Risks of a Nominee Director When Opening a Foreign Bank Account

What the Use of a Nominee Service When Incorporating a Company May Lead To

There is one instructive, almost fairy-tale-like story about how important it is not to give in to unreasonable requirements of banks and not to rely on blind luck.

Here is how it happened:

A client incorporated a company in a far-away kingdom, hired a nominee director, and went to a bank in a far-away state to open a company account. But the bank manager demanded: add as many people as you like to the signature card, but the director must be among them. No exceptions.

The client was told that this was very risky, and that trusting millions of dollars to a person you have never seen and will never find is unacceptable. Did the client listen to the consultant? If he had, you would now be reading about the twelfth sanctions package of the European Union.

A huge amount of money was injected into the company, the business “took off,” but one day the client went to the bank and — suddenly — the accounts were empty. The drama began: “how is this possible? this is all your fault!”. The lawyer would not have kept his head if not for a preserved letter with a warning.

The story does not say whether the client tried to find the nominee or not, but the outcome is the same: the money is gone, and the client is the one to blame. Very frustrating, but nothing can be done. The nominee could have hidden the stolen funds even on the Moon.

What Conclusions an Entrepreneur Should Draw

The moral of this story is not that the client is wrong and the lawyer is the smartest. There are also questions concerning the lawyer’s efforts in preventing the problem. The story is about the fact that some disadvantages outweigh all advantages, and one must find the strength to say “let us choose another option” rather than agreeing to an immediate, short-sighted solution.