You've just received a notice from your bank telling you that your business bank account has been frozen.
Your first instinct is to ask yourself what could have prompted the bank to freeze your account and what you can do now.
Reasons Why Your Bank Account has been Frozen
When a bank account is frozen, it puts the account's activities on hold, preventing the owner from accessing the money inside the frozen bank account until the situation is resolved.
Banks routinely monitor accounts for suspicious activity to decrease fraud risks or to catch any illegal activity raising money for terrorist activities.
When this happens, your account is put under investigation, and your funds are frozen, so you are unable to withdraw them.
1. For Your Security
A security freeze on your bank account is designated for your protection.
If your bank suspects that your account was hacked (or that your company debit/credit card was stolen) because it notices abnormal transactions, it may temporarily freeze your account to keep the money 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 to verify your recent transactions and take you through their standard security checks to unfreeze your account.
2. For Suspicious Activity
Your bank freezes your account if it considers that your recent activity is suspicious.
These measures are taken to prevent money laundering and terrorism.
Hong Kong banking laws require banks to report certain suspicious activity to the Joint Financial Intelligence Unit (JFIU).
Most companies have nothing to do with terrorists or organized crime, but patterns of behavior or dollar amounts can be automatic red flags.
Since 2016, the number of reported suspicious transactions has been on the rise (with a peak in 2017, where the number increased by 70% compared to 2015). In 2022, we can see that this number of suspicious transactions has stabilized a bit.
Various banking activities can trigger a frozen account and investigation, including:
- Frequent cash transactions. Honest businesses still handle cash. Unfortunately, criminals prefer cash too.
- Incoming transactions from questionable sources or jurisdictions. If you're receiving money from a suspicious person or a business, your account may be frozen and put under investigation.
- A sudden increase in activity. If your usual pattern of incoming and outgoing payments suddenly goes up substantially, either in frequency or amount, the bank may grow suspicious.
Business bank account freezes linked to suspicious banking activity can be the trickiest to deal with.
Sometimes law enforcement obliges banks to place account freezes and open up investigations.
If there's an ongoing legal investigation, the bank may be under binding legal order, and customer service representatives may not know what's going on or legally may not tell you.
However, if the account is frozen based on just one problematic transaction or a recent pattern that got red-flagged by coincidence, you may be able to clear it by showing where the money came from and what it was for.
Go to your bank with proof that the transaction was legitimate, they may release the block on your account
3. For Account Inactivity
Banks get suspicious when business bank accounts do not show signs of activity or have any history of transactions.
After all, why would a company open a bank account and not use it?
Additionally, if the account's beneficial owner is not a Hong Kong permanent resident, it will raise the level of suspicion.
4. For Unpaid Debt
If you have unpaid debts, creditors can require the bank to freeze your account to get you to meet debt collection obligations.
Before proceeding with this action, they must first get authorization from the courts to have your bank account frozen. They do this by getting a court judgment for debt collection written against you.
This court judgment is then sent to the bank and is kept on file.
If this occurs, get the details of the creditor’s attorney as soon as possible and arrange a payment schedule for your unpaid debt collection to lift the freeze and avoid any further issues.
In some cases, debt collectors may be sent. If this happens, do not ignore debt collectors, or the bank levy will continue. Paying the debt collector will lead to an immediate release of your frozen account and the removal of the possible negative balance.
The Difference Between a Frozen, Suspended, or Closed Accounts
In response to stricter measures set by regulatory authorities to fight illegal financial activities, various methods to manage or control suspicious activities that arise from accounts are used.
When your account is not in a normal state, it can be:
In this case, the bank account is frozen entirely. It usually happens when the holder is suspected of engaging in illegal activities which lead to investigations.
The account holder will therefore need to prove their innocence to regain control of the account.
Restrictions can be set to limit or prevent an account holder from being able to withdraw money.
It may also impact the number of deposits that can be made into the account or the number of cheques you can issue. Banks hold the right to place restrictions on an account as they require.
A bank can choose to close an account and end cooperation with the account holder completely.
They 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.
Having your account frozen or closed is substantially different 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, look at this article to see which courses of action to take to get your business banking operations back on track!
Why Do Banks Freeze Business Accounts?
We've listed above the most common reasons business accounts are susceptible to freezes.
Sometimes, just a phone call suffices to regain control of your account.
But in other cases, you may be required to send paperwork or get a lawyer to clarify the situation before the bank unfreezes the account.
Unfortunately, there may be nothing you can do in some cases, and an alternative banking solution for your business must be found.
Can I Still Use My Business Bank Account When it's Frozen?
You can still receive incoming payments into frozen bank accounts, 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.
What to do When Your Account is Frozen for Suspicious Activity?
Before your bank account is frozen, you should receive notice.
Upon receiving this notification, you should immediately contact your bank to understand the course of action to unfreeze the account and to check that it was not a mistake.
Sometimes, your bank may tell you which specific transactions triggered the account freeze and will walk you through what documentation could help 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 solution to ensure that you are able to fulfill your company's operations whilst your account is frozen. You can contact us to learn more about the payment and foreign exchange services Statrys offers.
What are the reasons to why my bank account is frozen?
There are a few reasons, including for your own protection, due to suspicious activity, due to account inactivity, and for for unpaid debt.
What kind of banking activities can trigger an account to be frozen and investigated?
Why is my bank account frozen?