There is a huge risk to your business and your personal finances. Are you prepared? Think of how many electronic transactions you partake in for your business and personally. From online payments to vendors, to remote deposits, to ACH, to wires, and the list goes on. Each of these tasks is critical to your personal and business well being. One small business owner learned a tough lesson that had nothing to do with her, but her business was almost ruined. How can you protect yourself? There is one simple step you must take today for both your personal and business banking.
What happened? A pacifier company had all their accounts frozen by a major bank. Who would think a company that sells pacifiers could be a “national security risk”.
Nicki Radzely is a young mother and entrepreneur who was living her dream—raising a family and building a business out of a center-hall colonial in Montclair, N.J., that could have been lifted from the pages of a glossy magazine. Then, late on April 18, as she was driving her children to baseball practice, Radzely got an urgent message asking that she call her neighborhood JPMorgan Chase & Co. banker. The woman wanted to know if she had done any business with North Korea.
Radzely, whose startup, Doddle & Co., sells an upscale baby pacifier called the Pop, couldn’t help laughing. She assured the caller the answer was an unequivocal no. The mirth ended the next day when she discovered that her business ATM card wouldn’t work. A teller told her the account appeared to have been blocked. Radzely set up a second call with her JPMorgan Chase business banker, who said the bank had decided to end its relationship with Doddle. Radzely says she was told to come in and pick up a cashier’s check for roughly $150,000. Source: Bloomberg News
The bank never would give her an explanation of what happened. The Financial Crimes unit from the Treasury Department reiterated that banks could close accounts “at will”. Could your account to be closed or frozen?
Why could this happen to you? There is heightened alert with money laundering with several high-profile cases where banks inadvertently participated in money laundering. For example US Bank, the fifth largest bank was charged in a money laundering suit for failing to guard against illegal activity (source NY times). This is not unique to US bank this has also happened to Bnp Paribas (owner of bank of the west) and Chase where large fines were paid due to money laundering.
Because of the fines and lawsuits, many banks “shoot first ask later” on a suspect account. Don’t get me wrong, fighting money laundering is important for banks to assist on, but in the process many innocent account holders get caught up having done nothing wrong (like the case above).
With the increase in artificial intelligence and various algorithms, computers basically flag suspect accounts. For example, if you traditionally get wires for x amount but suddenly get a wire for significantly more or less your account could be flagged/blocked. Or in the case of the pacifier company above, she was wiring to a company that does testing overseas. This happens more frequently than you think. I have zero foreign transactions and yet had my account blocked before because I had a large wire come in from a real estate loan that paid off. A few transactions bounced even though I had ample cash in the account. I never did get an explanation.
What are the ramifications? When everything is running smoothly it is easy to take for granted how entwined technology is with your day to day business and personal finances especially bank technology. Everyday we send out checks electronically, use ACH, pay vendors, pay employees, etc… Without these services our business like many of yours is dead in the water. Electronic transactions are the lifeblood of a business now.
Treat the bank like any other technology partner. The bank is basically a technology partner similar other managed services like servers, e-mails, phones, etc… that is critical to the operation of your business. Like any technology partner, redundancy is key. For example, I hope anyone who has a computer or server has some form of data backup capability. You never know when a hard drive can get corrupted. Why wouldn’t you build this same redundancy into your banking relationships just like any other technology partner?
What is the easy step you should take today? Just like any other technology partner it is imperative to have redundancy built into your critical business functions. This redundancy should be built into both your personal and business model. Regarding banking, it is imperative that you set up totally separate accounts at a different bank than your primary bank. This should be done today since it could take 7-10 days to setup a new business account and get it up and running. If one of your banks has a hiccup at least you have another account to operate out of.
It is also important to get a bank account from another type of bank. For example, if your primary accounts are with a top five bank (like Well’s Fargo), then your secondary bank account should be with a mid-size or smaller bank (and vice versa) so that if there is a hiccup you have a higher probability of talking with an actual person than at a much larger bank to get issues resolved. You should fund this account so that is operational should you ever need to utilize this.
Setting up separate accounts is not solely for business owners. I recommend everyone have separate accounts. Personally, I have multiple accounts so that if one ever got compromised (due to hacking or other bank issues) I have access to cash and other electronic payment methods (for example to pay my mortgage or insurance).
Now is the time to act. Although it is a simple process to setup separate accounts it does take time to go through all the paperwork, have the account approved, setup online access, etc… It is imperative to do this now and fund the account as opposed to when you have an issue with your bank. My lending and servicing business couldn’t function without an account for 10 days, can yours?
Resources/Additional Reading
- https://www.bloomberg.com/news/articles/2018-04-30/she-sells-baby-pacifiers-why-is-her-bank-asking-about-north-korea
- https://www.steamboattoday.com/news/local-bank-informing-business-customers-about-new-government-rules/
I need your help!
Don’t worry, I’m not asking you to wire money to your long-lost cousin that is going to give you a million dollars if you just send them your bank account! I do need your help though, please like and share our articles it would be greatly appreciated.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).