Closure of IT firms' accounts is a common problem related to the incomplete or incorrect economic substance of transactions. Improperly prepared documentation, the illegality of a transaction, or incoming funds without a justified purpose may raise suspicions on the part of the bank, followed by financial monitoring of the IT entity, an inspection, and penalties. Timely expert support from the international law firm Maira Consult will help IT companies learn how to avoid the risks of account blocking and conduct business without close scrutiny from the tax authorities.
When can an IT business's accounts be closed?
To avoid problems, it is important to know when an IT firm's accounts may be blocked. Difficulties may arise in the following cases:
Activities are carried out under codes that were not declared during registration.
Payments lack a detailed description of their purpose.
There are no primary documents that may be required during an inspection, such as contracts, certificates of completed work, or invoices.
Cooperation takes place with counterparties that have problems with the law, the tax authorities, or litigation.
Financial monitoring of the IT business has identified frequent transfers of money to an individual's card.
Taxes were paid late, or tax reports were not filed or were filed late.
There is no communication with bank representatives regarding responses to requests.
There are problems with KYC/AML compliance.
Information about ultimate beneficial owners is not updated in a timely manner.
There is cooperation with counterparties located in blacklisted jurisdictions.
One reason an IT company's accounts may be blocked is the initiation of company liquidation or the declaration of bankruptcy. In this case, the bank closes the account within 1-2 days after receiving the relevant official information from the legal entity.
If an IT company's accounts are blocked, the company becomes unable to pay employees' salaries, transfer taxes, settle accounts with partners and contractors, or pay office rent. This chain reaction may lead to missed project deadlines, reputational damage, the loss of clients and investors, and a high risk of bankruptcy.
Financial monitoring of the IT business and account blocking by the bank
Financial monitoring of the business sector is a mandatory requirement for any business activity and makes it possible to identify:
money laundering;
the illegal origin of funds;
shadow schemes and corruption;
tax evasion;
crimes involving money mules.
Confirming the legality of funds received from foreign counterparties not only allows firms to continue their commercial activities with confidence, but also helps enhance their standing among competitors.
According to statistical data, financial monitoring of IT companies is the main reason for the suspension of corporate bank account servicing in 80% of cases, and sometimes even for the bank's unilateral termination of the client service agreement.
IT account blocking: causes and ways to prevent the problem
In the digital technology sector, a bank account may be frozen due to a number of situations. Information on how to prevent them is provided in the table.
Factors | Preventive measures |
An unusual increase in turnover for a particular firm or the receipt of large sums of money | There must be a clear description of the economic substance of incoming funds. For this purpose, it is important to retain:
When making transfers, it is important to indicate both the description of the service and the invoice number in the payment purpose. If an increase in cash turnover is expected, it is advisable to notify the bank in advance. |
Fairly large sums withdrawn in cash | Rapidly cashing out funds credited to an account, either immediately or within the first few hours after they are credited, attracts the attention of regulatory authorities. Frequent transfers of money to the accounts of individual entrepreneurs also raise suspicions. |
Payments inconsistent with the declared activity codes | If the payment purpose refers to services that are not listed in the Register or are entirely unrelated to IT activities, such income may be considered fraudulent and may result in the IT firm's accounts being closed until the violation is clarified. |
As part of bank compliance procedures, the bank's compliance department may request documents for review. A response to a bank request must be submitted within 1-3 business days.
Ignoring correspondence may lead to frozen transactions, the suspension of incoming and outgoing transfers, account blocking, and the subsequent termination of the banking services agreement. A serious consequence may be the legal entity being placed on a blacklist, which would make it difficult to open an account with other banks.
What to do if an account is blocked due to financial monitoring
If a bank has blocked an IT company's account due to financial monitoring, the following steps should be taken:
Obtain information about the reason and the article of the law under which the IT company's accounts were blocked.
Submit a written request for the company to receive a repeated request listing the documents subject to review.
Gather a complete set of documents. Financial monitoring of IT firms usually reviews certificates of acceptance and transfer for services, bills and invoices, statements from payment systems, delivery notes, contracts with foreign trade partners, employment contracts with employees, and tax reports.
Submit a response to the request with the relevant documents, together with a description of the business and an economic justification of the transactions that caused the account to be frozen.
An important step in resolving the problem, if an IT firm's accounts have been blocked, is to engage Maira Consult's professional lawyers.
Payment consultations, a tool for preventing a bank account from being frozen
One effective way for an IT firm to prevent account blocking is to use professional payment consulting services. Reliable protection can be built through ongoing:
audits of foreign trade agreements;
checks of all partners and customers for litigation and legal problems;
monitoring the proper preparation of payment documents and invoices;
support for communication with bank control and financial monitoring authorities.
Consulting with specialists makes it possible to identify high-risk jurisdictions, deviations from the declared activity codes, and improper fund-flow schemes that could be construed as money laundering. By properly linking business transactions to the receipt of payments, the risk of IT business account closure is eliminated.
For any IT business, account blocking may occur during operations or cooperation with dubious or foreign counterparties. The sector requires continuous monitoring of transfer amounts, transaction support, and payment for services with the appropriate documentation. Understanding how IT companies can avoid the risks of account blocking, together with timely legal support from Maira Consult, will help minimize the risks of frozen transactions and disruption of banking services.
