Why do Estonian banks close customer accounts and what to do to prevent this from happening?

A lot of Estonian companies the owners or managers of which are not from Estonia have found themselves in a situation when a bank the company have been with informs the customer that it wants to close the account.

What is the reason?

More often than not, banks do not give reasons for doing so. The non-violating company gets confused and is looking for explanations.

Banks usually close accounts due to “insufficient” connection of such confused companies with Estonia.

What connection with Estonia is considered “sufficient”? Who determines it? What does it mean?

This is not provided for in law, and therefore the responsible officer of the bank or the regulatory body determines at his/her own discretion how “tightly” the company is connected with Estonia and whether it is sufficient to allow the company to stay with the bank.

What characteristics can a bank consider?

When deciding whether to close an account or not, certain characteristics of the company, such as whether the Estonian company has an office in Estonia, whether the company has employees who receive salaries and whether the company has partners in Estonia, are taken into account.

These requirements for an ordinary company rather than a “fictitious” legal entity, showing no signs of presence in Estonia except for a bank account, are totally natural.

Therefore, if a company is real, it is less likely that it will get a notice from the bank of closure of its account.

However, it is not enough to be a “real” company. The bank examines what companies and countries the company conducts business with. If partner companies or customers who transfer or receive payments are located in high-risk countries, the bank is likely to close the account.

What are the ways to determine whether partners and customers are from high-risk countries?

First, you can ask the bank officer which countries are considered high-risk.
Second, there is a list of countries, the so-called “black list” for the European Union, which is constantly updated and, third, it can be identified indirectly by searching for open source information.

What can bank employees pay attention to?

Since the criteria for a “good” company are not clearly established, the bank can find fault with anything. Every so often, verifying bank officers check information about the owners of the company or the company management on the Internet. And, if any adverse information has been found, they use it to unfavorably assess the entire company. The same approach can be applied by the bank to partners of the company. If there is adverse information about a partner on the Internet, bank officers use this information, regardless of its nature or source, for a general unfavorable assessment of the company.

Of course, such a “creative” approach of the bank is not good for the company which, in addition to commercial and tax risks, bears others risks passed over from partners.

Therefore, in order not to expose the business to unnecessary risk, we recommend opening accounts with several banks in Estonia, if possible. Moreover, it is necessary to open an account with a bank outside of Estonia and with a payment system.

Maxwise OÜ will help open an account with banks in Switzerland and Turkey.