a third-party background check from one of the following companies:
Berkely Research Group, Spectrum Gaming Group, Researc Associates, Inc., or Pre-Check. These reports must be sent directly to regulators by the firm that prepared it.
In most cases, the report will be prepared by Berkey Research Group. The cost for each report (each person named in your business plan) typically range from $7,500 to $12,500 depending on a number of factors. You will need to budget for these reports and note that they must be paid in full prior to the application being submitted to regulators.