You’ve just received a notice from your bank telling you that your business bank account has been frozen. Your first thought is to ask yourself what could have instigated this and what you can do now
When a bank freezes an account it does not just freeze a couple of transactions, it completely puts the account’s activities on hold. Preventing the owner of the account to access the money inside the account until the situation is resolved.
Banks routinely monitor accounts for suspicious activity to decrease the risks of money laundering or to catch out any illegal activity raising money for terrorist activities. When this happens, your account is usually put under investigation and your funds are frozen, so you are unable to withdraw them from the account.
The Difference Between a Frozen, Suspended or Closed Account
In response to stricter measures set by regulatory authorities to fight illegal financial activities, banks use various methods to manage or control suspicious activities that arise from bank accounts.
When your bank account is not in normal state, it can be:
- Frozen: in this case, banks can freeze the account entirely. It usually happens when the account holder is suspected of engaging in any illegal activities which lead to an investigation. The account holder will therefore need to prove their innocence to regain control of the account.
- Restricted: restrictions can be set to limit or prevent an account holder from being able to withdraw money from their account. It may also impact the number of deposits that can be made into the account or the amount of cheques you can issue. Banks hold the right to place restrictions on an account as they require.
- Closed: a bank can choose to close an account and end cooperation with the account holder completely. They will need to provide sufficient and relevant evidence to the Hong Kong Monetary Authority for approval before closing the account.
There are two different ways your bank could block your business bank account: by freezing it or by closing it. Before trying to understand what happened, make sure you know which situation you’re dealing with. The difference between having your account frozen or closed is quite substantial. As the solutions available to solve either problem vary greatly as well as the amount of time it can take to regain access to your business funds.
If your account was closed, take a look at this article to see which courses of action you can take to get your business banking operations back on track!
Why Do Banks Freeze Business Accounts?
We’ve listed below the most common reasons for your business account to be susceptible to being frozen by your bank. Sometimes just a phone call will suffice to regain control of your account.
But in other cases you may be required to send in paperwork or get a lawyer to clarify the situation for your bank before they consider unfreezing the account. In some cases unfortunately there may be nothing you can do and you will need to find an alternative banking solution for your business.
Reason #1 - For Your Security
A security freeze on your account is primarily designated for your protection. If your bank notices transactions that don’t fit your normal spending pattern, they may suspect that your account was hacked (or, if you have one, that your company debit/credit card was stolen) and therefore put a temporary freeze on your account to keep the money in your account safe.
Depending on who you bank with, you may get a notice by email, phone or post when it comes to a security freeze. The notice will contain instructions on the next steps you should take.
In some cases, your bank’s fraud department will call you to verify your recent transactions and take you through their standard security checks to unfreeze your account.
Reason #2 - For Suspicious Activity
Your bank can freeze your account if it considers that the recent activity taking place on your account is suspicious.
These measures are taken in a bid to prevent money laundering and terrorism. Hong Kong banking laws require banks to report certain types of suspicious activity to the Joint Financial Intelligence Unit’s (JFIU).
Most companies have nothing to do with terrorists or organized crime, but certain patterns of behavior or dollar amounts can be automatic red flags in the banking system.
In 2019, the number of reported suspicious transactions had more than double compared to 2012 (with a peak in 2017, where the number was almost quadrupled compared to 2012).
Various banking activities can trigger an account to be frozen and investigated, including:
- Frequent cash transactions. A lot of honest business still handles cash. Unfortunately, criminals prefer cash too.
- Incoming transactions from questionable sources or jurisdictions. If you’re receiving money from a person or a business that is deemed suspicious by your bank, your account may be frozen and put under investigation.
- A sudden increase in activity. If your normal pattern of incoming and outgoing payments goes up substantially all of a sudden, either in frequency or in amounts, the bank may grow suspicious of your account.
Business bank account freezes linked to suspicious banking activity can be the trickiest to deal with. Sometimes law enforcement obliges the bank to place a freeze on accounts and open up an investigation.
If there’s an ongoing legal investigation, the bank may be under a binding legal order and your customer service representative may not know what’s going on or it might be illegal for them to tell you.
However, if the account was frozen based on just one problematic transaction or a recent pattern that got red-flagged by coincidence, you may be able to clear it up by showing where the money came from and what it was for. Go to your bank with proof, if you can give evidence that the freeze was a mistake than they will likely release the block on your account.
Reason #3 - For Account Inactivity
Banks get suspicious when a business account does not show any sign of activity or have any history of transactions. After all, why would a company open a bank account and not use it? If on top of this, the beneficial owner of the account is not a Hong Kong permanent resident it will furthermore raise the level of suspicion the bank has towards the account in question.
Reason #4 – For Unpaid Debt
If you have unpaid debts, your creditors can require the bank to freeze your account to get you to meet your debt obligations. Before proceeding with this action, they must first get authorisation from the courts. They do this by getting a court judgment for debt written against you. This is then sent to the bank and is kept on file.
If this occurs, you should get the creditor’s attorney’s details as soon as possible and arrange a payment schedule to lift the freeze and avoid any further issues.
Can I Still Use My Business Bank Account When It’s Frozen?
You can still receive incoming payments into a frozen bank account, but withdrawals and outgoing transfers are not permitted.
In other words, whatever is deposited into the account during this time stays inside the account until the freeze on the account is lifted.
If you have pre-authorized payments scheduled from your account, they will not be performed by the bank until your account is unfrozen. Make additional payment arrangements to ensure that your business operations and reputation are impacted as little as possible by the account freeze enforced by your bank.
What To Do When Your Account Is Frozen for Suspicious Activity?
Before your account is frozen your bank should send you a notice. Upon receiving this notification you should contact your bank straight away to understand the course of action to unfreeze the account and to check that it was not done by mistake.
In some cases, your bank may tell you which specific transactions triggered the account freeze and will walk you through what documentation could help to unfreeze your account. Cooperating with your bank is usually the fastest and best way to solve the problem.
Typically when this happens, the bank will request that the company director meets with a bank representative (in person!) at one of the bank’s Hong Kong branches.
In addition to this, they will ask for the most up-to-date information on the account holder to be provided to the bank representative in order to apply to reactivate the account. The processing lead time varies from one bank to another.
If you are not based in Hong Kong, it is recommended that you verify with your bank what all the information and documents required for the reactivation process are. Should you make a mistake in the application to unfreeze your account you will be asked to come back and it will delay the reactivation process, wasting valuable time in being able to regain access to your company’s funds.
If your situation is more complicated than any of the scenarios we listed above, you may not be able to get a straight answer about the reason why your account was frozen or how to solve it.
In this case, you should explore opening a business account with an alternative banking solution to ensure that you are able to fulfill your company’s operations whilst your account is frozen.
Or contact us for a chat about how payment services like Statrys have helped hundreds of businesses go un-banked for their payment and FX needs.